VZCZCXRO1518
OO RUEHAST RUEHBI RUEHCI RUEHLH RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHTA #1767 2560706
ZNR UUUUU ZZH
O 120706Z SEP 08 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3294
INFO RUCNCIS/CIS COLLECTIVE 0635
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS ASTANA 001767 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET EINV PGOV KZ
SUBJECT:  KAZAKHSTAN - BAKER HUGHES SAYS BUSINESS IS GOOD AND ABOUT 
TO GET BETTER 
 
------- 
SUMMARY 
------- 
 
¶1. (SBU) Baker Hughes Country Director for Kazakhstan Don McKelvie 
and Houston-based Government Relations Director Jennifer Cutaia told 
the Ambassador on September 10 that their company's business in 
Kazakhstan is good and will likely get even better, once 
Tengizchevroil (TCO) completes construction and installation of new 
drilling rigs in about a year's time.  Baker Hughes intends to move 
its Kazakhstan headquarters to Aktau, is committed to local content, 
and has had some difficulties obtaining hazardous materials permits 
and work permits for expat staff, McKelvie and Cutaia explained. 
End Summary. 
 
------------------------------------ 
CHANGE IN DRILLING TACTICS AT TENGIZ 
------------------------------------ 
 
¶2. (SBU) Baker Hughes Country Director for Kazakhstan Don McKelvie 
and Houston-based Government Relations Director Jennifer Cutaia told 
the Ambassador on September 10 that their company's previous tax 
problems have all been resolved and a separate financial police 
investigation has concluded with no long-term implications for the 
company's work in Kazakhstan.  McKelvie said future business 
development opportunities in Kazakhstan are "enormous", particularly 
at Tengizchevroil (TCO), where Baker Hughes -- although not involved 
in current exploration and production activities -- recently 
responded to a tender for non-core and future generation development 
services.  McKelvie said that TCO is changing its drilling approach 
and will build onshore platforms and use extended, directional 
drilling technologies to lower costs and reduce its environmental 
footprint.  McKelvie indicated that due to the change in approach, 
TCO will not require new drilling services for another year. 
 
--------------------------------------- 
NEW DRILLING SERVICES FACILITY IN AKTAU 
--------------------------------------- 
 
¶3. (SBU) McKelvie told the Ambassador that Baker Hughes is building 
a new 25,000 square meter drilling and completion services facility 
in Aktau and will move its Kazakhstan headquarters there from Almaty 
once construction is complete.  Baker Hughes purchased the land for 
approximately $2 million and plans to invest approximately $30 
million to construct the facility. 
 
--------------------------- 
COMMITMENT TO LOCAL CONTENT 
--------------------------- 
 
¶4. (SBU) According to McKelvie and Cutaia, Baker Hughes has made a 
serious commitment to national content and local suppliers and is 
well within reach of its stated goal for Kazakhstanis to comprise 
90% of its staff.  McKelvie said that Baker Hughes offers up to 18 
months of formal training in Houston, Aberdeen, or Abu Dhabi for 
Kazakhstani petroleum engineers, which is followed by an intensive 
on-the-job training program.  He said that the company is satisfied 
with the performance of its local engineers, but admitted that Baker 
Hughes has had difficulty building local capacity among machine shop 
technicians.  (Note: As an oil services company, Baker Hughes is not 
subject to the national content requirements of oilfield production 
until it joins a production consortium.  Its high percentage of 
local national staff can therefore be a competitive advantage by 
making Baker Hughes an attractive partner for exploration and 
production companies.  End note). 
 
-------------------------------- 
SOME DIFFICULTY SECURING PERMITS 
-------------------------------- 
 
¶5. (SBU) McKelvie told the Ambassador that Baker Hughes continues to 
encounter difficulty securing permits for radioactive and explosive 
materials, as well as work permits for international staff, 
particularly those without a university degree who technically do 
not qualify for category three Kazakhstani work permits. The 
Ambassador expressed confidence that the work permit issue would 
resolve itself once Kazakhstan accedes to the World Trade 
Organization (WTO).  He reassured McKelvie and Cutaia that the 
Kazakhstani government is working diligently on WTO accession. 
 
ORDWAY