KAZAKHSTAN: TIMUR KULIBAYEV GIVES DAS FEIGENBAUM

UNCLAS SECTION 01 OF 02 ALMATY 003027 SIPDIS SENSITIVE SIPDIS DEPT FOR SCA/CEN - MUDGE, DEHART E.O. 12958: N/A TAGS: PGOV PHUM PREL KDEM KZ SUBJECT: KAZAKHSTAN: TIMUR KULIBAYEV GIVES DAS FEIGENBAUM OIL AND GAS OVERVIEW ALMATY 00003027 001.2 OF 002 ¶1. (SBU) Summary: During an August 25 meeting in Astana, Presidential son-in-law Timur Kulibayev provided SCA DAS Evan Feigenbaum with an overview of Kazakhstan's oil and gas sector, outlining his vision for the next decade. Kulibayev expressed firm support for the Trans-Caspian gas pipeline project, noting both its intrinsic value and its value as leverage in negotiations with Gazprom. Kulibayev acknowledged a deep ambivalence within the GOK and the populace about China's energy appetite, lauding the value of China as a market and the Chinese propensity to pay "more than market value" for energy assets, while underscoring the existence of GOK means to limit Chinese acquisitions in Kazakhstan. Reflecting on the state holding company's objective to modernize the management of the State's assets, Kulibayev admitted that, in the oil and gas sector, at least, it would be impossible to eliminate the strong influence of politics on the economy. End Summary. Kulibayev: Oil Plans "Clear" -------------- ¶2. (SBU) Kulibayev, Deputy Chairman of "Samruk," Kazakhstan's State-Asset Holding Company, opened the August 25 meeting by giving DAS Feigenbaum an overview of Kazakhstan's oil and gas sector. "We have a clear vision on oil," he explained, noting that by 2015 Kazakhstan would produce 3 million barrels/day. The country was heavily dependent on outside investment, both for infrastructure projects and in the oil and gas service structures. For that reason, maintaining a good investment climate was critical. And while there were "differences and debates" between companies and the GOK, Kulibayev acknowledged, they were invariably "discussed and settled." Kulibayev noted that the GOK was aggressively promoting local content in the oil industry, as well as the creation of a domestic service sector. ¶3. (SBU) Kulibayev pointed out that, as a landlocked country far from market - and close to competing producers such as Russia, Azerbaijan, and Turkmenistan - transportation infrastructure was "very essential" to the development of the oil industry. The only geographical privilege Kazakhstan enjoyed, he said, was proximity to China - which, along with Europe, formed Kazakhstan's "natural markets." The recent signature of an Azeri- Kazakhstani inter-governmental agreement had paved the way for future access of Kazakhstani oil to the BTC pipeline. The next critical step in developing oil infrastructure, Kulibayev said, would be to conclude the long-standing CPC pipeline expansion negotiations. Gas Plans "More Complex" -------------- ¶4. (SBU) Kazakhstan's vision for gas development, Kulibayev continued, was much more complex. Current Kazakhstani exports - only 10 billion cubic meters (bcm) annually - were held hostage by the Gazprom transportation monopoly, with Kazakhstan's only leverage on pricing coming from its role as a transit country for Turkmenistani and Uzbekistani gas. Kazakhstani gas production would grow to 50 bcms by 2015, Kulibayev said, but the country's export options weren't clear. "We are currently looking in the Azeri direction," Kulibayev explained, hoping to connect to the Shah Deniz pipeline by means of a Trans-Caspian gas pipeline. However, he lamented, Russian and Iran were opposed to the project. Furthermore, with a questionable Kazakhstani resource base, Turkmen gas would have to included - a factor which added significantly to the project's risk. Finally, Kulibayev added, the project was vulnerable to competition from other producers - Iran, for example, which was discussing the possibility of constructing a competing pipeline to Turkey. Kulibayev concluded by stating that, all of these concerns aside, the project had "our" strong support. In addition to the project's intrinsic value, talk of a Trans-Caspian pipeline was "very helpful in negotiations with Russia." Ambivalence Toward China's Energy Appetite -------------- ¶5. (SBU) Kulibayev expressed ambivalence about China's growing appetite for energy. On one hand, he said, China was a natural market for Kazakhstani oil and gas. Furthermore, he continued, with Kazakhstan a clear priority in China's state policy on energy security, ALMATY 00003027 002.2 OF 002 Chinese companies invariably offered "market price plus a premium" for Kazakhstani oil assets. The Chinese even subordinated their bilateral political agenda to their appetite for oil, "never giving us any pretext for displeasure." On the other hand, he explained, both the GOK and the population feared an increasing Chinese presence. So, although the Chinese were "buying any asset that appears," the GOK had several means to limit their influence, including preemptive right legislation. Kulibayev expressed pride that he had played a role in developing a policy of maintaining majority control - and veto rights - in shared infrastructure projects with China, including the Chinese-Kazakhstan oil pipeline. Samruk -------------- ¶6. (SBU) Kulibayev described the GOK's goal in creating Samruk as one of improving corporate management and transparency, while divesting the State of non-strategic assets. Samruk, he explained, had assumed management control of state enterprises from the ministries, and was in the process of adopting cutting-edge Western management techniques. ¶7. (SBU) DAS Feigenbaum asked Kulibayev if the trend toward "corporatizing" parts of the economy previously under government control might lead to a lessening of the influence of politics on the economy. Not necessarily, Kulibayev answered. While certain trends in that direction were evident, such as the rationalization of legislation and business regulation, oil and gas was a "very sensitive" sector, and would always draw the attention of political circles. ORDWAY