VZCZCXYZ0005
RR RUEHWEB

DE RUEHTA #2349/01 3301417
ZNR UUUUU ZZH
R 251417Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 3957
INFO RUCNCIS/CIS COLLECTIVE 0856
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0255
RUEHKO/AMEMBASSY TOKYO 0965
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHDC 0338
RHEHNSC/NSC WASHDC 0423
RHEFAAA/DIA WASHDC
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS ASTANA 002349 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV EPET CH IR KZ
SUBJECT: MANGYSTAU - KAZAKHSTAN'S OTHER OIL CENTER 
 
REF: ASTANA 01865 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On November 6, DCM and poloff met with 
several oil companies to discuss the state of the energy 
industry in Kazakhstan,s Mangystau oblast.  Oil companies in 
Mangystau noted the region,s untapped potential, good 
infrastructure, a supportive local government, and 
well-qualified work force as reasons for their success. 
Companies also reiterated the need to develop the region,s 
environment and social services.  END SUMMARY. 
 
REGIONAL COMPARATIVE ADVANTAGES:  MODERN INFRASTRUCTURE AND 
SUPPORTIVE LOCAL GOVERNMENT 
 
¶3.  (SBU) On November 5, Poloff and DCM met with the General 
Director of Caspiy Meruerty Operating Company BV, a 50-person 
operating company and subsidiary of Shell and Oman Pearls. 
The company made a strategic decision to establish itself in 
Mangystau province, rather than Atyrau, where most Western 
companies are based.  Caspiy Meruerty,s General Director, 
Marcus Antonini, told DCM and poloff that the decision has 
worked out well for the company, due to its access to 
Mangystau,s relatively untapped reserves.  (NOTE:  Caspiy 
Meruerty struck oil last month on two test wells.  END NOTE.) 
 Caspiy officials also said that Mangystau has better 
infrastructure than Atyrau, in particular, better port 
facilities and a very accommodating local government. 
Antonini noted that &joint ventures are very important to 
the region, and the Akim (governor) is ambitious, and, in a 
good sense, nationalistic.8  Caspiy has had no problems 
getting work permits or other paperwork approved.  Antonini 
also stated that the capital city of Mangystau, Aktau, is 
also a more attractive city than Atyrau, an important factor 
in attracting foreign investment. 
 
¶4.  (SBU) FMC Technologies representative Tanat Ishangali 
echoed Antonini,s comments and said that the business 
climate in Mangystau is excellent.  FMC has two major 
customers in the oblast, Agip and Myers, and competes on 
quality, not price.  Ishangali, whose brother works in a 
Chinese firm, claims that FMC,s Chinese competitors 
manufacture oil pumping equipment that is five times less 
expensive, but made of soft metal and prone to leaks.  To 
meet local content requirements, FMC purchases parts from 
Kazakhstan, then makes the casing spool bodies at a factory 
in France and completes welding in Almaty.  Ishangali 
declared that FMC, which employs 51 people in Aktau, also has 
had no problems processing work permits in Mangystau. 
 
MANGYSTAU HAS PLENTY OF WELL-QUALIFIED WORKERS 
 
¶5.  (SBU) Caspiy Meruerty,s Antonini also said that the 
Mangystau region has plenty of well-qualified workers, noting 
that he has hired 40 people over the last year.  Many of 
Caspiy Meruerty,s new employees have previous experience in 
the oil service industry and oil well work, having worked at 
other international oil companies such as Schlumberger, 
Baker-Hughes and Agip.  Antonini commented that Shell has 
also noticed a trend of Kazakhstani citizens overseas 
returning to Kazakhstan to work, despite the fact that many 
will lose the tax-free status they enjoyed when employed 
outside their home country. 
 
REGION HAS POTENTIAL UNDER VARIOUS TRANSPORTATION SYSTEMS 
 
¶6.  (SBU) Antonini told poloff that there is huge growth 
potential in Mangystau, particularly in the four fields 
located 20 kilometers offshore.  Antonini reminded DCM and 
poloff that, as an operator, he is less concerned with 
transportation issues.  Whether oil is exported via the 
Kazakhstan Caspian Transportation System (KCTS) or the 
Caspian Pipeline Consortium (CPC) pipeline, Antonini sees 
significant growth opportunities.  In particular, Antonini 
noted that domestic refining capacity in Kazakhstan is 
limited and therefore Kazakhstan imports the majority of its 
refined products.  If Kazakhstan had increased refining 
capacity, this would present domestic business opportunities 
for a number of companies.  (COMMENT:  Kazakhstan has been 
considering how to address its under-investment in refining 
capacity, per reftel.  END COMMENT.)  In Antonini,s view, 
future cooperation with Iran remains difficult due to the 
political situation.  Nevertheless, Antonini said that Total 
has studied plans to build a pipeline from Kazakhstan to Iran 
and called this potentially &a brilliant investment8 that 
could have a big pay-off someday.  (COMMENT:  Poloff could 
not independently confirm this report, which goes beyond 
statements made by international oil companies operating in 
Kazakhstan.  END COMMENT.)  A pipeline south to India and 
Pakistan would be ideal, too, he said, if the situation in 
Afghanistan were secure enough to make it worthwhile. 
Antonini also commented that the most interesting aspect of 
the Kazakhstan International Oil and Gas Exhibition in Almaty 
this year was the lack of a Chinese presence, considering the 
joint project to build an oil pipeline from the Caspian Sea 
to China. 
 
ENVIRONMENTAL PROTECTION AND SOCIAL INFRASTRUCTURE NOT YET 
ADEQUATE 
 
¶7.  (SBU) As part of their Production Sharing Agreements, oil 
companies are required to invest in projects to develop the 
local social infrastructure, and investing in Astana or 
Almaty is forbidden.  Antonini notes that initially, Caspiy 
Meruerty invested primarily in small projects, such as public 
lavatories and playgrounds.  This year, however, several 
companies combined their investments to construct a 
kindergarten and a water pipeline to a nearby town.  Although 
Antonini stated that environmental restrictions, such as the 
zero discharge policy, are strict and discourage testing of 
wells, his company was able to work successfully within such 
environmental protection constraints.  Caspiy Meruerty used 
special equipment, including burners from Venezuela, to run 
an emission-free test.  Waste disposal and processing, and 
other quality-of-life issues, however, are critical to 
Mangystau,s future.  According to Antonini, the region could 
do more to clean up the beaches and develop its recreational 
potential.  Antonini also noted his concern that regional 
education and health-care systems have been placed too much 
&on the back burner.8  Antonini commented that from the 
very large number of border guards patrolling the Caspian 
Sea, illegal fishing is clearly a large problem, and he said 
the illegal nets create a hassle for off-shore oil companies 
such as Caspiy Meruerty. 
 
LOCAL PARTNERSHIPS ARE KEY 
 
¶8.  (SBU) Antonini told DCM and poloff that he believes that 
Caspiy Meruerty has succeeded because the company carefully 
studied every other foreign company in Kazakhstan to see what 
difficulties they encountered and tried to avoid these 
challenges.  Noting that many foreign enterprises were caught 
off guard by subsoil legislation changes, Antonini commented 
that companies have to be realistic and proactively engage 
government partners.  For instance, in its second round of 
tenders, Caspiy Meruerty leveraged the local government,s 
extensive experience to help select good candidates. 
Antonini remarked that he looks for long-term partnership 
with local Kazakhstani enterprises, particularly with 
companies that have decent equipment, sufficient capital, and 
a broad, flexible outlook.  (COMMENT:  Currently, Aktau is 
clearly number two behind Atyrau as a Caspian oil center. 
However, many of the offshore fields are equidistant between 
Aktau and Atyrau, and a number of Western companies feel that 
the local administration (oblast) in Atyrau has become 
difficult and greedy.  Aktau, on the other hand, seems more 
business-friendly and is certainly trying harder to welcome 
investment at this point.  END COMMENT.) 
HOAGLAND