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