KAZAKHSTAN - DECISION NOT TO INVEST IN BATUMI REFINERY

UNCLAS ASTANA 001870

SENSITIVE
SIPDIS

EEB FOR SPECIAL ENVOY BOYDEN GRAY AND AMBASSADOR STEVEN MANN

E.O. 12958: N/A
TAGS: EPET EINV PGOV KZ GG
SUBJECT: KAZAKHSTAN - DECISION NOT TO INVEST IN BATUMI REFINERY
MADE WELL BEFORE GEORGIA CONFLICT


1. (SBU) Energy Officer spoke on September 25 to Nurlan Sauranbayev,
Managing Director of Oil Transportation at KazMunaiGas (KMG),about
press reports that KMG has abandoned plans to invest $1 billion in
an oil refinery in the Georgian port city of Batumi. Sauranbayev
confirmed that KMG decided not to make the investment, but said the
decision was made well before the August conflict in Georgia and was
made entirely for economic reasons.


2. (SBU) Sauranbayev strenuously denied the implication that
Kazakhstan was pulling its investments out of Georgia. On the
contrary, he emphasized that the Batumi oil terminal is a strategic
asset of KMG and is an "essential element" of Kazakhstan's
multi-vector transportation policy, in particular maintenance of the
Eurasian corridor. In fact, Sauranbayev said that he had just met
with representatives of Chevron and was planning to meet later in
the day with representatives of ExxonMobil to discuss expansion of
oil shipments from Atyrau to Baku and onward to Batumi.


3. (SBU) According to Sauranbayev, development of the feasibility
study for a new Batumi refinery was suspended long before the crisis
erupted in the Caucasus. In 2007, KMG sent a team of engineers to
Batumi to assess the feasibility of either renovating the existing
refinery or building a new (green field) refinery. Ultimately, KMG
determined that neither project was commercially viable because the
existing refinery did not meet minimum technical specifications and
a new refinery would require a larger plot of land at a greater
distance from residential housing and the sea than would be possible
at the site.


4. (U) In August 1999, UK-based holding company Greenoak Group paid
$27.1 million for an oil transshipment facility on an 80-hectare lot
near the port of Batumi in a privatization transaction with the
Georgian government. Greenoak Group subsequently invested more than
$60 million over three years to upgrade terminal facilities. In
December 2006, Greenoak Group subsidiary Naftrans and KMG subsidiary
KazTransOil formed a joint venture called Batumi Terminals JV in
order to secure future volumes for the Batumi terminal and the
Azerbaijan-Georgia rail corridor. In March 2007, Greenoak Group and
KMG signed a memorandum of cooperation to develop a feasibility
study for a new refinery in Batumi.


5. (SBU) Mogens Hansen, CEO of the Batumi Oil Terminal, and a member
of Greenoak Group's senior management, told Energy Officer on
September 25 that there was "nothing strange at all about the
decision" not to build a new refinery. When asked if KMG's decision
had anything to do with the conflict in Georgia in August, he said,
"no, no, no -- nothing to do with that -- this was strictly a
business decision."


6. (U) According to Greenoak, the Batumi terminal's transshipment
capacity is currently 12 million tons per annum and the reservoir
capacity is over 510,000 tonnes. Unloading capacity is 212 railway
tank cars. Vessel loading is performed at three berths and one
offshore loading buoy. The Batumi Oil Terminal is capable of
handling vessels with deadweight up to 130,000 tons with drafts
ranging from 12 to 16 meters and length up to 255 meters.

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