KAZAKHSTAN: PLANS FOR THE NATIONAL SULFUR STORAGE CENTER

UNCLAS SECTION 01 OF 03 ASTANA 001920

SENSITIVE
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E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV EPET SENV KZ
SUBJECT: KAZAKHSTAN: PLANS FOR THE NATIONAL SULFUR STORAGE CENTER

REF: A. 08 ASTANA 1368

B. ASTANA 0450

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


2. (SBU) SUMMARY: As Kazakhstan continues to debate sulfur
storage, the Caspiy Socially Responsible Corporation has contracted
feasibility and technical studies for the government's planned
National Sulfur Storage Center (NSSC) in Atyrau, which it will
operate. The Center will be able to provide up to 50 years of
long-term sulfur storage, and oil companies will have to put their
sulfur in the facility and pay storage fees. The NSSC currently
envisions a covered storage facility, and companies would be able to
store sulfur temporarily and retrieve it later. Tengizchevroil
(TCO) believes that the NSSC is rife with problems and has formed
its own working group to study this issue, concluding that uncovered
above-ground sulfur storage (TCO's current storage method) has no
significant negative impact on the environment. TCO insists that
the NSSC will need much more research because of the many legal,
economic, and construction-related questions that still exist. TCO
is willing to pay for such a study and has formed several working
groups to cover the legal, financial, construction, and ecological
aspects of this storage plan. Complicating this, TCO plans to
liquidate all its current sulfur storage by 2017, and in subsequent
years it will have no sulfur to put in the national storage center.
With the Kashagan partners planning to re-inject 100% of sulfur gas
back into the well to maintain pressure for oil production, this
raises questions about potential users of the national storage
center if there is no TCO sulfur left to store. END SUMMARY.

CASPIY DESIGNATED TOOPERATE THE NEW NATIONAL SULFUR STORAGE CENTER


3. (U) According to Caspiy Socially Responsible Corporation Lead
Manager Assylbek Jakiyev and Senior Manager Lilia Balgimbayev,
President Nazarbayev tasked the government with the creation of a
national sulfur storage center. Caspiy, a state-owned enterprise,
has formed a working group consisting of itself, Tengizchevroil
(TCO),AGIP (an Italian oil company responsible for the Kashagan
offshore oil site),and the Kazakhstan Oil and Gas Institute (KOGI),
to work out the concept of the NSSC. Caspiy has contracted with
KOGI to carry out phase one of this project, which consists of the
preparation of the Center's technical requirements and a feasibility
study of several aspects of the Center, including its location and
capacity. KOGI has not yet completed phase one. In the second
phase, KOGI will prepare design documents outlining all the
technical aspects of the NSSC. Public hearings to obtain citizen
input will follow, and then the government will start construction.
After completion of NSSC, Caspiy will operate it, and oil companies
(e.g., TCO and AGIP) will put their sulfur in the NSSC and pay
storage fees.


4. (U) Balgimbayev criticized the oil companies' current open
storage methods (e.g. TCO),saying that they permit the wind to
carry sulfuric dust to surrounding communities and allow residual
gases to escape into the atmosphere. She said the NSSC will be
profitable, environmentally safe, and economically feasible. The
Center will be able to provide up to 50 years of long-term storage,
have a monitoring system, minimize the spread of sulfur dust that
now occurs, be located higher than TCO's current storage sites to
ensure safety in the event of rising Caspian sea waters, and prevent
the dissemination of sulfur gases now being emitted from the open
sites.


5. (U) Balgimbayev said the Center's conceptual development is now
97% complete, and the feasibility study for the site's construction
is now 72% finished. The preliminary environmental impact
assessment study is 50% complete, and the environmental survey of
the site and its suitability is now 90% done.


6. (U) According to Balgimbayev, the NSSC will be a covered storage
facility consisting of covered sulfur storage in blocks with covers
and/or reinforced concrete panels. The Center will use heated

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pipelines to transfer liquid sulfur to the storage facility, she
said, and will use rail transport to move brimstone sulfur.
Companies would be able to store sulfur temporarily and then
retrieve it later, thereby retaining ownership of the sulfur, or
they could relinquish ownership to the government.

THROWN OUT OF THE OFFICE: IS SOMETHING FISHY HERE?


7. (SBU) So far, so good. But then the head of the Atyrau Caspiy
Office, Sagyndyk Lukpanov, entered and said that Caspiy cannot
continue to discuss this matter "without the approval of the
Akimat," given that the U.S. Embassy is "such a serious
organization." And just like that, the meeting ended. Outside, we
began to suspect that Lukpanov did not want us to pry too deeply
into matters connected with the storage center. We started to
speculate that Caspiy relied on the connections of its Aktau Central
Office Head Bolat Palymbetov as former Deputy Akim of the Atyrau
Region, Deputy Minister of Economy and Trade, and Deputy Minister of
Economics and Budget Planning, to obtain this potentially lucrative
contract, especially given its controversial status. (NOTE: Just
one day after we were essentially thrown out of Caspiy's Atyrau
office, Jakiyev contacted us to say that Caspiy's Head Office is
eager to meet with us at our earliest convenience. It appears that
Caspiy's main headquarters was not pleased with Lukpanov's decision
to eject a U.S. diplomat. END NOTE.)


8. (SBU) To obtain another perspective on the NSSC, we subsequently
contacted AGIP. The Atyrau office representative Walter Rizzi
agreed that this was a sensitive topic and would only talk about it
in person during our next trip to Atyrau. AGIP's recently
restructured entity, the North Caspian Operating Company's (NCOC)
Astana office, also politely declined to meet, because the person
responsible for this issue was relatively new in the job.

NO SURPRISE: TENGIZCHEVROIL DISLIKES THE NATIONAL STORAGE PLAN


9. (SBU) However, Tengizchevrooil (TCO) Astana Office Deputy
General Manager Rzabek Artygaliev was eager to explain the potential
problems of the proposed NSSC, which he alleged was the brainchild
of former KuzMunaiGas President Burkitbayev. (NOTE: Serik
Burkitbayev, also former advisor to President Nazarbayev and
president of KOGI, was arrested in 2008 for embezzling $16 million
and sentenced to six years in prison. He was also suspected of
supplying Rakhat Aliyev, Nazarbayev's exiled former son-in-law, with
an eavesdropping device used to spy on high-ranking Kazakhstani
officials. END COMMENT.) TCO and several other Kazakhstani
oil-related companies and institutes, along with Alberta Sulfur
Research Ltd. and Moscow State University, formed their own council
to study this question, and concluded that uncovered, above-ground
sulfur storage (TCO's current storage method for eight million tons
of granulated sulfur) has no significant negative impact on the
environment. For this reason, TCO has not agreed to the national
storage plan. He added that Caspiy, to which the government has
awarded the contract to manage the storage facility, is a 100%
government enterprise, and that KOGI is Caspiy's subcontractor
carrying out the government's own studies on the center.


10. (U) Artygaliev said the government instructed TCO to
participate in the NSSC, and TCO agreed. However, before TCO
actually uses the facility, it must have a well-developed concept
and evaluation of this plan because of numerous pending legal,
economic, and construction-related questions, which will require
considerable research. He said TCO is willing to pay for such a
study and has formed several working groups to cover the legal,
financial, construction, and ecological aspects of this storage
plan. Some remaining thorny questions include the facility's method
of sulfur storage (above ground, covered, or underground),legal
status of this "national storage facility," and its impact on TCO's
own foundation agreement with Kazakhstan.


11. (U) In addition, complicating these issues, Artygaliev said
that TCO plans to liquidate all its current sulfur storage by 2017.

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In subsequent years, it will have no sulfur to put in the national
storage center. In fact, he asserted that TCO has already
liquidated six of its nine pads of sulfur (approximately six million
tons out of almost nine million tons of accumulated sulfur). He
highlighted that this fact poses a serious question to the
government about the potential users of the national storage center
if no TCO sulfur remains to store. He acknowledged that Kashagan
and AGIP may use it in the distant future, but he could not comment
on their plans.


12. (SBU) COMMENT: Because Nazarbayev issued the decree, the
government remains intent on NSSC construction in spite of TCO
objections. Caspiy and local Akimats appear to view this project as
a very large, future cash cow, especially once Kashagan production
comes online. Acknowledging the importance of sulfur management,
the United States, Canada, and UK, along with Shell and TCO,
sponsored a conference in Astana on September 21. The event sought
to identify ways to improve the legislative framework for the
storage and treatment of sulfur, change the image of sulfur from a
hazardous waste to a valuable product, and promote the use of sulfur
in industrial applications, such as fertilizers, road construction,
and uranium mining. Shell recently reported that the conference has
informed ongoing discussions about the construction of early
sulfur-handling facilities for Kashagan. This evolving situation
merits observation due to its potential impact on U.S. interests.
END COMMENT.