Identifier
Created
Classification
Origin
06BAKU651
2006-05-01 02:56:00
CONFIDENTIAL
Embassy Baku
Cable title:  

AZERBAIJANI VIEWS OF THE KAZAKHSTAN-AZERBAIJAN

Tags:  EPET ENRG PREL AJ TX KZ 
pdf how-to read a cable
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DE RUEHKB #0651/01 1210256
ZNY CCCCC ZZH
P 010256Z MAY 06
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 0249
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 1592
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMFISS/CDR USEUCOM VAIHINGEN GE PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEKDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHMFISS/CDR USCENTCOM MACDILL AFB FL PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000651 

SIPDIS

SIPDIS

USDOE FOR FE - SWIFT AND OS - WILLIAMSON

E.O. 12958: DECL: 05/01/2016
TAGS: EPET ENRG PREL AJ TX KZ
SUBJECT: AZERBAIJANI VIEWS OF THE KAZAKHSTAN-AZERBAIJAN
OIL-TRANSPORT NEGOTIATIONS

REF: BAKU 368

Classified By: acting DCM Joan A. Polaschik, reasons 1.4 (b),(d) and (
e).

C O N F I D E N T I A L SECTION 01 OF 02 BAKU 000651

SIPDIS

SIPDIS

USDOE FOR FE - SWIFT AND OS - WILLIAMSON

E.O. 12958: DECL: 05/01/2016
TAGS: EPET ENRG PREL AJ TX KZ
SUBJECT: AZERBAIJANI VIEWS OF THE KAZAKHSTAN-AZERBAIJAN
OIL-TRANSPORT NEGOTIATIONS

REF: BAKU 368

Classified By: acting DCM Joan A. Polaschik, reasons 1.4 (b),(d) and (
e).


1. (C) SUMMARY. Conversations with senior Azerbaijani
official Samir Sharifov and SOCAR Vice President Elshad
Nasirov reveal that the GOAJ is pushing for a focused and
non-ambiguous Inter-Governmental Agreement for oil transport
from Kazakhstan. Sharifov, somewhat mistrustful of
Kazakhstan, wants the agreement to spell matters out as much
as possible -- specifying Kashagan as the source field and
BTC as the route, and dedicating new maritime infrastructure
exclusively to the project. Nasirov agreed, adding that
taxation issues still had to be worked out and that
international investors would be allowed to own only the
vessels dedicated excusively to the project. Both Sharifov
and Nasirov emphasized that they saw no need to sign an
agreement hastily and that they were willing to take the time
necessary to get what they want. They also believe that
while final agreement will not be achieved during the talks
with Kazakhstan this month, final agreement is not very far
away as the two sides are fairly close.
END SUMMARY.

--------------
SHARIFOV: NO AMBIGUITY
--------------


2. (C) Energy Officer met with Samir Sharifov on April 17.
Sharifov at that time was director of the State Oil Fund; he
very shortly thereafter became Minister of Finance. Sharifov
has been playing a more and more influential role on energy
policy issues over time. Overall, Sharifov is wary of
Kazakhstan as a partner and wants the IGA to contain clear
and unambiguous positions. "We need to know how serious our
partner is," said Sharifov with a shrug. Commitments need to
be clear, he argued. The emerging IGA is much more specific
than the draft from last year, he noted, and for that reason
will be a much better deal for Azerbaijan and presumably
Kazakhstan as well.


3. (C) Sharifov identified three areas still under discussion
between the two countries in the current draft IGA. Echoing

reftel, Sharifov said that he wants the IGA to specify BTC as
the transport route for the Kazakhstan oil to be transported
to Azerbaijan. This is now the GOAJ position, said Sharifov,
and he feels Kazakhstan will agree to it. Sharifov points
out that BTC is really the only route for this oil anyway --
the Baku-Novorossisk pipeline is restricted to Azerbaijani
oil and Baku-Supsa is restricted to ACG producers. The only
transporter left other than BTC is railway transportation,
and Sharifov asserts that giving Kazakhstan a privileged
position in the rail corridor would violate the Energy
Charter. For these reasons, Sharifov feels this point of
contention will quickly pass.


4. (C) Sharifov also wants the IGA to specify the Kashagan
field as the source for the oil. Sharifov noted that under
the current draft, the IGA applies to the port of Kurik in
Kazakhstan only in regards to its shipping oil to Azerbaijan,
leaving open the possibility that this new port could engage
in other activities. Sharifov wants the port to be dedicated
exclusively to the trans-Caspian project. Both issues relate
to a larger point -- Sharifov wants to make the IGA as
focused and as specific as possible. "We need to know how
serious our partner is," he repeated. Many argue that the
IGA must be completed very soon in order to give enough time
for the necessary infrastructure to be put in place before
Kashagan production begins in 2008. Sharifov does not feel
this is a hard deadline and believes it is important to take
the time to ensure this deal is done right. Sharifov added
that he did not necessarily expect final agreement with
Kazakhstan to come out of the talks taking place in April,
but he fee
ls the process is moving towards closure.

-------------- --------------
NASIROV: DON'T FORGET TAXES, AND NO NEED TO HURRY

BAKU 00000651 002 OF 002


-------------- --------------


5. (C) Energy officer met with Elshad Nasirov, SOCAR Vice
President for Marketing and Investment, on April 18. Nasirov
essentially agreed with Sharifov on the major outstanding
issues. In his view, whether the IGA designates BTC as the
exclusive route for trans-shipped Kazakhstani oil is no
longer an issue. He added, however, that the tax structure
for the project is still under discussion and will ultimately
be settled through expert-level discussions. When asked
about who would actually own the ships built to transport the
oil, Nasirov said that it is his understanding that the
international partners will be allowed to own only those
vessels "dedicated" to Kashagan transport.


6. (C) Nasirov also echoed Sharifov's view that there is no
need to "hurry" to complete the IGA and even spoke
disparagingly of the "so-called delay" in the negotiations.
Nasirov reaffirmed that the volume of oil expected from
Kashagan will require new ships, and that the current
infrastructure of state shipping monopoly CASPAR is not at a
high enough standard for the job. He also affirmed that the
project will require new ports. A slightly later signing of
the IGA will indeed delay investment in new maritime
infrastructure, but in Nasirov's view this won't really be an
issue. Nasirov argued that in 2008 there will only be 75,000
tons of oil produced from Kashagan, rising to 175,000 only in

2009. Therefore, he said, the terminals and ships do not
have to be 100 percent ready the day that Kashagan production
begins. If necessary, the oil can initially be transported
via existing infrastructure.

--------------
COMMENT
--------------


7. (C) Shortly after these conversations, the delegation from
Kazakhstan arrived in Baku for the next round of
negotiations, which are still underway at the time of this
writing. Nasirov is deeply involved in the talks. Sharifov
was as well, and despite his sudden promotion to the Finance
Ministry is still playing an important role. In contrast to
2005, it is clear that this time the Azerbaijani side is not
in a hurry to get an agreement. On the other hand, the
Azerbaijani side seems to feel that the two sides are close
enough to reach final agreement relatively soon.
HYLAND