KAZAKHSTAN: TIMUR KULIBAYEV DISCUSSES OIL

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 002081

SIPDIS

STATE FOR SCA/CEN, EUR/CARC, EUR/RUS, EEB/ESC
STATE PLEASE PASS TO USTDA DAN STEIN

E.O. 12958: DECL: 10/20/2018
TAGS: PGOV EPET EINV GG AJ RS KZ
SUBJECT: KAZAKHSTAN: TIMUR KULIBAYEV DISCUSSES OIL
TRANSPORTATION AND GEORGIA INVESTMENTS

REF: ASTANA 2008

Classified By: Ambassador Richard Hoagland, Reasons 1.4 (b) and (d)


1. (C) SUMMARY: Timur Kulibayev, Chairman of the oil and
gas industry association KazEnergy and billionaire son-in-law
of President Nazarbayev, met with the Ambassador and visiting
Eurasian Energy Diplomacy Coordinator Ambassador Steve Mann
on October 7 to discuss oil transportation issues, the global
financial crisis, and Kazakhstan's investments in Georgia.
Kulibayev reiterated Kazakhstan's commitment to a
multi-vector transportation policy. He maintained that
Kazakhstan is considering all routes, including Iran.
Kulibayev asked for U.S. Government assistance in getting
Azerbaijan to permit Kazakhstan to ship crude through the
Baku-Supsa pipeline. He stressed that Kazakhstan remains
committed to its strategic energy investments in Georgia.
Kulibayev contended that Kazakhstan's oil and gas sector is
not being affected by the global financial crisis. END
SUMMARY.

KAZAKHSTAN'S MULTI-VECTOR APPROACH INCLUDES SOUTHERN ROUTE


2. (C) During an October 7 meeting with the Ambassador and
visiting Eurasian Energy Diplomacy Coordinator Ambassador
Steve Mann, Timur Kulibayev reiterated Kazakhstan's
commitment to a multi-vector hydrocarbon transportation
policy and stressed the importance of oil transportation via
the Caspian Pipeline Consortium (CPC) pipeline, the
Baku-Tbilisi-Ceyhan (BTC) pipeline, and the Kazakhstan
Caspian Transportation System (KCTS) as alternatives to
shipping through Russia. He said that Russia is actively
developing a detailed proposal to transport all Kazakhstani
oil via Novorossiysk and Primorsk, which he said would not
serve Kazakhstan's interests. "We need to have another card
to play with Russia," Kulibayev said. "We need to have
additional arguments." Kulibayev met with us in a private
hotel suite and spoke in a calm, quiet, measured voice
throughout, smiling occasionally and switching to English at
will. He confirmed that CPC expansion negotiations are
ongoing and said that Kazakhstan must increase its
transportation capacity, particularly now that Tengizchevroil
(TCO) has increased its output to 540,000 barrels per day.
Kulibayev added that Kashagan production in 2013 will
exacerbate transportation constraints and was critical of
Eni, the lead operator of Kashagan, saying, "They haven't
even considered the transportation question."


3. (C) Kazakhstan is looking at all transportation routes,
including what Kulibayev referred to as the "southern route"
via Iran. He said that nothing is likely to happen soon, but
informed us that Kazakhstan has developed a long-term
business plan for significant crude shipments to the port of
Neka in northern Iran. According to Kulibayev, the oil would
either be refined at one of three refineries in northern
Iran, or it would be shipped via a future pipeline through
Iran. However, Kulibayev noted that if Kazakhstan
successfully increases the transportation capacity of CPC,
KCTS, and the Atasu-Alashkanou pipeline to China to 120-130
million tons of crude per year, then "we would not need to
ship to Iran."

FRUSTRATION WITH BAKU-SUPSA


4. (C) Discussing KCTS in more detail, Kulibayev confided
that Chevron CEO David O'Reilly told President Nazarbayev
that Chevron would be willing to build a pipeline from Eskene
to Kuryk, where crude would be loaded onto tankers and

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shipped across the Caspian Sea to Baku. Kulibayev said with
noticeable frustration that ExxonMobil subsequently expressed
interest in the pipeline project, which has significantly
slowed down progress. "Can't you get them (i.e., Chevron and
ExxonMobil) together and work something out?," asked
Kulibayev.


5. (C) Echoing earlier remarks from KazMunaiGas (KMG)
President Kairgeldy Kabyldin (see reftel),Kulibayev said
that the Governments of Kazakhstan and Azerbaijan have a
memorandum of understanding (MOU) to ship Kazakhstani crude
to Baku and onward to European markets. Kulibayev said that
Kazakhstan is meeting its commitment to develop the port of
Aktau per the terms of the MOU, but complained that the
existing Baku-Supsa pipeline that could transport the crude
has not been used for the past two years. Kulibayev
confirmed that KMG is ready to buy Baku-Supsa outright or
purchase shares in the pipeline. "We need your help with the
Azeris," Kulibayev said, "or we will look at other
trans-Caucasus pipeline projects." Kulibayev also said that
President Nazarbayev is planning to visit Azerbaijan after
the presidential elections there on October 15.

FINANCIAL CRISIS "NOT AFFECTING OIL AND GAS SECTOR"


6. (C) According to Kulibayev, the global financial crisis
has not had a significant impact on Kazakhstan's oil and gas
production, although Kazakhstani commercial banks,
construction companies, and smaller enterprises have been
adversely affected. Kulibayev said that the country's major
economic indicators are stable and claimed that Kazakhstan's
National (Oil) Fund has sufficient reserves to support the
Government's budget for "two to three years," if necessary.

KAZAKHSTAN'S INVESTMENTS IN GEORGIA


7. (C) When asked about Kazakhstan's investment plans in
Georgia, Kulibayev said that Kazakhstan will remain a
long-term, strategic investor and confided that Georgian
President Saakashvili recently reassured Kazakhstani
investors that Georgia welcomes investment from Kazakhstan
and is committed to building strong, lasting ties to
Kazakhstan. "Of course," observed Kulibayev, "the conflict
in August did not help make Georgia a more attractive place
for foreign investment." But he denied reports that
Kazakhstan was divesting its Georgian assets. On the
contrary, he reaffirmed Kazakhstan's commitment to develop
the Batumi oil terminal and said Kazakhstan "will continue to
make long-term infrastructure investments in Georgia."


8. (C) When asked about reports that KMG plans to sell its
gas distribution subsidiary in Georgia, KazTransGas-Tbilisi
(formerly known as Tbilgas),Kulibayev surprised us by saying
that President Saakashvili sent KMG a letter "a few months
ago" asking if KMG would consider selling the company.
Kulibayev said that KMG is willing to consider offers for it
and speculated that the Government of Georgia would prefer to
see KazTransGas-Tbilisi in Georgian hands. He said that from
the very beginning, KMG's acquisition of the company was
driven by politics, not economics, and noted that KMG has
made expensive and important infrastructure investments --
including the installation of gas meters -- in building the
company into a stable, successful enterprise. He said that
KMG has been frustrated for some time by its inability to set
tariffs at market rates and by Georgian government efforts to
force KazTransGas-Tbilisi to deliver gas to rural residents
with little ability to pay, while another Georgian company
was a

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ssigned large industrial clients.


9. (U) Ambassador Mann has cleared this cable.
HOAGLAND