VZCZCXRO9059
RR RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW
RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV
RUEHSR RUEHVK RUEHYG
DE RUEHTA #2345/01 3301058
ZNR UUUUU ZZH
R 251058Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 3951
INFO RUCNCIS/CIS COLLECTIVE 0852
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0251
RUEHKO/AMEMBASSY TOKYO 0961
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHDC 0334
RHEHNSC/NSC WASHDC 0419
RHEFAAA/DIA WASHDC
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 ASTANA 002345 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV ENRG KNNP TX KZ
SUBJECT: KAZAKHSTAN'S MAEC-KAZATOMPROM FACES FUNDING 
CHALLENGES AND POTENTIAL OWNERSHIP CHANGES 
 
REF: ASTANA 02086 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On November 5, DCM and poloff visited 
Mangystau Atomic Energy Complex (MAEC), a subsidiary of 
Kazatomprom, to attend the construction completion ceremony 
of the U.S.-funded Sodium Processing Facility on the 
territory of the BN-350 fast breeder reactor.  The BN-350 
facility was well-maintained and ready for spent fuel cask 
transport operations.  Morale among MAEC employees was high, 
but senior company officials admitted the company is 
operating under intense financial pressure due to high oil 
prices and that possible ownership changes could 
significantly affect MAEC,s structure.  Senior officials at 
MAEC and within the Akimat (regional administration) expect a 
nuclear power plant to be built on MAEC territory within the 
next few years.  END SUMMARY. 
 
FORMER CROWN JEWEL OF THE NUCLEAR EMPIRE SAFELY SHUT-DOWN 
 
¶3.  (SBU) The once top-secret BN-350 fast-breeder nuclear 
reactor provided electricity and heating for Aktau city and 
the surrounding region.  The BN-350 reactor also formerly 
operated a desalinization plant, critical for the desert 
Mangystau region, which has no potable water supplies.  After 
the Soviet Union,s collapse, MAEC rapidly lost prestige and 
influence.  U.S. scientists recall that 15 years ago the 
doors of the BN-350 facility were &hanging off the hinges.8 
 During a November 5 tour of reactor premises, however, DCM 
and poloff observed that plant facilities, which included an 
administrative complex featuring a large museum and a 
billboard of &employees of the year,8 were well-maintained. 
 MAEC security workers were using an electronic badge system 
to admit authorized employees through several checkpoints, 
and those working or visiting the reactor were garbed in 
protective gear before they were allowed to visit the cesium 
traps and spent fuel reservoir.  Embassy officials viewed the 
480 small fuel casks awaiting placement into 60 TUK-123 casks 
for the BN-350 spent fuel transport operation, funded jointly 
by the U.S. Department of Energy and the government of 
Kazakhstan.  The control room, which used to operate at the 
highest levels of security and maintain a four 
person-security shift, now has only one person on duty, in 
case of fire or emergency.  The control room contained old 
manual controls and rotary dial telephones, but MAEC 
officials pointed out the computer-monitoring system that was 
installed under the Nunn-Lugar program. 
 
WAITING FOR A GREEN LIGHT ON TRANSPORT OPERATIONS 
 
¶4.  (SBU) U.S. officials also toured the specialized crane 
and loading area designed for lifting the large spent fuel 
cement casks onto trains for transfer to long-term storage at 
Baikal-1.  According to Yuriy Shirobokov, MAEC,s Head of the 
BN-350 Decommissioning Department, the crane was completed 
ahead of schedule by a crew of 14 Chinese laborers who worked 
around the clock, and &everything at MAEC,s BN-350 site is 
prepared.  We are only waiting for authorization from 
headquarters.8 
 
MORALE REMAINS HIGH AT MAEC 
 
¶5.  (SBU) Morale among the 250 MAEC employees at BN-350 
seemed high, since many expect a nuclear power plant will be 
built onsite.  Many workers have been employed at BN-350 for 
15 to 30 years.  Alexander Kim, Deputy Director of the 
Kazakhstan Atomic Energy Commission, confirmed that during 
the inspection he completed on November 5-6, he found no 
safety violations, noting that workers at BN-350 were &very 
experienced professionals in nuclear security.8 
 
MAEC REMAINS UNDER INTENSE FINANCIAL PRESSURE 
 
 
ASTANA 00002345  002 OF 002 
 
 
¶6.  (SBU) After the decommissioning of the BN-350 nuclear 
reactor, MAEC,s generators and boilers were converted to run 
on oil instead of nuclear power.  However, Acting Deputy 
Director Andrey Kozelkov explained that MAEC, which remains 
the sole electrical and heating provider for the entire 
Mangystau and Atyrau regions, faces serious maintenance and 
funding challenges.  MAEC currently sells its excess power to 
neighboring oblasts.  Aktau,s electricity consumption is 
only 20% of what MAEC exports to Atyrau, for example, and 
demand for energy in both regions is rising.  Seventy to 
eighty percent of the company,s electricity costs are for 
purchasing imported oil, keeping profit margins narrow.  MAEC 
cannot freely increase prices because of the five-year 
moratorium on residential electricity price increases, 
declared in 2006, and an annual price-hike limit on 
commercial customers.  (NOTE:  This complaint rings true when 
compared with the experience of AES, the U.S. power company 
active in northern and eastern Kazakhstan (reftel).  END 
NOTE.)  Meanwhile, inflation is also rising rapidly and MAEC 
must continue to raise salaries to retain qualified staff. 
Despite support from local antimonopoly committee officials, 
MAEC faces financial constraints.  Kozelkov commented that if 
Kazakhstan could buy natural gas from Turkmenistan and sell 
electricity in exchange, both sides could realize tremendous 
profits, but money to construct the necessary electricity, 
gas and rail lines is lacking.  The company is considering 
laying off up to one-third of its 4,000 workers, if it can 
contract with an outside company to provide maintenance 
activities and automate services.  In Kozelkov,s view, a 
smaller, more efficient MAEC is likely to emerge if ownership 
of the company is transferred from Kazatomprom to 
KazMunaiGas, an idea currently under serious consideration. 
 
CONSTRUCTION OF A NUCLEAR POWER PLANT AT BN-350 LIKELY 
 
¶7.  (SBU) Kozelkov also informed DCM and poloff that he was 
&98 percent certain8 that a nuclear power plant would be 
built at BN-350.  Deputy Akim Nuragliyev also mentioned the 
idea as &almost certain,& attributing the plan to Vladimir 
Shkolnik, Minister of Trade and Industry, whom Nurgaliyev 
described as &a very charming person with a big following 
who has great authority and interest in the nuclear sector.8 
 (COMMENT:  Shkolnik worked at the BN-350 reactor for 
approximately 20 years, eventually becoming the plant,s 
Deputy Director before becoming Minister of Science and 
playing a key role in Kazakhstan,s counter-proliferation 
efforts, including decommissioning of the BN-350 nuclear 
reactor.  Shkolnik is an avid proponent of the advantages of 
nuclear power, and is likely to support Kazakhstan,s rumored 
plans to build four nuclear power plants.  Given Shkolnik,s 
connections to BN-350, it would not be surprising that he 
would be encouraging its selection as one of the four future 
nuclear power plant sites.  END COMMENT.)  Nuragliyev also 
stated that since Kazakhstan has the second largest uranium 
resources in the world and is determined to become the top 
uranium producer in the world, Kazakhstan should develop its 
nuclear resources for the safe production of energy. 
HOAGLAND