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UNCLAS SECTION 01 OF 02 ASTANA 000825 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS TO USTDA FOR DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EPET EINV KZ
SUBJECT:  KAZAKHSTAN:  PETROCHEMICAL PROPOSAL ATTRACTS INVESTORS 
 
REF:  (A) ASTANA 0538 (B) ASTANA 0678 
 
ASTANA 00000825  001.2 OF 002 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On April 29, Energy Officer met with Raushan 
Sarmurzina, Director of the Petrochemicals Department at the 
Ministry of Energy and Mineral Resources (MEMR), to discuss 
Kazakhstan's plans to develop a domestic petrochemical industry. 
Sarmurzina said that despite the economic crisis, the government is 
moving forward with plans to build a $5 billion petrochemical 
complex near Atyrau by 2014.  MEMR has already signed long-term 
contracts with Tengizchevroil (TCO) and the Kashagan consortium to 
supply the raw materials for production, and LyondellBasell 
Industries is expected to participate in the construction and 
management of the project.  The government is also courting 
investors from South Korea and Saudi Arabia.  When asked whether 
Chinese companies would participate in the project, Sarmurzina 
responded with a colorful, if xenophobic, tirade against the 
impending "Chinese invasion" and pleaded for Western companies to 
invest in Kazakhstan because they bring modern technology and 
operate according to high standards of health, safety, security, and 
environment, "unlike the Chinese."  END SUMMARY. 
 
"THE WHEELS ARE IN MOTION" 
 
¶3.  (SBU) Kazakhstan is committed to developing a large, 
multi-faceted petrochemical complex in Eskene, near Atyrau in 
western Kazakhstan, according to Sarmurzina.  "The wheels are 
already in motion," she said, noting that MEMR has already signed 
ten-year contracts with TCO and AgipKCO, Phase One operator of the 
Kashagan oil field, to supply raw materials such as methane, 
propane, and ethane to the plant.  TCO alone will supply 6-7 billion 
cubic meters of gas per year, according to press reports.  According 
to Shell Kazakhstan's country manager Campbell Keir, Shell Global 
Solutions completed a preliminary feasibility study for the 
construction of the Atyrau petrochemical complex.  Sarmurzina also 
said that MEMR hired the UK consulting firm Nexant to advise the 
government on structural design and infrastructure issues. 
Construction of the complex will be carried out by Kazakhstan 
Petrochemical Industries, a 50-50 joint venture of Sat and Company 
LLC -- which used to own and operate the Atyrau polypropylene plant 
and the Aktau plastics plant -- and KazMunaiGas Exploration and 
Production, a subsidiary of national oil company KazMunaiGas. 
Sarmurzina said the petrochemical complex is expected to be complete 
by 2014 at a cost of $5.4 billion. 
 
CAN KAZAKHSTAN COMPETE? 
 
¶4.  (SBU) Sarmurzina said the government has already set aside 10 
billion tenge (approximately $67 million) for the complex from the 
2009 budget, but will rely on foreign investment to carry out 
construction from 2010-2014.  The forecasted capacity of the complex 
is 400,000 tons of low and high density polyethylene, 400,000 tons 
of linear low density polyethylene, and 400,000 tons of 
polypropylene a year.  Sarmurzina said that up to 80 percent of 
production would be exported.  She added that Atyrau is an ideal 
location for the facility because it is close to the source of its 
main feedstock (i.e., methane from Tengiz and Kashagan) and Atyrau 
used to be a leader in the petrochemical industry, so there are many 
qualified specialists already living in the region.  (COMMENT: 
Bronek Dutkiewicz, an independent consultant who has worked at and 
designed petrochemical complexes throughout the world for more than 
fifty years, believes there is room in the marketplace for one very 
large petrochemical complex that would supply markets in Russia, 
Eurasia, and the Caucasus.  "Whoever builds it first will capture 
that market," he said.  END COMMENT). 
 
LYONDELLBASELL INTERESTED, BUT CAUTIOUS 
 
¶5.  (SBU) Sarmurzina confirmed that the government has an agreement 
with the international division of LyondellBasell, a leading 
petrochemical company, to develop the Atyrau plant.  "We're ready to 
start building tomorrow," said Sarmurzina, "but Lyondell is more 
 
ASTANA 00000825  002.2 OF 002 
 
 
cautious, because of the financial crisis."  (NOTE:  Per reftel A, 
on March 20, Bolat Akchulakov, Managing Director for Oil and Gas at 
Samruk-Kazyna, told Energy Officer that the Chapter 11 bankruptcy 
filing by LyondellBasell's U.S. affiliate will not affect the 
company's commitments to Kazakhstan.  Akchulakov said that 
LyondellBasell remains the government's primary partner in the 
Atyrau Petrochemical Plant project.  END NOTE.) 
 
¶6.  (SBU) On April 24, Dauren Yerdybai, Director of Kazakhstan 
Petrochemical Industries, said that LyondellBasell confirmed its 
interest in taking part in the project.  "LyondellBasell confirmed 
the importance of the project and said it has clearance from U.S. 
regulators and sufficient funds available to finance its share in 
the project," he said.  According to Yerdybai, even if the company 
does not officially join the project, the government will use 
LyondellBasell's license for the production of polyethylene and 
polypropylene, the supply of catalysts, and the maintenance and 
operation of the facilities. 
 
KOREAN AND SAUDI INVESTORS ALSO INTERESTED 
 
¶7.  (SBU) On April 30, a managing director of National Welfare Fund 
Samruk-Kazyna, Aidan Karibzhanov, said that South Korean financial 
institutions are ready to finance up to $1.5 billion for 
construction of the petrochemical complex.  "Several Korean 
financial institutions, including Eximbank of Korea, have expressed 
an interest in financing the project," he said.  Karibzhanov also 
said South Korea's LG Chemical and Saudi Arabia's SAPIC were 
interested in the project. 
 
SURPRISING RANT AGAINST THE CHINESE 
 
¶8.  (SBU) When asked if MEMR would cooperate -- or compete -- with 
petrochemical producers in China, MEMR's Sarmurzina launched into an 
unexpected, vitriolic attack on the Chinese.  "How many of them are 
there any way?," she asked rhetorically.  "Five billion?  Look out 
that window.  See all that open land?  They would settle all of 
Kazakhstan in a minute.  We could easily be taken over by them. 
They want to come to Kazakhstan, marry our pretty Kazakh girls, and 
settle here forever.  Soon we'll all be Chinese!  I wouldn't mind if 
the people they sent here were smart, but they send young country 
bumpkins who know nothing, have no idea how to do business, ignore 
safety precautions, and cause accidents.  If the Chinese come, it 
will be a whole different deal.  They will pay whatever it takes to 
secure our raw materials.  We have to be very careful when dealing 
with the Chinese.  Please," she pleaded, "send us Western companies 
who can bring modern technology and high standards for health, 
safety and the environment."  (NOTE:  On April 16, per reftel B, 
China agreed to provide $10 billion to Kazakhstan, including $5 
billion to KazMunaiGas and $5.0 billion to the Development Bank of 
Kazakhstan.  END NOTE). 
 
MILAS