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OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV
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DE RUEHTA #2266/01 3231035
ZNR UUUUU ZZH
O 181035Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3855
INFO RUCNCIS/CIS COLLECTIVE 0818
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0217
RUEHKO/AMEMBASSY TOKYO 0927
RUEHIT/AMCONSUL ISTANBUL 0119
RUCNDT/USMISSION USUN NEW YORK 2052
RUEHNO/USMISSION USNATO 2385
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0382
RUEKJCS/SECDEF WASHDC 0299
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 0921

UNCLAS SECTION 01 OF 02 ASTANA 002266 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC, SCA/PPD, EUR/CARC 
STATE PLEASE PASS TO USTDA DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EPET EINV SOCI KPAO KZ
SUBJECT:  KAZAKHSTAN:  KAZMUNAIGAS AND SOCAR SIGN AGREEMENT ON 
TRANS-CASPIAN TRANSPORTATION SYSTEM 
 
ASTANA 00002266  001.2 OF 002 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On November 14, the state oil companies of 
Kazakhstan and Azerbaijan signed an agreement outlining the basic 
principles for implementation of a trans-Caspian oil transportation 
system.  The agreement defines the respective roles and 
responsibilities of KazMunaiGas (KMG) and the State Oil Company of 
the Azerbaijani Republic (SOCAR), creates a joint venture between 
SOCAR and KMG, and defines financing, pricing, access terms, and 
phases for the development of KCTS.  END SUMMARY. 
 
¶3.  (SBU) KCTS comprises an oil pipeline from Eskene to Kuryk, 
tanker shipments from Kuryk to Baku, and onward export to Western 
markets via the Baku-Tbilisi-Ceyhan pipeline and trans-Caucasian 
railway.  KMG President Kairgeldy Kabyldin said that KCTS will ship 
500,000 barrels of oil per day (bpd) perhaps as soon as 2012, with 
volumes eventually growing to 1.2 million bpd.  KMG and SOCAR have 
not yet determined where the double-hull, 60,000 deadweight-ton 
tankers envisioned for KCTS would come from or who would build or 
operate them.  The latest agreement follows months of ongoing 
negotiations and builds on a memorandum of understanding signed by 
presidents Nazarbayev and Aliyev on June 16, 2006. 
 
¶4.  (SBU) Kazakhstan's Minister of Energy and Mineral Resources, 
Sauat Mynbayev, said on November 14 in Baku, "We have high hopes for 
the trans-Caspian project, given Kazakhstan's annual increases in 
oil production, which are forecast to rise to 70 million tons 
(approximately 1.4 million barrels per day, mbpd) in 2008, of which 
63 million tons (1.25 mbpd) will be exported.  This agreement is the 
first practical step toward creation of a specific system for 
determining the terms of deliveries and tariffs."  Also in Baku, 
KMG's Kabyldin drew attention to the new joint venture and announced 
that it will begin work right away on a feasibility study, as well 
as related construction and infrastructure projects.  "Initial cost 
estimates for KCTS are approximately $3 billion," said Kabyldin.  He 
noted that major improvements to port infrastructure will be 
required and said that KMG would attract financing and investment by 
guaranteeing an unspecified volume of crude throughput. 
 
¶5.  (SBU) Fouad Khodzhayev, a manager with SOCAR's representative 
office in Astana, confirmed to us on November 17 that the new joint 
venture will begin operations later this year with a feasibility 
study, which will inform the joint venture's decisions on pricing 
and profits.  He admitted that the agreement signed on November 14 
is very general in nature but said it indicated continued progress 
between the two national oil companies toward a shared vision of 
trans-Caspian transportation. 
 
¶6.  (SBU) Although the Government of Kazakhstan did not sign the 
Declaration of the Baku Energy Summit on November 14, both Minister 
of Energy Mynbayev and KMG President Kabyldin were in Baku that day 
to negotiate the new trans-Caspian transportation agreement with 
SOCAR, which Minister Mynbayev signed  on behalf of the Government 
of Kazakhstan. 
 
¶7.  (SBU) COMMENT:  The November 14 agreement is a significant step 
forward in the development of KCTS and further commits the two 
governments and their respective national oil companies to 
agreements first signed in July 2006.  It is fully consistent with 
the government's "multi-vector" transportation policy and 
strengthens Kazakhstan's oil export options, particularly those that 
do not require the approval of the Government of Russia.  We see the 
latest agreement as a positive development that will eventually 
enable more Kazakhstani crude to get to more markets more quickly. 
Although the Government of Kazakhstan did not sign the Baku Energy 
Summit declaration -- perhaps to avoid openly offending Russia -- we 
consider their actions to speak louder than words, with both the 
Minister of Energy and the President of KMG visiting Baku to 
negotiate and sign this important agreement to move KCTS forward. 
 
ASTANA 00002266  002.2 OF 002 
 
 
END COMMENT. 
 
HOAGLAND