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