AKTAU: A CENTRAL HUB FOR THE CASPIAN REGION

UNCLAS SECTION 01 OF 04 ASTANA 000871 SENSITIVE SIPDIS STATE FOR SCA/CEN M. O'MARA ENERGY FOR EKIMOFF COMMERCE FOR HUEPER E.O. 12958: N/A TAGS: PGOV PREL KZ EPET SUBJECT: AKTAU: A CENTRAL HUB FOR THE CASPIAN REGION ¶1. (SBU) Summary: Aktau, situated on the Caspian coast and the capital of Mangystau Oblast, is poised to become Kazakhstan's next boomtown. With four major ports in operation or under construction and improving road and rail infrastructure in Mangystau Oblast, Aktau is perfectly situated to become a key Caspian transportation hub. Revenue from oil and gas, while already a major earner for the city and the oblast, is likely to only increase with the development of "N" block and the Zhemchuzhina field. Several other significant projects are also underway in the region, including the construction of a new downtown in Aktau which will double the size of the city ("Aktau City" with a projected ultimate cost of $38 billion) and the creation of a major resort complex, with 23 hotels and a new international airport. End Summary Aktau Dreams Big -------------- ¶2. (SBU) On April 23, Poloff traveled to Aktau for three days of meetings with government officials, NGO representatives, and business leaders. Aktau, located on shores of the Caspian and the capital of Mangystau Oblast, was only settled in 1961 and shows signs of its youth. The city's streets are not named, and camels still roam free on the road between the airport and the city. However, new construction projects are visible throughout the city. Property prices are not far below those in Astana and Almaty. Expats crowd bars with names like "Guns and Roses" and "The Shamrock." Iran, Azerbaijan, and Russia have all already opened consulates in the city. ¶3. (SBU) Poloff met with Oblast officials on April 24 to discuss development plans for the city and the region. The officials began by citing a number of statistics in support of the Oblast's important place - the second highest GDP of any region, trailing only Atyrau Oblast, a 4.4 percent population growth rate (compared to the country's 1.1), 67,000 applications for land plots, more than Astana's 62,000, the third highest investment rate among the oblasts, a growing manufacturing sector. The officials highlighted several important non-extractive industrial projects, including the establishment of an ammonium carbamide complex which will provide up to 10% of the world's market fertilizers and two new cement factories which will create 900 jobs. 
¶4. (SBU) The Oblast officials then discussed the region's biggest priority, the "Earth - Sea - Sky" integrated investment project. The project has seven main components: 1) expansion of the Aktau Seaport; 2) development of Kuryk seaport and Kuryk working settlement; 3) establishment of the Caspian Energy Hub; 4) construction of "Aktau City"; 5) creation of the Caspian University of Technologies and Engineering; 6) improvement of transport infrastructure; 7) development of tourist infrastructure. An Emerging Transport Superhub -------------- ¶5. (SBU) A first priority is to make the Oblast, with Aktau at the forefront, the center of Caspian transportation. The oblast has three ports (Aktau, Bautino, and Kuryk),and another ONE planned (Sartas). Poloff visited the Aktau Port and was told that an expansion project is underway to increase the capacity of the port's terminals from 12 million to 20 million tons of oil. The size of the port has grown from 227 hectares to 900 and further expansion will increase the size to 2000 hectares. Kuryk, two hours from Aktau by car, is set to be the biggest port in Kazakhstan and of significant importance for producers after the completion of the Eskene - Kuryk oil pipeline. ¶6. (SBU) Kuryk will also be the fleet base for an expanding Kazmortransflot. Serik Ishmanov, Managing Director of Kazmortransflot, told Poloff on April 24 that Kazmortransflot currently has three 12,000 ton tankers and plans to buy three additional tankers in the near future. Kazmortransflot ultimately intends to move to 60,000 ton tankers, he said. Currently, the company is chartering 10 million tons of oil a year, with three million to Azerbaijan, ONE million to Iran, and the rest to Russia. Shipments to Iran are decreasing. Kazmortransflot is also looking to expand its base of operations, looking at options at "Batumi and beyond." Finally, he informed Poloff that Kazmortransflot is completing a feasibility study on LNG transport. ASTANA 00000871 002 OF 004 ¶7. (SBU) Oblast officials told Poloff that they also believe that the region will be the focal point for both north- south and east-west road and rail traffic. The first link of a new road network between Aktau and Atyrau, the capital of Atyrau Oblast and the center of Kazakhstan's oil industry, has been completed, and construction of the final link is planned. Plans are being developed to build a rail line between Aktau and the Bautino port. Kazakhstan, Turkmenistan, and Iran signed an agreement to build a railway line traversing the three countries. As Kazakhstan's east-west transportation system is strengthened, oblast officials believe Aktau will be an important transfer point for goods from China. Energy Potential -------------- ¶8. (SBU) Mangystau Oblast has a number of established oil fields and several potentially significant finds still to come on line. The government made an initial estimate that the "N" Block not far off-shore from Kuryk has 349 million tons of oil, although KazMunaiGas has recently claimed that the figure is higher. Shell (55%),KazMunayTeniz (25%) and Oman Pearls (20%) hold stakes in the off-shore Zhemchuzhina oilfield, with estimated reserves of 100 million tons of oil. On April 25, Poloff met with representatives from Caspi Meruerty Operating Company (CMOC),the developer of the field. CMOC Deputy Manager Bulat Jumagaliyev Jumagaliyev reported that CMOC drilled the first of four wells last year and is pleased with the results. A second well will be drilled this year. Asked about the field's potential, Jumagaliyev laughed and said, "10 times less than Kashagan," Becoming serious, he then said that Zhemchuzhina has many advantages in comparison with other offshore fields, because of the high quality of the oil and cheaper production costs. ¶9. (SBU) On April 24, Poloff met with MangistauMunaiGas (MMG) Director General Sagyn Krymkulov. MMG, owned by Central Asia Petroleum of Indonesia, has 6,000 employees and is ONE of the largest oil producing companies in Kazakhstan (Note: KMG is finalizing the acquisition of a 72% stake of the company). Krymkulov told Poloff that MMG has 15 fields with 1 billion tons of reserves. Currently, the company is producing 5.7 million tons per year but hopes to increase to 6 million tons by 2011. MMG also has two offshore blocks, but has no drilling experience. Krymkulov bemoaned the difficulty of finding capable Kazakhstani engineers, a theme echoed by Caspi Meruerty Operating Company (CMOC) and other oil companies in Aktau. ¶10. (SBU) Several oil company representatives working in Mangystau Oblast told Poloff that they are facing increasing scrutiny from the government, mirroring a trend in other oil-producing regions of Kazakhstan. Andrey Zimin, the Acting Director General of Arman JV (50% Shell, 25% Lukoil, 25% Mittal; the Arman field has 200 million tons of proven reserves) told Poloff that Arman paid $1 million in environmental fines last year. Zimin said they now receive two letters a day on average from the Ministry of Energy and Natural Resources with various requests. The latest requirement, he said, is to station a squad of 20 fireman at the field, which he called ludicrous when they only have 35 employees working there. Hue Huiping, General Manager of Buzhachi Operating(Owned by Chinese National Petroleum Company (CNPC),Mittal, and Lukoil, developing the North Buzachi field, with 23 million tons of proven reserves), described a "difficult atmosphere in which to work." He told Poloff it is increasingly difficult to get necessary permits. Although Buzhachi will not be affected by a new oil export tax, Huiping said that "one way or another, we will have to pay." ¶11. (SBU) Oil will not be the only energy source emerging from Aktau. On April 24, Poloff met with officials at the Mangyshlak Atomic Energy Complex, home to three heat and power plants and the decommissioned BN-350 nuclear reactor. Poloff asked the officials about recent reports that a new nuclear power plant would be built at the facility. They responded that they were "99% certain" that the plant would be built. The plant would produce enough electricity to support Kazakhstan's growing needs and to provide exports to Turkmenistan. ¶12. (SBU) Underlining its potential for further growth in the energy sector, the Government of Kazakhstan recently signed a ASTANA 00000871 003 OF 004 memorandum giving preliminary approval to establish an energy research and training complex in Aktau, the Caspian Energy Hub. The proposed hub would include a science and technology park, a geophysical laboratory, a renewable energy center, and facilities for personnel training, information technology development and environmental research. Development of the hub is expected to take 3-5 years, with a first stage investment of $400 million dollars and an ultimate cost of $10 billion. In order to further increase the number of skilled industrial workers, planning has started to establish a Caspian University of Technology and Engineering in Aktau. The aim, according to Oblast officials, is to create an elite university that will attract students from across the Caspian region. The Caspian Riviera? -------------- ¶13. (SBU) Oblast officials told Poloff of plans to establish a large tourist complex in Kenderli, south of Aktau. The area, according to the officials, has 1.7 thousand hectares of resort area. The Kazakhstanis intend to build 23 hotels, with KMG building two five star hotels. An international airport will be built, and the Kazakhstanis hope to attract 330,000 tourists annually, primarily from Russia and other CIS countries. (Note: Many huge villas already dot the Caspian coast, including ONE given to President Putin as a gift by President Nazarbayev.) ¶14. (SBU) Oblast officials acknowledged to Poloff that they will need to attract workers to Aktau and the region in order to have the necessary manpower to complete many of their proposed projects. They hope that the opportunities offered will attract workers not only from Kazakhstan, but also from Azerbaijan, Turkmenistan, and Iran. They believe that in coming years the population of Aktau (currently 200,000) and the Oblast (400,000) will double. As part of the expansion, project financing has started for the "Aktau City" project, a new downtown for the city. Initial construction began on February 25. Civil Society in the Oblast: Differing Views -------------- ¶15. (SBU) On April 23, Poloff met with Yedil Jamburchin, Nur Otan first deputy chairman for Mangystau Oblast, in Nur Otan's modern headquarters (Note: Nur Otan will soon move their headquarters to an even more fashionable glass and steel building in Aktau). Jamburchin was stylishly dressed, charismatic, and concisely recited Nur Otan's strategy for the region. After last year's parliamentary elections, he said, Nur Otan created regional programs focused on projects such as bringing HEALTH care systems to villages. "We are not just in oblast centers," he said. He identified rising inflation and the high price of food as the biggest problems facing Kazakhstan. Asked about the state of civil society in the Oblast, Jamburchin responded that there "are no problems." and that an independent print and TV media exists. (Note: Nur Otan received 97% of the vote in Mangystau Oblast in the most recent election, its highest percentage in any oblast.) ¶16. (SBU) On the same day, Poloff held a roundtable discussion with representatives from the Ak Zhol, Alga, Azat, and National Social Democratic Parties. All bemoaned political conditions in the Oblast. Ak Zhol representative Agzam Zhumsakov said that nothing has changed in Kazakhstan since it was granted the OSCE chairmanship for 2010. Alga Party representative Svetlana Chetvertnykh expressed her belief that opposition parties can appeal to those not benefiting from Kazakhstan's progress, such as pensioners, government workers, and the "socially vulnerable." Beyond the shining facades of new buildings, little change is occurring, she said. Each representative claimed that it remains difficult for opposition parties to operate. In Aktau, it is impossible to criticize new projects because of Nur Otan's complete control of local government. They also told Poloff that they face consistent government harassment and that after the roundtable talk "people will be waiting on the streets for us," according to NSDP representative Adil Uly. The representatives were confrontational with Poloff and asked on numerous occasions why the United States is not doing more to promote democracy in Kazakhstan. Chetvertnyk admitted, however, that people still have faith in the government and all of the representatives were murky when discussing the plans of their parties to attract greater ASTANA 00000871 004 OF 004 support. -------------- Comment -------------- ¶17. (SBU) Aktau is still a sleepy town in comparison with Almaty and Astana. Its growth potential, however, is significant, particularly when oil from Tengiz and Kashagan is shipped westwards. The Kazakhstanis see Aktau as a potential "capital city" of the Caspian region, the central point for transportation, regional educational cooperation, and even tourism. If the cross-Caspian route is the new Silk Road for Central Asia, Aktau may yet prove to be its Samarkhand. ORDWAY