SECRETARY BODMAN MEETING WITH PRESIDENT NAZARBAYEV

C O N F I D E N T I A L SECTION 01 OF 04 ALMATY 001068

SIPDIS

E.O. 12958: DECL: 03/20/2016
TAGS: PGOV ECON PREL KZ POLITICAL
SUBJECT: SECRETARY BODMAN MEETING WITH PRESIDENT NAZARBAYEV

Classified By: AMBASSADOR JOHN ORDWAY. REASONS: 1.4 (B, D)


1. (C) SUMMARY: Secretary Bodman met President Nazarbayev
for nearly an hour on March 14. Bodman conveyed President
Bush's desire to send VP Cheney to Kazakhstan in May, and
invite Nazarbayev to the White House in the early fall.
Nazarbayev accepted both parts of the proposal, but said that
his visit to Washington required substance, noting as
examples broader U.S. investment, education, and establishing
a bilateral working group. Nazarbayev said that Kazakhstan
aspires to be a reliable energy supplier to Europe and the
world, and that the presence of U.S. companies in this sector
is "priority number 1." He said Kazakhstan is ready to sign
the BTC IGA, and that the ball is in Azerbaijan's court. He
noted difficulties in achieving Russian agreement to expand
CPC, and to agree to the transit of Kazakhstani oil to
Lithuania to facilitate purchase of the Mazeiku refinery.
Discussing Iran, he said the country had the wrong President,
which was leading to an unacceptable effort to obtain nuclear
weapons, as well as creating conditions which made transit of
Kazakhstani oil problematical. He strongly urged that the
U.S. not use military options against Iran. On Central Asia,
he said he would be visiting Uzbekistan shortly to encourage
Karimov to open the economy, admitting that this was still
unlikely. He was pessimistic on Uzbekistan's stability,
bemoaned Kyrgyzstan's weakness, offered little optimism on
Tajikisistan, and had only caustic comments about
Turkmenistan. He spoke at length, and with emotion, about
Russia and its role, saying bluntly that Kazakhstan is not
happy with many developments there as Putin tries to build a
stronger state. Noting the imperialistic, colonial attitude
of Russians during the Soviet era, he said that the current
middle generation has been unable to overcome this heritage.
Kazakhstan, despite being a good neighbor, suffers from
Russian discrimination and intolerance. Nonetheless, he said
that isolation and confrontation would be counterproductive,
and urged continued U.S. engagement with Russia, including in
the G-8 context. END SUMMARY

Invitation
--------------


2. (C) Bodman began the meeting by extending
congratulations on behalf of President Bush on Nazarbayev's
impressive election victory. He said that the President has
asked Vice President Cheney to call on President Nazarbayev
in early May, and was asking Nazarbayev to visit him in the
White House in the early fall. The President, Bodman said,
looks forward to seeing Nazarbayev personally. (NOTE: After
Nazarbayev entered, TV and still cameras were brought into
the meeting room and began shooting from a position outside
Secretary Bodman's line of sight. This invitation was seen

SIPDIS
and heard by a large number of cameramen. To date, only one
TV channel has carried a report about the Vice President's
visit, and it has not received any further play. END NOTE)


3. (C) President Nazarbayev noted that he had met President
Bush in Moscow in May 2005, and the President had promised to
send the Vice President to Kazakhstan. Now, a year later, he
was hearing the confirmation that the President was a man of
his word. He said that he welcomed the Vice President's
visit in early May, noting only that the exact dates would
have to be agreed. He said that he in turn would be happy to
visit the White House, but added that he wanted that visit to
have substance. Bodman also expressed gratitude for
Kazakhstan's contribution to the war on terrorism, and in
particular its military contingent in Iraq.


4. (C) Nazarbayev then immediately launched into an
extensive monologue that included a number of diverse points
of existing and possible future bilateral cooperation:

-- Kazakhstan and the U.S. had accomplished much in many
areas over the past 14 years. Now, he was trying to
industrialize the economy.

-- Kazakhstan was pursuing mining, developing machine
building for the oil and gas sector, establishing technoparks
for biotech, IT and medical technology, as well as science
centers.

-- Nazarbayev wanted American partners to help build a
world-class educational center, including a high-class
university to train managers and engineers.

-- Developing value-added agriculture processing was
important, Nazarbayev said, noting that 60 percent of the
population lived in rural areas but only produced 20 percent
of the GDP. The country's large wheat harvests, along with
cotton, meat and wool, all could be processed.

-- He also said Kazakhstan wants to attract more small and
medium-sized businesses.

-- Energy cooperation remains important.

-- Kazakhstan, he said, was "switching" to Boeings and
wanted to establish a regional maintenance center with
Boeing. (Note: There's a factual disconnect here. The
major domestic carrier has had an all-Boeing leased fleet
that it is now beginning to enlarge with wet-leased Airbuses,
and one additional wet-leased Boeing. On the positive side,
this remark by the President is further, and authoritative,
confirmation that Boeing is leading in the about-to-be
released RFP for the purchase of aircraft. On the other
hand, we are unaware of any Boeing plans for a maintenance
center in Kazakhstan, especially given the existing Boeing
center in Uzbekistan. END NOTE)

-- Economic partnership will bring the two countries closer,
and build the basis for political and other cooperation.

-- We should establish two working groups, and reach
agreements. (At another point in the conversation, he
elaborated on this idea. He noted the Clinton-era
Gore-Nazarbayev Commission as a model, and proposed that this
new group be headed on the Kazakhstan side by the Prime
Minister or Deputy Prime Minister, and perhaps at the
ministerial level on the U.S. side.)

-- He said he would be pleased to visit the U.S., perhaps
around the time of the UNGA, and asked Bodman to convey his
thanks to President Bush for this proposal.

Energy: Supplier to the world, but pipeline woes
-------------- --------------


5. (C) Nazarbayev outlined a strong vision of Kazakhstan
as a major and reliable supplier of energy to Europe and the
world community, striving to be a good partner in supplying
oil and gas. In this connection, he said that "the presence
of U.S. companies is priority number one in our partnership."
He noted that U.S. firms had invested $10 billion, a figure
that should double within five years. Kazakhstan aspired to
be one of the top 10 oil producers by 2015. He said that as
a land-locked country, the biggest challenge was delivering
to markets. Kazakhstan wanted diversity of export routes.
Lots of effort had gone into CPC, and he was working on its
expansion. The pipeline to China had been completed, and a
700 km extension to the Caspian would be completed in two
years. Kazakhstan supported the BTC pipeline, and was
optimistic about signing the IGA soon: the ball, though, is
in Azerbaijan's court. Three tankers have been ordered to
transport the oil to Baku, and Azerbaijan would supply
additional tankers. The first stage envisioned shipping 10
million tons a year, but that would be expanded.


6. (C) Nazarbayev said that the country's "big neighbors"
were not happy with these developments. He said that what
made Russia happy made China unhappy, and vice versa.
Kazakhstan regarded the two countries as good friends and
neighbors, but it needed to carry out its own policies --
which in fact were not damaging the interests of either China
or Russia. Nazarbayev said that Kazakhstan wants to purchase
the Mazeikiu Nafta refinery in Lithuania, and has made the
highest offer. A Russian company, Rosneft, and a Polish
company, were also still bidding. The winner would have to
provide crude to the refinery, which eliminated the Polish
concern. Kazakhstan needed Russia's cooperation to transport
its crude to the refinery. The Russian side had seemed to be
cooperative, but now this was uncertain.


7. (C) Bodman said he would be meeting with Central
European energy ministers in Budapest, who are worried about
energy security and supplies in light of the recent
experience of Ukraine and Georgia. They are interested in
LNG from Algeria, and possibly nuclear energy. What advice
would Nazarbayev have?


8. (C) Nazarbayev said that if Russia were not between
them, there would be a beautiful solution. A great idea for
the future is a trans-Caspian gas pipeline that would allow
gas supplies via a much shorter route than from Siberia. BTC
was another important route for energy that could benefit
Central Europe. Kazakhstan was trying to convince the
concerned parties to reverse Odessa-Brody pipeline northward
as an outlet for Caspian oil from Novorissysk to reach
Central Europe. However, for Europe there was no complete
alternative to Russian natural gas.


9. (C) Nazarbayev complained that Russia had blocked
Kazakhstani attempts to sell gas to Georgia at any price
cheaper than what Russia was charging. He added that
Kazakhstan is becoming a major investor in Georgia, and said
that he liked Saakashvili more than Yushchenko. He said that
Ukraine was a completely different situation, and predicted
that they would have a very tough parliamentary election in
which no one would get a majority. He also predicted that
the new parliament might also attempt to unseat Yushchenko by
arguing that the third round that elected him was
unconstitutional.
Iran
--------------

10. (C) Nazarbayev said that the most feasible and
profitable route for Kazakhstani crude was through Iran.
However, all the American oil companies objected. Nazarbayev
said that any change in this situation would require a new
President in Iran, and said that he hoped a new one would be
better than the current one. He acknowledged that Iran was
seeking nuclear weapons, and said he was trying to persuade
the Iranians to give this up. Kazakhstan had done so, and
found that its security had not gotten worse, but had
improved. Asked by Bodman for advice on how to deal with
Iran, Nazarbayev said above all "don't repeat Iraq in Iran."
He said that Kazakhstan "is totally on your side" in saying
no to nuclear weapons, and continuing to put pressure on the
Iranians. He said that Russia now seemed to recognize the
danger in this, especially for itself. The worst scenario
would be to bomb Iran, which would create an outburst of rage
unlike Afghanistan or Iraq, and which could cause global
destabilization.

Future of Energy
--------------


11. (C) Nazarbayev asked about President Bush's State of
the Union remarks about reducing dependence on imported
energy. Bodman said that DOE was researching possible
partial alternatives, including ethanol fuels from cellulose
for automobiles. However, this depended on the results of
research that was not yet completed. Bodman suggested that
local Kazakhstani grasses might be used to produce ethanol.
Nazarbayev noted jocularly that Kazakhstan did not have an
oil deficit, but added that Kazakhstan was indeed interested
in alternative energy sources, including solar, wind and
nuclear. He said that he would like to cooperate with the
U.S. in these areas, especially on nuclear.

Central Asia: Problems everywhere
--------------


12. (C) Bodman noted American interest in Kazakhstan
playing a leadership role in Central Asia. Nazarbayev said,
laughing, that he would be happy to do so, but that the U.S.
should not mention this idea to the others -- all of whom
thought they should be the leader. Nazarbayev said that he
would shortly be visiting Uzbekistan and would attempt to
persuade President Karimov to open up his economy, although
he doubted this would be successful. Nazarbayev said he had
proposed a Central Asian economic union to allow the five
countries to help develop the region -- and Karimov proceeded
to invite in the Russians. He criticized Karimov's character
as damaging the country's development, and noted that wages
one-tenth the level of Kazakhstan's resulted in nearly a
million Uzbek "guest workers." The threat of domestic
destabilization in Uzbekistan, he said, was very high.


13. (C) Turning to the other countries in the region, he
said that Kyrgyzstan is very weak, poor, and burdened by
excessively high external debt. Tajikistan was still
emerging from its civil war and has not decided which way to
go. Turkmenistan, he said, was the "worst example of a
planned economy," whose President's actions had ranged from
shutting down the opera to abolishing pensions, and whose
cult of personality knew almost no bounds.


14. (C) Nonetheless, important processes were going on in
the region, including in Afghanistan. The region was on the
threshold of a major transformation.

Russia: Coping with post-empire stress syndrome
-------------- ---


15. (C) Nazarbayev began an extended soliloquy on Russia by
saying that Putin was trying to get the country under control
by strengthening state structures. Kazakhstan was not happy
with all that was going on in Russia. Moreover, rapid
liberalization in Kazakhstan was seen by its neighbors as a
bad example. Russians, Nazarbayev explained, by nature need
a gun in their hands. All state officials in czarist Russia
wore uniforms. All Russians continued to live on the memory
of World War II.


16. (C) In the Soviet period, Russians were the main
nationality everywhere. All others were second-class
citizens, even in their own homelands. The most important
posts belonged to Russians. Then the USSR collapsed, and
Russians lost their privileged position. In Kazakhstan, for
example, at independence 90 percent of the army officers were
ethnic Russians; now the percentages were exactly reversed.
Post-Soviet Russia is no longer a superpower. Their
self-esteem is low, and they are boiling with pain. This
especially affects the middle-aged generation. Russians need
time to become normal people.


17. (C) Nazarbayev said that Kazakhstan feels the impact of
Russia every day. One example: rail tariffs are two times
higher for Kazakhstan than for domestic freight. This is
despite the fact that Kazakhstan is a good neighbor. Russia
simply wants to show that it is strong. Nazarbayev said that
when he goes to Moscow, he tells the Russians that they have
the largest territory in the world, that they are extremely
rich in natural resources -- what else could they want? This
is enough to bring richness to their people. Nazarbayev said
that he argues that Kazakhstan and Russia are neighbors, and
should meet as equals. However, Russia does not want to do
so, they won't treat Kazakhstan as they treat even Poland or
Finland.


18. (C) Nazarbayev said that there were parts of Russian
policy that neither the U.S. nor Kazakhstan liked, but that
this cannot be avoided. The worst way of dealing with this
would be to push them away and isolate them. This would not
hurt the Russians, but "would hurt the situation here." The
U.S. needed to employ a very "delicate" policy toward Russia,
inviting Russia to participate in international
organizations, increasing relations, and trying to influence
the leadership as was done with Yeltsin. Nazarbayev said
that he meets often with Putin. Putin understands that he
needs to work closely with the U.S., and understands that
confrontation is useless. With the help of American
influence and the injection of American capital, gradually we
can all influence Russian policies.


19. (C) Nazarbayev concluded that the current Russian elite
will retain power for a long time. It is very good that
Russia is in the G-8 and other international organizations.
It is necessary for them to upgrade their relations with the
U.S. "Let them think they are players."

COMMENT
--------------

20. (C) Nazarbayev is clearly inclined to develop his
country's energy resources, and energy policies, along
market-oriented geostrategic lines that largely coincide with
our own thinking. His emphasis on CPC expansion and joining
BTC is an old theme. What was new was the vision of being a
stable and strategic energy supplier to eastern Europe
(including Georgia),tempered by hard-headed realism
regarding the challenges of overcoming short-sighted Russian
policies and obstructionism. The accumulated problems of
Russian blockage of CPC expansion, Russian-established prices
for Kazakhstani gas, crippling rail tariffs, and potential
Russian double-dealing on the Lithuanian refinery deal may
have combined to produce an unusually candid, and
devastatingly accurate, picture of post-Soviet Russia's
aggressive inferiority complex and its impact on Kazakhstan.
Unlike other residents of what Russia calls its "near
abroad," Nazarbayev and Kazakhstan have cards and the skill
to play them. However, not all of their hands are winners --
and this remains galling to Nazarbayev.


21. (U) This cable has been cleared by Secretary Bodman's
party.
ORDWAY