KAZAKHSTAN: DECISION NOT TO BUILD POTI GRAIN

C O N F I D E N T I A L ASTANA 001944 SIPDIS E.O. 12958: DECL: 10/01/2018 TAGS: PREL EAGR EINV RS GG KZ SUBJECT: KAZAKHSTAN: DECISION NOT TO BUILD POTI GRAIN TERMINAL WAS APPARENTLY A COMMERCIAL ONE Classified By: Ambassador Richard E. Hoagland, Reasons 1.4 (b) and (d) ¶1. (U) In contradiction to earlier Kazakhstani government claims, it now appears that Kazakhstan's decision not to build a grain terminal at Georgia's Poti port was actually a commercial one that had no connection to the recent Georgia conflict, according to several sources. ¶2. (C) Prime Minister Masimov informed Assistant Secretary Boucher on September 2 that negotiations with the Georgian side on building the 24,000-ton terminal had been temporarily put on hold due to the security situation in Georgia. On September 22, Agriculture Minister Kurishbayev told parliamentarians at a Majilis session that the whole project had, in fact, been cancelled because of the conflict. ¶3. (U) Express-K newspaper, however, published a detailed article on October 1 which explained that, in reality, the the decision not to build the Poti grain terminal was purely a commercial one. An unnamed source at Kazakhstan's state-owned Foodstuffs Corporation, which owned the Kazakhstani share of the Poti project, told Express-K that the Kazakhstani and Georgian sides were each supposed to invest $9 million into the terminal, with Georgia's investment consisting of land and equipment. After an independent audit determined that the land was worth just $4 million and the equipment offered was outdated and thus worthless, the Kazakhstanis demanded that the Georgians come up with $5 million in cash to make up the difference. When the Georgians could not do so, the Kazakhstanis backed out of the deal. According to the unnamed source, the Foodstuffs Corporation is instead considering building a grain terminal in Batumi on its own, without Georgian co-participation. (NOTE: Kazakhstan's state oil and gas company, KazMunaiGas, already owns 100 percent of the Batumi oil terminal. END NOTE.) ¶4. (C) In separate October 1 conversations, Georgian Embassy counselor Zurab Kozmava and Agricultural Ministry chief phytosanitary expert Kudaberdy Butayev (who is charged with certifying the safety of Kazakhstan's grain exports) confirmed for us the accuracy of the Express-K article. Kozmava maintained that the Kazakhstani government had publicly ascribed its decision not to build the terminal to the post-conflict security situation because it wanted to curry political favor with Russia, while also lowering the profile of Kazakhstan's extensive investments in Georgia. Kozmava expected the Kazakhstanis would ultimately move forward on building a grain terminal in Batumi, a location which made more commercial sense for them than Poti. HOAGLAND