KAZAKHSTAN: WHITHER IN 2006

C O N F I D E N T I A L SECTION 01 OF 04 ALMATY 000756

SIPDIS

FOR SCA A/S BOUCHER FROM THE AMBASSADOR
INFO: SCA (DCAMP/JGASTRIGHT); SCA/CEN (JFOX/JMUDGE)

E.O. 12958: DECL: 02/24/2016
TAGS: PREL PGOV EINV KDEM PHUM PARM KPAO KZ POLITICAL
SUBJECT: KAZAKHSTAN: WHITHER IN 2006

Classified By: Ambassador John M. Ordway for reasons 1.4 (b) (d)


1. (C) Summary: The U.S.-Kazakhstan relationship is broad
and deep, built on a number of significant points of
congruence. The GOK is a potential ally and partner on a
whole range of issues that are critically important to the
U.S., including diversifying Eurasian gas supplies and routes
to world markets; creating a prosperous and increasingly
integrated region that includes Afghanistan; and countering
religious extremism and terrorism both regionally and beyond.
President Nazarbayev dominates Kazakhstan's decision-making
process, and our sustained high-level engagement with him
over the past four months has dramatically improved a
relationship that was already quite good. Nazarbayev's
governing style, however, is based on careful balancing and
compromises with powerful, entrenched interests -- political
as well as economic and personal. An extensive list of
issues that needs our attention and engagement comprises the
bulk of this message. How we manage those issues, and how we
can simultaneously pursue them effectively, will be
absolutely key to our success (or lack thereof.)


2. (C) Summary Cot'd: The Kazakhstani bureaucracy is
fragmented, non-communicative (both internally and
externally,) powerful, and responds with alacrity only to a
direct command from the President. The 15-year history of
U.S.-Kazakhstani relations is littered with plans and
projects that were the product of shared strategies, and then
died as they failed to secure support and engagement at lower
levels. One possible way to build bureaucratic discipline
and responsiveness on the Kazakhstani side would be to form
some sort of joint body that would be responsible for
monitoring progress across the board in the bilateral
relationship -- and whose annual or semi-annual sessions
would be an unavoidable galvanizing agent to the bureaucracy
to produce progress, or face the President's wrath. The
appointment of reform-minded, pro-American Karim Masimov as
deputy Prime Minister puts him in an excellent position to
co-chair such a group on the Kazakhstani side. End Summary.


3. (C) We are the demandeur for most of the bilateral
agenda. Even on items that are in our mutual interest, the
Kazakhstanis perceive us as the driving force. Two items,
however, are ones that they are strongly pushing for, and we
have yet to tip our hand completely. The first is an Oval
Office visit for Nazarbayev, an item that comes up in every
discussion the Ambassador has with senior officials. The GOK
and Nazarbayev may see this primarily as recognition of their
importance, and gratification of the President's considerable
ego. However, it also will provide Kazakhstan with a strong
geo-strategic counterweight as it continues to balance
relationships with its two mega-neighbors: Russia and China.
From our point of view, such a visit offers an opportunity to
lock in Kazakhstani positions through public and private
understandings and statements. It also refreshes, through
personal contact, a presidential relationship that is an
essential nutrient of our longer-term relationship.
Additionally, it creates the most favorable possible
circumstances for us to get Nazarbayev's support for our
strategy of opening a new corridor of opportunity to
Afghanistan and beyond in South Asia. Finally, it could
provide essential cover against Russian opposition to
orienting Kazakhstani and Central Asian gas to world markets
through new transportation links.


4. (C) The other major item on the Kazakhstani side of the
agenda is its campaign to become chairman-in-office of the
OSCE in 2009 -- a project that Nazarbayev has increasingly
staked his own personal prestige on. Our current approach is
to encourage the Kazakhstanis quietly and informally to
re-focus their aspirations on 2011, giving them more time to
develop the democratic reform credentials we want to see in
any OSCE CIO. If Nazarbayev visits Washington in the next
few months, we will have to either validate or revise this
approach to ensure that it does not derail our other
priorities.

==========
The Agenda
==========


5. (C) SECURITY CLUSTER
--------------

--Counter-terrorism cooperation.

Status: Excellent operational cooperation that is producing
results.

Next steps: Continued engagement at the operational level;
occasional high-level mention of this as a success item.

--PSI

Status: The GOK has proposed operationalizing the agreement
in principle that Under Secretary Joseph secured from
President Nazarbayev.

Next steps: Respond to the GOK request for further
discussions on implementing the agreement. Develop an
effective modus operandi to exchange intelligence information
and develop real-time communication and coordination.

--Caspian Security

Status: Nazarbayev has raised repeatedly the need for
training, equipment and other assistance (short of a U.S.
military base) to protect Kazakhstan's sector of the Caspian,
including possible arrangements for mutual military
assistance.

Next steps: The USG should provide a carefully considered
policy response that includes all aspects of our interest
(counter-proliferation, counter-terrorism, counter-narcotics,
security of hydrocarbon resources and transportation links,)
and then coordinate a comprehensive U.S. assistance proposal
and engagement that includes existing programs and
authorities as well as possible new elements.

--Iraq

Status: Kazakhstan provides a 27-member EOD unit that is
operating very effectively in Iraq. Nazarbayev has committed
to keeping the unit there; the MOD wants to gradually
transition from operations to training Iraqi units.

Next steps: Continue the excellent support from DOD and
CENTCOM.

--Military reform

Status: The MOD is transforming the military into a more
mobile and agile force that can be used either against
terrorism/extremism threats in the south, or to respond to
threats to the oil and gas patch in the Caspian. Key
elements include a professional NCO corps, better
transportation assets, and increased cooperation and
integration with NATO and the U.S.

Next steps: Continue, and if possible enhance our FMF and
IMET programs. Continue the very effective DOD, JCS,
CENTCOM, and EUCOM high-level visits and contacts.

--Non-proliferation

Status: Kazakhstan has been a star in denuclearization and
reducing the proliferation threat. Our biggest problems have
been entrenched and non-cooperative bureaucracies, low-level
resistance to new programs, and numerous operational
problems. These include obtaining full exemptions for
Value-Added Tax and customs duties for assistance provided.
There is also one unresolved CWC compliance issue.

Next steps: Continued engagement, and possible formation of
a high-level bilateral implementation review group at the
ministerial level or higher.


6. (C) ECONOMIC CLUSTER
--------------

--U.S. investment

Status: The U.S. is Kazakhstan's single largest foreign
investor. American private-sector investments are
concentrated largely in the oil and gas sector. Corruption,
non-transparent regulation, discriminatory practices, weak or
non-existent judicial protection, and insider dealings all
mar the investment climate. Nazarbayev seeks more U.S.
involvement in the SME sector, and encouraged Secretary
Johanns, during the latter's recent visit here, to send U.S.
agri-business to Kazakhstan.
Next steps: Continue high-level commercial advocacy where
warranted (including current efforts for Boeing and
Conoco-Philips.) Provide advice and support for specific
problems and issues. Move to implement our USAID-GOK
jointly-funded SME support program. Consider a USDA-led
agricultural trade mission.

--WTO accession

Status: Kazakhstan is vigorously negotiating bilaterally and
multilaterally. There is strong, visible political support
from Nazarbayev. Nevertheless, in a number of significant
areas, we still have a lot of work to do on a bilateral
basis. Kazakhstan cannot get PNTR as long as it remains
subject to Jackson-Vanik.

Next steps: USTR to continue its intense bilateral
engagement with the GOK's negotiator. State and USAID to
consider how to utilize visitor programs and technical
assistance to complement the negotiating process and identify
any post-accession assistance requirements. Consider a joint
statement on WTO accession if and when Nazarbayev visits
Washington. Work to graduate Kazakhstan from Jackson-Vanik.

--Gas

Status: Due to its Soviet-era transportation infrastructure,
Kazakhstan both imports and exports gas. All exports
currently go to or through Russia with netbacks dramatically
lower than world market prices. Kazakhstan has sought to
export gas to Georgia and Ukraine, but has to deal through
Gazprom. Kazakhstan probably has significant gas resources
that could be exploited in the future. Kazakhstan and China
are in the pre-feasibility stage of a gas pipeline to China,
which might only add a second monipsony rather than market
diversity.

Next steps: Agree on a U.S. TDA feasibility study of the
trans-Caspian gas pipeline from Kazakhstan to Azerbaijan that
would provide a non-Russian export route to Europe for both
Kazakhstani and potentially Turkmen gas, either replacing or
complementing any pipeline to China.

--Bilateral Assistance Agreement

Status: Our original bilateral agreement that provides inter
alia for tax exemption for U.S. assistance projects was never
ratified. Unratified agreements no longer supercede local
law, including tax and customs laws. We face increasing
problems in securing tax exemptions.

Next steps: Complete negotiations for a new bilateral
agreement that can be ratified, along with our agreement to
co-finance certain USAID economic development projects, as
that part of our assistance winds down.

--TIFA

Status: The Central Asian TIFA includes all five Central
Asian states. An initial ministerial meeting was held, along
with a follow-up meeting.

Next steps: Move quickly to identify issues that will engage
the regional states. Work bilaterally with Kazakhstan to
develop its capacity to provide leadership to the process.
Look for ways to expand activities and possibly membership to
Afghanistan.


7. (C) POLITICAL/DEMOCRATIZATION CLUSTER
--------------

--OSCE Chairman-in-Office

Status: Kazakhstan is a declared candidate for 2009. Two
countries (Greece and Lithuania) are competing for 2010.
Kazakhstan falls short of the standard that we and
like-minded countries want to see in a CIO. Kazakhstan may
also have problems leading the organization due to a shortage
of trained and capable diplomats. Our current approach is to
encourage the Kazakhstanis to postpone their candidacy until
2011, allowing them more time to implement democratic
reforms. In that context, we would offer to support them
UNLESS they fail to implement their reform package, and would
also develop an international consortium to provide education
and training to their diplomats.

Next steps: Validate or change the current approach, and
then seek consensus on it with like-minded OSCE countries,
especially the EU.

--Democratic reforms

Status: The last two Kazakhstani elections have shown
improvements, but were flawed and did not meet international
standards. Legal requirements and harassment limit the
opportunities for organized political expression. Nazarbayev
has outlined a positive vision for political and democratic
reform, but there has been very little implementation. A new
commission chaired by the President offers new opportunities
to move the agenda forward. Among the areas Nazarbayev has
outlined are (a) increasing the size of parliament and
electing more members by party list; (b) expanding the powers
of the parliament; and (c) reforming local government
structures to make them more responsive to local communities.
Kazakhstan has a serious corruption problem.

Next steps: Continue to use high-level dialogue to stress
the importance of democratic reforms to the overall
relationship. Encourage development of a Kazakhstani reform
agenda that we can support. Reverse the decline in U.S.
exchange programs. Encourage the GOK to send as many of its
government-financed overseas students as possible to the U.S.
Support any serious anti-corruption efforts that develop.
Support judicial reform if and when it develops.

--Media

Current status: While there is scope for debate and
criticism in the press, clearly oppositionist newspapers have
difficulties operating and have on occasion been shut down
permanently. The Kazakhstani broadcast media are not
objective, and provide no coverage of dissenting or
alternative political views. Russian television and radio
dominate the airwaves, coloring local attitudes toward the
U.S. Professionalism and the skill-level of local
journalists are very low.

Next steps: Consider establishing a journalism school based
on Western standards to train responsible, professional
journalists. Look for ways to break through Russia's
near-monopoly on electronic information, particularly
television news and public affairs programming. A
competitive broadcast media environment would offer greater
access to diverse views in Kazakhstan, and perhaps all of
Russian-speaking Eurasia.

--Religious tolerance and extremism

Current status: Kazakhstan is a very tolerant society, and
the GOK has encouraged inter-ethnic and inter-confessional
harmony. The growing regional terrorist threat, an
increasingly active Hizb-ut-Tahrir, and a small up-tick in
radical imams and mosques, have greatly troubled the
government. Regressive legislation in 2005 has not been
implemented against legitimate groups. However, there are
strong indications that the GOK will seek authority to crack
down on non-conforming Islamic communities, with "balancing"
moves against other, "outside" religions as well. Nazarbayev
is looking for ways to demonstrate that countries with Muslim
populations can be prosperous and secular, avoiding
radicalism and fundamentalism.

Next steps: Continue to urge respect for all legitimate
religious groups, whether registered or not. Consider joint
seminars or other ways to examine how the GOK can prevent the
development of radical religious groups that foster
terrorism, without violating basic principles of religious
freedom. Explore ways that we can, behind the scenes,
encourage Kazakhstan to work with other moderate, secular
states to develop an alternative model of development for
Muslim countries.
ASQUINO