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DE RUEHTA #2276/01 3241042
ZNR UUUUU ZZH
O 191042Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3867
INFO RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0220
RUEHKO/AMEMBASSY TOKYO 0930
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RUEKJCS/SECDEF WASHDC 0302
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RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 0925

UNCLAS SECTION 01 OF 03 ASTANA 002276 
 
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 FIRST VP IDENOV ON SWAPS WITH 
IRAN AND TRANS-CASPIAN AGREEMENT WITH SOCAR 
 
REF:  (A) ASTANA 2082 (B) ASTANA 2266 
 
ASTANA 00002276  001.2 OF 003 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On November 19, KazMunaiGas (KMG) First Vice 
President Maksat Idenov briefed the Ambassador on KMG's 
trans-Caspian oil transportation agreement with the State Oil 
Company of the Azerbaijan Republic (SOCAR), indicated that 
Kazakhstan has no plans to increase oil shipments to Iran in the 
near future, and said he was ready to sign a heads of agreement with 
ConocoPhillips to explore the oil-rich N Block offshore in the 
Caspian Sea.  END SUMMARY. 
 
GOOD NEWS FROM BAKU 
 
¶3.  (SBU) Idenov warmly welcomed the Ambassador to his office and 
noted that much has happened since Ambassador Mann's visit in 
October (reftel A).  In particular, Idenov pointed to the successful 
Kashagan negotiations and the trans-Caspian agreement with SOCAR as 
positive developments, both of which he expects to have a lasting 
impact on Kazakhstan's development.  Idenov confirmed that the 
November 14 agreement with SOCAR calls for the establishment of a 
50-50 joint venture to expand port and terminal facilities in Kuryk 
and Baku (reftel B).  He also said that the agreement allows either 
side to invite third parties to join the project, provided they 
commit to shipping a fixed amount of crude through the system. 
Idenov mentioned Conoco-Phillips, Total, Inpex, and ENI/Agip as 
potential partners, since they have upstream assets in Kazakhstan 
and are also shareholders in the Baku-Tbilisi-Ceyhan (BTC) pipeline 
consortium, but said that Shell and Exxon-Mobil may find themselves 
excluded from the Kazakhstan Caspian Transportation System (KCTS) 
since they chose not to invest in BTC.  (COMMENT:  It is odd that 
Idenov did not mention Chevron, which owns 50% of Kazakhstan's 
largest producing oil company, Tengizchevroil.  Furthermore, Chevron 
and Exxon-Mobil were reported to be in talks over the Eskene-Kuryk 
pipeline, an essential element of the KCTS.  END COMMENT.)  Idenov 
said that KMG can "quite easily" transport 400,000-450,000 barrels 
per day (bpd) by tanker, but shipping greater volumes will require a 
trans-Caspian pipeline. 
 
TRANS-CASPIAN OIL PIPELINE 
 
¶4.  (SBU) When asked whether Kazakhstan felt it had the legal 
authority to build a trans-Caspian pipeline on the basis of its 
bilateral agreement with Azerbaijan and in the absence of a 
comprehensive demarcation agreement among all five littoral Caspian 
states, Idenov declined to comment directly.  He said simply, "we 
would not want to offend our neighbors to the north."  However, 
Idenov slyly noted that Russia is developing, together with KMG, 
three offshore Caspian oil fields within Russia's territorial waters 
(Khvalynskoye, Tsentralnaya, and Korchagin) and has plans to build 
undersea pipelines to transport oil from these fields to onshore 
pipelines and processing facilities.  As soon as Russia does so, 
Idenov said, "we can go to Russia and say, 'You are building your 
undersea pipeline, now you cannot object if we build ours.'" 
 
NO PLANS TO INCREASE SHIPMENTS TO IRAN 
 
¶5.  (SBU) According to Idenov, Kazakhstan currently swaps "a very 
small amount" of crude with Iran -- about one million tons annually 
(or 20,000 bpd).  Idenov said Kazakhstan has no immediate plans to 
increase that amount and noted that Iran would have to build a new 
refinery in the north to process Kazakhstani crude, which is high in 
mercaptan content.  Idenov is skeptical about reports that Iran 
plans to build a pipeline from the northern port of Neka to the 
southern port of Jask, saying, "No one would build such a long, 
expensive pipeline without a commitment of oil -- and who would 
commit the oil?"  When reminded that Total insisted during the 
Kashagan negotiations on its right to ship its product anywhere, 
including Iran, Idenov dismissed the suggestion with a wave of the 
 
ASTANA 00002276  002.2 OF 003 
 
 
hand, "That's just a French thing.  They always make a lot of noise 
and never do anything."  In the long-term, Idenov did not rule out 
the possibility that Kazakhstan might ship greater volumes of oil to 
Iran, but he said their preference is to increase the capacity of 
the BTC and Baku-Supsa pipelines, as well as a pipeline that would 
ship oil east to China. 
 
PRE-CASPIAN GAS PIPELINE 
 
¶6.  (SBU) According to Idenov, the development of the Prikaspiskii 
gas pipeline (Caspian Littoral Pipeline) is still in its early 
stages.  (NOTE:  The Prikaspiskii pipeline would carry natural gas 
along the shore of the Caspian Sea from Turkmenistan through 
Kazakhstan to Russia.  Each country would build, operate, and own 
the pipeline on its territory.  Kazakhstan's segment of the pipeline 
would have a capacity of up to 20 billion cubic meters and would 
connect to the Central Asia-Center pipeline at Beineu.  END NOTE). 
Idenov said Gazprom is currently carrying out a feasibility study, 
but noted that no one has answered the following critical questions: 
 Where will the gas come from?  Who will invest in the project?  Who 
will implement and manage the project?  Idenov said it will take 
some time for Turkmenistan to develop its natural gas resources and 
will require opening up to foreign investment and shedding the 
closed, provincial mentality inculcated under former President 
Niyazov. 
 
FINANCIAL CRISIS WILL NOT IMPACT KMG INVESTMENTS 
 
¶7.  (SBU) Despite the global financial crisis and Kazakhstan's 
withdrawal of $10 billion from the National (Oil) Fund to finance 
various stabilization measures, KMG will have no difficulty meeting 
its cash calls, dividend obligations, interest payments, and 
investment plans, said Idenov.  He noted that KMG has increased its 
revenue from the Tengiz and Karachaganak fields and reminded the 
Ambassador that he was able to raise easily more than $3 billion 
earlier this year for KMG's exploration and production company. 
Idenov said he plans to raise additional funds on the international 
market at the end of 2009. 
 
KMG READY TO SIGN N BLOCK DEAL 
 
¶8.  (SBU) Although he was confident that KMG would weather the 
financial storm and move forward with its ambitious strategy, Idenov 
seemed frustrated that many of his plans were subject to government 
approval and personnel changes.  For example, KMG's Board of 
Directors yesterday approved a heads of agreement with 
ConocoPhillips and Mubadala to develop the N Block offshore in the 
Caspian Sea that would guarantee a 12% annual rate of return for the 
government.  Idenov said he was "ready now" to sign the deal, but 
still needed to get the approval of "Mr. Government," which he said 
was shorthand for the Council of Ministers, the Minister of Economy, 
the Minister of the Environment, and the Prime Minister.  Idenov 
confided that he would present the terms of this "excellent deal" to 
Prime Minister Masimov today and would warn him that if the 
government insisted on harsher terms or announced other cash calls, 
that could destroy the deal.  He said he expected the government 
"would probably agree" to the terms of the N Block deal by the end 
of the year, but he said he would recommend extending the deadline 
to January 2009. 
 
¶9.  (SBU) COMMENT.  Idenov was very frank and open during his first 
formal conversation with the Ambassador.  He answered the 
Ambassador's questions as directly and candidly as possible in 
fluent English, frequently smiling and gesturing to underscore a 
point.  We have no specific reason to doubt his claims that 
Kazakhstan has no firm plans to increase oil shipments to Iran, 
although we also understand Kazakhstan's desire to keep this option 
open.  We thus need to encourage continued Kazakhstani-Azerbaijani 
engagement to expedite implementation of the KMG-SOCAR agreement. 
END COMMENT. 
 
ASTANA 00002276  003.2 OF 003 
 
 
 
HOAGLAND