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OO RUEHIK
DE RUEHTA #1920/01 2990758
ZNR UUUUU ZZH
O 260758Z OCT 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6705
INFO RUCNCIS/CIS COLLECTIVE 2083
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1454
RUEHKO/AMEMBASSY TOKYO 2155
RUEHUL/AMEMBASSY SEOUL 1089
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1643
RUEKJCS/SECDEF WASHDC 1503
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RHMFISS/CDR USTRANSCOM SCOTT AFB IL
RUEHAST/USOFFICE ALMATY 1961

UNCLAS SECTION 01 OF 03 ASTANA 001920 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC, S/EEE, S/CIEA, OES/PCI 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV EPET SENV KZ
SUBJECT:  KAZAKHSTAN:  PLANS FOR THE NATIONAL SULFUR STORAGE CENTER 
 
REF:  A. 08 ASTANA 1368 
      ¶B. ASTANA 0450 
 
ASTANA 00001920  001.3 OF 003 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  As Kazakhstan continues to debate sulfur 
storage, the Caspiy Socially Responsible Corporation has contracted 
feasibility and technical studies for the government's planned 
National Sulfur Storage Center (NSSC) in Atyrau, which it will 
operate.  The Center will be able to provide up to 50 years of 
long-term sulfur storage, and oil companies will have to put their 
sulfur in the facility and pay storage fees.  The NSSC currently 
envisions a covered storage facility, and companies would be able to 
store sulfur temporarily and retrieve it later.  Tengizchevroil 
(TCO) believes that the NSSC is rife with problems and has formed 
its own working group to study this issue, concluding that uncovered 
above-ground sulfur storage (TCO's current storage method) has no 
significant negative impact on the environment.  TCO insists that 
the NSSC will need much more research because of the many legal, 
economic, and construction-related questions that still exist.  TCO 
is willing to pay for such a study and has formed several working 
groups to cover the legal, financial, construction, and ecological 
aspects of this storage plan.  Complicating this, TCO plans to 
liquidate all its current sulfur storage by 2017, and in subsequent 
years it will have no sulfur to put in the national storage center. 
With the Kashagan partners planning to re-inject 100% of sulfur gas 
back into the well to maintain pressure for oil production, this 
raises questions about potential users of the national storage 
center if there is no TCO sulfur left to store.  END SUMMARY. 
 
CASPIY DESIGNATED TOOPERATE THE NEW NATIONAL SULFUR STORAGE CENTER 
 
¶3.  (U) According to Caspiy Socially Responsible Corporation Lead 
Manager Assylbek Jakiyev and Senior Manager Lilia Balgimbayev, 
President Nazarbayev tasked the government with the creation of a 
national sulfur storage center.  Caspiy, a state-owned enterprise, 
has formed a working group consisting of itself, Tengizchevroil 
(TCO), AGIP (an Italian oil company responsible for the Kashagan 
offshore oil site), and the Kazakhstan Oil and Gas Institute (KOGI), 
to work out the concept of the NSSC.  Caspiy has contracted with 
KOGI to carry out phase one of this project, which consists of the 
preparation of the Center's technical requirements and a feasibility 
study of several aspects of the Center, including its location and 
capacity.  KOGI has not yet completed phase one.  In the second 
phase, KOGI will prepare design documents outlining all the 
technical aspects of the NSSC.  Public hearings to obtain citizen 
input will follow, and then the government will start construction. 
After completion of NSSC, Caspiy will operate it, and oil companies 
(e.g., TCO and AGIP) will put their sulfur in the NSSC and pay 
storage fees. 
 
¶4.  (U) Balgimbayev criticized the oil companies' current open 
storage methods (e.g. TCO), saying that they permit the wind to 
carry sulfuric dust to surrounding communities and allow residual 
gases to escape into the atmosphere.  She said the NSSC will be 
profitable, environmentally safe, and economically feasible.  The 
Center will be able to provide up to 50 years of long-term storage, 
have a monitoring system, minimize the spread of sulfur dust that 
now occurs, be located higher than TCO's current storage sites to 
ensure safety in the event of rising Caspian sea waters, and prevent 
the dissemination of sulfur gases now being emitted from the open 
sites. 
 
¶5.  (U) Balgimbayev said the Center's conceptual development is now 
97% complete, and the feasibility study for the site's construction 
is now 72% finished.  The preliminary environmental impact 
assessment study is 50% complete, and the environmental survey of 
the site and its suitability is now 90% done. 
 
¶6.  (U) According to Balgimbayev, the NSSC will be a covered storage 
facility consisting of covered sulfur storage in blocks with covers 
and/or reinforced concrete panels.  The Center will use heated 
 
ASTANA 00001920  002.3 OF 003 
 
 
pipelines to transfer liquid sulfur to the storage facility, she 
said, and will use rail transport to move brimstone sulfur. 
Companies would be able to store sulfur temporarily and then 
retrieve it later, thereby retaining ownership of the sulfur, or 
they could relinquish ownership to the government. 
 
THROWN OUT OF THE OFFICE:  IS SOMETHING FISHY HERE? 
 
¶7.  (SBU) So far, so good.  But then the head of the Atyrau Caspiy 
Office, Sagyndyk Lukpanov, entered and said that Caspiy cannot 
continue to discuss this matter "without the approval of the 
Akimat," given that the U.S. Embassy is "such a serious 
organization."  And just like that, the meeting ended.  Outside, we 
began to suspect that Lukpanov did not want us to pry too deeply 
into matters connected with the storage center.  We started to 
speculate that Caspiy relied on the connections of its Aktau Central 
Office Head Bolat Palymbetov as former Deputy Akim of the Atyrau 
Region, Deputy Minister of Economy and Trade, and Deputy Minister of 
Economics and Budget Planning, to obtain this potentially lucrative 
contract, especially given its controversial status.  (NOTE:  Just 
one day after we were essentially thrown out of Caspiy's Atyrau 
office, Jakiyev contacted us to say that Caspiy's Head Office is 
eager to meet with us at our earliest convenience.  It appears that 
Caspiy's main headquarters was not pleased with Lukpanov's decision 
to eject a U.S. diplomat.  END NOTE.) 
 
¶8.  (SBU) To obtain another perspective on the NSSC, we subsequently 
contacted AGIP.  The Atyrau office representative Walter Rizzi 
agreed that this was a sensitive topic and would only talk about it 
in person during our next trip to Atyrau.  AGIP's recently 
restructured entity, the North Caspian Operating Company's (NCOC) 
Astana office, also politely declined to meet, because the person 
responsible for this issue was relatively new in the job. 
 
NO SURPRISE:  TENGIZCHEVROIL DISLIKES THE NATIONAL STORAGE PLAN 
 
¶9.  (SBU) However, Tengizchevrooil (TCO) Astana Office Deputy 
General Manager Rzabek Artygaliev was eager to explain the potential 
problems of the proposed NSSC, which he alleged was the brainchild 
of former KuzMunaiGas President Burkitbayev.  (NOTE:  Serik 
Burkitbayev, also former advisor to President Nazarbayev and 
president of KOGI, was arrested in 2008 for embezzling $16 million 
and sentenced to six years in prison.  He was also suspected of 
supplying Rakhat Aliyev, Nazarbayev's exiled former son-in-law, with 
an eavesdropping device used to spy on high-ranking Kazakhstani 
officials.  END COMMENT.)  TCO and several other Kazakhstani 
oil-related companies and institutes, along with Alberta Sulfur 
Research Ltd. and Moscow State University, formed their own council 
to study this question, and concluded that uncovered, above-ground 
sulfur storage (TCO's current storage method for eight million tons 
of granulated sulfur) has no significant negative impact on the 
environment.  For this reason, TCO has not agreed to the national 
storage plan.  He added that Caspiy, to which the government has 
awarded the contract to manage the storage facility, is a 100% 
government enterprise, and that KOGI is Caspiy's subcontractor 
carrying out the government's own studies on the center. 
 
¶10.  (U) Artygaliev said the government instructed TCO to 
participate in the NSSC, and TCO agreed.  However, before TCO 
actually uses the facility, it must have a well-developed concept 
and evaluation of this plan because of numerous pending legal, 
economic, and construction-related questions, which will require 
considerable research.  He said TCO is willing to pay for such a 
study and has formed several working groups to cover the legal, 
financial, construction, and ecological aspects of this storage 
plan.  Some remaining thorny questions include the facility's method 
of sulfur storage (above ground, covered, or underground), legal 
status of this "national storage facility," and its impact on TCO's 
own foundation agreement with Kazakhstan. 
 
¶11.  (U) In addition, complicating these issues, Artygaliev said 
that TCO plans to liquidate all its current sulfur storage by 2017. 
 
ASTANA 00001920  003.3 OF 003 
 
 
In subsequent years, it will have no sulfur to put in the national 
storage center.  In fact, he asserted that TCO has already 
liquidated six of its nine pads of sulfur (approximately six million 
tons out of almost nine million tons of accumulated sulfur).  He 
highlighted that this fact poses a serious question to the 
government about the potential users of the national storage center 
if no TCO sulfur remains to store.  He acknowledged that Kashagan 
and AGIP may use it in the distant future, but he could not comment 
on their plans. 
 
¶12.  (SBU) COMMENT:  Because Nazarbayev issued the decree, the 
government remains intent on NSSC construction in spite of TCO 
objections.  Caspiy and local Akimats appear to view this project as 
a very large, future cash cow, especially once Kashagan production 
comes online.  Acknowledging the importance of sulfur management, 
the United States, Canada, and UK, along with Shell and TCO, 
sponsored a conference in Astana on September 21.  The event sought 
to identify ways to improve the legislative framework for the 
storage and treatment of sulfur, change the image of sulfur from a 
hazardous waste to a valuable product, and promote the use of sulfur 
in industrial applications, such as fertilizers, road construction, 
and uranium mining.  Shell recently reported that the conference has 
informed ongoing discussions about the construction of early 
sulfur-handling facilities for Kashagan.  This evolving situation 
merits observation due to its potential impact on U.S. interests. 
END COMMENT.