KAZAKHSTAN: PRIME MINISTER MASIMOV REQUESTS CLEAR MESSAGE

UNCLAS SECTION 01 OF 03 ASTANA 000198

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB
STATE PLEASE PASS TO USTDA (DAN STEIN) AND USTR

E.O. 12958: N/A
TAGS: PGOV PREL ECON ETRD EFIN ELAB EPET AF KZ
SUBJECT: KAZAKHSTAN: PRIME MINISTER MASIMOV REQUESTS CLEAR MESSAGE
THAT KAZAKHSTAN IS WELCOME IN THE WTO


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


2. (SBU) SUMMARY: Prime Minister Karim Masimov told the Ambassador
on February 3 that he needs a clear message from the United States
that Kazakhstan is welcome in the WTO in order to "slow down" the
Russian-Belarus-Kazakhstan customs union and move forward first with
Kazakhstan's WTO accession. Masimov also:

-- explained that the government's acquisition of majority stakes in
two banks is a temporary measure and said they will ultimately be
re-privatized;

-- revealed the government has a "confidential plan" to devalue the
tenge;

-- reiterated his advice that international energy companies should
have parliament ratify their contracts so that there is legal
certitude the contracts are not affected by new legislation,
including the new tax code;

-- expressed doubts about the feasibility of a trans-Caspian gas
pipeline;

-- indicated that the government might consider increasing the quota
for work permits for expatriates in 2010;

-- said he had ordered Deputy Prime Minister Yerbol Orynbayev to
move forward on the Public-Private Economic Partnership Initiative
(PPEPI); and

-- promised that he would visit Afghanistan sometime during 2009.
END SUMMARY.

NEED CLEAR MESSAGE ON WTO ACCESSION


3. (SBU) During a February 3 meeting with the Ambassador, Prime
Minister Karim Masimov admitted that the proposed
Russia-Belarus-Kazakhstan customs union could have a strong impact
on Kazakhstan's WTO accession. (NOTE: As far as we understand, the
necessary documents to form the customs union are to be finalized at
the beginning of April. END NOTE.) Masimov said that originally,
Russia and Kazakhstan had agreed that they would form the customs
union only after both entered the WTO. However, a current option is
to form the customs union first, then have the customs union
negotiate WTO accession. This second option is not Kazakhstan's
preference, Masimov explained. However, to "slow down" the customs
union and focus first on its own WTO accession, Kazakhstan needs a
clear message from the United States, as well as from the EU, that
it is welcome in the WTO -- something akin to the strong signal the
United States gave to Ukraine. Kazakhstan has not yet gotten such a
message, he argued. The message need not be a public one; rather, a
private message will suffice. Masimov noted that he is in frequent
contact with Special Representative Richard Holbrooke, and said a
message directly from Holbrooke to him by phone call would be
sufficient. The Ambassador promised to relay Masimov's request to
Washington. (COMMENT: This should be seen as a question of
sovereignty for Kazakhstan. Masimov seemed thoroughly sincere that
an authoritative call from the United States would be sufficient for
him to put the brakes on the customs union locomotive speeding out
of Moscow. END COMMENT.)

BANK TAKEOVER JUST TEMPORARY MEASURE


4. (SBU) Referring to the government's February 2 acquisition of
majority stakes in two major banks, BTA and Alliance, Masimov
explained that this is only a temporary measure, and that eventually
the government will move to re-privatize them. He pointed out that
economist Paul Krugman had essentially advised President Obama to
take similar steps with U.S. banks. Masimov noted that JP Morgan
and Credit Suisse are advising the Kazakhstani government on bank
restructuring issues. He added that former National Bank Chairman
Anvar Saidenov may be named CEO of BTA Bank. On the issue of
currency devaluation, Masimov said that the government has a plan to

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devalue the tenge, but it is confidential and thus he could not
divulge dates or any other details.

ADVICE TO COMPANIES TO RATIFY CONTRACTS


5. (SBU) The Ambassador reminded Masimov that when Secretary Rice
visited Astana on October 5, he had told her that international
energy companies should have their contracts ratified by parliament.
The Ambassador asked whether this remains Masimov's view. Masimov
explained that he has strongly advised the CEOs of the companies to
get their contracts ratified within the next several years, though
has not insisted that they do so. The choice is theirs.
Ratification, however, is the means to provide legal certitude that
the contracts are not affected by new legislation, including the new
tax code. Failure to ratify could ultimately lead to problems,
including court rulings that undermine the legality of the
contracts. Masimov explained that he does not see this as an
immediate issue, but one that could materialize within five or ten
years. He believes ratification should be done by 2012, before the
next parliamentary elections, "after which, I can't guarantee you
anything." The Ambassador explained that the companies are
concerned that parliament might try to change the terms of the
contracts during the ratification process. The companies also worry
that propriety information and politically embarrassing contract
details could be publicly released through ratification. Masimov
responded that a deal can be made in advance to ensure parliament
does not try to change the contracts. Regarding proprietary and
embarrassing information, within several years, there will be
demands made for release of all contract details in any event.

DOUBTS ABOUT TRANS-CASPIAN GAS PIPELINE


6. (SBU) Discussing progress on the Kazakhstan-Caspian
Transportation System (KCTS) for oil, Masimov maintained that the
political decisions had all been made. Now it is just a matter of
finalizing the commercial details. He noted that the Georgian
conflict had temporality slowed down discussions on building a
second Baku-Tbilisi-Ceyhan (BTC) pipeline, but expected that there
will be a renewed focus on the issue. Masimov expressed doubts
about the feasibility of a trans-Caspian gas pipeline to transport
Turkmen gas to Azerbaijan. He argued that LNG or CNG would be
easier to do, and claimed that some private companies are interested
in these options.

MAY REVISIT WORK PERMITS ISSUE IN 2010


7. (SBU) The Ambassador told Masimov that some of the international
companies are concerned about Kazakhstan's stringent limit on work
permits for expatriate personnel. Masimov responded that this is an
issue that the government might revisit in 2010. However, for 2009,
the quota has to remain limited because of political optics during
the current economic crisis. The government has to show the
population that it is doing all it can to provide jobs for
Kazakhstanis.

MOVING FORWARD ON PPEPI


8. (SBU) The Ambassador explained to Masimov that we hope to move
forward on the Public-Private Economic Partnership Initiative
(PPEPI),and that he and AmCham are seeking a meeting to discuss
next steps with Deputy Prime Minister Yerbol Orynbayev. Masimov
said that Ornybayev should be available for such a meeting,
stressing that he had given him clear instructions to proceed with
PPEPI.

WILL RESCHEDULE VISIT TO KABUL


9. (SBU) The Ambassador noted that Masimov had to cancel his planned
October 2008 trip to Kabul and asked whether he intended to
reschedule it. Masimov explained that the cancellation resulted
from his need to remain in Kazakhstan to deal with the effects of
the global financial crisis. He assured the Ambassador that he
would visit Afghanistan before the end of 2009, through no specific

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date has yet been set. He also said that Kazakhstan would continue
its assistance program for Afghanistan, but was uncertain how much
money would be allocated for 2009. He noted that despite
Kazakhstan's difficult budget situation, the government has
allocated $12 million to provide Tajikistan with fuel and grain.

HOAGLAND