KAZAKHSTAN: SCENESETTER FOR UNDER SECRETARY BURNS'S JULY

UNCLAS SECTION 01 OF 04 ASTANA 001103

SENSITIVE
SIPDIS

E.O. 12958: DECL: N/A
TAGS: PREL PGOV PHUM ECON EPET KNNP AF RS KZ
SUBJECT: KAZAKHSTAN: SCENESETTER FOR UNDER SECRETARY BURNS'S JULY
9-10 VISIT TO ASTANA


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


2. (SBU) SUMMARY: Your visit to Astana is a key opportunity for
engagement with the leadership of our most important partner in
Central Asia. We have a robust bilateral relationship, with close
cooperation on such critical issues as Afghan stabilization and
reconstruction, nuclear non-proliferation, and developing
Kazakhstan's vast energy resources to support global energy security.
With its upcoming 2010 OSCE chairmanship, Kazakhstan is poised for
its most important international leadership role to date. The
Kazakhstanis will be particularly interested in getting a briefing on
the Obama-Medvedev summit and on the status of the U.S.-Russia
relationship -- which has a direct impact on Kazakhstan. You should
press the Kazakhstanis to take additional concrete steps to support
Afghanistan. You will want to get the Kazakhstanis' take on European
security architecture, discuss their priorities for their OSCE
chairmanship, and remind them that the chairmanship will place their
country's record on democracy and human rights under additional
scrutiny. You should also reiterate our commitment to Kazakhstan's
WTO accession. END SUMMARY.

FURTHER STRENGTHENING BILATERAL RELATIONS


3. (SBU) The Kazakhstani leadership sees the new Obama administration
as an opportunity to further strengthen bilateral relations.
President Nazarbayev welcomed then President-elect Obama's early
phone call last November, and subsequently invited him to visit
Astana -- an invitation passed directly to POTUS by Senate Chairman
Kasym-Zhomart Tokayev at an Alliance of Civilizations reception in
Istanbul on April 7. Nazarbayev very much appreciated the
Administration's invitation to attend the 2010 global summit on
nuclear security. The Kazakhstanis recently requested that we
establish a formal structure for high-level oversight of bilateral
relations, like the Gore-Nazarbayev Commission under President
Clinton.


4. (SBU) Nazarbayev carefully balances Kazakhstan's relations with
Russia, China, the United States, and the EU -- what he terms a
"multi-vector" foreign policy. The Kazakhstanis consider Russia
their most important international partner, and Russia's influence is
unequalled in Kazakhstan due to long historical and economic ties,
Kazakhstan's large ethnic Russian population, and the predominance
here of the Russian language. Kazakhstan's close relationship with
the United States serves as an essential counterweight -- reinforcing
the country's sovereignty and independence and helping it to stave
off excessive pressures from both its giant neighbors, i.e., China as
well as Russia. For the Kazakhstanis, high-level interactions with
the United States, such as your visit, are thus important not only
for their substance, but also for their symbolism -- sending a signal
to Moscow that we remain closely engaged with them.

AFGHANISTAN: POISED TO DO EVEN MORE


5. (SBU) The Kazakhstanis view insecurity in Afghanistan as a direct
threat to Kazakhstan, through northward flow of Islamic militants and
narcotics. They have expressed concern about Karzai's Taliban
reconciliation efforts. They understand why the Afghan government
wants to co-opt some moderate Taliban factions, but believe that
there are practical and political limits on dialogue and compromise
and consider any negotiations with the Taliban's core leadership to
be a dangerous idea.


6. (SBU) Kazakhstan has provided critical support for Afghan
stabilization and reconstruction. The details are discussed in the
issue paper on Afghanistan prepared for your visit, but of most
important note, the Kazakhstanis are participating in the Northern
Distribution Network, and we have bilateral agreements from 2001 and
2002 that allow U.S. military aircraft supporting Operation Enduring
Freedom to transit Kazakhstani air space cost-free and to make
emergency landings in Kazakhstan when conditions do not permit
landing at Kyrgyzstan's Manas Air Base. The Kazakhstanis have
expressed an interest in doing even more, including sending staff
officers to ISAF headquarters and perhaps deploying a military

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medical unit or military engineering team to Afghanistan. They are
currently developing a program to provide free university education
in Kazakhstan to Afghan students.

DEMOCRACY: SLOW GOING


7. (SBU) While the Kazakhstani government articulates a strategic
vision of democracy, it has lagged on the implementation front. The
leadership remains resistant to competitive political processes --
and the situation is complicated by the fact that Nazarbayev is
extraordinarily popular (with approval ratings in the 80-90 percent
range in our own polling),while the opposition is weak, fractured,
and comprised mostly of ex-Nazarbayev loyalists who fell out of favor
with him. Nazarbayev's Nur Otan party officially received 88% of the
vote and won all the parliamentary seats in August 2007 elections
which OSCE observers concluded did not meet OSCE standards. The
next elections, both parliamentary and presidential, are scheduled
for 2012.


8. (SBU) On a positive note, Nazarbayev has taken steps that could
facilitate a transition to a more democratic system over the long
run. His Bolashak program provides scholarships annually for several
thousand Kazakhstanis to receive higher education abroad, mostly in
the West, where they absorb Western ideas and values. He has also
brought into government a new generation of young, ambitious
bureaucrats -- many of whom studied in the West through Bolashak or
our own programs.

RAKHAT ALIYEV: A MAJOR PREOCCUPATION


9. (SBU) Nazarbayev's former son-in-law Rakhat Aliyev, who is living
in exile in Europe, remains a major preoccupation for the government.
In late 2007, Aliyev began publicly releasing secretly-made
recordings of embarrassing conversations among senior government
officials, including some involving Nazarbayev himself. In two 2008
trials, Aliyev was convicted in absentia of several serious offenses,
including plotting a coup and ordering the murder of two bankers who
disappeared without a trace. He was sentenced to 20 years in prison
and his assets were confiscated. A German publishing house just
published Aliyev's tell-all book entitled "Godfather-in-Law;" the
Kazakhstanis have banned its distribution here. From exile, Aliyev
has tried to remake his image into one of a persecuted democratic
reformer, while also dropping false hints that he is cooperating with
and under the protection of the U.S. government -- a claim that many
senior Kazakhstani officials seem to believe, despite our strongest
denials. We have made clear to the government that we have no ties
whatsoever to Aliyev.

ECONOMY: AGGRESSIVE STEPS TO TACKLE ECONOMIC CRISIS


10. (SBU) Kazakhstan is Central Asia's economic powerhouse, with a
GDP larger than that of the region's other four countries combined.
Economic growth averaged over 9% per year during 2005-07, before
dropping to 3% in 2008 with the onset of the global economic crisis.
The international financial institutions are predicting negative 2%
growth for Kazakhstan in 2009, with an economic recovery beginning in

2010. While the country's economic success is partly due to its
fortuitous natural resource deposits, astute macroeconomic policies
and extensive economic reforms have also played an important role.
Kazakhstan has a modern banking and financial system, a well-endowed
pension fund, and a transparent sovereign wealth fund with
approximately $20 billion in assets. The government has taken
aggressive steps to tackle the domestic reverberations of the global
financial and economic crisis, allocating around $20 billion to take
equity stakes in private banks, prop up the construction and real
estate sectors, and support small- and medium-sized enterprises and
agriculture. A government takeover of the country's largest bank --
Bank Turam Alem (BTA) -- raised concerns because the authorities
ousted BTA's chairman, Mukhtar Ablyazov, a leading financier of
Kazakhstan's political opposition. While Ablyazov, who is
purportedly in self-imposed exile in Britain, argues that the
takeover was politically motivated, reliable sources in the
international community, including the EBRD, believe that he may have

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looted BTA of several billion dollars.


11. (SBU) Kazakhstan's long-run economic challenge is to diversify
its economy away from reliance on the energy sector. In 2008, we
launched a bilateral Private-Private Economic Partnership Initiative
(PPEPI),which is bringing together the U.S. and Kazakhstani public
and private sectors to make policy recommendations on improving the
country's business climate and reducing other barriers to non-energy
investments.

SUSPENSION OF WTO NEGOTIATIONS


12. (SBU) In June, Kazakhstan, Russia, and Belarus announced that
they would be suspending their individual negotiations to accede to
the World Trade Organization (WTO) and would instead launch joint
negotiations in order to enter the WTO together as a customs union.
This appears to have been a close-hold decision made at the highest
political levels of the three governments, without consultation with
technical experts. We had ample warning over the past year that the
Kazakhstanis were weighing the relative economic benefits of WTO
accession and the customs union, and increasingly felt that the
United States and European Union were not translating support for
their accession at the political level into concrete results in the
accession negotiations taking place at the technocratic level. Since
there does not appear to be a mechanism allowing a customs union to
accede to the WTO without its member states doing so individually, we
should reiterate our support for Kazakhstan's WTO accession and
encourage them to continue their individual accession negotiations.

ENERGY: DIVERSIFYING TRANSPORT ROUTES


13. (SBU) U.S. and Kazakhstani strategic interests are largely
aligned on the development of Kazakhstan's vast energy resources.
Both sides agree that U.S. and Western companies must continue
playing a lead role in Kazakhstan's energy exploration and production
projects and that diversifying transport routes will bolster
Kazakhstan's sovereignty and enable it to capture the maximum
benefits of its energy wealth. Kazakhstan produced 70.7 million tons
of oil in 2008 (approximately 1.41 million barrels per day),and is
expected to become one of the world's top ten crude exporters soon
after 2015. While the country also has significant gas reserves (1.5
trillion cubic meters is a low-end estimate),current gas exports are
very limited for now, in part because gas is being reinjected to
maximize crude output. U.S. companies -- ExxonMobil, Chevron, and
ConocoPhillips -- have significant ownership stakes in Kazakhstan's
three major hydrocarbon projects, including Kashagan, the world's
largest oil field discovery since Alaska's North Slope.


14. (SBU) With major crude production increases on the horizon,
Kazakhstan must develop additional transport routes to bring its
crude to market. Currently, most of Kazakhstan's crude is exported
via Russia, though some exports flow east to China, west across the
Caspian through Azerbaijan, and south across the Caspian to Iran. We
are focused on helping the Kazakhstanis implement the
Kazakhstan-Caspian Transportation System (KCTS),which envisions a
"virtual pipeline" of tankers transporting large volumes of crude
from Kazakhstan Caspian coast to Baku, from where it will flow onward
to market through Georgia, including through the Baku-Tbilisi-Ceyhan
(BTC) pipeline. While a trans-Caspian crude pipeline would likely be
a cheaper long-term transport option, Kazakhstan is reluctant to
openly pursue this option in the absence of an agreement on
delimitation of the Caspian Sea among the five Caspian littoral
states.

NON-PROLIFERATION: HALLMARK OF BILATERAL COOPERATION


15. (SBU) Non-proliferation cooperation has been a hallmark of our
bilateral relationship since Kazakhstan became independent and agreed
to give up the nuclear arsenal it inherited from the USSR. The
Nunn-Lugar Cooperative Threat Reduction (CTR) program remains the
dominant component of our assistance to Kazakhstan. Key ongoing CTR
activities include our efforts to secure the radiological material at
the Soviet-era Semipalatinsk nuclear test site and to provide

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long-term storage for the spent fuel from Kazakhstan's plutonium
breeder reactor. The Kazakhstanis are seeking additional ways to
burnish their non-proliferation credentials. On April 6, President
Nazarbayev announced publicly that Kazakhstan is interested in
hosting the Nuclear Threat Initiative's IAEA-administered
international nuclear fuel bank. The Kazakhstanis are also
considering running for a seat on the IAEA Board of Governors, and
continue to press us to support their joining the Missile Technology
Control Regime (MTCR). At a June 18 ceremony marking the 20th
anniversary of the last nuclear test at Semipalatinsk, Nazarbayev
proposed a new non-proliferation treaty to strengthen the global
non-proliferation regime; expressed support for President Obama's
statements in Prague about moving toward a world without nuclear
weapons; and called on the UN to establish a "world non-proliferation
day."

HOAGLAND