VZCZCXRO6736
OO RUEHIK
DE RUEHTA #1949/01 3070041
ZNR UUUUU ZZH
O 030041Z NOV 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6735
INFO RUCNCIS/CIS COLLECTIVE 2094
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1465
RUEHKO/AMEMBASSY TOKYO 2166
RUEHUL/AMEMBASSY SEOUL 1100
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 1654
RUEKJCS/SECDEF WASHDC 1513
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 1969

UNCLAS SECTION 01 OF 04 ASTANA 001949 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EEB/ESC 
STATE PLEASE PASS TO USTDA, USAID 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV KZ
SUBJECT:  KAZAKHSTAN:  DAS KROL REVIEWS PPEPI, OTHER ECONOMIC ISSUES 
WITH DPM ORENBAYEV 
 
REF:  ASTANA 1517 
 
ASTANA 00001949  001.3 OF 004 
 
 
¶1. (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  Deputy Assistant Secretary George Krol and 
National Security Council Director for Central Asia Kurt Donnelly 
met Deputy Prime Minister Yerbol Orynbayev on October 30, primarily 
to review the structure, goals, and interim results of the 
U.S.-Kazakhstan Public Private Economic Partnership Initiative 
(PPEPI).  Orynbayev also outlined the government's plans to 
diversify the economy, prospects for regional economic integration, 
the future of the Customs Union with Russia and Belarus, and 
development of trade via the Caspian corridor.  Deputy Foreign 
Minister Kairat Umarov and Vice Minister for Energy and Mineral 
Resources Lyazzat Kiinov also attended the meeting.  END SUMMARY. 
 
THE DIFFICULTY WITH DIVERSIFICATION 
 
¶3.  (SBU) Orynbayev, a studious, spectacled, senior administrator 
still shy of his 40th birthday, admitted that the government has had 
difficulty diversifying the economy away from the oil and gas 
sector.  "We want to diversify, but we just can't seem to get 
there," he said, citing Kazakhstan's small domestic market, 
land-locked location, and huge transportation distances as 
impediments.  He noted that major U.S. corporations, such as Chevron 
and ConocoPhillips, are well established in Kazakhstan and "feel 
comfortable here, they feel right at home."  (At which Kiinov joked, 
"They feel better here than at home!").  Orynbayev said the goal is 
for other U.S. companies to feel just as comfortable investing in 
Kazakhstan as the major oil companies do. 
 
PPEPI PILLARS 
 
¶4.  (SBU) Orynbayev said PPEPI will help the government achieve 
greater economic diversification by establishing an investment 
climate that will attract businesses outside of the energy sector. 
He highlighted the policy recommendations of PPEPI's five working 
groups, all of which the government reviewed carefully, but now it 
is time for action, he said.  "We must turn these recommendations 
into results," he elaborated, "by setting annual priorities.  Each 
year, we must define what it is that we would like to achieve.  What 
results do we want?" 
 
TRADE AND CUSTOMS ADMINISTRATION 
 
¶5.  (SBU) Orynbayev then briefly commented on issues from each of 
the five working groups.  Under trade and customs, he cited the 
example of customs clearance procedures.  He said that when he 
traveled from Canada to the United States, he found it very 
efficient to have the U.S. customs clearance point located in 
Canada, which meant that upon arrival in Washington, he could go 
right to work, without delay.  Orynbayev welcomed U.S. assistance 
and advice in this area others in which the administrative 
procedures of Kazakhstan could be improved in order to increase 
international trade. 
 
SME DEVELOPMENT 
 
¶6.  (SBU) Orynbayev said that Kazakhstan's small- and medium-sized 
enterprises (SMEs) are eager to explore business opportunities with 
partners from the United States, but he cautioned that, "our 
businesses are young, impatient, and want to get rich quickly."  He 
suggested that exchange visits and partnerships with U.S. companies 
would help Kazakhstani companies to mature and develop long-term 
growth strategies. 
 
SCIENCE AND TECHNOLOGY 
 
¶7.  (SBU) Turning to science and technology, Orynbayev underscored 
the importance of the new research university, provisionally named 
the New University, although he noted the President has generously 
 
ASTANA 00001949  002.3 OF 004 
 
 
offered his name to the university.  "After Astana," he said, "this 
is the government's number one priority."  Orynbayev explained the 
university, expected to be complete by June 2010, will encompass a 
huge territory and be fully enclosed, "like a shopping mall in the 
United States, with roads and buildings inside.  It will be very 
modern, very comfortable." 
 
UNIVERSITY OF THE FIRST PRESIDENT 
 
¶8.  (SBU) Orynbayev stressed that this will be a new type of 
university, based on "new principles."  Prime Minister Karim Masimov 
is chairman of the management board, and the university president is 
now in the United States actively recruiting teachers and staff, and 
looking for partner institutions such as Harvard and Duke medical 
schools.  Orynbayev said the government made a conscious decision to 
target U.S. teachers and administrators "because the United States 
has the best educational system in the world."  He explained 
Kazakhstani students would study in Kazakhstan for two years, 
followed by two years abroad, after which they would receive two 
degrees:  one from the Kazakhstani university and one from the 
foreign institution. 
 
¶9.  (SBU) The government has established an endowment for the new 
university, he said, and students would be eligible for 
government-funded scholarships, like the Bolashak grants.  The first 
class will enroll in July 2010 and will be limited to Kazakhstani 
citizens, but Orynbayev asserted the government plans later to 
encourage enrollment from Russia and other Central Asian countries. 
 
CORRUPTION IN PUBLIC PROCUREMENT 
 
¶10.  (SBU) Commenting on the work of the Transparency and Economic 
Efficiency working group, Orynbayev said he was pleased the group 
had selected the issue of public procurement, because "it is a 
steady source of corruption."  He said that current public 
procurement procedures contain loopholes that encourage corrupt 
practices.  He requested U.S. assistance and expertise to close the 
loopholes, strengthen oversight, and introduce e-procurement 
procedures, all of which would support the government's 
anti-corruption campaign. 
 
PPEPI ADMINISTRATION 
 
¶11.  (SBU) Orynbayev provided a very favorable assessment of the 
American Chamber of Commerce's management of the PPEPI project, 
calling AmCham very active, strategically focused, and well 
organized (reftel).  He acknowledged, however, that the Kazakhstani 
private sector has not been as engaged or as active in the 
initiative as expected.  As a result, he asserted, the new working 
groups have diversified their membership beyond Atameken and the 
Forum of Entrepreneurs.  Orynbayev said he asked Minister of 
Industry and Trade Aset Isekeshev to nominate candidates for the 
PPEPI working groups, but he demurred, saying, "Everyone's still 
working their way out of the economic crisis.  They're too focused 
on their own bottom line." 
 
ALL BUSINESS IS LOCAL 
 
¶12.  (SBU) When informed that many U.S. companies complain about the 
treatment they receive from local authorities, Orynbayev responded 
that he would willingly look into any specific allegations or 
issues, and suggested a new working group be established under the 
aegis of PPEPI to study the matter.  "Kazakhstan is a unitary 
state," he declared.  "We can identify specific problems, even if 
they are regional, and we can resolve them.  I don't see any problem 
with that.  That is in our hands." 
 
REGIONAL ECONOMIC INTEGRATION 
 
¶13. (SBU) When asked about the prospects for greater regional 
economic integration with other Central Asian states, Orynbayev 
 
ASTANA 00001949  003.3 OF 004 
 
 
stressed President Nazarbayev's full support for previous efforts, 
but unfortunately, little progress has been made.  "Our president," 
he emphasized, "understands that we live in a modern, globalized 
society.  We cannot be rich ourselves if our neighbors are poor." 
He said that the Central Asian republics represent a potential 
market of 50 million consumers, and could do more to attract 
investment to the region.  According to Orynbayev, Uzbekistan in 
particular has the ability to drive greater regional economic 
activity.  "Uzbekistan is the key," he contended.  "If they would 
just open up their borders and their markets to trade, they would 
realize immediate returns."  Unfortunately, he asserted, the 
government of Uzbekistan has elected to close its economy, and close 
its borders.  "They didn't even let returning migrant workers who 
had been living in Russia and Kazakhstan come back into Uzbekistan 
once the crisis hit.  And these are their own citizens!" he 
exclaimed. 
 
THE CUSTOMS UNION WITH RUSSIA AND BELARUS 
 
¶14.  (SBU) According to Orynbayev, the government has made a 
strategic decision to pursue the Customs Union with Russia and 
Belarus, and he said he expects it to expand in the future to 
include other Central Asian republics.  Orynbayev cited the size of 
the potential market of 200 million consumers, and Kazakhstan's 
investments in infrastructure such as the road to China, as 
incentives for increasing regional economic integration.  "The big 
question for the Customs Union is," he said, "where will the 
investment money go, once we have common tariffs?  We definitely 
want to attract investment to Kazakhstan.  Our goal is to make 
Kazakhstan an export platform for the Russian and regional markets." 
 
 
¶15.  (SBU) Deputy Foreign Minister Umarov said that he believed 
Kazakhstan could compete successfully with Russia for foreign 
investment.  He claimed Indian investors, for example, prefer 
Kazakhstan because it offers access to the Russian market on more 
open, favorable terms, with fewer bureaucratic obstacles. 
 
CASPIAN CORRIDOR 
 
¶16.  (SBU) When asked how important it is for Kazakhstan to develop 
trade, transportation, and travel across the Caspian, Orynbayev's 
response was swift:  "This is a top priority for Kazakhstan," he 
explained, "because we are a land-locked country, and that is our 
way to the sea, and to world markets."  He said Kazakhstan and 
Azerbaijan are strong, active trading partners, and Kazakhstan is 
still the top foreign investor in Georgia.  "This is a strategic 
transportation corridor for us," he said.  "We don't want to be 
entirely dependent on Russia for transportation to world markets." 
 
IRAN HAS GREAT POTENTIAL 
 
¶17.  (SBU) When asked about the importance of Iran to Kazakhstan as 
a trading partner, Orynbayev said Kazakhstan exports grain and swaps 
oil with Iran, but he downplayed the volume of trade activity, 
asserting, "Iran has big potential to become a major trading partner 
in the region, once its political problems with the United States 
are resolved.  Until then," he concluded, "trade activity will be 
low."  He acknowledged Kazakhstan's construction of a rail link to 
Iran via Turkmenistan, and claimed it would be used primarily for 
grain shipments. 
 
NEW YORK INVESTMENT FORUM 
 
¶18.  (SBU) Orynbayev confirmed that he will lead the government's 
delegation to the Investment Forum in New York on November 23-24. 
He is also willing to travel to Washington, pending meeting 
requests. 
 
¶19.  (SBU) COMMENT:  Orynbayev's enthusiastic support for PPEPI will 
pay dividends well beyond the specific policy recommendations of the 
 
ASTANA 00001949  004.3 OF 004 
 
 
working groups.  Thanks to this initiative, we have a direct line to 
the top economic policymakers in government.  With U.S. companies 
such as Parker Drilling and Baker Hughes complaining of unfair 
treatment by local tax authorities, we may need to take Orynbayev at 
his word and raise those issues directly with him.  Orynbayev's 
comments about the Customs Union confirm previous reports from Vice 
Minister of Trade Aitzhanova and others that Kazakhstan entered into 
the agreement willingly, driven by a desire to access the Russian 
market on more preferential terms.  We will continue to monitor 
reports that other Central Asian states may also be willing to join 
the Customs Union, although given their dismal record of economic 
cooperation and integration to date, that seems unlikely in the 
short term.  END COMMENT. 
 
¶20.  (U) This cable has been cleared by DAS Krol. 
 
HOAGLAND