Identifier
Created
Classification
Origin
08ASTANA1355
2008-07-28 04:49:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Astana
Cable title:  

SCENESETTER FOR CODEL REID'S AUGUST 7-8 VISIT TO

Tags:  PREL OREP PGOV ECON OVIP OTRA KZ 
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VZCZCXRO7329
OO RUEHAST RUEHBI RUEHCI RUEHLH RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHTA #1355/01 2100449
ZNR UUUUU ZZH
O 280449Z JUL 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2841
INFO RUCNCIS/CIS COLLECTIVE 0578
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
UNCLAS SECTION 01 OF 04 ASTANA 001355 

SENSITIVE
SIPDIS

H PLEASE PASS TO CODEL REID

E.O. 12958: N/A
TAGS: PREL OREP PGOV ECON OVIP OTRA KZ

SUBJECT: SCENESETTER FOR CODEL REID'S AUGUST 7-8 VISIT TO
KAZAKHSTAN

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Summary
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UNCLAS SECTION 01 OF 04 ASTANA 001355

SENSITIVE
SIPDIS

H PLEASE PASS TO CODEL REID

E.O. 12958: N/A
TAGS: PREL OREP PGOV ECON OVIP OTRA KZ

SUBJECT: SCENESETTER FOR CODEL REID'S AUGUST 7-8 VISIT TO
KAZAKHSTAN

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Summary
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1. (SBU) Your visit to Kazakhstan comes at a particularly opportune
time. With its recent selection as 2010 OSCE chairman and thriving
energy sector, Kazakhstan is showing increasing confidence on the
international stage. The country is rightly proud of its
achievements: a booming economy, largely harmonious multi-ethnic
society, and rapidly expanding national capital. The country
celebrated Astana's 10th anniversary as Kazakhstan's capital on July
6 (which was also President Nazarbayev's 68th birthday) with gala
festivities that were attended by Russian President Medvedev,
Turkish President Gul, Jordan's King Abdullah and six other foreign
heads of state.


2. (SBU) Kazakhstan has proven to be a reliable security partner and
a steady influence in a turbulent region. The pace of democratic
reform, however, has been slow, with political institutions, civil
society, and the independent media still underdeveloped. Our
fundamental strategic objective is a secure, democratic, and
prosperous Kazakhstan that embraces market competition and the rule
of law; continues partnering with us on the global threats of
terrorism, WMD proliferation, and narco-trafficking; and develops
its energy resources in a manner that bolsters global energy
security. We would welcome your assistance in underlining to the
Kazakhstani government the importance of:

-- continuing Kazakhstan's strong support for Coalition efforts in
Afghanistan

-- following through on the democratic reform commitments Kazakhstan
made when selected to be 2010 OSCE chairman

-------------- --------------
Strong Growth, But Short- and Long-Term Challenges
-------------- --------------


3. (SBU) Kazakhstan is the region's economic powerhouse, with an
economy larger than that of all the other Central Asian states
combined. Economic growth averaged 9.2% a year during 2005-07, and
the percentage of the population living below the subsistence level
dropped from 28% in 2001 to under 10% at present. The energy sector

is the dominant earner, with oil exports accounting for roughly a
third of GDP. In the long term, Kazakhstan must focus on
diversifying its economy, building up non-extractive industries,
agriculture, and the service sector. In the short term, Kazakhstan
is facing duel challenges of rising inflation, propelled by soaring
international prices on food and agricultural commodities, and
reduced economic growth, a reflection of the domestic impact of the
global financial crisis. The government imposed a temporary ban on
wheat exports in April to ensure adequate domestic supply and to
keep prices down on bread. As Kazakhstan produces much more wheat
than it consumes, we anticipate the ban will be lifted by September,
once the government has confirmed that the annual wheat harvest was
successful.

--------------
An Emerging Energy Power
--------------


4. (SBU) Kazakhstan exported just over 60 million tons of crude oil
in 2007 and is expected to be one of the world's top ten oil
producers soon after 2015. The country also has significant natural
gas reserves, but for now gas exports are relatively limited, in
part because gas is being reinjected to maximize crude output. U.S.
companies have significant ownership shares in each of Kazakhstan's
three major oil and gas projects: Tengiz, Kashagan, and
Karachaganak. Tengiz (with 50% Chevron and 25% ExxonMobil stakes)
recently inaugurated a second generation expansion which will
increase its crude production from 400,000 barrels per day to
540,000 later this year. Kashagan (with 16.7% ExxonMobil and 8.3%
ConocoPhilips stakes) is the largest oil field discovery since
Alaska's North Slope and perhaps the world's most technically
complex oil development project. In January, the Kazakhstani
government and the Kashagan consortium's international partners
agreed on revised terms for the Kashagan contract which resulted in
a new operatorship model, financial compensation to Kazakhstan for
several years of production delays and significant cost overruns,
and an increased ownership stake and management role for
Kazakhstan's state oil and gas company, KazMunaiGas (KMG). Kashagan
is expected to commence production in 2013. Karachaganak (with a
20% Chevron stake) is one of the world's largest oil and gas
condensate fields, producing 10.4 million tons of oil and 12 billion
cubic meters of gas in 2007.


5. (SBU) The Kazakhstanis recognize they do not have the capability

ASTANA 00001355 002 OF 004


to exploit their oil and gas resources on their own, especially
given the complexity of Kazakhstan's oil and gas projects.
Kazakhstan thus continues to welcome foreign investment in energy
exploration and production, and both the Kazakhstani government and
the international companies are committed to an enduring
relationship. That said, Kazakhstan has grown increasingly
assertive in its energy sector in recent years, reexamining the
terms of existing contracts, driving a harder bargain with
prospective investors, and aggressively pursuing environmental and
tax claims against international oil companies.


6. (SBU) With major production increases on the horizon, Kazakhstan
must develop additional transport routes to bring its oil and gas to
market. Our policy is to encourage Kazakhstan to seek diverse
routes, which will ensure the country's independence from transport
monopolists. Currently, the bulk of Kazakhstan's crude oil is
exported via Russia, including through the Transneft system and the
independently-owned Caspian Pipeline Consortium (CPC) pipeline.
Near-term crude production increases are likely to flow by rail
through Russia, by tanker across the Caspian Sea to Baku, and
through the CPC pipeline, should an agreement be reached with Russia
on CPC expansion. We believe that a trans-Caspian oil pipeline must
be built to handle later production growth; however, Kazakhstan is
reluctant to openly pursue this option in the absence of an
agreement on delimitation of the Caspian Sea among the five Caspian
littoral states.

--------------
Democratic Development Lags
--------------


7. (SBU) While the Kazakhstani government articulates a strategic
vision of democracy, it has lagged on the implementation front.
This in part reflects the political reality that President
Nazarbayev remains extraordinarily popular, while the opposition is
weak and fractured. It also is a result of the government's
resistance to competitive political processes. In May 2007,
significant amendments were adopted to Kazakhstan's constitution
which were touted as strengthening parliament, but also removed
terms limits on Nazarbayev. In parliamentary elections held in
August 2007, Nazarbayev's Nur Otan party officially received 88
percent of the vote and took all the seats in parliament. The OSCE
election observation mission concluded that the elections did not
meet OSCE standards.


8. (SBU) When Kazakhstan was selected as 2010 OSCE chairman at the
November 2007 OSCE Madrid ministerial meeting, Foreign Minister
Tazhin publicly committed that his country would undertake several
democratic reforms. Specifically, he promised that by the end of
2008, Kazakhstan would amend its election and media legislation
taking into account the recommendations of the OSCE's Office of
Democratic Institutions and Human Rights (ODIHR),as well as
liberalize registration procedures for political parties and media
outlets. (Note: Tazhin also promised that Kazakhstan would support
the OSCE's "human dimension" and preserve ODIHR's mandate, including
its critical role in election observation. End Note.) The
government has thus far taken limited steps toward implementing its
"Madrid commitments," including establishing working groups, with
civil society and opposition participation, to discuss amendments to
the election and media legislation. In a June 29 address to the
OSCE Parliamentary Assembly, President Nazarbayev publicly discussed
the commitments for the first time. Though much work remains, there
is sufficient time for Kazakhstan to follow through by year's end --
and we have been repeatedly reassured by the government that it will
do so. We have made clear that reneging on the commitments would
undermine Kazakhstan's effectiveness as future OSCE chair.

--------------
Concerns on the Media and Religion Fronts
--------------


9. (SBU) While Kazakhstan's diverse print media includes a plethora
of newspapers sharply critical of the government and of President
Nazarbayev personally, the broadcast media is almost exclusively in
government hands and maintains a pro-government line, with little
coverage of opposition parties. The government apparently blocked
several opposition websites in late 2007 for uploading recordings of
embarrassing conversations between senior government officials
(which were likely made by Nazarbayev's former son-in-law, Rakhat
Aliyev, who was recently convicted in absentia of plotting a coup).
Access has not been restored to all of these sites. In April, the
English- and Kazakh-language websites of Radio Free Europe/Radio
Liberty (RFE/RL) became inaccessible to customers of state-owned
Kazakhtelecom. We raised the RFE/RL issue with senior officials.
The government did not admit to actively blocking the RFE/RL
websites, but they subsequently became accessible again in early
June.

ASTANA 00001355 003 OF 004




10. (SBU) While Kazakhstan prides itself on its religious tolerance,
religious groups not traditional to the country -- such as
evangelical Protestants, Jehovah's Witnesses, Hare Krishnas, and
Scientologists -- have faced difficulties. There has recently been
a significant increase in negative media coverage of
"non-traditional" religions which appears to have been orchestrated
in part by the government. The Kazakhstani parliament is currently
considering a package of amendments to the country's religion law
which would assert greater government control over non-traditional
groups. While the latest draft text represents an improvement over
the original version, it retains several problematic provisions,
including ones that would create a distinction between large and
small religious groups, limiting the rights of the latter. At the
urging of the U.S. and our OSCE partners, Kazakhstan submitted the
legislation for review by ODIHR. We want to ensure that Kazakhstan
takes into account ODIHR's recommendations in the final version --
as senior Kazakhstani officials have promised us they will do.

--------------
Afghanistan and Iraq
--------------


11. (SBU) Kazakhstan is an important partner for Afghanistan's
Operation Enduring Freedom (OEF). To date, Kazakhstan has
facilitated over 4000 cost-free overflights for U.S. military
aircraft supporting OEF. Kazakhstan is also providing Afghanistan
with $2.88 million in assistance in 2008, which is being used for
food and seed aid and to construct a hospital, school, and road.
The Kazakhstanis are encouraging their private sector to seek out
investment opportunities in Afghanistan, and have indicated that
they want to make Afghanistan a focal point for their OSCE
chairmanship. In addition, Kazakhstan is the sole Central Asian
country participating in Operation Iraqi Freedom (OIF). Since
August 2003, the Kazakhstanis have maintained a military engineering
unit in Iraq which has disposed of over 4.5 million pieces of
unexploded ordnance.

--------------
U.S. Government Assistance to Kazakhstan
--------------


12. (SBU) We are implementing a broad range of assistance programs
in Kazakhstan to advance U.S. national interests and strengthen the
U.S.-Kazakhstan strategic partnership. Non-proliferation
cooperation has been a hallmark of our bilateral relationship since
Kazakhstan became independent and agreed to give up the nuclear
arsenal it inherited from the USSR. Our bilateral Nunn-Lugar
Cooperative Threat Reduction (CTR) program has facilitated the
dismantlement of Kazakhstan's intercontinental ballistic missile
launchers, closure of test tunnels and boreholes at the former
Soviet nuclear test site in Semipalatinsk, and elimination of an
anthrax weapons production facility. The Department of Defense and
Department of Energy were allocated over $90 million in FY 2008 for
ongoing programs in the nuclear field, including the effort to
secure and store spent fuel from a closed plutonium production
reactor in western Kazakhstan, and for a biological threat reduction
program aimed at ensuring effective Kazakhstani control of dangerous
pathogens. On-going State Department non-proliferation programs
focus on securing Kazakhstan's borders to prevent the spread of
WMD-related materials.


13. (U) USAID, with just under $13 million in Kazakhstan funding in
FY 2008, is implementing programs in three areas: democracy, health,
and economic development. The democracy program includes activities
to strengthen civil society and independent media and to enhance the
dialogue between the government and the public on important policy
issues. Funding for health is aimed at promoting reform of the
health care system, improving maternal and child health, and
controlling tuberculosis and HIV. The economic development
program, which is essentially being phased out following FY 2009,
receives co-financing from the Kazakhstani government. It has
focused, inter alia, on strengthening the government's
economic-policymaking capabilities, promoting fiscal transparency,
and fostering economic diversification and the development of small-
and medium-sized enterprises.


14. (SBU) Our military assistance aims to increase Kazakhstan's
interoperability with U.S. and NATO forces, enhance Kazakhstan's
participation in the Partnership for Peace, and increase
Kazakhstan's capacity to serve in global peacekeeping operations.
With $2.3 million in FMF and IMET funding plus a $10 million Section
1206 allocation for FY 2008, we are providing boats and refurbished
Huey-II helicopters for a Caspian Sea counter-terrorism rapid
reaction force and are training Kazakhstani military personnel.
Other U.S security assistance programs are enhancing Kazakhstan's
effectiveness in combating drug trafficking, promoting law

ASTANA 00001355 004 OF 004


enforcement reform, and bolstering Kazakhstan's efforts to prevent
trafficking in persons.


15. (U) Approximately 200 Kazakhstanis -- including high school,
undergraduate, and graduate students, as well as government
officials and private sector leaders -- are being sent to the U.S.
in 2008 on public diplomacy-funded exchange programs, such as the
FLEX, Muskie, and International Visitors Leadership programs.
(Note: Overall, approximately 2000 Kazakhstanis are studying full
time in the United States, including 700 funded by the Kazakhstani
government's Bolashak scholar program. In addition, almost 4000
Kazakhstani students are participating this year in the private
sector-sponsored Summer Work/Travel Program, which affords foreign
students an opportunity to temporarily work in and travel throughout
the U.S. during their summer vacations. End Note.) The first Peace
Corps volunteers arrived in Kazakhstan in July 1993. Our Peace
Corps program currently averages 130 volunteers in country at any
time, with two-thirds involved in educational activities and the
remainder engaged in organizational and community development.

ORDWAY