KAZAKHSTAN: SCENESETTER FOR INL ASSISTANT SECRETARY DAVID

UNCLAS SECTION 01 OF 05 ASTANA 002110

SENSITIVE
SIPDIS

STATE FOR INL, SCA/CEN

E.O. 12958: N/A
TAGS: PGOV PREL PINS SNAR SOCI KZ
SUBJECT: KAZAKHSTAN: SCENESETTER FOR INL ASSISTANT SECRETARY DAVID

T. JOHNSON

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


2. (SBU) SUMMARY: Embassy Astana warmly welcomes your December 9
visit to Kazakhstan. Kazakhstan has proven to be an increasingly
reliable security and law enforcement partner and a steady influence
in a potentially turbulent region. Kazakhstan's willingness to host
the Central Asia Regional Information and Coordination Center
(CARICC) opening and its eagerness to train regional
counter-narcotics police speak to its value as a key partner in
Central Asia. END SUMMARY.

SECURITY COOPERATION AND TRANSNATIONAL CRIME


3. (SBU) Kazakhstan, on the crossroads of the ancient Silk Road,
also finds itself on the crossroads of transnational crime. The
United Nations Office of Drugs and Crime (UNODC) estimates that up
to 20% of Afghan opiates transit through Kazakhstan. In addition,
Kazakhstan is both a source and destination country for trafficking
in persons. It could have become a center for laundering
transnational criminal profits given its status as the most
developed banking system and most stable economy in the region.
However, the government's strong political will, new legislation
based on international standards, and the creation of a financial
intelligence unit have helped prevent such a development.


4. (SBU) Kazakhstan willingly cooperates with the United States to
fight terrorism, stem the flow of illegal narcotics, and fight
trafficking in persons. Law enforcement agencies recognize their
limitations and continue to seek our technical assistance. The
Bureau for International Narcotics and Law Enforcement Affairs
(INL),the Office of Antiterrorism Assistance (ATA),and the
Department of Defense's Office of Military Cooperation (OMC) provide
equipment and technical assistance to law enforcement and security
services in Kazakhstan.


5. (SBU) Kazakhstan is deeply interested in being a regional leader
in law enforcement. The Central Asian Regional Information and
Coordination Center (CARICC) is based in Almaty. All countries in
Central Asia, Russia, and Azerbaijan are members. The Inauguration
of CARICC on December 9 will be preceded by an experts' meeting on
December 8 to discuss issues of cooperation. The CARICC events will
be an opportunity for Kazakhstan to showcase its international
cooperation.


6. (SBU) Kazakhstan's law enforcement academies are also seeking to
be regional training hubs. During your visit, the Ministry of
Interior (MVD) will open its newly renovated Interagency
Counter-Narcotics Training Center. The Center, co-funded by the
United States and the EU's Border Management in Central Asia Program
(BOMCA),will train Afghan police and will be open to all countries
in the region.


7. (SBU) Kazakhstan is also eager to work with the United States to
combat trafficking in persons (TIP). Kazakhstan is a Tier II
country, but has faced the realities of its TIP problem and
continues to seek training and technical assistance. The government
has provided funding through a newly-created NGO to operate a
victims' shelter in Astana. INL funded the creation of the Anti-TIP
Training Center at an MVD Institute, which provides in-service
training for police officers on a regular basis.


8. (SBU) Kazakhstan recently passed an anti-money laundering (AML)
law and has established a financial intelligence unit (FIU). INL
has worked closely with both the new FIU and the Financial Police to
provide training courses. Currently, an INL-funded English-language
fellow works at the Financial Police Academy with instructors and
cadets. The fellow also provides training courses for the FIU. The
Financial Police Academy has been eager for additional training
sessions in all facets of AML and corruption. INL recently funded
FBI training courses at the Academy for senior-level regional

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officials of the Financial Police. This year, INL also funded the
travel of senior-level delegations from both the FIU, which attended
a seminar at FinCEN, and the Financial Police Academy, which visited
FLETC and the FBI Academy.

ECONOMY: AGGRESSIVE STEPS TO TACKLE ECONOMIC CRISIS


9. (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 Monetary Fund is predicting negative 2%
growth for Kazakhstan in 2009, with a modest economic recovery
poised to begin in 2010. Astute macroeconomic policies and
extensive economic reforms have played an important role in
Kazakhstan's post-independence economic success. The government has
taken significant steps to tackle the domestic reverberations of the
economic crisis. It has allocated around $20 billion to take equity
stakes in private banks, propped up the construction and real estate
sectors, and supported small- and medium-sized enterprises and
agriculture.


10. (SBU) The banking sector continues to struggle, as Kazakhstan's
leading commercial banks have been unable to repay creditors and
seek to restructure their debt. In July, BTA Bank, the country's
largest commercial bank, declared a moratorium on interest and
principal payments. BTA's external debts are valued at $13 billion,
of which the bank said it will repay $3 billion this year. In 2008,
BTA's net losses were $7.9 billion, and total obligations exceeded
the value of its assets by $4.9 billion. Kazakhstani authorities
continue to investigate former BTA Chairman Mukhtar Ablyazov and
other former top managers of the bank. On July 14, the Prosecutor
General's office charged 12 members of BTA's credit committee with
embezzlement. Six were found guilty and sentenced to jail. Many
high-level bankers have fled the country and charges continue to
pile up in the banking sector. Ablyazov fled to London, where he
remains.

NON-PROLIFERATION: A HALLMARK OF BILATERAL COOPERATION


11. (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 fast-breeder reactor.


12. (SBU) On December 1, the government of Kazakhstan initiated a
dry run to finalize logistics and security planning for the
transportation of spent fuel from the BN-350 fast breeder reactor in
Aktau to the Baikal-1 storage facility located in the Semipalatinsk
Test Site. As part of this Cooperative Threat Reduction project,
Kazakhstan is responsible for funding the actual transportation of
the spent fuel, which it has committed to complete before the end of

2010. 12 train-loads of five railcars each will transport the 300
metric tons of spent fuel from the reactor to the storage facility
constructed by the U.S. government. Property tax liability for
technical assistance recipients has been a long-term obstacle for
completing the project. However, the Kazakhstani government is
working on a series of decrees that would authorize tax-free
equipment transfer. Kazakhstani funding of the transport of the
fuel has also been problematic, as the transport operations are
initiated during a time of severe budget cuts taken to deal with the
global financial crisis. While an emergency decree freeing enough
money for two transport runs was finally issued in September, it

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came too late in the year to obligate. As such, we remain concerned
that the current level of 2010 funding will not be enough to handle
all 12 sorties.


13. (SBU) The Kazakhstanis are active participants in the Global
Initiative to Combat Nuclear Terrorism and are seeking additional
ways to help them burnish their non-proliferation credentials. We
have welcomed President Nazarbayev's April 6 announcement that
Kazakhstan is interested in hosting the Nuclear Threat Initiative's
IAEA-administered international nuclear fuel bank. During his
October 6-8 visit to Kazakhstan, Deputy Secretary of Energy Daniel
Poneman assured the Kazakhstani government that we will support
their proposal although we have been clear that the Kazakhstanis
need to work out the technical details directly with the IAEA.
President Nazarbayev also has called for the United Nations to
designate August 29 as annual World Non-Nuclear Testing Day, and he
plans to personally attend the Global Nuclear Security Summit in
Washington in April 2010.

AFGHANISTAN: POISED TO DO EVEN MORE


14. (SBU) Kazakhstan has supported 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. Kazakhstanis followed
this 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 (NDN) -- 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, further down the road, might consider
providing small-scale non-combat military support, as it did for
five-plus years in Iraq.


15. (SBU) In 2008, the Kazakhstani government provided
approximately $3 million in assistance to Afghanistan for food and
seed aid and to construct a hospital, school, and road. In
November, the Kazakhstani Foreign Ministers signed in Kabul a $50
million intergovernmental education agreement for Kazakhstan to
train 1,000 Afghan specialists in five years. The government has
also offered to provide training to Afghan law enforcement officers
at law enforcement training institutes in Kazakhstan. Kazakhstan's
Border Guard Service is ready to allow Afghan cadets to attend its
full four-year academy as soon as the appropriate bilateral
agreements are signed. The Kazakhstanis intend to make Afghanistan
one of their priority issues during their 2010 chairmanship of the
Organization for Security and Cooperation in Europe (OSCE).

DEMOCRACY: SLOW GOING


16. (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 parliamentary and presidential elections are scheduled for 2012
although rumors of early parliamentary elections are intensifying.


17. (SBU) Kazakhstan will become Chairman of the OSCE on January 1.
At the recent Athens Ministerial, State Secretary-Foreign Minister
Saudabayev asserted that Kazakhstan will unswervingly uphold
principles of OSCE. When OSCE ministers accepted Kazakhstan's bid
to chair the organization in 2007, Kazakhstan committed to uphold

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the current mandate of the OSCE Office for Democratic Institutions
and Human Rights (ODIHR),support the Human Dimension, and initiate
domestic electoral, media, and political party reforms by the end of

2008. 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 to
follow through with additional reforms.


18. (SBU) On September 3, the Balkash district court near
Kazakhstan's largest city, Almaty, sentenced
The country's leading human rights activist Yevgeniy Zhovtis to four
years imprisonment for vehicular manslaughter, and the appeals court
upheld this decision on October 20. On the request of the defense,
a judicial panel is currently reviewing the decision. The
conviction stemmed from a July 26 accident in which Zhovtis struck
and killed a pedestrian with his car. Local and international civil
society representatives and opposition activists heavily criticized
the trial for numerous procedural violations. Some observers allege
that the harsh sentence imposed on Zhovtis, a strong critic of the
regime, was politically motivated. The Ambassador has publicly
urged the Kazakhstani authorities to provide Zhovtis access to fair
legal proceedings, the Embassy issued a statement on October 22
expressing concern about the process following the appeal decision,
and we continue to raise the case with senior government officials
in Astana and in Washington.


19. (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 --
which ultimately declared it to be unconstitutional.


20. (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
government-controlled. On July 10, President Nazarbayev signed into
law Internet legislation which provides a legal basis for the
government to shut down and block websites whose content allegedly
violates the country's laws. On October 22, a Kazakhstani appeals
court upheld the Editor-in-Chief of "Alma Ata Info" newspaper's
August 8 sentence to three years in prison for publishing
confidential internal documents of the Committee for National
Security (KNB). In addition, the courts have levied
disproportionately large fines for libel against two opposition
newspapers over the past year, forcing one paper to close while
another is still fighting the case through appeals. These appear to
be steps in the wrong direction at a time when Kazakhstan's record
on democracy and human rights is in the spotlight because of its
forthcoming OSCE chairmanship. We have expressed our disappointment
about the Internet legislation and libel regime, and have urged the
government to implement the Internet law in a manner consistent with
Kazakhstan's OSCE commitments on freedom of speech and freedom of
the press.

OIL AND GAS PRODUCTION


21. (SBU) Kazakhstan produced 70.7 million tons of oil in 2008
(approximately 1.41 million barrels per day (bpd),and is expected
to become one of the world's top ten crude oil exporters soon after

2015. From January - August, Kazakhstan increased oil production by
8.8%, to 41.83 million tons, compared to the same period last year.
U.S. companies -- ExxonMobil, Chevron, and ConocoPhillips -- have
significant ownership stakes in each of Kazakhstan's three major
hydrocarbon projects: Tengiz, Kashagan, and Karachaganak.

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22. (SBU) While Kazakhstan has significant gas reserves (2.0
trillion cubic meters is a low-end estimate),current gas exports
are less than 10 billion cubic meters (bcm),in part because gas is
being reinjected to maximize crude output, and in part because
Gazprom, which has a monopoly on the gas market in the region, pays
producers only a fraction of the going European price. The
country's 40 bcm gas pipeline to China will help to break that
monopoly, although the majority of the gas that will be exported via
this pipeline will come from Turkmenistan and Uzbekistan, not
Kazakhstan. The first line of the China gas pipeline was completed
in July, and the first shipments are planned in November.
Kazakhstani gas exports to China will be modest, 4-6 bcm annually.
The government of Kazakhstan has made several public statements
confirming that it has no objection to the Nabucco gas pipeline
project, but the government has emphasized that Kazakhstan does not
and will not produce enough gas to supply the pipeline.

OIL AND GAS TRANSPORTATION


23. (SBU) With significant oil 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. In July, for example, national
oil company KazMunaiGaz (KMG) announced the completion of the
Atasu-Alashankou segment, and it recently began pilot crude
shipments via the Kenkiyak-Kumkol segment of the 3,000 kilometer oil
pipeline to China, which will initially carry 200,000 bpd, with
expansion capacity of 400,000 bpd.


24. (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 also support implementation of the
Kazakhstan Caspian Transport 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. Negotiations with international
oil companies to build the onshore pipeline and offshore marine
infrastructure for this $3 billion project have recently stalled,
although the government has expressed an interest in resuming
talks.

SPRATLEN