VZCZCXRO7329
OO RUEHAST RUEHBI RUEHCI RUEHLH RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHTA #1355/01 2100449
ZNR UUUUU ZZH
O 280449Z JUL 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2841
INFO RUCNCIS/CIS COLLECTIVE 0578
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS SECTION 01 OF 04 ASTANA 001355 
 
SENSITIVE 
SIPDIS 
 
H PLEASE PASS TO CODEL REID 
 
E.O. 12958: N/A 
TAGS: PREL OREP PGOV ECON OVIP OTRA KZ
 
SUBJECT: SCENESETTER FOR CODEL REID'S AUGUST 7-8 VISIT TO 
KAZAKHSTAN 
 
------- 
Summary 
------- 
 
¶1. (SBU) Your visit to Kazakhstan comes at a particularly opportune 
time.  With its recent selection as 2010 OSCE chairman and thriving 
energy sector, Kazakhstan is showing increasing confidence on the 
international stage.  The country is rightly proud of its 
achievements:  a booming economy, largely harmonious multi-ethnic 
society, and rapidly expanding national capital.  The country 
celebrated Astana's 10th anniversary as Kazakhstan's capital on July 
6 (which was also President Nazarbayev's 68th birthday) with gala 
festivities that were attended by Russian President Medvedev, 
Turkish President Gul, Jordan's King Abdullah and six other foreign 
heads of state. 
 
¶2. (SBU) Kazakhstan has proven to be a reliable security partner and 
a steady influence in a turbulent region.  The pace of democratic 
reform, however, has been slow, with political institutions, civil 
society, and the independent media still underdeveloped.  Our 
fundamental strategic objective is a secure, democratic, and 
prosperous Kazakhstan that embraces market competition and the rule 
of law; continues partnering with us on the global threats of 
terrorism, WMD proliferation, and narco-trafficking; and develops 
its energy resources in a manner that bolsters global energy 
security.  We would welcome your assistance in underlining to the 
Kazakhstani government the importance of: 
 
-- continuing Kazakhstan's strong support for Coalition efforts in 
Afghanistan 
 
-- following through on the democratic reform commitments Kazakhstan 
made when selected to be 2010 OSCE chairman 
 
--------------------------------------------- ----- 
Strong Growth, But Short- and Long-Term Challenges 
--------------------------------------------- ----- 
 
¶3. (SBU) Kazakhstan is the region's economic powerhouse, with an 
economy larger than that of all the other Central Asian states 
combined.  Economic growth averaged 9.2% a year during 2005-07, and 
the percentage of the population living below the subsistence level 
dropped from 28% in 2001 to under 10% at present.  The energy sector 
is the dominant earner, with oil exports accounting for roughly a 
third of GDP.  In the long term, Kazakhstan must focus on 
diversifying its economy, building up non-extractive industries, 
agriculture, and the service sector.  In the short term, Kazakhstan 
is facing duel challenges of rising inflation, propelled by soaring 
international prices on food and agricultural commodities, and 
reduced economic growth, a reflection of the domestic impact of the 
global financial crisis.  The government imposed a temporary ban on 
wheat exports in April to ensure adequate domestic supply and to 
keep prices down on bread.  As Kazakhstan produces much more wheat 
than it consumes, we anticipate the ban will be lifted by September, 
once the government has confirmed that the annual wheat harvest was 
successful. 
 
------------------------ 
An Emerging Energy Power 
------------------------ 
 
¶4. (SBU) Kazakhstan exported just over 60 million tons of crude oil 
in 2007 and is expected to be one of the world's top ten oil 
producers soon after 2015.  The country also has significant natural 
gas reserves, but for now gas exports are relatively limited, in 
part because gas is being reinjected to maximize crude output.  U.S. 
companies have significant ownership shares in each of Kazakhstan's 
three major oil and gas projects:  Tengiz, Kashagan, and 
Karachaganak.  Tengiz (with 50% Chevron and 25% ExxonMobil stakes) 
recently inaugurated a second generation expansion which will 
increase its crude production from 400,000 barrels per day to 
540,000 later this year.  Kashagan (with 16.7% ExxonMobil and 8.3% 
ConocoPhilips stakes) is the largest oil field discovery since 
Alaska's North Slope and perhaps the world's most technically 
complex oil development project.  In January, the Kazakhstani 
government and the Kashagan consortium's international partners 
agreed on revised terms for the Kashagan contract which resulted in 
a new operatorship model, financial compensation to Kazakhstan for 
several years of production delays and significant cost overruns, 
and an increased ownership stake and management role for 
Kazakhstan's state oil and gas company, KazMunaiGas (KMG). Kashagan 
is expected to commence production in 2013.  Karachaganak (with a 
20% Chevron stake) is one of the world's largest oil and gas 
condensate fields, producing 10.4 million tons of oil and 12 billion 
cubic meters of gas in 2007. 
 
¶5. (SBU) The Kazakhstanis recognize they do not have the capability 
 
ASTANA 00001355  002 OF 004 
 
 
to exploit their oil and gas resources on their own, especially 
given the complexity of Kazakhstan's oil and gas projects. 
Kazakhstan thus continues to welcome foreign investment in energy 
exploration and production, and both the Kazakhstani government and 
the international companies are committed to an enduring 
relationship.  That said, Kazakhstan has grown increasingly 
assertive in its energy sector in recent years, reexamining the 
terms of existing contracts, driving a harder bargain with 
prospective investors, and aggressively pursuing environmental and 
tax claims against international oil companies. 
 
¶6. (SBU) With major production increases on the horizon, Kazakhstan 
must develop additional transport routes to bring its oil and gas to 
market.  Our policy is to encourage Kazakhstan to seek diverse 
routes, which will ensure the country's independence from transport 
monopolists.  Currently, the bulk of Kazakhstan's crude oil is 
exported via Russia, including through the Transneft system and the 
independently-owned Caspian Pipeline Consortium (CPC) pipeline. 
Near-term crude production increases are likely to flow by rail 
through Russia, by tanker across the Caspian Sea to Baku, and 
through the CPC pipeline, should an agreement be reached with Russia 
on CPC expansion.  We believe that a trans-Caspian oil pipeline must 
be built to handle later production growth; however, Kazakhstan is 
reluctant to openly pursue this option in the absence of an 
agreement on delimitation of the Caspian Sea among the five Caspian 
littoral states. 
 
--------------------------- 
Democratic Development Lags 
--------------------------- 
 
¶7. (SBU) While the Kazakhstani government articulates a strategic 
vision of democracy, it has lagged on the implementation front. 
This in part reflects the political reality that President 
Nazarbayev remains extraordinarily popular, while the opposition is 
weak and fractured.  It also is a result of the government's 
resistance to competitive political processes.  In May 2007, 
significant amendments were adopted to Kazakhstan's constitution 
which were touted as strengthening parliament, but also removed 
terms limits on Nazarbayev.  In parliamentary elections held in 
August 2007, Nazarbayev's Nur Otan party officially received 88 
percent of the vote and took all the seats in parliament.  The OSCE 
election observation mission concluded that the elections did not 
meet OSCE standards. 
 
¶8. (SBU) When Kazakhstan was selected as 2010 OSCE chairman at the 
November 2007 OSCE Madrid ministerial meeting, Foreign Minister 
Tazhin publicly committed that his country would undertake several 
democratic reforms.  Specifically, he promised that by the end of 
2008, Kazakhstan would amend its election and media legislation 
taking into account the recommendations of the OSCE's Office of 
Democratic Institutions and Human Rights (ODIHR), as well as 
liberalize registration procedures for political parties and media 
outlets.  (Note:  Tazhin also promised that Kazakhstan would support 
the OSCE's "human dimension" and preserve ODIHR's mandate, including 
its critical role in election observation.  End Note.)  The 
government has thus far taken limited steps toward implementing its 
"Madrid commitments," including establishing working groups, with 
civil society and opposition participation, to discuss amendments to 
the election and media legislation.  In a June 29 address to the 
OSCE Parliamentary Assembly, President Nazarbayev publicly discussed 
the commitments for the first time.  Though much work remains, there 
is sufficient time for Kazakhstan to follow through by year's end -- 
and we have been repeatedly reassured by the government that it will 
do so.  We have made clear that reneging on the commitments would 
undermine Kazakhstan's effectiveness as future OSCE chair. 
 
----------------------------------------- 
Concerns on the Media and Religion Fronts 
----------------------------------------- 
 
¶9. (SBU) While Kazakhstan's diverse print media includes a plethora 
of newspapers sharply critical of the government and of President 
Nazarbayev personally, the broadcast media is almost exclusively in 
government hands and maintains a pro-government line, with little 
coverage of opposition parties.  The government apparently blocked 
several opposition websites in late 2007 for uploading recordings of 
embarrassing conversations between senior government officials 
(which were likely made by Nazarbayev's former son-in-law, Rakhat 
Aliyev, who was recently convicted in absentia of plotting a coup). 
Access has not been restored to all of these sites.  In April, the 
English- and Kazakh-language websites of Radio Free Europe/Radio 
Liberty (RFE/RL) became inaccessible to customers of state-owned 
Kazakhtelecom.  We raised the RFE/RL issue with senior officials. 
The government did not admit to actively blocking the RFE/RL 
websites, but they subsequently became accessible again in early 
June. 
 
ASTANA 00001355  003 OF 004 
 
 
 
¶10. (SBU) While Kazakhstan prides itself on its religious tolerance, 
religious groups not traditional to the country -- such as 
evangelical Protestants, Jehovah's Witnesses, Hare Krishnas, and 
Scientologists -- have faced difficulties.  There has recently been 
a significant increase in negative media coverage of 
"non-traditional" religions which appears to have been orchestrated 
in part by the government.  The Kazakhstani parliament is currently 
considering a package of amendments to the country's religion law 
which would assert greater government control over non-traditional 
groups.  While the latest draft text represents an improvement over 
the original version, it retains several problematic provisions, 
including ones that would create a distinction between large and 
small religious groups, limiting the rights of the latter.  At the 
urging of the U.S. and our OSCE partners, Kazakhstan submitted the 
legislation for review by ODIHR.  We want to ensure that Kazakhstan 
takes into account ODIHR's recommendations in the final version -- 
as senior Kazakhstani officials have promised us they will do. 
 
-------------------- 
Afghanistan and Iraq 
-------------------- 
 
¶11. (SBU) Kazakhstan is an important partner for Afghanistan's 
Operation Enduring Freedom (OEF).  To date, Kazakhstan has 
facilitated over 4000 cost-free overflights for U.S. military 
aircraft supporting OEF.  Kazakhstan is also providing Afghanistan 
with $2.88 million in assistance in 2008, which is being used for 
food and seed aid and to construct a hospital, school, and road. 
The Kazakhstanis are encouraging their private sector to seek out 
investment opportunities in Afghanistan, and have indicated that 
they want to make Afghanistan a focal point for their OSCE 
chairmanship.  In addition, Kazakhstan is the sole Central Asian 
country participating in Operation Iraqi Freedom (OIF).  Since 
August 2003, the Kazakhstanis have maintained a military engineering 
unit in Iraq which has disposed of over 4.5 million pieces of 
unexploded ordnance. 
 
---------------------------------------- 
U.S. Government Assistance to Kazakhstan 
---------------------------------------- 
 
¶12. (SBU) We are implementing a broad range of assistance programs 
in Kazakhstan to advance U.S. national interests and strengthen the 
U.S.-Kazakhstan strategic partnership.   Non-proliferation 
cooperation has been a hallmark of our bilateral relationship since 
Kazakhstan became independent and agreed to give up the nuclear 
arsenal it inherited from the USSR.  Our bilateral Nunn-Lugar 
Cooperative Threat Reduction (CTR) program has facilitated the 
dismantlement of Kazakhstan's intercontinental ballistic missile 
launchers, closure of test tunnels and boreholes at the former 
Soviet nuclear test site in Semipalatinsk, and elimination of an 
anthrax weapons production facility.  The Department of Defense and 
Department of Energy were allocated over $90 million in FY 2008 for 
ongoing programs in the nuclear field, including the effort to 
secure and store spent fuel from a closed plutonium production 
reactor in western Kazakhstan, and for a biological threat reduction 
program aimed at ensuring effective Kazakhstani control of dangerous 
pathogens.  On-going State Department non-proliferation programs 
focus on securing Kazakhstan's borders to prevent the spread of 
WMD-related materials. 
 
¶13. (U) USAID, with just under $13 million in Kazakhstan funding in 
FY 2008, is implementing programs in three areas: democracy, health, 
and economic development.  The democracy program includes activities 
to strengthen civil society and independent media and to enhance the 
dialogue between the government and the public on important policy 
issues.   Funding for health is aimed at promoting reform of the 
health care system, improving maternal and child health, and 
controlling tuberculosis and HIV.   The economic development 
program, which is essentially being phased out following FY 2009, 
receives co-financing from the Kazakhstani government.  It has 
focused, inter alia, on strengthening the government's 
economic-policymaking capabilities, promoting fiscal transparency, 
and fostering economic diversification and the development of small- 
and medium-sized enterprises. 
 
¶14. (SBU) Our military assistance aims to increase Kazakhstan's 
interoperability with U.S. and NATO forces, enhance Kazakhstan's 
participation in the Partnership for Peace, and increase 
Kazakhstan's capacity to serve in global peacekeeping operations. 
With $2.3 million in FMF and IMET funding plus a $10 million Section 
1206 allocation for FY 2008, we are providing boats and refurbished 
Huey-II helicopters for a Caspian Sea counter-terrorism rapid 
reaction force and are training Kazakhstani military personnel. 
Other U.S security assistance programs are enhancing Kazakhstan's 
effectiveness in combating drug trafficking, promoting law 
 
ASTANA 00001355  004 OF 004 
 
 
enforcement reform, and bolstering Kazakhstan's efforts to prevent 
trafficking in persons. 
 
¶15. (U) Approximately 200 Kazakhstanis -- including high school, 
undergraduate, and graduate students, as well as government 
officials and private sector leaders -- are being sent to the U.S. 
in 2008 on public diplomacy-funded exchange programs, such as the 
FLEX, Muskie, and International Visitors Leadership programs. 
(Note:  Overall, approximately 2000 Kazakhstanis are studying full 
time in the United States, including 700 funded by the Kazakhstani 
government's Bolashak scholar program.  In addition, almost 4000 
Kazakhstani students are participating this year in the private 
sector-sponsored Summer Work/Travel Program, which affords foreign 
students an opportunity to temporarily work in and travel throughout 
the U.S. during their summer vacations.  End Note.)  The first Peace 
Corps volunteers arrived in Kazakhstan in July 1993.  Our Peace 
Corps program currently averages 130 volunteers in country at any 
time, with two-thirds involved in educational activities and the 
remainder engaged in organizational and community development. 
 
ORDWAY