KAZAKHSTAN: AMBASSADOR'S TRIP TO ATYRAU OBLAST

C O N F I D E N T I A L ALMATY 001920

SIPDIS


DEPT FOR EUR/CACEN (JMUDGE)

E.O. 12958: DECL: 05/11/2005
TAGS: PGOV ECON EPET KZ ECONOMIC
SUBJECT: KAZAKHSTAN: AMBASSADOR'S TRIP TO ATYRAU OBLAST


Classified By: Ambassador John Ordway, reasons 1.4 (b) and (d)


1. (C) Summary: Ambassador Ordway met with a wide-range of
civic groups, businessmen, local officials, and foreign
investors during his March 13-16 trip to Kazakhstan's
oil-rich Atyrau Oblast. The booming region faces skilled
labor shortages while a large rural population idles in
villages. Relations between investors and local officials are
generally good, though real tensions exist over work permits,
environmental fines, and corruption. NGOs, on the other hand,
charge environmental harm by the region's largest investor,
the TengizChevroil (TCO) field. They are also skeptical about
the efficacy of TCO-sponsored social programs. End Summary.

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Feast among Famine
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2. (U) Hugging the shores of the north Caspian, Atyrau's
salt-laden soil hold about 58% of Kazakhstan's recoverable
oil reserves. The overwhelmingly ethnic Kazakh region pumps
about 20% into the central budget but accounts for a mere 3%
of Kazakhstan's total population. Within 10 years, according
to Atyrau Oblast Akim (governor) Aslan Musin, the region
plans to produce 70 million tons of oil annually thanks to
two main projects, the Chevron-Texaco operated
TengizChevroil(TCO) field and AGIP-KCO's off-shore Kashagan
bloc. Musin reported that the average wage in the oil sector
had hit $1,000 a month and that rents equaled those in
Almaty. The City Akim, Manas Tasybayev, boasted that 90,000
square meters of new construction had gone up in 2004, almost
double the best Soviet-era figure of 55,000.

3 (SBU) Nevertheless, problems exist. Musin said the region
had been "a backwater" that still faced "many unsolved
problems despite the oil wealth." He ticked off the main
culprits: mono-economy; rural poverty; skilled labor
shortage; bad roads; lack of potable water; poor schools and
hospitals. Musin added said 65% of the population did not
have access to clean piped water. Tasybayev added that the
average family had five children, with the average between
three and four. (Comment: Both Musin and Tasynbayev are
viewed by some local residents as outsiders, appointed from
neighboring Aktyubinsk province in 2002. End Comment).

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Skilled Labor Shortage
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4. (SBU) All the Ambassador's interlocutors, both state
officials and private businessmen, complained of a growing
shortage of skilled labor. Musin said that the region had
"already exhausted its Soviet (skilled) labor reserves." He
griped that three training centers set up by AGIP and TCO
were "insufficient" and said that 40,000 workers would be
needed in the oil sector in the next ten years. He hoped that
as many as possible would be Kazakhstani.

5.(C) AGIP-KCO District Director Mario Becherucci projected
that 12,000 workers alone would be needed at the peak of his
project construction. He complained of a shortage of skilled
welders, and said that "it wasn't simply a matter, as the
local authorities believed, of training local people."
Becherucci added that some of the techniques and materials
demanded advanced skills, and, most importantly, experience.
West Pearson, the head of the Parson Flour Daniel's office
said local vocational schools were "horrible". His company
planned to open up a training center for welders and pipe
fitters.

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State-Investor relations: Okay, far from perfect
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6.(SBU) Local authorities were upbeat over their relations
with foreign investors. Musin praised TCO and called
relations with them "outstanding." He also lauded their
social programs (Note: The company has spent $86 million
since operations began in 1993. The Akim, not TCO, determines
priorities. End Note). Musin told the Ambassador that he
wanted to maximize Kazakhstani work participation, which
already is 80% for TCO, and increase the number of
Kazakhstani sub-contractors.

7.(C) At a coffee with the Ambassador, U.S. service company

representatives were less cheery about relations with the
authorities. As one oilman quipped, "it's the geology that
keeps us here." All cited renewing and getting work permits
as a serious problem. The head of the local KBR office,
Micheal Roach, said that local authorities had told them to
leave two years ago, then sniffed around for a $20,000 bribe.
William Borst, project manager for Parker Drilling, laughing
added that "it was difficult to deal with all the people who
want bribes."


8. (C) At a later meeting, TCO General Manager of Production
David Madsen said TCO was under "intense regulatory pressure"
and was being hit up to provide discounted crude to a local,
state-owned refinery. He also complained that the
authorities had refused exit permission for 400 oil-laden
rail cars for two months this winter during one dispute. That
clearly violates TCO's right of free export to world markets,
he noted. Local authorities also use environmental fines to
raise revenues and levied TCO with a $70 million dollar
charge in 2003. Ultimately, they settled for $7 million,
which came of the GOK's royalties under the TCO foundation
agreement.

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TCO in NGO crosshairs
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8. (SBU) A roundtable of NGOs peppered the Ambassador
regarding the latest round of investigations against NGOS.
They also charged TCO with polluting the environment and
claimed that TCO project money was squandered. The Ambassador
voiced his dissatisfaction with the latest round of
inspections against NGOs. He clarified the non-political,
technical nature of U.S. support to the third sector and said
the had brought up the issue with the Foreign Ministry. Most
at the meeting appeared heartened by his support.


9. (C) The NGOs also charged that TCO was emitting tens of
thousands of tons of emissions into the air, above and beyond
allowed limits, while stockpiling sulfur. One complained that
the region "was in a gas chamber." Others questioned the
efficacy of TCO-sponsored social programs and suggested
creating a monitoring mechanism. The Ambassador, who visited
the TCO Tengiz facility, replied that emissions were being
reduced every year and would decrease even more once sour gas
reinjection commenced. Regarding monitoring, he pointed out
that this was an issue between TCO and the Akim. (Comment:
All the companies, including TCO, worried about the efficacy
of their programs and worked to prevent side-deals and
looting by local authorities. End Comment)


10. (C) Comment: Long abandoned by Soviet central planners,
Atyrau is still trying to come to terms with the massive
influx of foreign direct investment. Western oil companies
create real job opportunities and provide training, but
cannot alone solve endemic issues such as rural poverty.
Despite backwardness, the region seems to be handling the
inflow of oil dollars fairly well. Local authorities spoke
honestly with the Ambassador about the regions shortcomings
as well as its achievements. People are working, the main
streets are paved, and there is a noted absence of squalor
and tawdriness normally associated with boom towns. End
Comment.
ORDWAY


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