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Identifier
Created
Classification
Origin
05ALMATY3915
2005-10-31 06:39:00
CONFIDENTIAL
US Office Almaty
Cable title:  

KAZAKHSTAN: NEXT STEPS ON BIOKOMBINAT

Tags:   KZ  PARM  TBIO  WMD  POLITICAL 
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						C O N F I D E N T I A L  ALMATY 003915 

SIPDIS


DEPARTMENT FOR EUR/CACEN (J. MUDGE), EUR/PRA (D. LINNET)

E.O. 12958: DECL: 10/31/2015
TAGS: KZ PARM TBIO WMD POLITICAL
SUBJECT: KAZAKHSTAN: NEXT STEPS ON BIOKOMBINAT

REF: A. 04 STATE 271994

B. ALMATY 1436

Classified By: Ambassador John Ordway, reasons 1.4 (e) and (h).



1. (C) Summary: The owners of the privatized Biokombinat
facility in Almaty are willing to transfer ownership of 69
fermenters to the Nonproliferation and Disarmament Fund for
destruction in return for $500,000 plus taxes. Post
recommends that the Department act quickly to formalize
agreement on the fermenters in Almaty, as they pose a serious
and immediate proliferation risk. After the fermenters have
been destroyed, post believes it would be appropriate to
approach Betta Star, the private firm which purchased
Biokombinat in 2001, with a request that they abandon their
plans to manufacture anthrax vaccine in Stepnogorsk. If
Betta Star does not agree to this request, interagency
discussion of whether to urge the GOK to step in and limit
Betta Star's commercial activities would be necessary. Post
believes that the GOK's reaction to any such request is
likely to be negative. See paragraph 7 for action request.
End summary.

Background


--------------------------





2. (SBU) After learning this summer from contacts at the
Ministry of Education and Science that the owners of the
Biokombinat facility in Almaty intended to dispose of several
large fermenters, which posed a potential proliferation
threat, post gathered additional information and relayed it
to the department in August. Interagency discussion resulted
in a decision that the Nonproliferation and Disarmament Fund
(NDF) would address the problem. POEC chief met with Gaisha
Kashikova, director of Betta Star (which owns Biokombinat),
on September 8 to inform her of the Department's interest in
addressing this potential proliferation threat. At that
meeting, Kashikova explained that when her firm purchased the
complex from the State Committee on Property in 2001, they
were required to commit to maintaining the "profile" of the
firm for five years. Kashikova indicated that this commitment
obligated Betta Star to maintain vaccine production.



3. (C) As a result of the inspection conducted at U.S.
request (reftels), Betta Star was ordered to move vaccine
production out of the Almaty oblast. Kashikova indicated
that she is under pressure to re-establish production as
quickly as possible so as not to be found in violation of the
privatization agreement. She noted that Betta Star was a
real estate development firm that had gotten into vaccine
production "accidentally" by purchasing the six-hectare
Biokombinat complex in central Almaty. The firm plans to
build retail and residential space on the lot.



4. (SBU) Kashikova explained that, after searching
unsuccessfully for a suitable location in the Almaty region,
she settled on Stepnogorsk as the only place with the

appropriate facilities, workforce, and utility rates.
Renovation of the building and installation of fermenters was
already underway as of September, according to Kashikova.
She indicated that Betta Star was doing the minimum required
to fulfill the requirements of the privatization agreement.

NDF Visit


--------------------------





5. (C) NDF and Embassy representatives held initial
discussions with Kashikova on September 19 and visited the
Biokombinat facility in Almaty briefly on September 21.
During the visit, it was apparent that the complex is lightly
guarded and almost abandoned; only three or four Biokombinat
employees were on site as caretakers. Most of the 69
remaining fermenters are still in the main building; two are
lying in the courtyard.



6. (SBU) During a September 22 meeting with NDF
representative Pat O'Brien, Kashikova presented an elaborate
business plan for the Stepnogorsk facility, describing
production of six vaccines and bottling of a seventh from
imported concentrates. Kashikova agreed to transfer
ownership of the 69 fermenters remaining in Almaty to the USG
for destruction for $500,000. She indicated that she would
be willing to sell the entire new facility in Stepnogorsk to
the USG for an additional $3.5 million, once Betta Star's
vaccine production requirement has been fulfilled (i.e.
October 2006). Kashikova indicated that the $500,000 figure
was after taxes, including VAT and corporate income tax. In
a September 30 letter to POEC chief, Kashikova revised the
proposal to $1.2 million if an agreement was signed covering
only the Almaty fermenters, or $4.14 million for the entire
package. After POEC chief met with Kashikova on October 4 to
discuss the discrepancy, Kashikova sent an email on October 5
requesting a total of $687,306 for the Almaty fermenters,

including $65,217 in VAT and $122,089 in corporate income
tax.

Next Steps/Action Request


--------------------------





7. (SBU) Action request: Post understands that NDF will be
ready to sign an agreement on the Almaty fermenters as early
as November 4. Post requests department guidance on
responding to Kashikova's October 5 offer. The question of
taxes needs to be addressed, given the verbal agreement of
September 22. Kashikova has requested an advance copy of the
NDF agreement for review by Betta Star's lawyers in order to
be prepared to sign as quickly as possible. Post recommends
the NDF send a letter as soon as possible to Kashikova, via
the embassy, outlining how much the Department is willing to
pay Betta Star and explaining which taxes we believe are
applicable and why. Post also recommends that the letter
include a draft of agreement for Kashikova's review. It is
essential to move quickly with the destruction to ensure that
cooperation with the U.S. continues to make financial sense
for Betta Star and to address the real threat posed by these
69 poorly protected fermenters.



8. (C) The question of whether and when to purchase the 80
fermenters that Betta Star has moved to Stepnogorsk requires
further discussion. Post believes that it would not be wise
for the USG to agree to Kashikova's price of an additional
$3.5 million for the Stepnogorsk facility, as it remains to
be seen whether Betta Star actually intends to invest
sufficient funds to create a functioning business or is
merely using its ambitious business plan to drive up the
asking price. In her first conversation with the USG on this
subject, Kashikova minimized the size and value of the
intended facility in Stepnogorsk. Only after learning that
the USG might be willing to compensate her firm for the
fermenters did she begin to describe ambitious investment
plans. In so doing, she has increased the per unit price for
the fermenters from $7250 (Almaty) to $43,750 (Stepnogorsk).
Even allowing for the fact that Betta Star has chosen to move
only newer, more commercially useful equipment to
Stepnogorsk, this appears to be a bargaining tactic. Post
recommends allowing the market to decide. If in October
2006, Betta Star has a commercially-viable vaccine production
facility in Stepnogorsk, the U.S. should not prevent them
from selling it to a legitimate buyer. Such a course of
action would be consistent with our policy of supporting
economic diversification and the peaceful employment of
former weapons scientists. If no such buyer appears, then
the U.S. would be able to offer a far lower sum for the
facility.

Anthrax and Stepnogorsk


--------------------------





9. (SBU) In the business plan shared with NDF on September
22, Betta Star described plans to manufacture six vaccines
(anthrax, brucellosis, gangrene, braxy, swine erysipelas, and
listeriosis) at its new Stepnogorsk facility, and to bottle
FMD vaccine from imported concentrates. The business plan
indicated that vaccine production at Biokombinat had been
relatively low in recent years, resulting in only $144,000
revenue from government contracts in 2002. According to
Kashikova, most if not all of Biokombinat's revenue since
privatization came from anthrax vaccine.



10. (C) Post understands that there is significant
interagency concern regarding the establishment of anthrax
vaccine production capability in Stepnogorsk, given the
expense and difficulty of the CTR project to liquidate the
remains of the Soviet Union's weaponized anthrax program at
the same location. In informal discussions of the issue, Dr.
Yerlan Ramanculov, former CDC researcher and director of
Kazakhstan's new National Center for Biotechnology, has
stressed that there is no comparison between the production
of anthrax vaccine using attenuated strains, and the
Soviet-era production of weaponized anthrax. According to
Ramanculov, the supplies and procedures for vaccine
production pose no proliferation threat and extremely minimal
public health risk.



11. (C) Given the potential for the situation to be distorted
if picked up by the media, post believes it would be
appropriate to discuss with Betta Star officials the
possibility of dropping anthrax vaccine from their production
plans in Stepnogorsk. It is essential that NDF reach
agreement with Betta Star on the destruction of the
fermenters in Almaty, transfer the funds, and complete the
destruction first, however. Broaching the subject
prematurely could endanger the agreement with Betta Star by
creating the impression that the USG intended to use
diplomatic pressure to force the firm to do something that
would violate the terms of its privatization agreement. As

the company is completely private and there are no domestic
laws or international agreements that prevent them from
moving the fermenters within Kazakhstan, there in fact is no
way to compel them to cooperate with the USG. During
meetings, Kashikova has more than once said that she is ready
to go to court to fend off any USG or GOK action that could
threaten Betta Star's ownership of the extremely valuable
Biokombinat plot.



12. (C) If Betta Star does not agree to drop its plans to
manufacture anthrax vaccine in Stepnogorsk, interagency
discussion of the option of demarching the GOK would be
necessary. Post notes that officials in the Ministry of
Education and Science are extremely critical of what they
describe as the U.S. "failure" to support commercial
development in Stepnogorsk through the defense conversion,
and often bring up the subject of the tableting line provided
by the U.S. that has sat unused in Stepnogorsk for many
years. They allege that in Stepnogorsk, the U.S. "only
destroys, it never builds." It would therefore be an uphill
battle to approach the GOK with a request to impose limits on
the business activities of a start-up biotechnology firm in
Stepnogorsk, particularly given the lack of a convincing
argument that production of anthrax vaccine creates a
proliferation risk. If it comes to this stage, post
recommends that the relevant agencies weigh carefully the
political cost of beginning what is likely to be a dispute
with the GOK against the actual risk, if any, posed by Betta
Star's proposed activities. It is also important to consider
the fact that preserving good relations with Betta Star would
ensure USG access to the Stepnogorsk facility and preserve
the option of purchasing the remaining fermenters in 2006.
Any action perceived as threatening the firm's ability to
operate could end the cooperative relationship.
ORDWAY


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