VZCZCXRO1513
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHPOD RUEHPW RUEHROV RUEHSR
RUEHVK RUEHYG
DE RUEHTA #2166/01 3080958
ZNR UUUUU ZZH
O 030958Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3718
INFO RUCNCIS/CIS COLLECTIVE 0761
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0160
RUEHKO/AMEMBASSY TOKYO 0870
RUCNDT/USMISSION USUN NEW YORK 1994
RUEHNO/USMISSION USNATO 2328
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0323
RUEKJCS/SECDEF WASHDC 0240
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 0864

UNCLAS SECTION 01 OF 05 ASTANA 002166 
 
SENSITIVE 
SIPDIS 
 
H PLEASE PASS TO CODEL CORKER 
 
E.O. 12958: N/A 
TAGS: PREL PGOV PHUM ECON EPET OREP KDEM KZ
 
SUBJECT:  KAZAKHSTAN:  SCENESETTER FOR CODEL CORKER'S NOVEMBER 13-14 
VISIT TO ASTANA 
 
ASTANA 00002166  001.2 OF 005 
 
 
¶1. (SBU) SUMMARY:  Your visit to Kazakhstan will be most useful to 
reinforce the importance we place on the U.S.-Kazakhstan strategic 
partnership.  Both Secretary of State Rice and U.S. Ambassador to 
the United Nations Zalmay Khalilzad visited Astana in October.  With 
its 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: 
sustained economic growth, a largely harmonious multi-ethnic 
society, and a rapidly expanding national capital.  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 to be a 
partner 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 
recommend that you underline to your Kazakhstani interlocutors the 
importance of: 
 
-- continuing Kazakhstan's policy of diversifying energy export 
routes; 
 
-- enhancing Kazakhstan's support for Afghan stabilization and 
reconstruction; 
 
-- following through on the democratic reform commitments Kazakhstan 
made when selected as 2010 OSCE chairman.  END SUMMARY. 
 
REGIONAL ECONOMIC POWERHOUSE 
 
¶2. (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.  Economic growth 
has slowed as a result the global financial crisis, and will likely 
be in the 5% range for 2008.  While the country's economic success 
is partly due to its fortuitous natural resource deposits, astute 
macroeconomic policies and extensive economic reforms have also 
played important roles.  Kazakhstan has a modern banking system, 
well-endowed pension fund, and a sovereign wealth fund with over $27 
billion in assets -- which serves double duty as a prophylactic 
against Dutch disease and a cushion against hard economic times.  In 
October, the government announced that it would use up to $10 
billion from the sovereign wealth fund for a bailout plan to 
mitigate the domestic impact of the global financial crisis.  Over 
the long run, Kazakhstan must focus on diversifying its economy, 
building up non-extractive industries, agriculture, and the service 
sector.  Kazakhstan is a major wheat producer, with a goal of 
ranking consistently among the world's top five wheat exporters. 
 
AN EMERGING ENERGY POWER 
 
¶3. (SBU) U.S. and Kazakhstani strategic interests are largely in 
alignment regarding Kazakhstan's vast energy resources.  The 
Kazakhstanis agree with us that U.S. and other Western companies 
should continue playing a leading role in energy exploration and 
production in Kazakhstan.  They also recognize that diversifying 
energy transport routes is the best way for them to capture the 
maximum benefits of Kazakhstan's energy riches.  Kazakhstan exported 
just over 60 million tons (approximately 450 million barrels) of 
crude oil in 2007 and is expected to be one of the world's top ten 
oil producers soon after 2015.  While the country also has 
significant natural gas reserves (1.8 trillion cubic meters is a 
low-end estimate), gas exports are very limited for now, largely 
because gas is being reinjected to maximize crude production. 
 
¶4. (SBU) U.S. companies -- Chevron, ExxonMobil, and ConocoPhilips -- 
have significant ownership stake in Kazakhstan's three major 
 
ASTANA 00002166  002.2 OF 005 
 
 
hydrocarbon projects:  Kashagan, Tengiz, and Karachaganak. 
Kashagan, the largest oil field discovery since Alaska's North Slope 
and perhaps the world's most technically complex oil development 
project, has experienced tens of billion of dollars in cost overruns 
and is years behind schedule, with first oil now expected no earlier 
than 2013.  On October 31, the Kazakhstani government and the 
Kashagan consortium's international partners signed several 
agreements on revised terms for the Kashagan contract which will 
result in a new operatorship model, financial compensation to 
Kazakhstan for the cost overruns and production delays, and an 
increased ownership stake and management role for Kazakhstan's state 
oil and gas company, KazMunaiGas (KMG).  Tengiz is the world's 
deepest operating "super-giant" oil field, with the top of the 
reservoir at about 12,000 feet deep.  With a recent second 
generation expansion, crude production at Tengiz is increasing this 
year from 400,000 barrels per day to 540,000.  Karachaganak 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) With major production increases on the horizon, Kazakhstan 
must develop additional transport routes to bring its crude to 
market.  Currently, the bulk of Kazakhstan's oil is exported through 
Russia.  Near-term production increases are likely to be transported 
through Russia's Caspian Pipeline Consortium (CPC) pipeline, should 
an agreement be finalized on CPC expansion; by rail through Russia; 
and via the Kazakhstan-Caspian Transportation System (KCTS), which 
envisions moving crude to Kazakhstan's Caspian coast by pipeline, 
from where it will be sent by tanker to Baku.  Crude from KCTS would 
flow onward from Baku through Georgia, including through the 
Baku-Tbilisi-Ceyhan (BTC) pipeline, which the Kazakhstani government 
publicly recommitted to utilize following the Georgia conflict. 
Kazakhstan is expanding the capacity of a crude pipeline to China. 
Kazakhstan exports a limited amount of crude to Iran, though the 
Iranians have been lobbying hard for the Kazakhstanis to commit to 
sending much larger volumes in their direction in the future.  While 
a trans-Caspian oil pipeline from Kazakhstan to Azerbaijan would be 
a much cheaper long-term option than shipment by tanker, the 
Kazakhstanis maintain that an agreement on delimitation of the 
Caspian Sea among all five Caspian littoral states is a prerequisite 
-- politically, if not legally -- for moving forward on building 
one. 
 
¶6. (SBU) While Kazakhstan and the international oil companies appear 
committed to an enduring relationship, and the country continues to 
welcome foreign investment in energy exploration and production, the 
Kazakhstani government has grown increasingly assertive in the 
energy sector in recent years.  The Kazakhstanis are trying to 
capture a greater percentage of the profits from hydrocarbon 
projects through higher taxes, are driving a harder bargain on new 
projects, and are aggressively pursuing environmental and tax claims 
against international companies.  (NOTE:  For example, the Tengiz 
consortium is currently fighting a $300 million environmental fine 
for on-site storage of several million tons of sulfur.  The 
consortium maintains that it received all the proper permits for 
sulfur production, and that no permits are necessary -- or available 
-- for sulfur storage.  END NOTE.)   That all said, the country's 
senior leaders have offered public and private reassurances that 
sanctity of contracts will be respected for all existing projects. 
 
 
MULTI-VECTOR FOREIGN POLICY 
 
¶7. (SBU) President Nazarbayev carefully balances Kazakhstan's 
relations with Russia, China, the United States, and European Union. 
 In his view, this "multi-vector" foreign policy is the best way to 
bolster Kazakhstan's sovereignty and independence and enable it to 
resist excessive pressures coming from any one direction.   The 
United States, in fact, serves as a critical counterweight to 
Kazakhstan's powerful Russian and Chinese neighbors.  Social, 
cultural, and personal links help provide Russia with unmatched 
influence in Kazakhstan.  Kazakhstan's population is approximately 
 
ASTANA 00002166  003.2 OF 005 
 
 
one-third ethnic Russian, Russian remains the country's dominant 
language, and the vast majority of Kazakhstanis get their news from 
the Russian media.  Russian President Medvedev has already visited 
Kazakhstan three times since taking office in May.  Relations with 
China have strengthened as fears of Chinese encroachment have 
largely disappeared.  Kazakhstan has recently increased its focus 
with Europe, launching a "Road to Europe" program which envisions 
everything from greater cooperation with the Europeans in energy and 
technology to bringing Kazakhstani legislation in line with European 
norms. 
 
WALKING A FINE LINE ON GEORGIA 
 
¶8. (SBU) Kazakhstan continues to walk a fine line on the Georgia 
conflict.  On the one hand, Nazarbayev publicly endorsed the Russian 
view that the Georgians started the South Ossetian war -- and that 
Russia had a right to intervene to stop the bloodshed.  On the other 
hand, he reiterated Kazakhstan's support for the principal of 
territorial integrity.  In addition, Kazakhstan has given no 
indication that it will consider recognizing the independence of 
Abkhazia and South Ossetia.  Kazakhstan, in fact, is the largest 
foreign investor in Georgia, and Georgia remains a lynchpin in 
Kazakhstan's strategy to diversify its energy transport routes. 
 
PARTNER IN AFGHANISTAN AND IRAQ 
 
¶9. (SBU) Kazakhstan is an important partner in Afghanistan, and 
appears poised to do even more there.  Separate bilateral agreements 
allow U.S. military aircraft supporting Operation Enduring Freedom 
to transit Kazakhstani airspace cost-free and to make emergency 
landings in Kazakhstan when conditions do not permit landing at 
Kyrgyzstan's Manas Air Base.  The Kazakhstani government is 
providing almost $3 million in humanitarian assistance to 
Afghanistan in 2008 for food and seed aid to build a hospital, 
school, and road.  The government has also tried to promote private 
Kazakhstani investment in Afghanistan, though thus far without much 
success.  The Kazakhstanis have announced their intentions to make 
Afghanistan a focal point of their 2010 OSCE chairmanship. 
Kazakhstan was the sole Central Asian country that participated in 
Operation Iraqi Freedom (OIF).  In October, in full coordination 
with the Iraqi and U.S. governments, Kazakhstan withdrew from Iraq a 
military engineering unit which had disposed of over 4.5 million 
pieces of unexploded ordnance since 2003. 
 
DEMOCRATIC DEVELOPMENT LAGS 
 
¶10. (SBU) While the Kazakhstani government articulates a strategic 
vision of a democratic society, it has lagged on the implementation 
front.  The government is resistant to fully competitive political 
processes, and the situation is complicated by the fact that 
President Nazarbayev is extremely popular, while the opposition is 
weak, fractured, and comprised principally of former Nazarbayev 
loyalists.   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.  An OSCE election observation mission concluded 
that the elections did not meet OSCE standards. 
 
FOLLOW THROUGH NEEDED ON MADRID COMMITMENTS 
 
¶11. (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, that by the end of 2008, 
Kazakhstan would amend its election, political party, and media laws 
taking into account the OSCE's recommendations.  (NOTE:  Tazhin also 
promised that Kazakhstan would support the OSCE's "human dimension" 
and preserve the mandate of the OSCE's Office of Democratic 
Institutions and Human Rights (ODIHR), including its critical role 
 
ASTANA 00002166  004.2 OF 005 
 
 
in election observation.  END NOTE.)  The government has not yet 
presented the necessary legislation to parliament, but the 
Kazakhstani leadership has reassured us that this will happen very 
soon.  We have stressed that we expect timely follow on through the 
"Madrid commitments," explaining that this will further enhance 
President Nazarbayev's image as an international statesman. 
 
CONCERNS ON RELIGIOUS FREEDOM 
 
¶12. (SBU) While Kazakhstan prides itself on its religious tolerance, 
religious groups not traditional to the country -- such as some 
evangelical Protestants, Jehovah's Witnesses, and Hare Krishnas -- 
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.  We want to ensure that 
Kazakhstan takes into account ODIHR's recommendations in the final 
version -- as senior Kazakhstani officials have told us they will 
do. 
 
BROAD RANGE OF ASSISTANCE PROGRAMS 
 
¶13. (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.  Major ongoing programs include 
an effort to secure and store spent fuel from a closed plutonium 
production reactor in western Kazakhstan, and a biological threat 
reduction program aimed at ensuring effective Kazakhstani control of 
dangerous pathogens. 
 
¶14. (U) USAID, which is expected to receive approximately $12.5 
million in Kazakhstan funding for FY 2009, 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 largely being 
phased out after FY 2009, receives co-financing from the Kazakhstani 
government.  It has focused, in part, on strengthening the 
government's economic-policymaking capabilities, promoting fiscal 
transparency, and fostering economic diversification and the 
development of small- and medium-sized enterprises. 
 
¶15. (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 an estimated $2 million in FMF funding for FY 2009 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.  Other U.S security 
assistance programs are enhancing Kazakhstan's effectiveness in 
combating drug trafficking, promoting law enforcement reform, and 
bolstering Kazakhstan's efforts to prevent trafficking in persons. 
 
 
ASTANA 00002166  005.2 OF 005 
 
 
 
¶16. (U) Approximately 200 Kazakhstanis -- including high school, 
undergraduate, and graduate students, as well as government 
officials and private sector leaders -- will be sent to the United 
States during FY 2009 on public diplomacy-funded exchange programs, 
such as the Future Leaders Exchange (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 participate annually in the private sector-sponsored Summer 
Work/Travel Program, which affords foreign students an opportunity 
to temporarily work in and travel throughout the United States 
during their summer vacations.  END NOTE.)  The first Peace Corps 
volunteers arrived in Kazakhstan in July 1993.  Our Peace Corps 
program currently averages over 120 volunteers in country at any 
time, with two-thirds involved in educational activities and the 
remainder engaged in organizational and community development. 
 
HOAGLAND