KAZAKHSTAN - BURKITBAYEV SURPRISE CHOICE AS NEW

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 001309 SIPDIS E.O. 12958: DECL: 07/21/2018 TAGS: EPET PGOV EINV PINR KZ SUBJECT: KAZAKHSTAN - BURKITBAYEV SURPRISE CHOICE AS NEW KMG HEAD Classified By: Pol-Econ Chief Steven H. Fagin, Reasons 1.4 (b) and (d) -------------- Summary -------------- ¶1. (C) Serik Burkitbayev, chairman of "Samgau," replaced Uzakbay Karabalin as KazMunayGas president on May 29. Burkitbayev is a long-time government insider with a mixed record. Contacts at KazMunayGas and western oil and gas companies called the move a surprise and saw no obvious explanation for the change. At a ceremony at Tengiz on June 5, several western oil executives said that one key issue for KMG will be whether First Vice President Maksat Idenov retains his position. Idenov told us on July 10 that he has established a good relationship with Burkitbayev and is actively engaged. End Summary. -------------- Serik Burkitbayev: An Old-School Insider -------------- ¶2. (SBU) On May 29, Serik Burkitbayev, chairman of the "Samgau" National Science and Technology Holding Company, was named the new president of KazMunayGas (KMG),replacing Uzakbay Karabalin. Unlike his three immediate predecessors, all of whom hail from western Kazakhstan's Atyrau oblast, Burkitbayev was born in Zhambul oblast in the south. In contrast to Karaballin, Burkitbayev speaks English. While his sole prior energy sector experience was his tenure as director of the Oil and Gas institute during 2003-2007, Burkitbayev has a reputation as a solid manager who quickly grasps the technical details of projects. ¶3. (C) Burkitbayev has held a number of high-ranking positions and has at times been at the center of controversy. In 1996, as president of Kazakhtelecom, Burkitbayev was blamed for bankrupting Kazpochtabank, at the time one of the biggest and most stable banks in the country, when he ordered all Kazakhtelekom accounts transferred to Kazcommertsbank and publicly declared Kazpochtabank insolvent -- a charge that was not true. (Comment: The move against Kazpochtabank was initiated by then Prime Minister Kazhegeldin, with whom Burkitbayev has been closely linked). ¶4. (C) In 1997, Burkitbayev annulled Kazakhtelecom's contract with Deutschetelecom and sold a 40 percent share to Daewoo, which was a producer of telecommunications equipment, not an operator. Kazakhtelecom then bought telecommunications equipment from Daewoo which was not compatible with local equipment. In order to repay the loans necessary to purchase the equipment, telephone tariffs were raised. In 1998, Burkitbayev misled the government by reporting Kazakhtelecom's expenses acquiring Daewoo equipment as Daewoo investments in Kazakhtelecom. ¶5. (SBU) As Minister of Transport and Communications from 1998-2000, Burkitbayev was accused by local newspapers of creating artificial obstacles to thwart potential competitors of Kazakhtelecom and of lobbying for two Turkish companies (Rumeli Telekom and Telsim Mobil) that purchased a 60 percent stake in the second biggest mobile network operator in Kazakhstan. The owners of the Turkish companies, part of the so-called Uzan family, were charged with financial crimes in Turkey in 2005. ¶6. (SBU) Burkitbayev has twice faced corruption investigations. In 1999, the State Anti-Corruption Committee investigated Burkitbayev for his role in allowing a single private company to control all of the government's telecommunications services. In 2001, the Almaty Prosecutor's Office investigated Burkitbayev's activities as president of Kazakhtelecom. In neither instance were charges ultimately levied against Burkitbayev. ¶7. (C) In 2005, the U.S. company BSI became embroiled in a dispute over payment for the sale of its shares in the joint venture Byelkamit to a group of Kazakhstani companies. After an agreement was reached, the Kazakhstani purchasers attempted to renege on payment, while still acquiring the shares. The Kazakhstani companies involved were owned by Burkitbayev. -------------- Oil Insiders Surprised by Move -------------- ¶8. (C) Oil and gas executives gathered at Tengiz on June 5 for a ceremony to mark Tengiz's second generation expansion expressed surprise at the KMG shake-up. Jay Johnson, Managing Director of Chevron International's Eurasian Unit, ASTANA 00001309 002 OF 002 said the move was unexpected. He added that he hoped KMG First Vice President Maksat Idenov would remain in his position, a view echoed by several western oil representatives. Steve Rose, ExxonMobil Kazakhstan General Manager, said that he received a letter after the change from Karabalin in which Karabalin wrote that he looked forward to continuing to work with ExxonMobil, although he did not say in what capacity. (Comment: Karabalin was subsequently named head of MangistauMunayGaz, a company in which KMG is acquiring a majority share. Idenov told us that Karabalin is under investigation for corruption and may be arrested. Given the relationship between Idenov and Karabalin, this may be more wishful thinking than an accurate prediction. End Comment.) ¶9. (C) Sagyndyk Nuraliyev, BP Country Representative, saw Burkitbayev's appointment as a move against Timur Kulibayev. According to Nuraliyev, both Burkitbayev and Idenov owe their loyalties to President Nazarbayev, whereas Karabalin is close to Kulibayev. (Comment: Kulibayev appears firmly entrenched again in the inner circle. He recently explained to the Ambassador that he first brought Burkitbayev in to KMG, as head of the Kazakhstan Oil and Gas Institute, a KMG subsidiary. Kulibayev described Burkitbayev as a "good manager." Burkitbayev's appointment thus does not appear to be a move to lessen Kulibayev's influence, but Burkitbayev is still viewed as the "President's Man". Patty Graham, ExxonMobil General Relations and Public Affairs Director for Kazakhstan, told us that in a recent meeting, Kulibayev was unable to confirm whether Burkitbayev would be attending an ExxonMobil anniversary celebration in Saudi Arabia. According to Graham, Kulibayev has in the past been able to immediately answer for his closest allies. End Comment.) ¶10. (C) Arman Darbayev, KMG Executive Director for Oil Transportation and Service Projects, told us on June 11 that his colleagues at KMG also had not expected the change in KMG leadership. Darbayev doubted the veracity of rumors that Karabalin will return to KMG. Given the friction between Karabalin and Idenov, as long as Idenov remains KMG First Vice President, a Karabalin return appears to be unlikely, he argued. -------------- Comment -------------- ¶11. (C) Serik Burkitbayev takes over at KMG at a crucial time for the company, which is on the cusp of real transformation, but is also stretched thin because of a number of recent purchases and new projects. Given Burkitbayev's past record, his appointment is not cause for optimism, but he can dispel doubts by supporting Maksat Idenov's efforts to reform KMG. For his part, Idenov told us on July 10 that he has established a good relationship with Burkitbayev and is actively engaged. End Comment. ORDWAY