KAZAKHSTAN: EXXON-MOBIL PROVIDES UPDATE ON

UNCLAS ASTANA 002083 SENSITIVE SIPDIS STATE FOR SCA/CEN,EEB/ESC STATE PLEASE PASS TO USTDA DAN STEIN E.O. 12958: N/A TAGS: PGOV EPET EINV KZ SUBJECT: KAZAKHSTAN: EXXON-MOBIL PROVIDES UPDATE ON KASHAGAN NEGOTIATIONS ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) The Ambassador met on October 20 with Steve Rose, General Manager for ExxonMobil Kazakhstan and a direct participant in the ongoing negotiations to amend the Kashagan agreement. Rose said that the Kashagan partners (KazMunaiGas, Eni, ExxonMobil, Shell, Total, Inpex, and ConocoPhillips) have reached agreement on the issue that was thought to be holding up the negotiations: oil transportation and export. Each company has now agreed to take individual responsibility for the lift, marketing, and sale of its own production share, rather than pooling transportation resources or using a joint transportation company. Rose confirmed that Total and KazMunaiGas (KMG) have insisted on their right to sell Kashagan crude to Iran, although he said it was too soon to say how much. He noted that ExxonMobil's legal team had reviewed existing U.S. legislation and sanctions against Iran and determined that this arrangement would not violate U.S. law. ¶3. (SBU) Rose flagged two additional issues, not mentioned by Maksat Idenov -- KMG First Vice President and the Kazakhstani government's lead negotiator on Kashagan -- during Idenov's October 6 meeting with Ambassador Mann (see septel),that remain to be resolved before the Kashagan agreement can be finalized: (1) reimbursement to the consortium for $125-230 million in import customs duties, value added taxes, and penalties and fines that were paid, unnecessarily in ExxonMobil's view, by Kashagan subcontractors; and (2) the terms and conditions for a $1.78 billion loan to KMG to cover its purchase of an additional 8.4 percent stake in Kashagan. According to Rose, the Western partners are willing to sell the shares to KMG at LIBOR plus 3 percent, but "we will insist on maintaining the flow and control of this money. Their pledge must be rock solid." ¶4. (SBU) Rose described Maksat Idenov as a "straight-shooter, very smart and savvy, with international experience as a Chevron Vice President in the Middle East." Rose noted that Idenov strongly prefers to negotiate directly with senior vice presidents from the major international oil companies. He told the Ambassador that Idenov complained in a letter to the companies' CEOs when executives from ExxonMobil, Shell, and Total had to leave Astana earlier this month, after a two-week stay. Rose said that all three executives are expected back in Astana on October 20 and will resume negotiations the following day. ¶5. (SBU) According to Rose, Idenov scheduled a meeting on October 20 with Prime Minister Masimov, Minister of Energy Mynbayev, Justice Minister Baliyeva, Supreme Court justices, and government prosecutors to discuss options for resolving the latest impasses. Rose said that following his meeting with the Ambassador, he would be immediately returning to the negotiations, which the Kazakhstani government has said must be concluded by October 25. HOAGLAND