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DE RUEHTA #1627/01 2710155
ZNR UUUUU ZZH
O 280155Z SEP 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6348
INFO RUCNCIS/CIS COLLECTIVE 1973
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNIRA/IRAN COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1342
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RUEHUL/AMEMBASSY SEOUL 0993
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
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RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RHEHNSC/NSC WASHDC 1528
RUEKJCS/SECDEF WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1890

UNCLAS SECTION 01 OF 05 ASTANA 001627 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC, DRL, EUR/RPM 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON ENRG EPET EINV KZ
SUBJECT:  KAZAKHSTAN:  SCENESETTER FOR DOE DEPUTY SECRETARY PONEMAN 
 
ASTANA 00001627  001.2 OF 005 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  Embassy Astana warmly welcomes your October 5-8 
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 slowed, with 
political institutions, civil society, and the independent media 
still underdeveloped.  Our fundamental strategic objective is a 
secure, democratic, and prosperous Kazakhstan that fully 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.  Your visit can reinvigorate the U.S.-Kazakhstan Energy 
Partnership and shed light on the government's plans and underscore 
our goals and priorities regarding Kazakhstan's future energy 
transactions and policies.  END SUMMARY. 
 
ECONOMY:  AGGRESSIVE STEPS TO TACKLE ECONOMIC CRISIS 
 
¶3. (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 
a modest 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 government has taken significant steps to tackle the domestic 
reverberations of the economic crisis.  It has allocated around $20 
billion to take equity stakes in private banks, propped up the 
construction and real estate sectors, and supported small- and 
medium-sized enterprises and agriculture. 
 
¶4.  (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.  In July, BTA Bank, the country's 
largest commercial bank, declared a moratorium on interest and 
principal payments.  BTA's external debts are valued at $13 billion, 
of which the bank said it will repay $3 billion this year.  In 2008, 
BTA's net losses were $7.9 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. 
 
OIL AND GAS PRODUCTION 
 
¶5. (SBU) Kazakhstan produced 70.7 million tons of oil in 2008 
(approximately 1.41 million barrels per day (bpd), and is expected 
to become one of the world's top ten crude oil exporters soon after 
¶2015.  From January - August, Kazakhstan increased oil production by 
8.8 percent, to 41.83 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. 
 
¶6.  (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 
 
ASTANA 00001627  002.2 OF 005 
 
 
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. 
 
OIL AND GAS TRANSPORTATION 
 
¶7. (SBU) With 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, national 
oil company KazMunaiGaz (KMG) announced the completion of the 
Atasu-Alashankou segment, and in October, it expects to begin crude 
shipments via the Kenkiyak-Kumkol segment of the 3,000 kilometer oil 
pipeline to China, which will initially carry 200,000 bpd, with 
expansion capacity of 400,000 bpd. 
 
¶8. (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 the Kazakhstan 
Caspian Transport System (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. 
 
 
RENEWABLE ENERGY 
 
¶9. (SBU) Despite the abundance of relatively cheap fossil fuels in 
Kazakhstan, the government is clearly serious about climate change, 
renewable energy, and energy efficiency.  The March ratification of 
the Kyoto Protocol, the July law on renewable energy, and the draft 
law on energy efficiency demonstrate that the government is taking 
the first legislative steps to achieve its ambitious goal of 
increasing the share of renewable energy in Kazakhstan's total power 
consumption from 0.02 percent to 4.0 percent by 2020. 
 
ELECTRICAL POWER 
 
¶10.  (SBU) Despite these legislative mandates to stimulate the 
development of renewable energy sources, in 2008, coal-fired power 
plants produced 83 percent of the 80 billion kilowatt hours of 
electricity generated in Kazakhstan.  According to national power 
grid operator KEGOC, hydropower generated 12 percent of Kazakhstan's 
electricity, and natural gas power plants generated the remaining 
five percent.  Among the issues and challenges facing the electrical 
power industry in Kazakhstan, generating equipment is old and in 
need of modernization, the number of peak power plants is limited, 
generation capacity is unevenly distributed, and the country's power 
grid is not integrated, so that western Kazakhstan must import 
electricity from Russia. 
 
¶11.  (SBU) On September 17, Kazakhstan President Nursultan 
Nazarbayev attended a ceremony in the northern Kazakhstan city of 
Ekibastuz to mark the completion of the country's second north-south 
power transmission line.  The 500 kilovolt (kV) line, completed 
ahead of schedule at a cost of $290 million financed by the World 
Bank and European Bank for Reconstruction and Development, will 
 
ASTANA 00001627  003.2 OF 005 
 
 
allow the country's national grid operator to deliver power 
generated in Kazakhstan's north to major load centers in the south. 
President Nazarbayev celebrated the completion of this new line by 
asserting that Kazakhstan's southern region, including the major 
cities of Almaty, Shimkent, and Taraz, would no longer depend on 
power transmission from Kazakhstan's southern neighbors, and that 
Kazakhstan has "become fully independent from all other electricity 
exporters." 
 
NUCLEAR ENERGY 
 
¶12.  (SBU) Kazakhstan is committed to developing a civilian nuclear 
power industry.  On September 25, Kazatomprom Vice President Sergei 
Yashin announced at the Eurasian Energy Forum that Kazakhstan has 
completed a feasibility study for a VBER-300 nuclear power plant in 
Aktau under a Russian-Kazakhstani joint venture established in 
October 2008.  According to Yashin, the plant will be powered by a 
pressurized water reactor of 300 megawatts (mW) and the first of two 
blocks will be operational in 2016.  In 2008, Kazakhstan produced 
8,500 tons of uranium (24 percent of total world output), and three 
percent of the world's nuclear fuel.  The country plans to increase 
both production figures dramatically.  By 2020, for example, 
Kazakhstan expects to produce 13 percent of the world's nuclear 
fuel.  Kazatomprom has joint ventures with atomic energy companies 
from Japan, France, Russia, India, China, and Canada.  On September 
24, Kazakhstan signed a nuclear trade agreement with Canada, under 
which Canada agreed to sell nuclear technology and equipment to 
Kazakhstan. 
 
NON-PROLIFERATION:  A HALLMARK OF BILATERAL COOPERATION 
 
¶13. (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 
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. 
 
¶14.  (SBU) The government of Kazakhstan is responsible for funding 
the transport of the BN-350 spent fuel from Aktau to Baikal-1.  On 
September 18, the Prime Minister signed two decrees authorizing 
reserve funding and duty-free equipment transfer that will help 
ensure continuation of spent fuel transport operations.  While these 
decrees are helpful and timely, we continue to urge the government 
to take further steps, such as adopting simplified procedures for 
tax exemptions, customs clearances, and tariff and non-tariff 
exemptions. 
 
¶15. (SBU) The Kazakhstanis are active participants in the Global 
Initiative to Combat Nuclear Terrorism and are seeking additional 
ways to help them burnish their non-proliferation credentials.  On 
April 6, President Nazarbayev announced 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. 
 
DEMOCRACY:  SLOW GOING 
 
¶16. (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 
 
ASTANA 00001627  004.2 OF 005 
 
 
standards.   The next parliamentary and presidential elections are 
scheduled for 2012. 
 
¶17. (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. 
 
¶18.  (SBU)  On September 3, the Balkash district court sentenced 
Kazakhstan's leading human rights activist Yevgeniy Zhovtis to four 
years imprisonment for vehicular manslaughter. The charge stemmed 
from a July 26 accident in which Zhovtis struck and killed a 
pedestrian with his car. On September 15, Zhovtis' lawyers filed an 
appeal of the conviction, which is still pending. Local and 
international civil society representatives and opposition activists 
heavily criticized the trial for numerous procedural violations. 
Some observers alleged that the harsh sentence imposed on Zhovtis, a 
strong critic of the regime, was politically motivated.  The 
Ambassador has publicly urged the Kazakhstani authorities to provide 
Zhovtis access to fair legal proceedings, and we have raised the 
case with senior government officials in Astana and in Washington. 
 
 
¶19. (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. 
 
¶20. (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 
 
¶21. (SBU) Kazakhstan has supported 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 
 
ASTANA 00001627  005.2 OF 005 
 
 
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. 
 
¶22. (SBU) In 2008, the Kazakhstani government provided approximately 
$3 million in assistance to Afghanistan 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. 
 
HOAGLAND