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

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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

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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