VZCZCXRO7666
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHTA #0578/01 0921309
ZNR UUUUU ZZH
O 021309Z APR 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5072
INFO RUCNCIS/CIS COLLECTIVE 1435
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0813
RUEHKO/AMEMBASSY TOKYO 1516
RUEHUL/AMEMBASSY SEOUL 0500
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 0998
RUEKJCS/SECDEF WASHDC 0911
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1377

UNCLAS SECTION 01 OF 03 ASTANA 000578 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EEB/ESCSTATE PLEASE PASS TO USTDA FOR 
DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EPET EINV IR KZ
SUBJECT:  KAZAKHSTAN:  MARINE TRANSPORTATION EXPERT ADVISES 
GOVERNMENT ON TRANS-CASPIAN PROJECT 
 
REF:  (A) ASTANA 0530 (B) ASTANA 0283 (C) ASTANA 0131 
 
ASTANA 00000578  001.2 OF 003 
 
 
¶1.  (SBU) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On April 1, Captain Kjell Landin, Marine Manager 
for Chevron Transport Corporation, briefed Energy Officer on the 
complexities of the proposed Kazakhstan Caspian Transportation 
System (KCTS).  He said that, from a technical and engineering point 
of view, the project is certainly feasible.  However, Landin 
highlighted a number of political issues that could complicate 
implementation.  Foremost among them in his opinion is the fact that 
the government of Kazakhstan does not have a single, authoritative 
champion who can appreciate the project's complexity and enforce 
discipline on a diverse group of stakeholders.  He said that 
KazMunaiGas (KMG), which has overall responsibility for managing 
KCTS, must act quickly to invest in education and human capacity, 
improve its understanding of port administration, and demonstrate 
overall leadership of the project.  He also said that Kazakhstan is 
exploring the option of building a second port at Kuryk that would 
not be covered by its MOU with Azerbaijan, from which crude from 
Kashagan and other fields could be shipped to Iran.  Landin was in 
Astana at the invitation of KazMunaiGas, for whom he is acting as an 
unofficial, unpaid advisor on maritime transportation.  END 
SUMMARY. 
 
AN ENGINEERING PROBLEM WITH A POLITICAL SOLUTION 
 
¶3.  (SBU) When asked to describe the complexity of the KCTS project, 
Landin acknowledged the various technical challenges (reftel B), but 
said, "These are just engineering problems.  We hire the engineers, 
we tell them what we want, and they build it.  We put a man on the 
moon.  We can certainly make this project work."  But, he said, the 
real difficulty is overcoming domestic political obstacles and 
ensuring alignment among the various Kazakhstani stakeholders, 
including KMG, the Ministry of Energy and Mineral Resources, the 
Customs Committee, the Ministry of Transportation, and national 
maritime shipping company KazMorTransFlot. 
 
¶4.  (SBU) For example, according to Landin, KCTS will require 
significant changes to the ways and means of port administration in 
Kazakhstan, including port charges, documentation, staffing, and 
management.  Calling Kazakhstan's port charges "enormous," Landin 
said the high fees will make it much more difficult for KMG to 
convince the State Oil Company of the Republic of Azerbaijan (SOCAR) 
to eliminate its port fees in Baku for Kazakhstani oil arriving via 
tanker from Aktau or Kuryk. 
 
KMG MUST IMPROVE UNDERSTANDING OF PORT ADMINISTRATION 
 
¶5.  (SBU) Landin observed that some stakeholders will not favor 
increased transparency and efficiency in port administration and 
said that it will take a determined political effort to implement 
these changes.  As a first step, Landin suggested that KMG must 
quickly improve its understanding of the details and nuances of port 
administration.  "(KMG head Kairgeldy) Kabyldin supports the 
trans-Caspian project," he said, "but he has no visibility into the 
line-item charges by the port authority, or what fees 
KazMorTransFlot is collecting, and how these costs may jeopardize 
the success of the project." 
 
GOVERNMENT "FRAGMENTED" 
 
¶6.  (SBU) Landin complained that there is "no firm, consistent 
policy" on these issues and said the government is "fragmented" by a 
multiplicity of institutions and interests.  For KCTS to work, he 
said, "Kazakhstan needs a single, high-level official or 
coordinating body to pull the government stakeholders together, tell 
them this is about increasing transparency and lowering costs, and 
enforce discipline across the government to carry it out."  Landin 
said it would take the authority of the Prime Minister to achieve 
such unity of purpose. 
 
ASTANA 00000578  002.2 OF 003 
 
 
 
"THERE ARE NO CAPTAINS IN KAZAKHSTAN" 
 
¶7.  (SBU) Landin also argued that the lack of trained captains and 
crews could prove devastating to the project.  Speaking 
passionately, he said he urged both the companies and the government 
to invest now in developing the human capacity and technical 
expertise required to operate large oil tankers in the Caspian Sea. 
"During the negotiations in February, I told them, 'You guys are not 
committed to this project at all.  You're missing the point.  You're 
arguing about ownership and assuming you've got trained crews. 
Where are the 400 people you need to operate a tanker?  Where are 
all the Kazakh captains you're talking about?  There isn't a single 
one today.'"  Landin added that it will take four years, and 
approximately $100 million, to build a large oil tanker for the 
Caspian, but eight to ten years to train a captain. 
 
OVERCOMING RUSSIAN OBJECTIONS TO KCTS 
 
¶8.  (SBU) Surprisingly, Landin did not seem overly concerned by the 
impressive logistical challenges facing the KCTS project.  For 
example, he suggested that Russian objections to the construction or 
transportation of large tankers could be overcome by involving a 
Russian shipyard in the construction, shipment, and assembly in the 
Caspian of the four 60,000 deadweight ton tankers required by KCTS. 
Landin said he believed the Russians would support the KCTS project 
if it is in their commercial interests to do so and if they are 
convinced that the project will go forward without them in any case. 
 He dismissed, however, the suggestion that the shipyard in 
Astrakhan could build or service the new vessels:  "Those guys are a 
bunch of crooks," he said.  "Even the Russians don't trust them." 
 
SMALL TANKER TENDER TO BE RE-BID 
 
¶9.  (SBU) Landin confided to Energy Officer that the government will 
rebid its recent tender for three smaller, 12,000 deadweight ton 
tankers, because it did not follow the new procurement procedures 
established by Samruk-Kazyna National Welfare Fund (reftel A).  He 
also suggested that the smaller tankers would be useful in the 
beginning of KCTS until the larger vessels can be phased in. 
 
PUTTING PRESSURE ON RUSSIA AND AZERBAIJAN 
 
¶10.  (SBU) When asked whether KCTS or expansion of the Caspian 
Pipeline Consortium (CPC) pipeline would come first, Landin said the 
two projects are interconnected.  "Of course, the CPC expansion 
project will be completed first," he said, "but it can only move 
forward if you also make incremental progress on KCTS."  He said 
that taking tangible steps to implement KCTS will convince the 
Russians to support CPC expansion in order to capture more crude 
shipments via Russian territory.  Alternatively, Landin said that 
progress on CPC expansion will convince the Azeris to support KCTS 
to ensure that some Kazakhstani crude transits Azerbaijan.  "By 
2016, Kazakhstan will have 90 million tons of oil sitting on its 
shores," he said.  "It is up to Azerbaijan to decide how much of 
that comes to Baku." 
 
KAZAKHSTAN EXPLORING OPTION TO SHIP TO IRAN 
 
¶11.  (SBU) Landin confirmed that the November 14, 2008, memorandum 
of understanding between KMG and SOCAR allows their KMG Trans-Caspiy 
joint venture -- which is charged with implementing KCTS -- to ship 
crude in "other directions," including Iran, but only with the 
mutual agreement of both parties.  Therefore, Landin said, 
Kazakhstan is exploring the option of building a second port at 
Kuryk that would not be covered by the MOU with Azerbaijan, from 
which crude from Kashagan and other fields could be shipped to 
Iran. 
 
SOMETHING FOR EVERYONE 
 
 
ASTANA 00000578  003.2 OF 003 
 
 
¶12.  (SBU) Despite the obvious technical and political challenges, 
Landin is optimistic that the KCTS project will ultimately succeed, 
because it has something of interest and value to everyone.  "If we 
can build a cost-efficient, reliable transportation system across 
the Caspian," he said, "that will be good for everybody."  Landin 
was in Astana for two days at the invitation of KMG to provide 
advice, counsel, and recommendations to KMG Trans-Caspiy.  He will 
next travel to Baku on April 6-7 to participate in meetings with 
SOCAR and KMG. 
 
HOAGLAND