KAZAKHSTAN: ENERGY MINISTER ON CPC EXPANSION, BTC-

UNCLAS SECTION 01 OF 02 ALMATY 001401 SIPDIS SENSITIVE SIPDIS DEPARTMENT FOR EB/ESC; SCA/FO (MANN); SCA/CEN (MUDGE) DEPARTMENT OF ENERGY FOR GETTO (DOE/SI); BURGESON (DOE/SI); WILLIAMSON (DOE/SI); HARBERT (DOE/PI); THOMPSON (PI-21) NSC FOR MERKEL E.O. 193056: N/A TAGS: PREL ECON ENRG ETRD KZ SUBJECT: KAZAKHSTAN: ENERGY MINISTER ON CPC EXPANSION, BTC- IGA, AND VIP VISIT ¶1. (SBU) Summary: Kazakhstan and Russia reached agreement on CPC expansion during President Nazarbayev's recent visit to Moscow, according to Energy Minister Izmukhambetov, but it remained to be seen whether the agreement would hold. Four very substantial issues remain to be resolved in the BTC IGA discussions. Izmukhambetov expressed interest in meeting with Secretary Bodman at the upcoming World Energy Forum in Doha, Qatar. The Minister signaled his support for a U.S.-sponsored feasibility study of a trans-Caspian gas pipeline, noting the political issues involved. He hoped that such a pipeline would start in Kazakhstan, and voiced concerns that Turkmenistan might not be able to supply the required volumes due to a recent deal with China. He informed the Ambassador that Russia was pushing Kazakhstan to support the Bosphorus bypass and to export more oil via the Transneft system. End summary. ¶2. (SBU) In an April 17 meeting with the Ambassador, Minister of Energy and Mineral Resources Batkykoz Izmukhambetov provided details on the CPC expansion agreement reached with Russia. During President Nazarbayev's March 31-April 3 visit to Moscow there had been a series of meetings with Energy Minister Khristenko and President Putin regarding Kazakhstan's proposed approach on tariffs and expenses. After lengthy discussions, representatives of CPC-K and CPC-R signed an agreement endorsing the new approach; ministers also initialed a document. Although this agreement should have resolved the last obstacle to CPC expansion, Izmukhambetov explained, some on the Russian side were now refusing to honor the terms of the deal. It remained to be seen whether the agreement would hold. ¶3. (SBU) Izmukhambetov told the Ambassador that Kazakhstan had also raised the question of changing CPC-R's status from a joint stock company ("AO") to an LLP ("TOO"),based on concerns expressed by Chevron. There is an issue regarding the reorganization of CPC-R in order to comply with the new Russian law on joint stock companies. Because Russian law prevented the government from participating in a TOO, however, Kazakhstan was unable to insist on the change. ¶4. (SBU) Izmukhambetov asked whether Secretary Bodman would take part in the April 24-25 World Energy Forum in Doha, Qatar. Izmukhambetov hoped to meet with Bodman and to get him together with Khristenko as well. ¶5. (SBU) On the Baku-Tblisi-Ceyhan Intergovernmental Agreement (BTC-IGA),Izmukhambetov said that he expected to receive a proposal soon from the working group currently meeting in Baku. He hoped to see the proposal before leaving for Qatar, as the next high-level meeting would take place in Baku April 27-28. Izmukhambetov noted that four very substantial questions remain to be resolved; in these areas Azerbaijan's proposals do not conform to what was agreed earlier. He said that the oil majors had participated in the discussions to date and shared the GOK's views almost completely. ¶6. (SBU) The Ambassador raised the upcoming VIP visit and the list of possible related activities. Izmukhambetov expressed support for the idea of a feasibility study for a trans-Caspian gas pipeline. Such an export route was attractive for Kazakhstan because it was simpler than the other options and financially sound. He also noted that only a western route got gas to world prices: north and south lead to "monopolists." He said that attempts to reach acceptable arrangements with Gazprom/GOR on transit, and the Orenburg processing deal, were stalled with no signs they would ever reach agreement. Regarding the proposed trans- Caspian pipeline, Izmukhambetov concluded that the main question was political, i.e. how to obtain Russian and Iranian agreement to such an undertaking. The Ambassador ALMATY 00001401 002 OF 002 indicated that this question would be an important component of the feasibility study. ¶7. (SBU) Izmukhambetov said that if he had the opportunity to meet with Secretary Bodman in Qatar, he would seek assurances that the U.S. favored a pipeline starting in Kazakhstan rather than Turkmenistan. The Ambassador indicated that to the best of his knowledge that was the case. He noted that volumes from Turkmenistan might be necessary to make the pipeline feasible. Izmukhambetov concurred vigorously, claiming that as a result of a recently-announced deal with China, Turkmenistan had already considerably oversold its potential exports. Izmukhambetov added that the announcement had referred to a gas pipeline running from Turkmenistan through Uzbekistan and Kazakhstan to China. He commented that the GOK would have to "study such a proposal carefully, to put it mildly," before allowing transit through Kazakhstan. He thought that ultimately Turkmenistan would prefer a simple export route across the Caspian using the existing pipeline to Kazakhstan. Turkmenistan could face problems with China if it did not deliver the promised gas exports, however. Izmukhambetov indicated that he also hoped to discuss this issue with Secretary Bodman. ¶8. (SBU) Izmukhambetov told the Ambassador that during the recent talks in Moscow, the Russian government sought Kazakhstan's agreement on the Burgas-Alexandroupolis Bosphorus bypass. Chevron sought a 30% share in the project. KMG was considering exporting 10 million barrels of crude annually through such a pipeline. ¶9. (SBU) The Minister also expressed frustration with the Russian government's pressure on Kazakhstan to export higher volumes of crude through the Transneft system. Without quality bank assurances, Izmukhambetov stressed, it made no sense to export high-quality oil from TCO, Kashagan, and Karachaganak via Transneft. The GOK would not commit volumes to Transneft without quality bank provisions, he said. ORDWAY