VZCZCXRO3386
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHTA #1517/01 2541030
ZNR UUUUU ZZH
O 111030Z SEP 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6214
INFO RUCNCIS/CIS COLLECTIVE 1928
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1298
RUEHKO/AMEMBASSY TOKYO 1996
RUEHUL/AMEMBASSY SEOUL 0953
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 1485
RUEKJCS/SECDEF WASHDC 1367
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1859

UNCLAS SECTION 01 OF 03 ASTANA 001517 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EEB/ESC, ECA/AEP 
STATE PLEASE PASS TO USTDA, USAID 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON ENRG EINV KNNP KPAO KZ
SUBJECT:  KAZAKHSTAN:  DEPUTY PRIME MINISTER SAYS FUNDING APPROVED 
FOR BN-350 SPENT FUEL PROGRAM, OFFERS IDEAS ABOUT PUBLIC-PRIVATE 
ECONOMIC PARTNERSHIP INITIATIVE 
 
ASTANA 00001517  001.2 OF 003 
 
 
¶1. (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On September 10, Deputy Prime Minister Yerbol 
Orenbayev told the Ambassador that the Cabinet approved VAT 
exemption for all goods and services procured with Cooperative 
Threat Reduction funds on September 7, and the Prime Minister signed 
the decree on September 9.  He also said that the Cabinet will vote 
to approve emergency reserve funding for the BN-350 Spent Fuel 
Program on September 11, and expected the Prime Minister to sign the 
relevant decree by September 16.  He expressed a positive view of 
the Public Private Economic Partnership Initiative (PPEPI), and said 
he expected to comment on the policy papers by the end of September. 
 He also suggested to the Ambassador that PPEPI could help develop 
partnerships between U.S. universities and a new research university 
in Astana, and promote economic diversification by attracting new 
foreign investment in sectors other than energy.  END SUMMARY. 
 
PLEASED WITH PPEPI 
 
¶3.  (SBU) Deputy Prime Minister Orenbayev told the Ambassador on 
September 10 that he was generally pleased with progress made by the 
Public-Private Economic Partnership Initiative -- notwithstanding 
certain administrative challenges -- and had both short-term 
suggestions and a long-term vision for the Initiative.  He also told 
the Ambassador that the government set aside $150,000 in the 2010 
budget to fund activities under PPEPI.  According to Orenbayev, 
these funds would come out of Kazakhstan's contribution to the joint 
U.S.-Kazakhstan Program for Economic Development and cover 
contributions originally expected from Kazakhstan's private sector. 
 
¶4.  (SBU) Orenbayev said he will deliver the government's 
consolidated response to the policy papers by the end of September. 
Commenting on the policy papers submitted to the PPEPI Coordinating 
Committee on July 16, he said that "some were really good, some were 
not."  Orenbayev seemed genuinely committed to developing sound 
policy recommendations, telling the Ambassador that he would send 
specialists to Almaty to work with USAID and the American Chamber of 
Commerce (AmCham) to bring the papers up to an "acceptable level of 
quality."  He said that he has also discussed the issue with AmCham 
Executive Director Doris Bradbury. 
 
¶5.  (SBU) At the outset of the meeting, Orenbayev acknowledged that 
the Kazakhstani private-sector participants in PPEPI -- the Atameken 
business association and Kazakhstan's Union of Entrepreneurs -- were 
not actively involved in preparing the policy papers, because "they 
were not sufficiently interested" in the Initiative.  He said they 
had their own policy reform agenda, and implied they were too 
occupied with that to devote the necessary time and attention to 
PPEPI.  When the Ambassador suggested that the PPEPI Secretariat 
could be strengthened and the role of the AmCham further defined, 
Orenbayev nodded in agreement, but did not comment. 
 
¶6.  (SBU) Orenbayev suggested three ways to enhance the 
effectiveness of PPEPI over the long-term.  First, he said, the 
working groups should develop an action plan by the end of the year 
to implement the policy papers' recommendations.  He said the action 
plan, "which both governments would have to approve," should be 
specific and detailed, and could entail legislative changes, such as 
an amended public-procurement law, or technical assistance, such as 
capacity-building seminars.  Orenbayev told the Ambassador that 
Prime Minister Masimov has already approved this approach, "so we 
can move forward quickly." 
 
¶7.  (SBU) Second, Orenbayev suggested that PPEPI could promote 
partnerships between a new research university established by (and 
named after) President Nazarbayev in Astana, and universities in the 
United States.  Orenbayev, who has a Master's degree in 
international development from Duke University, explained that the 
government would pay for visiting professors, curriculum 
development, and other related costs to establish joint degree 
 
ASTANA 00001517  002.2 OF 003 
 
 
programs with U.S. universities, such as Duke University.  He 
suggested, for example, that students could spend three years in 
Kazakhstan and two years at a university in the United States.  "The 
programs, the diplomas, the teachers, the books, everything would be 
the same," he said. "And we'll pay for it."  Orenbayev asked for the 
Ambassador's advice and assistance to establish such a program.  The 
Ambassador agreed to study the proposal, and recommended that the 
government publicize the concept through professional journals such 
as the "Chronicle of Higher Education." 
 
¶8.  (SBU) Third, Orenbayev observed that one key objective of PPEPI 
is to promote economic diversification and attract investors in 
sectors other than energy.  He told the Ambassador that he will head 
the government's delegation to the U.S.-Kazakhstan Investment Forum 
in New York City on November 23-24, but added, "this event will only 
raise the general level of awareness of investment opportunities in 
Kazakhstan."  Orenbayev said he would also like to bring five or six 
medium- or large-sized U.S. companies to Kazakhstan, and said 
General Electric's locomotive assembly factory in Astana exemplified 
the type of investment project the government was seeking.  "We are 
ready," he said, "to give investors the best treatment, whatever 
they need, to invest in Kazakhstan."  Orenbayev said the President 
has made him personally responsible for implementing these 
initiatives, "so I have a personal interest in their success," he 
said with a smile. 
 
PARKER DRILLING - "OVER-REACTION" FROM LOCAL AUTHORITIES 
 
¶9.  (SBU) Without prompting, Orenbayev referred to the tax evasion 
charges against U.S. oil-services company Parker Drilling, calling 
the case an "unfortunate over-reaction" on the part of the local 
government.  He said local authorities were merely following federal 
regulations when they referred the matter directly to the tax 
police, and told the Ambassador that the government was working to 
amend procedures to avoid similar incidents in the future. 
Orenbayev said he believed that "both sides misread the ambiguous 
tax treaty" between the United States and Kazakhstan, and said that 
the government and Parker Drilling were working "in a friendly way" 
to resolve the issue.  (NOTE:  In April, local authorities in 
Mangistau oblast accused Parker Drilling of claiming tax exemptions 
for headquarters' expenses without proper justification or 
documentation.  END NOTE). 
 
"NEW ECONOMIC CONCEPT" 
 
¶10.  (SBU) Orenbayev was adamant that Prime Minister Masimov's "New 
Economic Concept" would not adversely affect the investment climate. 
 He told the Ambassador that the proposed requirement for 
international investors to retain a minimum amount of operating 
capital in domestic banks was targeted at large mining companies 
owned by Kazakhstani businessmen, such as Kazakhmys (controlled by 
Vladimir Kim), Eurasian Natural Resources Corporation (Alexander 
Mashkevich), and KazZinc (Gennadiy Zilberberg).  Orenbayev said he 
would consider ways to improve public understanding of the purpose 
of the proposed regulation. 
 
BN-350 PROGRESS 
 
¶11.  (SBU) The Ambassador delivered a non-paper in Russian to 
Orenbayev, asking the government to honor its commitment to fund the 
transportation of spent nuclear fuel from the decommissioned BN-350 
breeder reactor, and to grant VAT exemption for all goods and 
services procured with Cooperative Threat Reduction funds. 
Orenbayev promised to review the non-paper carefully, but said, "I 
believe we have resolved all of these issues."  He told the 
Ambassador that the Cabinet voted to approve VAT exemption for all 
goods and services procured with Cooperative Threat Reduction funds 
and expected the Cabinet to vote next week to approve emergency 
reserve funding for the BN-350 Spent Fuel Program.  He promised to 
have his staff provide an update on these issues immediately. 
 
ASTANA 00001517  003.2 OF 003 
 
 
(NOTE:  Within hours, the Embassy received a call from the Office of 
the Prime Minister, informing us that the Prime Minister signed the 
decree on VAT exemption on September 9, the Cabinet will vote to 
approve emergency reserve funding for the BN-350 Spent Fuel Program 
on September 11, and the Prime Minister would sign a decree 
authorizing the release of funds by September 16.  END NOTE). 
 
¶12.  (SBU) COMMENT:  While issues still remain with Kazakhstan's 
implementation of the BN-350 program, we consider it a positive sign 
of the government's commitment that the Cabinet approved emergency 
reserve funding for the transportation of spent fuel, despite the 
current economic difficulties in the country.  We are also very 
encouraged by the government's technical and financial support for 
PPEPI, and Orenbayev's personal commitment to the success of the 
Initiative.  The Ambassador will discuss the implementation of 
PPEPI, including ways to strengthen the Secretariat, with the AmCham 
leadership and Board of Directors when he visits Almaty next week. 
END COMMENT. 
 
HOAGLAND