KAZAKHSTAN REACTION TO EITI VALIDATION DEADLINE

UNCLAS SECTION 01 OF 02 ASTANA 001639

SIPDIS

DEPT FOR SCA/CEN (O'MARA)

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID ENRG EPET KZ
SUBJECT: KAZAKHSTAN REACTION TO EITI VALIDATION DEADLINE

REF: A) State 75118, B) 06 Astana 492


1. (SBU) Summary: Per Ref A action request, Kazakhstan appears well
on its way to meeting the September 2007 deadline for completing the
four Extractive Industry Transparency Initiative (EITI) "sign-up"
indicators, with the last criteria -- publication of a work plan --
likely to be fulfilled later this month. Overall, Kazakhstan's EITI
implementation efforts received a big boost in late May, when Prime
Minister Masimov agreed to create a three-person office within the
Energy Ministry dedicated to EITI implementation. The Government of
Kazakhstan (GOK) has made additional progress on EITI issues in
recent months - notably, passing legislation in January 2007 that
obliges future subsoil users to join EITI - and appears to have won
the respect of the NGO and business representatives on the National
Stakeholder's Council for its efforts. The one EITI issue that
appears to trouble all three EITI participant sectors - government,
business, and NGOs - is the non-participation to date of
Kazakhstan's largest oil producer, TengizChevrOil. End summary.


GOK Reaction to September Deadline
--------------


2. (SBU) On June 8, the head of Kazakhstan's EITI Secretariat, Vice
Minister of Energy and Mineral Resources Bolat Akchulakov,
acknowledged receiving the EITI letter from Board Chairman Peter
Eigen, and informed Energy Officer that Kazakhstan would soon
complete its fourth, and final, "sign-up" step by publishing an
approved Work Plan on Kazakhstan's EITI website. Akchulakov noted
that the GOK might decide to take publication of the work plan one
step further, by listing it in the government's official newspaper,
but in either case the work plan had been finalized, and thus
Kazakhstan was on the verge of completing the fourth, and final,
"sign-up" EITI step. (Note: Technically, the National Stakeholders'
Council has only approved the plan "in principle"; however, the
Council is expected to formally adopt the plan during its scheduled
June 20 meeting. World Bank Country Manager Sergey Shatalov echoed
Akchulakov's timing forecast on June 13, telling Energy Officer that
the work plan "should be" published on www.eiti.kz by the end of
June. The website itself is being redesigned, but will be fully
operational by mid-July. End note.)

GOK Making Steady EITI Progress
--------------


3. (SBU) Currently, Kazakhstan's EITI Secretariat is based in the
Ministry of Energy and Mineral Resources (MEMR),and is staffed on
the government side by Akchulakov, Vice Minister of Finance
Yergozhin, and Beksultan Zhaliyev, a mid-level MEMR employee.
Akchulakov pointed out the limitation of this arrangement to Energy
Officer: "We all have full-time jobs other than EITI," he said,
noting with satisfaction that the Prime Minister had recently agreed
to establish a separate, three-person EITI office within the Energy
Ministry. Two additional Stakeholder Council representatives --
Anton Artemyev of the NGO "Kazakhstan Revenue Watch Program" and
Patty Graham of ExxonMobil -- also greeted this news with
enthusiasm, telling Energy Officer that, while Akchulakov had been
accessible and engaged on EITI issues, he was clearly overworked and
the EITI process would be well-served by the creation of a dedicated
EITI office.


4. (SBU) In January 2007 Kazakhstan passed an amendment to its
"Subsoil Law" which obliges future tender applicants to accede to
EITI. Meanwhile, in January, a new EITI working group was formed
with the task of recruiting more existing companies to join EITI. A
month-long recruitment drive in January netted 20 additional
companies, bringing total membership to 92 (51 oil and gas companies
and 41 mining companies),out of approximately 250 extractive
companies operating in the country.


Biggest Oil Producer Still to Join
--------------


5. (SBU) All of our EITI interlocutors have indicated that
TengizChevrOil's (TCO) participation is essential for the
credibility of the process. (TCO is Kazakhstan's largest oil
producer, at 280,000 barrels a day, a number due to double over the
next 18 months.) Graham of ExxonMobil (itself a 25% participant in
TCO) told Energy Officer that she was not aware of any particular
reason why TCO had not joined, and added that ExxonMobil, for one,
would "put pressure" on the joint venture to do so. Shatalov cast
TCO's absence in a more negative light, telling Energy Officer that
Prime Minister Masimov had told him that TCO had failed to reply to
several letters sent by his office encouraging it to join the
initiative. "If they keep silence," Shatalov quoted Masimov as
saying, "it means they are hiding something." Shatalov indicated to
Energy Officer that, in his opinion, there was little point in
compiling a formal EITI report until TCO had joined the initiative.
(Note: The Council has had difficulty engaging an international

ASTANA 00001639 002 OF 002


audit firm to perform the first audit reconciling the revenues
reported paid by companies and received the by the government. Of
the "big four" international accounting firm, only KPMG bid on the
initial tender - and then withdrew from the process. While Graham
told Energy Officer that she was hopeful that a new firm would be
selected in time to publish the first audited report - of 2005
revenues - by year-end 2007, she admitted that it would be an uphill
battle. End note.)

NGO Role
--------------


6. (SBU) The government, World Bank, and private sector have all
spoken highly of NGO participation in the EITI process thus far.
Early in the process of forming the Stakeholder's Council, a battle
for influence occurred between "pro-GOK" and "independent" NGOs,
but, according to the World Bank's full-time EITI consultant Yerlan
Akishev, the pro-GOK NGOs have gradually lost interest in the
process and have been replaced by their more demanding, active NGO
colleagues. To a certain extent, the participating NGOs have
focused on two "marginal" issues -- lobbying for the reporting of
disaggregated revenue data and for the publication of extractive
companies' "social payments" -- but (in both Akchulakov and Graham's
view) not to the extent that they have impeded the mainstream EITI
process.

Additional Points
--------------


7. (SBU) Per Ref A points: (1) Kazakhstan, as a major producer not
only of hydrocarbons, but of minerals as well, has a large and
well-organized extractive sector; (2) while the GOK has undertaken
other initiatives to manage oil industry revenues in a transparent
way (i.e., establishment of a National Fund - Ref B),Post is not
aware of any existing GOK effort to report these revenues; (3) Post
is not aware of additional industry-driven transparency initiatives;
(4) Post's impression is that, while there are not a large number of
NGOs engaged on this issue, there are a few, highly-capable ones
which do influence the process; (5) the USG does not offer
assistance to EITI in Kazakhstan, nor are we aware of any other
country which does. The World Bank provides technical assistance to
the GOK on EITI issues, based on an MOU signed in December 2006.

ORDWAY