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DE RUEHTA #2391/01 3381325
ZNR UUUUU ZZH
O 031325Z DEC 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4024
INFO RUCNCIS/CIS COLLECTIVE 0885
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
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UNCLAS SECTION 01 OF 02 ASTANA 002391 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC 
STATE PLEASE PASS TO USTDA DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EIND ENRG ETRD BEXP BTIO KZ
SUBJECT:  GE REGIONAL CEO DISCUSSES TRADE AND INVESTMENT 
OPPORTUNITIES IN KAZAKHSTAN 
 
REF: ASTANA 2290 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On November 26, DCM and energyoff met Ron 
Pollett, President and CEO of General Electric (GE) Russia/CIS, who 
said that GE will break ground in 2009 on a locomotive production 
facility in Astana.  Konstantin Nazarov, GE country director for 
Kazakhstan, also attended the meeting.  Pollett reported that GE 
signed contracts valued at $2.5 billion with the government of 
Kazakhstan to produce 300 Evolution-series locomotives ($700 
million), provide service operations and maintenance for the 
locomotives ($1 billion), and supply advanced signaling technology 
($800 million).  In addition, GE has a separate agreement to 
refurbish and modernize Russian-made locomotives at a cost of $500 
million over 10 years.  GE is also exploring opportunities in 
natural gas transportation (for gas compressor stations), health 
care, and water treatment.  END SUMMARY. 
 
LOCOMOTIVES THE ENGINE OF GROWTH FOR GE 
 
¶3.  (SBU) Pollett informed DCM that locomotive sales and 
modernization work, coupled with multi-year service agreements, were 
GE's biggest business in Central Asia.  He said that GE will break 
ground in 2009 on its new locomotive production facility in Astana 
and expects the first Evolution-series locomotive made in Kazakhstan 
to roll off the assembly line in 2010.  GE will produce 300 
locomotives in Kazakhstan over a 15-20 year period at a total cost 
of $700 million, with an additional $1 billion for service and 
maintenance costs.  (NOTE:  The Evolution diesel locomotive is 
powered by the GEVO 12-cylinder engine, which delivers power 
equivalent to the older 16-cylinder engine, while consuming less 
fuel and producing fewer emissions.  END NOTE).  Pollett said GE 
would "love to export locomotives to Russia" and help Kazakhstan 
become more of a regional transit corridor, but he was skeptical the 
Russian government would allow a foreign competitor, even one 
sourced in Kazakhstan, to enter the Russian domestic market. 
 
¶4.  (SBU) In addition to the locomotive deal, GE signed a contract 
with Kazakhstan's national railway valued at $500 million over 10 
years to modernize or upgrade existing Russia-made locomotives.  He 
also said that GE signed a contract worth $800 million to provide 
Kazakhstan with an advanced navigation and signaling system that 
will enable satellite-controlled management of the locomotive 
fleet. 
 
NATURAL GAS PIPELINE CONTRACT 
 
¶5.  (SBU) GE is pursuing other business opportunities in Kazakhstan, 
most notably a multi-million deal to provide compressor stations for 
a natural gas pipeline from Uzbekistan through Kazakhstan to China. 
Pollett said that GE has already signed contracts with the 
governments of Uzbekistan and China to provide the compressors, but 
has not yet reached agreement with Kazakhstan.  Other business 
opportunities for GE include water treatment projects in Almaty and 
Astana and aircraft engine manufacturing.  (NOTE:  Pollett said GE 
convinced the government of Kazakhstan not to issue a contract to 
Rolls-Royce for new aircraft engines and he reported that the deal 
is "stuck" with the Ministry of Transportation.  END NOTE). 
 
KEY DECISIONS REST WITH SAMRUK-KAZYNA 
 
¶6.  (SBU) Pollett said that many decisions now rest with Kairat 
Kelimbetov, currently Chairman of the Samruk-Kazyna National Welfare 
Fund and formerly Head of the Presidential Administration and 
Minister of the Economy and Budget Planning.  Pollett mentioned that 
he met Kelimbetov the morning of November 26 to press for a quick 
decision on the gas compressor contract, but did not receive a firm 
commitment.  According to Pollett, Kelimbetov told him that major 
new projects have been delayed 6-12 months due to the ongoing 
financial crisis and the transition of people and power to 
Samruk-Kazyna.  For example, Pollett indicated that Sir Richard 
Evans, former Chairman of British Aerospace, BAE Systems, and 
Samruk, remains an independent director of Samruk-Kazyna, but is no 
longer in the inner circle of the company's top management.  Pollett 
 
ASTANA 00002391  002 OF 002 
 
 
also said the new leaders of Samruk-Kazyna -- in particular 
Kelimbetov, Deputy Chairmen Arman Dunaev and Timur Kulibayev, and 
Management Board Chairman Kanat Bozumbayev -- are working on a 
corporate strategy, but "are not sure themselves how it will play 
out."  He told DCM that GE previously provided training on holding 
company management issues to Samruk executives "and they loved it." 
GE will propose similar training to Samruk-Kazuna at its next 
executive committee meeting in Kazakhstan on December 9-10. 
 
CORRUPTION ALLEGATIONS IN HEALTH CARE SECTOR 
 
¶7.  (SBU) Turning to the health care industry, Pollett noted that GE 
Healthcare is a $17 billion business with expertise in imaging 
technology, medical diagnostics, and patient monitoring systems and 
is eager to enter the Central Asian market.  Unfortunately, 
according to Pollett, the health care sector in Kazakhstan is 
"extremely corrupt.  Everyone is in the pocket of Siemens," a German 
competitor.  For example, GE would like to establish a nation-wide 
prenatal care system in Kazakhstan, but cannot make any headway with 
the Ministry of Health.  The recent removal of the Minister 
following criticism by President Nazarbayev (reftel) has not helped 
to reassure foreign investors, Pollett observed. 
 
INVESTMENT CLIMATE "BETTER THAN RUSSIA" 
 
¶8.  (SBU) Commenting on the overall investment climate, Pollett 
said, "It's much easier doing business in Kazakhstan than in Russia. 
 There is less domestic competition and there is no negative 
reaction to us being an American company."  He did, however, 
complain about delays in obtaining work permits for foreign staff 
working in Kazakhstan.  For example, an American whom GE hired to 
manage the Astana locomotive plant recently waited nine months for a 
work permit.  Pollett, who is president of the American Chamber of 
Commerce in Russia, said GE would be willing to work with the AmCham 
in Kazakhstan to raise this and other investment climate issues with 
the government.  In Pollett's opinion, however, the Ministry of 
Labor and Social Protection will not change the procedures for 
issuing work permits "unless they get an order from the top." 
 
MILAS