KAZAKHSTAN: SCENESETTER FOR CODEL BOEHNER'S AUGUST 8-9

UNCLAS SECTION 01 OF 03 ASTANA 001251 SENSITIVE SIPDIS STATE FOR SCA/CEN, H H PLEASE PASS TO CODEL BOEHNER E.O. 12958: DECL: N/A TAGS: OREP PREL PGOV PHUM EPET KDEM KNNP KZ SUBJECT: KAZAKHSTAN: SCENESETTER FOR CODEL BOEHNER'S AUGUST 8-9 VISIT TO ASTANA ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: Embassy Astana warmly welcomes your August 8-9 visit to Kazakhstan, which comes at a particularly opportune time. With its upcoming 2010 chairmanship of the Organization for Security and Cooperation in Europe (OSCE) and its thriving energy sector, Kazakhstan is showing increasing confidence on the international stage. Kazakhstan has proven to be a reliable security partner and a steady influence in a turbulent region. The pace of democratic reform, however, has been slow, with political institutions, civil society, and the independent media still underdeveloped. Our fundamental strategic objective is a secure, democratic, and prosperous Kazakhstan that embraces market competition and the rule of law; continues partnering with us on the global threats of terrorism, WMD proliferation, and narco-trafficking; and develops its energy resources in a manner that bolsters global energy security. END SUMMARY. ECONOMY: AGGRESSIVE STEPS TO TACKLE ECONOMIC CRISIS ¶3. (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 financial crisis. The international financial institutions are predicting negative 2% growth for Kazakhstan in 2009, with an economic recovery beginning in ¶2010. Astute macroeconomic policies and extensive economic reforms have played an important role in Kazakhstan's post-independence economic success. The country has a modern banking and financial system, a well-endowed pension fund, and a sovereign wealth fund with over $20 billion in assets. The government has taken significant steps to tackle the domestic reverberations of the 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. ¶4. (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 investment. On a less promising note, the Kazakhstanis announced in June that they would be suspending their bilateral negotiations to accede to the World Trade Organization (WTO) and would instead launch negotiations together with Russia and Belarus to enter the WTO jointly as a customs union. We have informed Kazakhstan that there is, in fact, no mechanism allowing a customs union to accede to the WTO without its member states doing so individually. AN EMERGING ENERGY POWER ¶5. (SBU) 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 ConocoPhilips -- have significant ownership stakes in each of Kazakhstan's three major hydrocarbon projects: Tengiz, Kashagan, and Karachaganak. ¶6. (SBU) Tengiz, with 50% Chevron and 25% ExxxonMobil ownership, increased production to 600,000 barrels per day in 2008. Kashagan -- the largest oilfield discovery since Alaska's North Slope and among the world's most technically complex oil development projects -- is expected to come on-line around 2014, with production reaching one million barrels per day of crude by 2020. On June 12, ConocoPhillips signed a contract to explore and develop the offshore ASTANA 00001251 002 OF 003 N Block, estimated to contain 2.13 billion recoverable barrels of oil. China has recently increased its investment in Kazakhstan's energy sector, and through the state-owned China National Petroleum Corporation (CNPC) now controls approximately 20% of Kazakhstan's total oil production. ¶7. (SBU) With these crude production increases on the horizon, Kazakhstan must develop additional transport routes to bring its crude to market. Our policy is to encourage Kazakhstan to seek diverse transport routes, which will ensure the country's independence from transport monopolists. Currently, most of Kazakhstan's crude is exported via Russia, although some exports flow east to China, west across the Caspian through Azerbaijan, and south across the Caspian to Iran. ¶8. (SBU) We support the expansion of the Caspian Pipeline Consortium (CPC) pipeline, which is the only oil pipeline crossing Russian territory that is not entirely owned and controlled by the Russian government. We are also helping the Kazakhstanis implement the Kazakhstan-Caspian Transportation System (KCTS),which envisions a "virtual pipeline" of tankers transporting up to one million barrels of crude per day from Kazakhstan's Caspian coast to Baku, from where it will flow onward to market through Georgia, including through the Baku-Tbilisi-Ceyhan (BTC) pipeline. International oil companies are currently in negotiations with the government of Kazakhstan to build the necessary onshore pipeline and offshore marine infrastructure for this $3 billion project. While a trans-Caspian crude pipeline would likely be a cheaper long-term transport option, Kazakhstan is reluctant to openly pursue such a pipeline in the absence of an agreement on delimitation of the Caspian Sea among the five Caspian littoral states. DEMOCRACY: SLOW GOING ¶9. (SBU) While the Kazakhstani government articulates a strategic vision of democracy, it has lagged on the implementation front. President 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. ¶10. (SBU) When Kazakhstan was selected to be 2010 OSCE chairman-in-office at the November 2007 Madrid OSCE Ministerial meeting, Foreign Minister Tazhin promised his government would amend Kazakhstan's election, political party, and media laws in accordance the recommendations of the OSCE and its Office of Democratic Institutions and Human Rights (ODIHR). (NOTE: Tazhin also promised that as OSCE chairman, Kazakhstan would support the OSCE's Human Dimension and preserve ODIHR's mandate, including its critical role in election observation. END NOTE.) President Nazarbayev signed the amendments into law in February. While key civil society leaders were disappointed that the new legislation did not go further, we considered it to be a step in the right direction and continue to urge the government will follow through with additional reforms. ¶11. (SBU) While the Kazakhstanis pride themselves on their religious tolerance, religious groups not traditional to Kazakhstan, such as evangelical Protestants, Jehovah's Witnesses, Hare Krishnas, and Scientologists, have faced difficulties with the authorities. Parliament passed legislation in late 2008 aimed at asserting more government control over these "non-traditional" religious groups. Following concerns raised by civil society and the international community, President Nazarbayev chose not to sign the legislation, but instead sent it for review to the Constitutional Council (Court) -- which ultimately declared it to be unconstitutional. ¶12. (SBU) Though Kazakhstan's diverse print media include many newspapers sharply critical of the government and of President Nazarbayev personally, the broadcast media are essentially ASTANA 00001251 003 OF 003 government-controlled. On July 10, President Nazarbayev signed into law Internet legislation which will provide a legal basis for the government to shut down and block websites whose content allegedly violates the country's laws. This appears to be a step in the wrong direction at a time when the Kazakhstan's record on democracy and human rights is in the spotlight because of its impending OSCE chairmanship. We have expressed our disappointment that the legislation was enacted, and have urged the government to implement it in a manner consistent with Kazakhstan's OSCE commitments on freedom of speech and freedom of the press. AFGHANISTAN: POISED TO DO EVEN MORE ¶13. (SBU) Kazakhstan has provided significant support to our stabilization and reconstruction efforts in Afghanistan, and in recent months, has expressed a willingness to do even more. We signed a bilateral blanket over-flight agreement with Kazakhstan in 2001 that allows U.S. military aircraft supporting Operation Enduring Freedom (OEF) to transit Kazakhstani airspace cost-free. This was followed in 2002 with a bilateral divert agreement that permits our military aircraft to make emergency landings in Kazakhstan when aircraft emergencies or weather conditions do not permit landing at Kyrgyzstan's Manas Air Base. There have been over 6500 over-flights and over 60 diverts since these agreements went into effect. In January, Kazakhstan agreed to participate in the Northern Distribution Network -- which entails commercial shipment through Kazakhstani territory of non-lethal supplies for U.S. troops in Afghanistan. Kazakhstan is working on sending several staff officers to the International Security Assistance Forces (ISAF) headquarters in Kabul and is considering providing small-scale non-combat military support, as it did for five-plus years in Iraq. ¶14. (SBU) The Kazakhstani government provided just under $3 million in assistance to Afghanistan during 2008 for food and seed aid and to construct a hospital, school, and road. The Kazakhstanis are finalizing a proposal to provide free university education in Kazakhstan to Afghan students. The government has also offered to provide training to Afghan law enforcement officers at law enforcement training institutes in Kazakhstan. The Kazakhstanis hope to make Afghanistan a focus of their 2010 OSCE chairmanship. NON-PROLIFERATION: A HALLMARK OF BILATERAL COOPERATION ¶15. (SBU) Non-proliferation cooperation has been a hallmark of our bilateral relationship since Kazakhstan quickly agreed to give up the nuclear weapons it inherited from the USSR after becoming independent. The Kazakhstanis recently ratified a seven-year extension to the umbrella agreement for our bilateral Cooperative Threat Reduction (CTR) program, which remains the dominant component of our assistance to Kazakhstan. Key ongoing CTR program activities include our efforts to secure the radiological material at the Soviet-era Semipalatinsk nuclear test site and to provide long-term storage for the spent fuel (sufficient to fabricate 775 nuclear weapons) from Kazakhstan's BN-350 plutonium breeder reactor. ¶16. (SBU) The Kazakhstanis are active participants in the Global Initiative to Combat Nuclear Terrorism and 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. We welcomed the offer, but explained to the Kazakhstanis that they need to work out the details directly with the IAEA. President Nazarbayev also has called for the United Nations to designate August 29 as annual World Non-Proliferation Day, which we support. HOAGLAND