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OO RUEHAG RUEHAST RUEHBC RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDE RUEHDF
RUEHDIR RUEHFL RUEHIK RUEHKUK RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ
RUEHNEH RUEHNP RUEHPOD RUEHPW RUEHROV RUEHSK RUEHSL RUEHSR RUEHTRO
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DE RUEHTA #1407/01 2300725
ZNR UUUUU ZZH
O 180725Z AUG 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6050
INFO RUCNCIS/CIS COLLECTIVE 1848
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1216
RUEHKO/AMEMBASSY TOKYO 1918
RUEHUL/AMEMBASSY SEOUL 0877
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RHEHNSC/NSC WASHDC 1403
RUEKJCS/SECDEF WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1802

UNCLAS SECTION 01 OF 05 ASTANA 001407 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EPET EINV KZ
SUBJECT:  KAZAKHSTAN:  SCENESETTER FOR SPECIAL ENVOY MORNINGSTAR 
 
REF:  (A) ASTANA 1400 
(B) ASTANA 1365 
(C) ASTANA 1187 
(D) ASTANA 1019 
(E) ASTANA 1035 
(F) ASTANA 1105 
 
ASTANA 00001407  001.2 OF 005 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  Embassy Astana warmly welcomes your August 26-28 
visit to Kazakhstan, which comes at a particularly opportune time. 
With its upcoming 2010 chairmanship of the Organization for Security 
and Cooperation in Europe (OSCE) and its thriving energy sector, 
Kazakhstan is showing increasing confidence on the international 
stage.  Kazakhstan has proven to be an increasingly reliable 
security partner and a steady influence in a potentially turbulent 
region.  The pace of democratic reform, however, has been slow, with 
political institutions, civil society, and the independent media 
still underdeveloped.  Our fundamental strategic objective is a 
secure, democratic, and prosperous Kazakhstan that embraces market 
competition and the rule of law; continues its partnership with us 
on the global threats of terrorism, weapons of mass destruction 
(WMD) proliferation, and narco-trafficking; and develops its energy 
resources in a manner that bolsters global energy security. 
 
¶3.  (SUMMARY, CONTINUED) Since your last visit to Astana on July 10, 
negotiations over the Kazakhstan Caspian Transportation System 
(KCTS) have stalled, KazMunaiGas (KMG) postponed the sale of 
MangistauMunaiGas to the China National Petroleum Corporation 
(CNPC), and the Antimonopoly Agency has pushed to raise the export 
customs duty on oil, gasoline, and diesel fuel.  Despite these 
developments, Kazakhstan continues to offer attractive investment 
opportunities, particularly for oil exploration and production. 
Your visit can help get the KCTS negotiations back on track and shed 
light on the government's plans and priorities regarding future 
energy transactions and transportation options.  END SUMMARY. 
 
ECONOMY:  AGGRESSIVE STEPS TO TACKLE ECONOMIC CRISIS 
 
¶4. (SBU) Kazakhstan is Central Asia's economic powerhouse, with a 
GDP larger than that of the region's other four countries combined. 
Economic growth averaged over nine percent per year during 2005-07, 
before dropping to three percent in 2008 with the onset of the 
global financial crisis.  The International Monetary Fund is 
predicting negative two percent growth for Kazakhstan in 2009, with 
an economic recovery poised to begin in 2010.  Astute macroeconomic 
policies and extensive economic reforms have played an important 
role in Kazakhstan's post-independence economic success.   The 
country is justifiably proud of its modern banking and financial 
system, a well-endowed pension fund, and a sovereign wealth fund 
with over $20 billion in assets.  The government has taken 
significant steps to tackle the domestic reverberations of the 
economic crisis, allocating around $20 billion to take equity stakes 
in private banks, prop up the construction and real estate sectors, 
and support small- and medium-sized enterprises and agriculture. 
 
¶5. (SBU) On a less promising note, the Kazakhstanis announced in 
June that they would suspend their bilateral negotiations to accede 
to the World Trade Organization (WTO) and would instead launch 
negotiations together with Russia and Belarus to enter the WTO 
jointly as a customs union.  We have informed Kazakhstan that there 
is no mechanism allowing a customs union to accede to the WTO 
without its member states doing so individually. 
 
¶6.  (SBU) The banking sector continues to struggle, as Kazakhstan's 
leading commercial banks have been unable to repay creditors and 
seek to restructure their debt.  On July 24, BTA Bank, the country's 
largest commercial bank in terms of deposits, declared a moratorium 
on interest payments, which follows the bank's decision in April to 
cease debt principal payments.  BTA's external debts are valued at 
$13 billion, of which the bank said it will repay $3 billion this 
 
ASTANA 00001407  002.2 OF 005 
 
 
year.  In 2008, BTA's net losses were $7.88 billion, and total 
obligations exceeded the value of its assets by $4.9 billion. 
Kazakhstani authorities continue to investigate former BTA Chairman 
Mukhtar Ablyazov and other former top managers of the bank.  On July 
14, the Prosecutor General's office charged 12 members of BTA's 
credit committee with embezzlement, and six were found guilty and 
sentenced to jail. 
 
AN EMERGING ENERGY POWER 
 
¶7. (SBU) Kazakhstan produced 70.7 million tons of oil in 2008 
(approximately 1.41 million barrels per day, or bpd), and is 
expected to become one of the world's top ten crude exporters soon 
after 2015.  From January - July, Kazakhstan increased production of 
oil and gas condensate by six percent, to 43.6 million tons, 
compared to the same period last year.  U.S. companies -- 
ExxonMobil, Chevron, and ConocoPhillips -- have significant 
ownership stakes in each of Kazakhstan's three major hydrocarbon 
projects:  Tengiz, Kashagan, and Karachaganak. 
 
¶8.  (SBU) While Kazakhstan has significant gas reserves (2.0 
trillion cubic meters is a low-end estimate), current gas exports 
are less than 10 billion cubic meters (bcm), in part because gas is 
being reinjected to maximize crude output, and in part because 
Gazprom, which has a monopoly on the gas market in the region, pays 
producers only a fraction of the going European price.  The 
country's 40 bcm gas pipeline to China will help to break that 
monopoly, although the majority of the gas that will be exported via 
this pipeline will come from Turkmenistan and Uzbekistan, not 
Kazakhstan.  The first line of the China gas pipeline was completed 
in July, and the first shipments are planned in November. 
Kazakhstani gas exports to China will be modest, 4-6 bcm annually. 
The government of Kazakhstan has made several public statements 
confirming that it has no objection to the Nabucco gas pipeline 
project, but the government has emphasized that Kazakhstan does not 
and will not produce enough gas to supply the pipeline. 
 
¶9. (SBU) In the next five years, Kazakhstan's largest oil and gas 
fields are poised to increase production dramatically: 
 
-- Tengizchevroil, with 50 percent Chevron and 25 percent 
ExxxonMobil ownership, increased output this year to 600,000 bpd, 
and its Future Growth Project will increase production to more than 
one million bpd. 
 
-- Kashagan -- the largest oilfield discovery since Alaska's North 
Slope, and among the world's most technically complex oil 
development projects -- is expected to come on-line around 2014, 
with production reaching one million bpd by 2020. 
 
-- The Karachaganak Petroleum Operating Company, in which Chevron 
owns 20 percent, contains more than 1.2 billion tons of oil and 
condensate, and 1.35 trillion cubic meters of gas.  This year, the 
consortium is expected to approve Phase III, which would increase 
oil production to 350,000 bpd, and gas to 38 bcm/year. 
 
-- On June 12, ConocoPhillips signed a contract to explore and 
develop the offshore N Block, estimated to contain 2.13 billion 
recoverable barrels of oil. 
 
-- China's CNPC owns and operates AktobeMunaiGas (130,000 bpd) and 
PetroKazakhstan (220,000 bpd), and once it completes the acquisition 
of 50 percent of MangistauMunaiGas (150,000 bpd), it will control 
approximately 20 percent of Kazakhstan's total oil production in 
¶2009. 
 
-- Russia's Rosneft continues to explore the offshore Kurmangazy 
field, where two appraisal wells have been unsuccessful. 
 
-- Other significant, but undeveloped, oil and gas reservoirs in the 
North Caspian include Pearls (lead operator Royal Dutch Shell), 
 
ASTANA 00001407  003.2 OF 005 
 
 
Satpayev (negotiations ongoing with India's Oil and Natural Gas 
Corporation), Zhambyl (negotiations ongoing with the Korean national 
oil company), and Abai (negotiations ongoing with Norway's 
Statoil). 
 
¶10. (SBU) With these significant oil production increases on the 
horizon, Kazakhstan must develop additional transport routes to 
bring its crude to market.  Our policy is to encourage Kazakhstan to 
seek diverse transport routes, which will ensure the country's 
independence from transport monopolists.  Currently, most of 
Kazakhstan's crude is exported via Russia, although some exports 
flow east to China, west across the Caspian through Azerbaijan, and 
south across the Caspian to Iran.  In July, for example, KMG 
announced the completion of the Atasu-Alashankou segment of the 
3,000 kilometer oil pipeline to China, which will initially carry 
200,000 bpd, with expansion capacity of 400,000 bpd. 
 
¶11. (SBU) We support the expansion of the Caspian Pipeline 
Consortium (CPC) pipeline, which is the only oil pipeline crossing 
Russian territory that is not entirely owned and controlled by the 
Russian government.  We also support implementation of KCTS, which 
envisions a "virtual pipeline" of tankers transporting up to one 
million barrels of crude per day from Kazakhstan's Caspian coast to 
Baku, from where it will flow onward to market through Georgia, 
including through the Baku-Tbilisi-Ceyhan (BTC) pipeline. 
Negotiations with international oil companies to build the onshore 
pipeline and offshore marine infrastructure for this $3 billion 
project have recently stalled, although the government has expressed 
an interest in resuming talks.  The U.S. Trade and Development 
Agency is considering providing technical assistance to expedite 
clearance of vessels at port, and ensure that Kazakhstan's maritime 
laws and regulations meet international standards.  While a 
trans-Caspian crude pipeline would likely be a cheaper long-term 
transport option, Kazakhstan is reluctant to openly pursue such a 
pipeline in the absence of an agreement on delimitation of the 
Caspian Sea among the five Caspian littoral states. 
 
DEMOCRACY:  SLOW GOING 
 
¶12. (SBU) While the Kazakhstani government articulates a strategic 
vision of democracy, it has lagged on the implementation front. 
President Nazarbayev's Nur Otan party officially received 88 percent 
of the vote and won all the parliamentary seats in August 2007 
elections which OSCE observers concluded did not meet OSCE 
standards.   The next parliamentary and presidential elections are 
scheduled for 2012. 
 
¶13. (SBU) When Kazakhstan was selected to be 2010 OSCE 
chairman-in-office at the November 2007 Madrid OSCE Ministerial 
meeting, Foreign Minister Tazhin promised  his government would 
amend Kazakhstan's election, political party, and media laws in 
accordance the recommendations of the OSCE and its Office of 
Democratic Institutions and Human Rights (ODIHR).  (NOTE:  Foreign 
Minister Tazhin also promised that as OSCE chairman, Kazakhstan 
would support the OSCE's Human Dimension and preserve ODIHR's 
mandate, including its critical role in election observation.  END 
NOTE.)  President Nazarbayev signed the amendments into law in 
February.  While key civil society leaders were disappointed that 
the new legislation did not go further, we considered it to be a 
step in the right direction and continue to urge the government to 
follow through with additional reforms. 
 
¶14.  (SBU) On August 8, in a closed session, Taraz city court found 
the editor and owner of "Alma-Ata Info," Ramazan Yesergepov, guilty 
of divulging classified documents and sentenced him to three years 
in prison.  Yesergepov's wife announced his intention to appeal the 
verdict, but no date for the appeal has been set.  Local and 
international civil society representatives and opposition activists 
have sharply criticized the ruling.  Local and international print 
media picked up the critical statements made by Reporters Without 
Borders, Freedom House, and the OSCE's Representative on Freedom of 
 
ASTANA 00001407  004.2 OF 005 
 
 
the Media.  We believe that the sentence against Yesergepov is 
incongruent with Kazakhstan's OSCE commitments on media freedom. 
The Ambassador has publicly urged the Kazakhstani authorities to 
apply international norms in resolving such issues, and has raised 
the Yesergepov case privately with senior government officials. 
 
¶15. (SBU) While the Kazakhstanis pride themselves on their religious 
tolerance, religious groups not traditional to Kazakhstan, such as 
evangelical Protestants, Jehovah's Witnesses, Hare Krishnas, and 
Scientologists, have faced difficulties with the authorities. 
Parliament passed legislation in late 2008 aimed at asserting more 
government control over these "non-traditional" religious groups. 
Following concerns raised by civil society and the international 
community, President Nazarbayev chose not to sign the legislation, 
but instead sent it for review to the Constitutional Council -- 
which ultimately declared it to be unconstitutional. 
 
¶16. (SBU) Though Kazakhstan's diverse print media include many 
newspapers sharply critical of the government and of President 
Nazarbayev personally, the broadcast media are essentially 
government-controlled.  On July 10, President Nazarbayev signed into 
law Internet legislation which will provide a legal basis for the 
government to shut down and block websites whose content allegedly 
violates the country's laws.  This appears to be a step in the wrong 
direction at a time when the Kazakhstan's record on democracy and 
human rights is in the spotlight because of its forthcoming OSCE 
chairmanship.  We have expressed our disappointment that the 
legislation was enacted, and have urged the government to implement 
it in a manner consistent with Kazakhstan's OSCE commitments on 
freedom of speech and freedom of the press. 
 
AFGHANISTAN:  POISED TO DO EVEN MORE 
 
¶17. (SBU) Kazakhstan has provided significant support to our 
stabilization and reconstruction efforts in Afghanistan, and in 
recent months, has expressed a willingness to do even more.  We 
signed a bilateral blanket over-flight agreement with Kazakhstan in 
2001 that allows U.S. military aircraft supporting Operation 
Enduring Freedom (OEF) to transit Kazakhstani airspace cost-free. 
This was followed in 2002 with a bilateral divert agreement that 
permits our military aircraft to make emergency landings in 
Kazakhstan when aircraft emergencies or weather conditions do not 
permit landing at Kyrgyzstan's Manas Air Base.  There have been over 
6500 over-flights 
and over 60 diverts since these agreements went into effect.  In 
January, Kazakhstan agreed to participate in the Northern 
Distribution Network -- which entails commercial shipment through 
Kazakhstani territory of non-lethal supplies for U.S. troops in 
Afghanistan.  Kazakhstan is working on sending several staff 
officers to the International Security Assistance Forces (ISAF) 
headquarters in Kabul and is considering providing small-scale 
non-combat military support, as it did for five-plus years in Iraq. 
 
¶18. (SBU) The Kazakhstani government provided approximately $3 
million in assistance to Afghanistan during 2008 for food and seed 
aid and to construct a hospital, school, and road.  The Kazakhstanis 
are finalizing a proposal to provide free university education in 
Kazakhstan to Afghan students.  The government has also offered to 
provide training to Afghan law enforcement officers at law 
enforcement training institutes in Kazakhstan, and is working on a 
2009-2011 assistance program for Afghanistan that might include free 
university education for up to 1,000 Afghan students.  The 
Kazakhstanis hope to make Afghanistan one of their priority issues 
during their 2010 OSCE chairmanship. 
 
NON-PROLIFERATION:  A HALLMARK OF BILATERAL COOPERATION 
 
¶19. (SBU) Non-proliferation cooperation has been a hallmark of our 
bilateral relationship since Kazakhstan quickly agreed to give up 
the nuclear weapons it inherited from the USSR after becoming 
independent.  The Kazakhstanis recently ratified a seven-year 
 
ASTANA 00001407  005.2 OF 005 
 
 
extension to the umbrella agreement for our bilateral Cooperative 
Threat Reduction (CTR) program, which remains the dominant component 
of our assistance to Kazakhstan.  Key ongoing CTR program activities 
include our efforts to secure the radiological material at the 
Soviet-era Semipalatinsk nuclear test site and to provide long-term 
storage for the spent fuel (sufficient to fabricate 775 nuclear 
weapons) from Kazakhstan's BN-350 plutonium breeder reactor. 
 
¶20. (SBU) The Kazakhstanis are active participants in the Global 
Initiative to Combat Nuclear Terrorism and are seeking additional 
ways to burnish their non-proliferation credentials.  On April 6, 
President Nazarbayev announced publicly that Kazakhstan is 
interested in hosting the Nuclear Threat Initiative's 
IAEA-administered international nuclear fuel bank.   We welcomed the 
offer, but explained to the Kazakhstanis that they need to work out 
the details directly with the IAEA.  President Nazarbayev also has 
called for the United Nations to designate August 29 as annual World 
Non-Proliferation Day, which we support. 
 
HOAGLAND