VZCZCXRO8612
OO RUEHIK
DE RUEHTA #2027/01 3200144
ZNR UUUUU ZZH
O 160144Z NOV 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6848
INFO RUCNCIS/CIS COLLECTIVE 2159
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1529
RUEHKO/AMEMBASSY TOKYO 2230
RUEHUL/AMEMBASSY SEOUL 1164
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 1719
RUEKJCS/SECDEF WASHDC 1574
RUEKJCS/JOINT STAFF WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEHAST/USOFFICE ALMATY 2011

UNCLAS SECTION 01 OF 03 ASTANA 002027 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC, S/EEE, S/CIEA 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV EPET KZ
SUBJECT:  KAZAKHSTAN:  INVESTING IN ATYRAU 
 
REF:  (A) ASTANA 2026 
      (B) ASTANA 2005 
      (C) 08 ASTANA 2252 
 
ASTANA 00002027  001.3 OF 003 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  During two trips to Atyrau November 5-10, Energy 
Officer met with U.S. and international companies doing business in 
the region to discuss their opinion of Atyrau's investment climate. 
They said the region is led by a strong governor who expects foreign 
investors to follow the letter of the law and support his ambitious 
plans to improve the region's social infrastructure.  In general, 
they gave the governor high marks for creating a stable investment 
climate that offers attractive opportunities and the possibility of 
lucrative returns.  However, they accused the financial police -- 
who report to Astana, not Atyrau -- of using threats and 
intimidation to extract maximum rent from Western investors.  END 
SUMMARY. 
 
DCM MEETS DEPUTY AKIM 
 
¶3.  (SBU) The DCM met First Deputy Akim Bolat Daukenov, a former 
federal prosecutor, on her first visit to Atyrau on November 5 (ref 
A).  Daukenov began the meeting by praising the production and 
performance of Tengizchevroil (TCO), in which Chevron (50%) and 
ExxonMobil (25%) have large stakes.  He said that the local 
government (Akimat) would like TCO to increase its local content and 
investment in other areas of the economy, including technology (ref 
B).  Daukenov said that U.S. companies are careful to follow 
Kazakhstani law and the terms of their contract.  "To the best of my 
knowledge," he said, "we have no issues, problems, or complaints 
with U.S. companies in Atyrau." 
 
COMPANIES COMMENT ON THE ATYRAU AKIMAT 
 
¶4.  (SBU) Mark Peck is an Australian national and General Director 
of YKK Kazakhstan, which provides fire-safety and emergency-rescue 
training to oil companies operating in Kazakhstan (ref A).  He told 
the DCM on November 5 that it is easier doing business in Kazakhstan 
than in any other country he has worked, including Indonesia and 
Brazil.  In particular, he cited his company's ability to move 
products and cash in and out of the country.  "It's reasonably 
straightforward," he said, "once you understand the rules."  Peck 
said it helps to have a strong local partner and a legitimate local 
presence, and he attributed much of his company's success to the 
fact that YKK is a Kazakhstani company. 
 
¶5.  (SBU) On November 10, during lunch with Brent Woolfork, 
professional staff member of the House Foreign Affairs Committee, 
representatives of international oil service companies expressed 
their appreciation, if not admiration, for the work that Akim 
Ryskaliyev has done to develop Atyrau Oblast.  Colin Lind, a British 
citizen (and permanent resident of Kazakhstan, who owns property in 
Atyrau), is General Director of an engineering support services 
company called KIS/Orion LLP. 
 
¶6.  (SBU) Lind praised Ryskaliyev's emphasis on developing Atyrau's 
physical infrastructure, especially roads, bridges, water, and gas 
lines.  He even said he would vote for Ryskaliyev if he were allowed 
to.  When asked about the financial police, however, Lind gave a 
rueful laugh and joked, "You mean the evil guys in the big hats? 
When other officials call us, we try to put them off, reschedule the 
meeting.  But when they call, we come running.  We'll crawl 
backwards on all fours if we have to.  They have the power to come 
after you and shut you down." 
 
SECRETS OF SUCCESS AT TENGIZCHEVROIL 
 
¶7.  (SBU) Mariya Karazhigitova, TCO's Director of Local Government 
and Public Affairs, told the DCM on November 6 that TCO has a strong 
relationship with Atyrau Oblast Akim Bergey Ryskaliyev and a good 
reputation among the citizens of Atyrau oblast (ref A). 
 
ASTANA 00002027  002.3 OF 003 
 
 
Karazhigitova attributed this to TCO's ability to understand and 
empathize with the local government.  "We respect the Akim, we 
understand where he is coming from," she said.  "He always has a 
reason for everything he does.  We cannot pretend that we are here 
by ourselves."  Nevertheless, she admitted that the local government 
does not have sufficient funds to finance its ambitious development 
plans, and often relies on TCO to fund social projects.  "The Akim 
will get his money one way or another," she said.  "There are many 
ways he can make your life miserable.  And if you think they'll cut 
you a special deal because you're TCO, you're wrong." 
 
BAKER HUGHES AND THE FINANCIAL POLICE 
 
¶8.  (SBU) On October 29, Baker Hughes (BH) Vice President for the 
Caspian Don McKelvie reported to Energy Officer that the company is 
having tax trouble with Atyrau Oblast.  He said that the situation 
has escalated since early October, and requested Embassy assistance. 
 According to McKelvie, the Atyrau tax authority recently audited BH 
tax records for 2004-07 and found minor reporting violations.  The 
case was reviewed by an Atyrau court, which ruled in favor of the 
tax authority.  BH does not believe it is in violation of the law 
and is preparing an appeal. 
 
¶9.  (SBU) In the meantime, according to McKelvie, the financial 
police began a criminal investigation of the company's country 
manager and chief accountant.  On August 28, he said, the financial 
police entered Baker Hughes' office in Atyrau and demanded it turn 
over all tax records.  A company attorney refused to turn over the 
records without a court order, which McKelvie said irritated the 
financial police, who nevertheless left the office.  McKelvie said 
the financial police then used an active case against one of their 
customers to demand the documents via court order. 
 
¶10.  (SBU) With this order in hand, the financial police visited 
Baker Hughes in Aktau and demanded the records.  The Baker Hughes 
office there also declined to provide the files so the financial 
police travelled to Almaty and made the same demand.  A BH corporate 
attorney from Moscow arrived that night to meet with the tax 
authorities and negotiated a release of some documents not critical 
to the appeal.  The authorities sealed the documents, stamped the 
packages, and returned to Atyrau.  According to McKelvie, the case 
is still pending. 
 
¶11.  (SBU) The DCM raised this issue with Daukenov on November 5 
(ref A), who said the Ministry of Finance, not the Akimat, had the 
lead on the matter and was merely trying to follow Kazakhstani law. 
Daukenov said, "We have had similar issues with other companies in 
the past and have always been able to resolve them.  Moreover, we 
have worked very hard to bring our laws in line with international 
standards."  Daukenov emphasized that the Akimat wants to continue 
to attract foreign investment.  "Foreign investors pay taxes, build 
social infrastructure, and employ Kazakhstani citizens.  As a local 
resident of Atyrau oblast," he said, "I can tell you that this 
region has benefitted from foreign investment." 
 
DIFFICULTIES WITH DIVERSIFICATION 
 
¶12.  (SBU) Daukenov said the local government would like to 
diversify its economy away from oil and gas, but he acknowledged 
that it will not be easy.  "Atyrau is the oil and gas capital of 
Kazakhstan," he admitted.  "Investors come here primarily to explore 
for oil."  Nevertheless, the Akimat is promoting investment in 
sectors such as fishing, agriculture, construction, metallurgy, and 
petrochemicals. 
 
¶13.  (SBU) COMMENT:  In general, international businesses expressed 
a high opinion of the local government of Atyrau oblast.  Akim 
Ryskaliyev received high marks for investing in the city and in the 
region and is perceived as a tough, but fair administrator.  He is 
firmly in charge of governing Kazakhstan's most economically-dynamic 
oblast, and companies doing business in Atyrau would be ill-advised 
to cross or contradict him.  Most companies said their biggest 
 
ASTANA 00002027  003.3 OF 003 
 
 
problems have been with the central government -- particularly the 
tax police, who report to the Ministry of Finance -- not with the 
Akim.  Although Ryskaliyev is a powerful local boss, even he has to 
answer to The Boss in Astana.  END COMMENT. 
 
SPRATLEN