VZCZCXRO1267
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
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DE RUEHTA #1495/01 2520719
ZNR UUUUU ZZH
O 090719Z SEP 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6173
INFO RUCNCIS/CIS COLLECTIVE 1911
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1281
RUEHKO/AMEMBASSY TOKYO 1979
RUEHUL/AMEMBASSY SEOUL 0938
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1465
RUEKJCS/SECDEF WASHDC 1353
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1846

UNCLAS SECTION 01 OF 03 ASTANA 001495 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EEB/ESC 
STATE PLEASE PASS TO USTDA AND USTRA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON ENRG EINV KZ
SUBJECT:  EAST KAZAKHSTAN:  AT THE CROSSROADS 
 
REF:  (A) ASTANA 0555 
      (B) ASTANA 0837 
      (C) ASTANA 1432 
 
ASTANA 00001495  001.2 OF 003 
 
 
¶1. (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On August 20, the Ambassador visited Oskemen 
(Ust-Kamenogorsk), East Kazakhstan, an industrial region 
well-endowed with natural resources and populated by blue-collar 
miners, shady businessmen, political patrons, and innovative 
entrepreneurs.  The local economy depends, as it has for more than 
two hundred years, on mining gold, copper, zinc, and coal.  The 
region has successfully leveraged its strategic location at the 
crossroads of Eurasia, attracting tourists and investors from 
neighboring China and Russia, while simultaneously pursuing 
lucrative business deals with Western partners.  END SUMMARY. 
 
MAKING MONEY FROM MINERALS 
 
¶3.  (SBU) More than one million people live in the region of East 
Kazakhstan, including the 300,000 residents of Oskemen 
(Ust-Kamenogorsk), of whom more than 40 percent are ethnic Russians, 
according to the Statistics Department of East Kazakhstan Oblast. 
The largest companies in the region are the Ulba Metallurgical Plant 
(owned by national nuclear energy company Kazatomprom), KazZinc 
(owned by Glencore International AG, which was founded by American 
financier Marc Rich and is one of the world's largest suppliers of 
commodities and raw mateQals), the Ust-Kamenogorsk 
Titanium-Magnesium Plant (owned by Specialty Metals Company, based 
in Brussels), and VostokMashZavod, a machine-building plant owned bQ 
private investors. 
 
¶4.  (SBU) East Kazakhstan contributes six percent of Kazakhstan's 
gross domestic product, placing it on a par with the oil rich region 
of Mangistau.  Oskemen is a tough town defined primarily by its 
mining industry and blue-collar cultQe.  The region is open for 
business -- if you are an insider, or have a special relationship 
with an insider.  Otherwise, even the most prominent outsiders are 
targets, as the new Akim (governor) Berdybek Saparbayev discovered 
in March, when he was publicly accused of corruption shortly after 
taking office (reftel C). 
 
POLITICAL PATRONAGE 
 
¶5.  (SBU) The local government is at the center of all economic 
activity in East Kazakhstan, directly or indirectly.  Saparbayev 
dispenses patronage generously -- by ordering a fleet of cars for 
his administration from the local auto assembly plant, for example 
-- and projects a caring attitude toward "his" people.  He has tried 
to repair his image by supporting tuberculosis treatment 
initiatives, and helping local orphanages with cash donations, 
vocational training and job skills programs.  In return, he expects 
-- and receives -- political and financial support.  For example, 
when no commercial flights were available to take the governor, or 
Akim, to Astana immediately after his meeting with the Ambassador, 
the Akim commandeered a private jet from KazZinc, the country's 
largest zinc mining company, and a leader in lead, copper, gold, and 
silver mining. 
 
KAZAKHSTANI PRODUCER OF CADILLACS EAGER FOR CUSTOMS UNION 
 
¶6.  (SBU) Asia Avto, owned by a subsidiary of Russia's Avtovaz, 
assembles the Chevrolet Lacetti, Epica, and Captiva cars, and has 
produced sample units of the Cadillac Escalade, Cadillac CTS, and 
Hummer H2 and H3 vehicles in East Kazakhstan.  Asia Avto presented 
President Nazarbayev with a Cadillac Escalade when he toured the 
plant on June 15.  The Akim has provided land and other in-kind 
contributions to Asia Avto valued at $25 million and plans to order 
7,000 cars for the local government's fleet. 
 
¶7.  (SBU) According to Asia Avto General Director Yerzhan Mandiyev, 
communication with the European leadership of General Motors (GM) 
 
ASTANA 00001495  002.2 OF 003 
 
 
has been difficult since the company's bankruptcy.  Mandiyev is 
pushing GM to authorize full-scale production of the Escalade and 
CTS lines, and to lower the retail price of these vehicles to make 
them more competitive.   He also asked the Ambassador to help 
persuade U.S. companies in the region to buy "American" cars made in 
Kazakhstan.  Mandiyev speaks English, has visited Detroit three 
times, and focused on quality assurance during a tour of the factory 
floor on August 19.  Mandiyev said he is eager for Kazakhstan to 
join the Customs Union with Russia and Belarus, which he said would 
raise import duties on used automobiles to 25 percent in 2011. 
Mandiyev said that Asia Avto will be able to produce 120,000 cars by 
2011, yet, according to Interfax, the company made just 281 vehicles 
during the first half of 2009, compared to 2,114 vehicles made 
during the same period last year.  Interfax noted that Asia Avto 
reported a net loss of 560 million tenge ($3.73 million) in the 
first six months of 2009, on assets of 8.2 billion tenge ($54.8 
million). 
 
WORLD'S LARGEST URANIUM PLANT 
 
¶8.  (SBU) The Ulba Metallurgical Plant, commissioned on October 29, 
1949, processes waste materials containing uranium (scraps and 
ashes), including 27 percent U-235, which is supplied to the United 
States as uranium dioxide powder, and 5 percent U-235 fuel pellets 
supplied to Russia.  The plant also manufactures products containing 
tantalum, niobium, and beryllium.  It 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.  On May 22, the plant's director, Nurlan Mussin, 
was arrested in connection with the government's investigation of 
KAP president Mukhtar Dzhakishev on corruption charges. 
 
¶9.  (SBU) On August 19, Energy Officer toured Ulba's tantalum 
processing unit.  (NOTE:  Tantalum powder is used in the production 
of capacitors and high-power resistors used in cell phones and other 
electronic devices.  END NOTE).  The four senior plant managers 
giving the tour were all ethnic Russians, spoke English, and had 
been to the United States several times, including business trips to 
Washington, New York, and San Francisco.  This small unit has 
designed, developed, and implemented customized, high-technology 
solutions to tantalum production, and is now one of only four 
tantalum powder manufacturers in the world. 
 
¶10.  (SBU) Ulba's Deputy Director for Marketing and Strategy, 
Alexander Gagarin, asked for information about a bankrupt U.S. 
company, Applied Materials Science, that allegedly did not honor the 
terms of its contract and still owes Ulba $300,000.  Gagarin said 
his company was more concerned about the reputational risk of the 
failed transaction, and potential "dual use" violations by the U.S. 
company, than about losing the money.  (NOTE:  On August 12, the 
Department of Commerce (DOC) discussed the issue with the Embassy of 
Kazakhstan in Washington, D.C.  DOC subsequently briefed the Bureau 
of Industry and Security (BIS) on the issue and delivered a copy of 
a non-paper from the government of Kazakhstan.  END NOTE.) 
 
RETIRED FINANCIAL POLICE DIRECTOR OPENS POSH HOTEL 
 
¶11.  (SBU) Vladimor Yelovikov, the proud and gregarious owner of the 
Shiny River Hotel, "the best hotel in town," told the Ambassador he 
retired recently, after 40 years in the police force, including 
several years as director of East Kazakhstan's financial police. 
His business card glitters like gold and his colorful personality is 
more like a used car salesman than a director of the financial 
police.  Yelovikov also claimed to be a former Special Forces 
soldier and Afghanistan war veteran.  Yelovikov has a daughter in 
St. Augustine, Florida, but has not travelled to the United States 
himself.  He has a similar hotel in Bulgaria, where he lived for two 
years.  (COMMENT:  The audacity of a financial police director who 
has enough money saved to buy two hotels upon retirement speaks for 
itself.  END COMMENT). 
 
¶12.  (SBU) COMMENT:  The region of East Kazakhstan is an excellent 
 
ASTANA 00001495  003.2 OF 003 
 
 
example of the country's ability to maintain a strong relationship 
with neighboring Russia and China, while at the same time pursuing 
closer business and cultural ties with American partners.  For 
example, the region annually attracts thousands of tourists from 
Russia, eagerly awaits completion of the World Bank-funded road to 
China, actively advocates study-abroad programs in the United 
States, and contains power plants managed by U.S. power company AES. 
 East Kazakhstan is literally at the crossroads of Eurasia, and 
typifies the economic aspects of Kazakhstan's pragmatic, 
"multi-vector" foreign policy.  END COMMENT. 
 
HOAGLAND