KAZAKHSTAN: ENERGY, EDUCATION, AND EXPECTATIONS IN

UNCLAS SECTION 01 OF 03 ASTANA 002026

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, SCA/PPD, EEB/ESC, S/EEE, S/CIEA
STATE PLEASE PASS TO USTDA

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV EPET EAID SOCI KDEM KWMN KZ
SUBJECT: KAZAKHSTAN: ENERGY, EDUCATION, AND EXPECTATIONS IN
ATYRAU

REF: (A) ASTANA 1983
(B) ASTANA 2005
(C) 08 ASTANA 2252

ASTANA 00002026 001.3 OF 003



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


2. (SBU) SUMMARY: Mud, oil, gas, and ambition blend to form the
strange clay that molds the Western Kazakhstani city of Atyrau. In
a three-day visit from November 5-7, DCM, Energy Officer, and local
staff met with the Deputy Governor of Atyrau oblast, toured oil and
gas-related facilities, visited two U.S. government-funded projects,
met with Western energy executives, and spoke to students at the
cozy American Corner. Atyrau is a place of two worlds. The
hard-nosed oil and gas industry representatives inhabit one world.
They propel the work of multi-billion dollar international energy
companies, certain that they can satisfy Kazakhstani government
demands for local content as well as their own corporate goals. The
insular, traditional Kazakhstani community lives in the other world,
fights for a piece of the action, and clutches its culture with the
clipped sounds of the Kazakh language that one hears everywhere. In
the absence of a consulate or other official permanent presence,
U.S. technical cooperation and exchange programs offer the United
States small-scale opportunities to help that very traditional part
of Kazakhstani society open up. Longer term, we should consider how
to strengthen our staff language capabilities and continuously
monitor whether we need a more robust U.S. official presence in
Western Kazakhstan. END SUMMARY.

DEPUTY AKIM: BAKER HUGHES IS NOT OUR PROBLEM!


3. (SBU) At the last minute, a confirmed meeting with Akim
(governor) Berghey Ryskaliev turned into a courtesy call with his
first deputy, Bolat Daukenov. With an official Akimat photographer
and note-taker present, the DCM discussed the overall economic
development of Atyrau oblast, the role of foreign direct investment
and the current tax troubles of the American oil services firm Baker
Hughes, which has asked for support and told the Embassy it faces
tax evasion fines by the oblast financial police. The DCM prefaced
her comments on Baker Hughes with a brief summary of the Public
Private Economic Partnership Initiative (PPEPI). She told Daukenov
that PPEPI is a joint initiative of the governments of the United
States and Kazakhstan that enjoys strong support from Deputy Prime
Minister Yerbol Orenbayev (ref A). The first deputy hesitated,
telling the DCM that, to the best of his knowledge, the Atyrau
oblast has no outstanding issues or problems with any U.S. company.
Then, after he received an expertly-timed call (from the Akim per
our local staff),he firmly asserted that the case is now with the
Ministry of Finance, out of the Akimat's hands. He said it involved
questions the U.S. Treasury Department and Internal Revenue Service
currently are discussing in Frankfurt, and repeated this when the
DCM pressed. She closed by saying that we believe the Akimat can
play a helpful role and hope the issue can be amicably resolved.
(COMMENT: We later learned that U.S. companies in Atyrau
increasingly believe the Akimat's influence over the financial
police is truly limited, because they report directly to the
Ministry of Finance. END COMMENT).

TCO AND AGIP KCO: A CONTRAST IN CORPORATE CULTURES


4. (SBU) From the General Director on down, from the first shuttle
ride to the last gift exchange, we heard the mantra, "safety first,"
at Tengizchevroil (TCO). Chevron is the lead operator of TCO,
having invested billions of dollars in both the project and the
local community. TCO's director of government relations, Maria
Karazhigitova, proudly told us that the Akim recently praised TCO
General Director Todd Levy at an Akimat command performance meeting
intended to persuade other companies to match the oil giant's record
on corporate social responsibility. TCO has shrewdly managed
regional politics in other areas, including environmental protection
and succession planning. For example, as of January 1, 2010, TCO
will replace its retiring, expatriate physician with a Kazakhstani

ASTANA 00002026 002.3 OF 003


national, and will follow suit with other senior positions over
time.


5. (SBU) Despite Chevron's heft, track record, resources, and
professionalism, problems occasionally arise. On Friday November 6,
fresh from tough negotiations in Astana, General Director Levy
informed the DCM and Energy Officer that he had just lost the latest
round with the national-level government on sulfur, which Kazakhstan
wants to call a waste rather than a product. The difference of one
word could spell fines approaching $1 billion, "but we always win,"
said Levy, grimacing through his clear frustration. (COMMENT:
Later, we learned of more positive developments (ref B). END
COMMENT).


6. (SBU) At Agip KCO, which has the lead on developing the first
phase of the Kashagan project, our team encountered a different
culture. On Saturday, November 7, American-citizen,
public-relations manager Richard Fritz briefed the DCM and Energy
officer on the vast Kashagan project. Fritz' briefing stressed the
well-known environmental sensitivities and corporate complexity of
the project, but tensions in the ever-shifting partnership
arrangement seeped through. Agip KCO is now only an agent of the
overall operator, the North Caspian Operating Company (NCOC). When
the DCM asked about profitability and getting the product to market,
Fritz said "that's not our problem. Our goal is to get up to
450,000 barrels per day, but how it gets to market is the
responsibility of each individual producer." Whatever rules
international companies play by in Atyrau, success apparently
depends on how well they manage pressures, both from within and
without.

TRAINING AND LOCAL CONTENT: THE PLANNING/EXECUTION GAP


7. (SBU) At dinner on November 5, Western business executives
disagreed about whether their companies can meet local labor-content
requirements, but all agreed they grapple with the issue and said
the problem will grow as new projects come on line. The DCM and
Energy officer toured Agip KCO's state-of-the-art training facility
built to help meet labor demand, complete with a year of
English-language instruction and a virtual lock on a good-paying job
after graduation. Agip plans to spend up to $150,000 each to train
more than 1,000 Kazakhstanis in various skills over a four-year
period. Another training facility demonstrated that Atyrau's two
worlds can meet successfully. Serik Abildinov of the Wood Group and
his Australian joint venture partner Mark Peck train local employees
on fire safety and marine rescue operations. The two agreed that
Kazakhstan's major oil exploration and production projects could
reach local content goals if the government were more strategic in
its approach, and if the companies were better forward-planners.
The real trick, they suggested, is to manage expectations. Projects
will need skilled crafts, but not as many high-level managers as the
Akimat might want.


8. (SBU) Meanwhile, local educational authorities seem trapped
between the past and the future. The DCM and Emboffs visited a
USAID-funded project called, "Know About Business," ostensibly
intended to ignite the spirit of small business entrepreneurship in
teens. The Ambassador's visit to the school a year ago was proudly
chronicled in photos, which the director had specially laminated
(ref C). Baker Hughes and Chevron flew employees in from Almaty for
the event, which the press covered. The surreal hour featured a
well-rehearsed presentation by a clearly Soviet-era trained teacher
who whipped up her students' enthusiasm about the essentials of
business: "knowledge, ideas, capital and labor!" At the rector's
request, the DCM spoke in English with Russian interpretation. He
said some students from the villages did not understand Russian
well. The class was conducted in Kazakh.

CULTURE AND EDUCATION


9. (SBU) On November 6, the DCM joined part of a day-long

ASTANA 00002026 003.3 OF 003


conference led by Democracy Commission grantee, the Zherles Social
Foundation, on how to improve gender equality in Kazakhstan.
Project presenter Gulnar Yeserkepova lamented that Kazakhstan is "so
close, but so far away," from international standards on gender
equality. She said that the presidentially-approved action plan for
gender equality lacks both resources and political will. During a
lively discussion, participants asked how they could emulate U.S.
success. The DCM said that gender equality is a long-term quest and
noted that the right to vote for American women came well over 100
years after the founding of the United States as a republic. She
stressed that while instruments developed by the government are
important, society needs activists to foster ideas and advocate for
change.


10. (SBU) The DCM and Emboffs stopped by the American Corner before
departing Atyrau. A group of about 50 students poured eagerly into
a conference room to learn about U.S.-funded exchange programs. We
met with the newly-hired American Corner deputy director and toured
the small, but well-appointed room which houses the newly-installed
American Corner. It featured bright natural light and a large
supply of materials in Russian, Kazakh, and English from the
Embassy's Public Affairs Section. Spouses at TCO's American village
compound have offered to volunteer as English language tutors. All
of this augurs well for building the previously underused center's
utility and popularity.


11. (SBU) COMMENT: The visit, the DCM's first to Atyrau, showed
that the oil and gas giants can fend for themselves, but they face
constant demands from the government at all levels to ensure that
all citizens of Kazakhstan benefit from oil and gas production. We
will report septel on Atyrau's business climate. A striking feature
of this isolated city in the North Caspian is the large number of
American citizens. They proudly claim to constitute the largest
concentration of Americans in Kazakhstan. This may provide a basis
for extending our official presence westward to serve Americans and
develop our civil society outreach in a place that's important
economically and politically, but hard to reach. Such an effort
would require expanded capability with the Kazakh language.
Increasingly, private citizens and government officials in Atyrau
oblast use Kazakh throughout their daily life, fulfilling a goal
President Nazarbayev has recently articulated in his national unity
policy. Most of all, the visit showed that Atyrau is a great
success story for the international community and for Kazakhstan.
To keep it that way will require long-term planning, resolve, and
foresight as the needs and expectations of Atyrau's two worlds
continue to compete for resources and attention. END COMMENT.

HOAGLAND