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UNCLAS SECTION 01 OF 05 ASTANA 002535 
 
SIPDIS 
 
STATE FOR SCA/CEN, T, ISN 
STATE PLEASE PASS TO USTDA FOR DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV KGIC KNNP EINV ENRG KZ
SUBJECT:  KAZAKHSTAN:  CIVIL NUCLEAR ENERGY SECTOR OVERVIEW 
 
REF:  (A) SECSTATE 127423 (B) 2006 ALMATY 2673 (C) ASTANA 2232 (D) 
ASTANA 2126 
 
ASTANA 00002535  001.2 OF 005 
 
 
¶1.  SUMMARY:  In response to reftel A, this report summarizes the 
structure, plans, projects, and players of Kazakhstan's civilian 
nuclear energy sector.  Kazakhstan has the world's second largest 
uranium reserves after Australia and is currently the world's third 
largest uranium producer after Canada and Australia.  Once the owner 
of the world's fourth largest nuclear arsenal, Kazakhstan 
voluntarily decommissioned its own weapons and continues excellent 
cooperation on cooperative threat reduction (CTR).  Facing a 
255-megawatt power deficit due to a poorly integrated power network, 
Kazakhstan wants to develop a domestic nuclear energy industry to 
help meet its power needs.  Kazakhstan's nuclear power industry 
comprises the Ministry of Energy and Mineral Resources (MEMR) which 
sets energy policy, the state-owned nuclear power company 
Kazatomprom, and the National Nuclear Center, which conducts 
research and development.  END SUMMARY. 
 
PLANS TO DEVELOP NUCLEAR POWER IN KAZAKHSTAN 
 
¶2.  Kazakhstan is currently the world's third largest uranium 
producer after Canada and Australia.  In response to reduced market 
demand due to the global economic crisis, on November 6, Kazatomprom 
lowered uranium production plans from 9,000 tons to 8,700 tons in 
2008, and from 12,000 tons to 11,000 tons in 2009.  Kazakhstan 
produced 6,637 tons of uranium in 2007.  On December 15, Energy 
Officer met with Yevgheniy Ryaskov, Acting Director of the 
Department for Nuclear Industry and Atomic Energy at the Ministry of 
Energy and Mineral Resources (MEMR).  He said that Kazakhstan 
currently exports all of the uranium it produces.  However, from 
1973 to 1998, the BN-350 plutonium breeder reactor owned by 
Kazatomprom generated approximately 1% of all electrical power in 
Kazakhstan.  On April 22, 1999, the Government of Kazakhstan decided 
to shut down and decommission the BN-350 reactor.  By the end of 
2008, Russia's Afrikantov Research and Development Bureau plans to 
complete a feasibility study for the construction of a nuclear power 
plant in the vicinity of the decommissioned BN-350 reactor in Aktau, 
which would be equipped with Russian-made VBER-300 reactors that 
have been used on board Russian nuclear submarines. 
 
KAZATOMPROM TO INCREASE PRODUCTION AND EXPORT OF URANIUM 
 
¶3.  As described in reftel C, Kazatomprom has ambitious plans to 
become a vertically integrated transnational corporation managing 
the full nuclear fuel cycle, including uranium mining, gas 
processing, isotopic enrichment, fuel pellet and fuel assembly 
production, and construction of nuclear power plants.  The Northern 
mining group has uranium reserves of 750,000 tons; the Western 
mining group has 180,000 tons of uranium reserves in its North and 
South Karamurun mines; the Eastern mining group has 140,000 tons of 
uranium reserves; and the Southern mining group owns 70,000 tons of 
uranium reserves. 
 
¶4.  The Ulba Metallurgical Plant processes waste materials 
containing uranium (scraps and ashes), including 27% U-235, supplied 
to the United States as uranium dioxide powder, and 5% U-235 fuel 
pellets, supplied to Russia.  On December 12, Ulba announced that 
Russia refused to place an order for fuel pellets from Kazakhstan as 
expected.  Kazatomprom president Mukhtar Dzhakishev was nonplussed, 
saying, "If we lose the Russian market, Ulba will obtain more orders 
from China and Japan." 
 
¶5.  Ulba is the world's largest processor of uranium products, the 
second largest processor of beryllium products, and the third 
largest processor of tantalum and niobium products.  In July, 
Kazatomprom abandoned earlier plans to participate in a tantalum 
mining project in Brazil due to the high asking price.  On December 
11, Ulba launched a tantalum powder shop.  The production of powder 
for tantalum condensers is considered a breakthrough project for 
KazAtomProm and will be carried out under a national program called 
"30 Corporate Leaders," which makes Ulba eligible for federal 
financial aid. 
 
NATIONAL NUCLEAR CENTER CONDUCTS RESEARCH AND DEVELOPMENT 
 
ASTANA 00002535  002.2 OF 005 
 
 
 
¶6.  Established in 1993, the National Nuclear Center has an 
extensive research and production infrastructure, including three 
pilot reactors, an isochronal cyclotron, a particle accelerator, and 
a range of facilities for conducting experiments.  The Center 
employs highly-qualified specialists in a number of affiliated 
institutes, such as the Nuclear Physics Institute in Almaty, 
Kurchatov, and Aksai; the Atomic Energy Institute in Kurchatov; the 
Geophysical Research Institute in Kurchatov, Borovoye, Almaty, 
Kaskelen, Aktobe, and Makanchi; the Institute of Radiation Safety 
and Environment; the Baikal production facility in Kurchatov; the 
State Research and Production Center for Blasting Operations in 
Almaty; among others.  In 2011, the National Nuclear Center plans to 
open a Center for Nuclear Medicine and Biophysics, which will be 
equipped to diagnose and treat cardiovascular and oncological 
diseases. 
 
KAZAKHSTAN'S MOTIVATIONS FOR PURSUING NUCLEAR POWER 
 
¶7.  On August 20, 2002, Kazakhstan adopted the Development Concept 
for the Uranium Industry and Atomic Energy from 2002 to 2030, which 
described the status of the atomic energy and uranium mining 
industry, described development trends, indicated future strategic 
priorities for the industry, and defined the official state policy 
for civil nuclear power.  According to the Concept, it is in 
Kazakhstan's strategic national interest to increase uranium 
production, construct new uranium mines, increase the percentage of 
energy demand met by nuclear power, and eliminate the import of 
electricity. 
 
¶8.  The Concept identifies the following motivations for developing 
a civil nuclear power program: 
 
-- Perennial power shortages in the south, expected to reach 1.9 to 
2.0 billion kilowatt hours a year by 2030, even if Kazakhstan builds 
a new 2,000-megawatt power plant; 
 
-- Kazakhstan's large deposits of uranium, which can be mined using 
a more environmentally-friendly in-situ leaching method; 
 
-- Dependence on inefficient and environmentally-harmful coal-fired 
power plants that supply 84% of Kazakhstan's electrical power; and 
 
-- An existing world-class nuclear training system. 
 
¶9.  In a December 15 meeting with Energy Officer, MEMR's Ryaskov 
stressed that Kazakhstan favors the development of nuclear energy 
over oil, gas, and coal as a future source of energy because its 
in-situ leaching uranium mining is much more environmentally 
friendly than the extraction of fossil fuels.  Moreover, the cost of 
electricity generated by nuclear power plants is lower than that of 
coal- or gas-fired plants, while the lifespan of a nuclear plant is 
60 years, compared to 25 for a coal-fired plant.  Finally, Ryaskov 
noted that Kazakhstan would generate more revenue if it exported the 
majority of its oil, gas, and coal reserves and leveraged its 
uranium resources to supply domestic power. 
 
GOVERNMENT ROLE IN THE CIVIL NUCLEAR SECTOR 
 
¶10.  On October 13, MEMR transferred its 100 percent ownership in 
Kazatomprom to the Samruk-Kazyna Sovereign Wealth Fund. 
Samruk-Kazyna will finance development and production projects if 
Kazatomprom itself does not have sufficient revenue.  As 
Kazatomprom's Dzhakishev said on November 6, "If, for example, we 
are unable to raise capital for a new ore mill, we may turn to 
Samruk-Kazyna and borrow $1.5 billion from the state fund to build 
the mill." 
 
¶11.  Kazatomprom's strong financial position, steady uranium 
production, and long-term contracts make Kazatomprom a low-risk and 
solvent borrower.  In July, Kazatomprom announced plans to raise a 
two-year, $300-million syndicated loan with the assistance of 
Citigroup.  On November 27, Japan's Nippon Export and Investment 
Insurance increased its coverage for Kazakhstan-Japan joint uranium 
production projects from $47.94 million to $114.37 million. 
 
ASTANA 00002535  003.2 OF 005 
 
 
 
KEY NUCLEAR DECISION MAKERS 
 
¶12.  Policy for Kazakhstan's nuclear power industry is set by a 
number of influential decision makers, including Minister of Energy 
and Mineral Resources Sauat Mynbayev, Kazatomprom president Mukhtar 
Dzhakishev, Kairat Kadyrzhanov, director of the National Nuclear 
Center, and Kairat Kelimbetov, chairman of the Samruk-Kazyna 
Sovereign Wealth Fund. 
 
¶13.  In addition, two offices in MEMR are directly involved in 
decisions regarding the nuclear power industry.  The Department for 
Nuclear Industry and Atomic Energy, currently supervised by Deputy 
Director Ryaskov, defines Kazakhstan's development strategy for the 
industry, while the Committee for Atomic Energy, chaired by Timur 
Zhantikin, issues licenses and carries out supervisory and 
monitoring functions. 
 
¶14.  The recent appointment of President Nazarbayev's close 
associates to senior management positions in Samruk-Kazyna and 
Kazatomprom indicate the strategic importance the political 
leadership attaches to the development of Kazakhstan's civil nuclear 
sector.  On October 13, the Government of Kazakhstan named 
Nazarbayev's son-in-law Timur Kulibayev Deputy Chairman of 
Samruk-Kazyna and recommended he also chair Kazatomprom's Board of 
Directors.  In addition, Nartay Dutbayev, a former advisor to the 
president and chairman of the National Security Committee (KNB), was 
appointed a vice president of Kazatomprom. 
 
GOVERNMENT TO CREATE NUCLEAR REGULATING AUTHORITY 
 
¶15.  On September 16, Prime Minister Karim Massimov announced a plan 
to establish the State Nuclear Industry Supervision Agency under the 
Ministry of Energy and Mineral Resources.  The new agency would have 
the authority to draft laws and regulations for the nuclear 
industry.  At the time, Energy Minister Mynbayev said that "the 
International Atomic Energy Agency has made it a formal requirement 
for all countries with a civil nuclear power sector to set up an 
independent nuclear energy committee or agency."  The National 
Nuclear Center offered to host the new regulatory agency, but it is 
likely that MEMR's Committee for Atomic Energy will be merged with 
the new agency instead. 
 
LEGAL FRAMEWORK FOR NUCLEAR POWER OPERATIONS 
 
¶16.  Kazakhstan's legal framework for nuclear power operations 
includes the Law on the Use of Atomic Energy; the Law on Export 
Controls for Arms, Military Technology, and Double-Use Products; the 
Decree on the Export and Import of Uranium and Uranium Products, 
Nuclear Fuel for Nuclear Power Plants, Special Equipment and 
Technologies and Dual-Purpose Materials; the Development Concept for 
the Uranium Industry and Atomic Energy Sector from 2002 to 2030, 
among others. 
 
¶17.  The Law on the Use of Atomic Energy empowers the Committee to 
develop rules and instructions to implement existing laws, issue 
nuclear-related licenses, monitor atomic energy use, conduct 
inspections, monitor radiation in Kazakhstan, inventory nuclear 
materials, and cooperate with relevant authorities from other 
countries and international organizations to ensure the safe use of 
atomic energy and the non-proliferation of nuclear arms and secure 
control of nuclear materials. 
 
¶18.  To ensure the efficient development of its nuclear power 
sector, in 2007, the National Nuclear Center developed a special 
national program currently under review by the Government of 
Kazakhstan.  The program focuses on legal and regulatory issues, 
environmental and radiation safety, fundamental and applied 
research, non-proliferation support, uranium and nuclear material 
production, electricity generation by nuclear power plants, and 
staff training.  According to Director General Kairat Kadyrzhanov, 
the most important element of this program is to enhance the legal 
framework, as Kazakhstan does not yet have any laws regulating the 
construction, organization, and operation of nuclear power plants. 
 
 
ASTANA 00002535  004.2 OF 005 
 
 
¶19.  When asked whether Kazakhstan is party to an international 
liability regime, MEMR's Ryaskov responded that Kazakhstan has been 
a member of the International Atomic Energy Agency (IAEA) since 
February 14, 1994.  According to Ryaskov, Kazakhstan signed an 
Agreement on the Application of Safeguards, under which all nuclear 
installations in Kazakhstan operate under IAEA supervision.  Ryaskov 
added that all nuclear activities are carried out in compliance with 
IAEA rules and standards.  On February 19, 2007, Kazakhstan also 
ratified the Additional Protocol to the Safeguards Agreement, which 
expands the IAEA's ability to verify the country's nuclear 
activities. 
 
KAZAKHSTAN'S NUCLEAR WORKFORCE 
 
¶20.  The personnel for the atomic industry are trained at the 
special nuclear power and chemical metallurgy departments of four 
public schools in the south and east of Kazakhstan such as the 
Al-Farabi Kazakh State University (Almaty), Kazakh State Technical 
University (Almaty), East-Kazakhstan State University 
(Ust-Kamenogorsk), and the Shakarim Semipalatinsk State University 
(Semei).  Kazakhstan also has quite a few technical universities, 
which train future engineers, technicians, and constructors. 
 
¶21.  According to Ryaskov, Kazakhstan's use of in-situ leaching 
methods means that its uranium production is not labor intensive. 
For example, he said that just 104 workers are used to develop the 
Karatau uranium field, whereas thousands would have been needed if 
they used an open mining approach.  Highly qualified nuclear 
scientists and workers are employed at the BN-350 plutonium breeder 
reactor site, the National Nuclear Center in Kurchatov, and other 
nuclear energy facilities.  Many of Kazakhstan's nuclear specialists 
received training at the Tomsk Technical Institute in Russia. 
 
¶22.  Ryaskov insists that Kazakhstan has enough highly-trained 
specialists to meet current obligations, "but to achieve our future 
goals, the trained workforce is not sufficient."  MEMR plans to meet 
future staffing needs by developing a special training program.  In 
addition, the National Nuclear University of Kazatomprom, 
established in 2004, organizes advanced training and continuous 
professional education of technical staff.  Kazatomprom subsidiary 
Geotechnology trains Kazatomprom employees on its in-situ leaching 
method as well as maintenance and radiological protection. 
 
CURRENT COOPERATION WITH U.S. COMPANIES 
 
¶23.  Kazatomprom has existing partnerships with the following U.S. 
companies:  Brush Wellman Inc., Exelon Corp., Freedom Alloys Inc., 
General Electric, and New York Nuclear Corporation.  In addition, 
Kazatomprom subsidiary Ulba Metallurgical Plant supplies uranium 
dioxide powder to the United States.  On October 18, 2007, 
Kazatomprom purchased 10% of Westinghouse Electric Company from 
Toshiba for $540 million.  In November 2007, Kazatomprom president 
Dzhakishev attended the Westinghouse shareholders meeting and 
announced that the company would supply fuel for Westinghouse 
nuclear reactors. 
 
¶24.  Kazatomprom uranium production is somewhat constrained by a 
deficit of sulfuric acid for on-site uranium processing, which the 
company plans to address by using up to 400,000 tons of sulfur 
stored by the Tengiz oil production consortium Tengizchevroil (TCO), 
in which Chevron has a 50% share and ExxonMobil a 25% stake. 
Kazatomprom buys sulfur from TCO and processes it at the Stepnogorsk 
Chemical Plant. 
 
FUTURE OPPORTUNITIES FOR U.S. INDUSTRY 
 
¶25.  MEMR's Ryaskov was surprised that U.S. companies -- unlike 
companies from Japan, France, and Canada -- have not entered 
Kazakhstan's uranium mining market.  He hypothesized that U.S. 
companies are not interested in Kazakhstan's uranium fields since 
the United States has large uranium deposits of its own.  According 
to Ryaskov, Kazakhstan does not anticipate conducting any 
nuclear-related tenders in the near future.  Nevertheless, post 
believes that Kazakhstan's nuclear institutions would welcome U.S. 
technology and expertise in existing projects. 
 
ASTANA 00002535  005.2 OF 005 
 
 
 
¶26.  Kazakhstan is interested in acquiring or building small and 
medium-size nuclear reactors such as Russia's VBER-300.  Ryaskov 
said that Kazatomprom considered acquiring AR-600 reactors from 
Westinghouse, but Westinghouse subsequently shifted to production of 
AR-1000 reactors, which do not fit Kazatomprom's needs.  Ryaskov 
believes that U.S. companies cannot realistically compete to build 
nuclear power plants in Kazakhstan, since Kazakhstan plans to build 
small- and medium-sized nuclear reactors, while U.S. companies can 
offer only high-capacity reactors. 
 
FOREIGN COMPETITORS 
 
¶27.  Reftel C describes in detail joint ventures between KazAtomProm 
and companies from Canada, France, Japan, China, Russia, and 
Ukraine.  In addition, 
 
-- In May, during the visit to Kazakhstan of South Korea's Prime 
Minister Han Seung Soo, Kazatomprom and Korea Hydro and Nuclear 
Power signed a long-term contract under which Kazatomprom will 
deliver 3,410 tons of uranium a year until 2017, which would 
represent 11% of South Korea's annual uranium consumption. 
 
-- On October 24, Energy Officer met with D.C. Manjunath, Political 
and Commercial Counselor at the Embassy of India to discuss press 
reports of India's interest in uranium from Kazakhstan.  Manjunath 
was unable to provide specific details on the timing, amount, or 
players in a possible transaction, but he did confirm India's 
increased interest in a deal with Kazakhstan and said that the 
signing of the U.S.-India Civil Nuclear Accord vastly expands 
India's options and possibilities.  He noted that India's Department 
of Atomic Energy would be the lead agent on any uranium purchase. 
He also acknowledged that both governments plan to arrange state 
visits in 2009. 
 
-- On November 27, the Government of Ukraine approved an agreement 
to join the International Uranium Enrichment Center.  The stake to 
be acquired by Ukraine will come from Russia's 90% share.  On 
November 26, the Afrikantov Research and Development Bureau pledged 
to complete by the end of 2008 a feasibility study for a nuclear 
power plant in Aktau to be equipped with Russian-made VBER-300 
reactors, which have a good record of operation onboard of Russian 
navy ships. 
 
-- On December 15, National Nuclear Center Director Kadyrzhanov 
announced that in 2009-2010, the Center would conduct a feasibility 
study together with Japanese scientists to build a 50-megawatt 
experimental nuclear reactor in Kurchatov and bring it to design 
capacity in 2011-2018. 
 
POLITICAL CONSIDERATIONS FOR NUCLEAR POWER COOPERATION 
 
¶28.  Kazakhstan is cautious in its choice of potential partners. 
For example, according to Ryaskov, since India did not have a waiver 
until recently from the Nuclear Suppliers Group, Kazakhstan did not 
consider India a potential customer, regardless of India's high 
demand for uranium.  After India obtained the relevant waiver, 
Kazakhstan acknowledged its willingness to supply uranium to India 
for all types of civilian nuclear reactors. 
 
¶29.  Kazakhstan plans to pursue nuclear power development in order 
to meet domestic power shortages, minimize environmental impact, and 
take advantage of its extensive uranium reserves, processing 
facilities, and nuclear expertise.  Kazakhstan does not anticipate 
any tenders for available uranium fields, but would welcome 
nuclear-related joint ventures with U.S. companies in exchange for 
their technology and expertise.  To meet its ambitious plans of 
becoming the world's largest uranium producer and operating a full 
fuel cycle, Kazakhstan will strengthen state supervision of 
nuclear-related operations. 
 
HOAGLAND