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

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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