KAZAKHSTAN: WHAT THE PRIVATE SECTOR CAN ACCOMPLISH

UNCLAS SECTION 01 OF 02 ASTANA 002231

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB, ECA

TAGS: PREL ECON EINV KPAO KZ
SUBJECT: KAZAKHSTAN: WHAT THE PRIVATE SECTOR CAN ACCOMPLISH

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1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: Kazakhstan's Capital Partners develops luxury
projects in Almaty, Astana, Moscow, and Istanbul, including for J.W.
Marriott and its related Ritz-Carlton brand. In Almaty, Capital
Partners is developing for Marriott near the new Financial District
-- a complex of office and residential towers with a mall to be
anchored by Saks Fifth Avenue. The chairman of Capital Partners
said it operates, at least in Kazakhstan, in the gray area between
the capitalist private sector and the government. Capital Partners
is negotiating to establish a Yale University School of Management
branch in Almaty, as well as a world-class teaching hospital to be
managed by Johns Hopkins University Medical School -- an example of
the private sector stepping into the traditional role of public
diplomacy when U.S. government resources are no longer available.
END SUMMARY.


3. (SBU) Ambassador and Foreign Commercial Service Officer met in
Almaty on November 6 with Founding Partner Burak Oymen and Chairman
Serzhan Zhumashov of Capital Partners, Kazakhstan's premier property
development company that operates in Kazakhstan, Moscow, and
Istanbul. Capital Partners' General Director Alexandr Gushavin, who
appears to be ethnic Russian, attended part of the meeting. The
meeting took place in Capital Partners' corporate headquarters
located in the still-under-construction Esentai Park project. The
project is being developed in conjunction with J.W. Marriott Hotels
and Resorts and will include a high-rise with Class A office space
(already occupied by U.S. legal and accounting firms and investment
companies) and a 175-room Marriott Hotel on the upper floors with a
26th-floor "sky lobby," several mid-rise world-class residential
towers, and a large shopping mall where the anchor store will be
Saks Fifth Avenue and include other luxury brands like Channel and
Louis Vuitton, and where there will also be a multiplex cinema and a
luxury health club. Marco Fien, J.W. Marriott General Manager in
Kazakhstan, emphasized that this is the first J.W. Marriott branded
hotel outside the continental United States (the firm has two
Marriott Renaissance hotels in Aktau and Atyrau already). The
residential apartments, suitable for Manhattan, will sell at New
York prices.


4. (U) Capital Partners also developed the new Ritz-Carlton in
Moscow, and plans Ritz-Carlton hotels and residences in Almaty and
Astana. The Astana project, expected to begin construction in 2009
(if economic conditions permit),will be the tallest building in the
city at about 50 stories, and will be located in the new government
core.


5. (SBU) Oymen said Capital Partners is the largest foreign
investor in the J.W. Marriott corporation. Capital Partners relies
mostly on Skidmore, Owings, and Merrill LLP, New York, for design
and engineering, employing a group of 80 architects in the New York
headquarters. The transparent-glass-sheathed Esentai Park project
is only one part of a very large multi-block area in north Almaty
that Capital Partners is developing as Almaty's new Financial
District. Zhumashov commented in passing that such a massive
development is possible only "in the gray area where private
investment and the government intersect."


6. (SBU) Capital Partners also developed the all-amenities British
Haileybury School in Almaty, across the street from Esentai Park,
which currently has about 300 students in grades 1-6 and expects to
expand to 600 students through grade 12, providing
international-class education primarily to the children of
Kazakhstan's economic elite, as well as to children of foreign
business people and diplomats. Oymen and Zhumashov had just come
from meeting with two professors from the Yale University School of
Management who are working to build and staff a Yale Business School
affiliate in Almaty. Oymen said Capital Partners' future projects
also include a world-class hospital for Almaty that Johns Hopkins
Medical School is now considering, with the possibility of
eventually including a Johns Hopkins Medical School teaching center
there.

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7. (SBU) When he was asked how the current world financial crisis
has impacted Capital Partners, Oymen replied with one word:
"Dramatically!" However, he alleged, Capital Partners has the only
projects in Kazakhstan still going full steam, whereas almost all
others have come to a halt. (NOTE: A glance at the unfinished
towers in Esentai Park didn't show much evidence of "full-steam"
construction activity. END NOTE.) Oymen said Capital Partners is
as well protected as possible at this time because of its corporate
strategy of sectoral (residences, hotels, office buildings,
factories) and geographic diversification, with an emphasis on
ultra-high-end projects. He noted that the liquidity crisis hit
Kazakhstani banks a year earlier than in the rest of the world. In
2007, Capital Partners began selling its assets to AIG and Deutsche
Bank and by August 2007 had raised $1.1 billion to pay back and
restructure loans, even though they weren't yet due, at Kazakhstani
banks to help stabilize the national banking sector. For that
reason, among others, the president and government of Kazakhstan are
said to consider Capital Partners a positive, and favored, corporate
citizen. Zhumazhov said Kairat Kelimbetov, former head of the
presidential administration and new head of the Samruk-Kazyna
National Welfare Fund, recently met with the Capital Partners'
leadership to brainstorm about how to invest Samruk-Kazyna's
financial resources.


8. (SBU) BIO NOTE: Oyman, who appears to be in his early 30s, is
the son of Turkish diplomats. After spending five years at Temple
University in the United States, he initially worked for the Turkish
construction firm, Enca, in Moscow. He first arrived in Almaty in
2000 and has built the Capital Partners empire since then.


9. (SBU) COMMENT: While it's easy for poor diplomats to be dazzled
by great wealth, and while we know the appearance of great wealth
can be a carefully constructed and fragile image, Capital Partners
and its two leaders seem impressive. Most impressive to us is their
connection to major U.S. businesses, as well as their corporate
citizenship that is drawing Yale and Johns Hopkins Universities to
Kazakhstan. This is the kind of public diplomacy the United States
no longer has the resources to accomplish. END COMMENT.

HOAGLAND