KAZAKHSTAN: TIMUR KULIBAYEV GIVES DAS FEIGENBAUM

UNCLAS SECTION 01 OF 02 ALMATY 003027

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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"
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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"
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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