Identifier
Created
Classification
Origin
06ASTANA379
2006-11-01 06:16:00
CONFIDENTIAL//NOFORN
Embassy Astana
Cable title:  

KAZAKHSTAN: ACCESS INDUSTRIES TO MANAGE EKIBASTUZ

Tags:  ENRG EPET KZ PGOV PREL 
pdf how-to read a cable
VZCZCXRO5892
PP RUEHDBU
DE RUEHTA #0379/01 3050616
ZNY CCCCC ZZH
P 010616Z NOV 06
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 7486
INFO RUCNCIS/CIS COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1285
RUEHIL/AMEMBASSY ISLAMABAD 2089
RUEHBUL/AMEMBASSY KABUL 0273
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000379 

SIPDIS

NOFORN
SIPDIS

DEPT FOR EB/ESC; SCA/CEN (O'MARA)
USTDA FOR DAN STEIN, SCOTT GREENIP
COMMERCE FOR PAUL HUEPER

E.O. 12958: DECL: 11/01/2016
TAGS: ENRG EPET KZ PGOV PREL
SUBJECT: KAZAKHSTAN: ACCESS INDUSTRIES TO MANAGE EKIBASTUZ
GRES II POWER PLANT

REF: A. ALMATY 2155


B. ALMATY 2054

Classified By: Pol-Econ Chief Deborah Mennuti; reasons 1.5 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000379

SIPDIS

NOFORN
SIPDIS

DEPT FOR EB/ESC; SCA/CEN (O'MARA)
USTDA FOR DAN STEIN, SCOTT GREENIP
COMMERCE FOR PAUL HUEPER

E.O. 12958: DECL: 11/01/2016
TAGS: ENRG EPET KZ PGOV PREL
SUBJECT: KAZAKHSTAN: ACCESS INDUSTRIES TO MANAGE EKIBASTUZ
GRES II POWER PLANT

REF: A. ALMATY 2155


B. ALMATY 2054

Classified By: Pol-Econ Chief Deborah Mennuti; reasons 1.5 (b) and (d).


1. (C) Summary: In August 2006, U.S.-based Access
Industries assumed management control of Kazakhstan's 50%
share of the 1000 MW Ekibastuz Gres II power plant,
reportedly in return for financing plant upgrades and
constructing one or two additional 500-600 MW generating
units. (Russia's RAO UES owns the other 50% of Gres II.) An
executive of a rival generating company, AES, told Econoff
that the decision to allow Access to buy into Gres II appears
to have been facilitated by conflicts between RAO UES, which
sought to sell the plant's output at below-market prices to
Russia's electricity import monopoly, INTER RAO UES; and the
Government of Kazakhstan (GOK),which habitually sold a
portion of the plant's output to well-placed Kazakhstani
entities at below-market prices. In AES's view, Access is
likely to impose discipline on the plant's selling
agreements, and undertake the investment necessary to
maintain the existing capacity, but is unlikely to spend the
estimate $1.2 billion necessary to add 1000 MW of generating
capacity. End summary.


2. (C) Access Industries and Kazakhstan's Ministry of Energy
and Mineral Resources signed an agreement on August 21,
granting Access a 50% interest of Gres II "in trust
management" for a period of 10 years, in return for upgrading
the plant's two existing 500 MW blocks and financing the
construction of a third (and possibly a fourth) 500-600 MW
block. The deal follows by 27 months Kazakhstan's transfer
of 50% of the plant to RAO UES as settlement of a
long-standing, Soviet-era debt (reportedly $200 million) for
unpaid electricity.


3. (C) Access executives have thus far dodged post's requests
for further information about the deal. Executives of rival
generating company AES, however, have suggested that Access

was brought in to manage the plant in order to reconcile the
incompatible business interests of RAO and state-owned
Ekibastuz Energocenter JSC. AES's Regional Director for
Eastern Europe and the CIS, Dale Perry, explained to Econoff
that Russia wanted RAO to sell the plant's electricity at
below-market prices to Russia's electricity import
monopolist, INTER RAO UES, which would then resell the power
within Russia, cutting Kazakhstan out of the profit. The
Kazakhstanis, in turn, were accustomed to selling Gres II
power to well-placed Kazakhstani entities at less-than-market
prices. Two years after forming the joint venture, neither
partner was happy with the other's loss-making business
decisions, Perry concluded, so Access was brought in.


4. (C) AES's Kazakhstan Country Manager, Mike Jonagan,
amplified on the subject on September 15, telling Econoff
that Access had been brought in to "say 'no' to
bargain-seekers the GOK couldn't say 'no' to." Jonagan
explained that Access's expected rationalization of the Gres
II contracts had already had an effect. KazPhosphate, he
explained -- one of Kazakhstan's largest electricity
consumers -- had already approached AES looking for a
low-cost electricity deal, anticipating that its below-market
deal with Gres II would now be terminated. (Jonagan
explained that KazPhosphate's very survival in the face of
low-cost Chinese competition hinged on below-market
electricity subsidies. KazPhosphate executives and GOK
officials alike periodically approached AES, he said, asking
for below market electricity in order to keep the company
alive. Much of the rationale for GOK subsidization of the
Zhambyl fuel-oil power plant, he added, was to keep
KazPhosphate, and its estimated 6500 jobs, afloat.)


5. (C) According to press reports, approximately $90 million
will be needed over the next four years to upgrade Gres II's
existing 500 MW blocks. Perry and Jonagan estimated the cost
of installing additional generating capacity at $600-$700
million per 500 MW. Jonagan told Econoff that he doubted
that the expansion would occur at that price, especially in
light of the fact that AES had unused 500 MW blocks at its
Ekibastuz Gres I plant which could be brought on-line for

ASTANA 00000379 002 OF 002


$250 million apiece. In fact, he said, Gres II management
was actively negotiating to buy AES's Gres I spare capacity.
"We will offer them a price," he said, "but we're unlikely to
reach agreement." Gres II needed the space capacity, he
explained, in order to pursue higher-paying customers.
Without spare capacity, he explained, Gres II could not
guarantee uninterrupted supply, and hence had to pursue
low-price buyers -- "regional energy companies (RECs) and
mining companies." AES, on the other hand, could guarantee
100% reliability, and hence had its choice of the "premier
clients." (Access Industries President Len Blavatnik
described another possible means for expanding Gres II
generating capacity in a June conversation with Ambassador
Ordway reported ref A, saying that if Access was successful
at buying into Gres II, it might consider transferring the
turbines from its unprofitable Petropavlosk CHP plant to Gres
II. The objective, he said, was to increase capacity in
order to sell additional power into Russia.)


6. (C) Comment: While Blavatnik / Access may be targeting
the Russian market in the short-term, the recent news that
Blavatnik's Siberian-Urals Aluminum Company (SAUL) plans to
launch a feasibility study for construction of an aluminum
smelter in Kazakhstan suggests possible alternative future
use for Gres II electricity. End comment.
ORDWAY