Identifier
Created
Classification
Origin
09ASTANA578
2009-04-02 13:09:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Astana
Cable title:  

KAZAKHSTAN: MARINE TRANSPORTATION EXPERT ADVISES

Tags:  PGOV ECON EPET EINV IR KZ 
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UNCLAS SECTION 01 OF 03 ASTANA 000578 

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/CARC, EEB/ESCSTATE PLEASE PASS TO USTDA FOR
DAN STEIN

E.O. 12958: N/A
TAGS: PGOV ECON EPET EINV IR KZ
SUBJECT: KAZAKHSTAN: MARINE TRANSPORTATION EXPERT ADVISES
GOVERNMENT ON TRANS-CASPIAN PROJECT

REF: (A) ASTANA 0530 (B) ASTANA 0283 (C) ASTANA 0131

ASTANA 00000578 001.2 OF 003


UNCLAS SECTION 01 OF 03 ASTANA 000578

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EUR/CARC, EEB/ESCSTATE PLEASE PASS TO USTDA FOR
DAN STEIN

E.O. 12958: N/A
TAGS: PGOV ECON EPET EINV IR KZ
SUBJECT: KAZAKHSTAN: MARINE TRANSPORTATION EXPERT ADVISES
GOVERNMENT ON TRANS-CASPIAN PROJECT

REF: (A) ASTANA 0530 (B) ASTANA 0283 (C) ASTANA 0131

ASTANA 00000578 001.2 OF 003



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


2. (SBU) SUMMARY: On April 1, Captain Kjell Landin, Marine Manager
for Chevron Transport Corporation, briefed Energy Officer on the
complexities of the proposed Kazakhstan Caspian Transportation
System (KCTS). He said that, from a technical and engineering point
of view, the project is certainly feasible. However, Landin
highlighted a number of political issues that could complicate
implementation. Foremost among them in his opinion is the fact that
the government of Kazakhstan does not have a single, authoritative
champion who can appreciate the project's complexity and enforce
discipline on a diverse group of stakeholders. He said that
KazMunaiGas (KMG),which has overall responsibility for managing
KCTS, must act quickly to invest in education and human capacity,
improve its understanding of port administration, and demonstrate
overall leadership of the project. He also said that Kazakhstan is
exploring the option of building a second port at Kuryk that would
not be covered by its MOU with Azerbaijan, from which crude from
Kashagan and other fields could be shipped to Iran. Landin was in
Astana at the invitation of KazMunaiGas, for whom he is acting as an
unofficial, unpaid advisor on maritime transportation. END
SUMMARY.

AN ENGINEERING PROBLEM WITH A POLITICAL SOLUTION


3. (SBU) When asked to describe the complexity of the KCTS project,
Landin acknowledged the various technical challenges (reftel B),but
said, "These are just engineering problems. We hire the engineers,
we tell them what we want, and they build it. We put a man on the
moon. We can certainly make this project work." But, he said, the
real difficulty is overcoming domestic political obstacles and
ensuring alignment among the various Kazakhstani stakeholders,
including KMG, the Ministry of Energy and Mineral Resources, the
Customs Committee, the Ministry of Transportation, and national

maritime shipping company KazMorTransFlot.


4. (SBU) For example, according to Landin, KCTS will require
significant changes to the ways and means of port administration in
Kazakhstan, including port charges, documentation, staffing, and
management. Calling Kazakhstan's port charges "enormous," Landin
said the high fees will make it much more difficult for KMG to
convince the State Oil Company of the Republic of Azerbaijan (SOCAR)
to eliminate its port fees in Baku for Kazakhstani oil arriving via
tanker from Aktau or Kuryk.

KMG MUST IMPROVE UNDERSTANDING OF PORT ADMINISTRATION


5. (SBU) Landin observed that some stakeholders will not favor
increased transparency and efficiency in port administration and
said that it will take a determined political effort to implement
these changes. As a first step, Landin suggested that KMG must
quickly improve its understanding of the details and nuances of port
administration. "(KMG head Kairgeldy) Kabyldin supports the
trans-Caspian project," he said, "but he has no visibility into the
line-item charges by the port authority, or what fees
KazMorTransFlot is collecting, and how these costs may jeopardize
the success of the project."

GOVERNMENT "FRAGMENTED"


6. (SBU) Landin complained that there is "no firm, consistent
policy" on these issues and said the government is "fragmented" by a
multiplicity of institutions and interests. For KCTS to work, he
said, "Kazakhstan needs a single, high-level official or
coordinating body to pull the government stakeholders together, tell
them this is about increasing transparency and lowering costs, and
enforce discipline across the government to carry it out." Landin
said it would take the authority of the Prime Minister to achieve
such unity of purpose.

ASTANA 00000578 002.2 OF 003



"THERE ARE NO CAPTAINS IN KAZAKHSTAN"


7. (SBU) Landin also argued that the lack of trained captains and
crews could prove devastating to the project. Speaking
passionately, he said he urged both the companies and the government
to invest now in developing the human capacity and technical
expertise required to operate large oil tankers in the Caspian Sea.
"During the negotiations in February, I told them, 'You guys are not
committed to this project at all. You're missing the point. You're
arguing about ownership and assuming you've got trained crews.
Where are the 400 people you need to operate a tanker? Where are
all the Kazakh captains you're talking about? There isn't a single
one today.'" Landin added that it will take four years, and
approximately $100 million, to build a large oil tanker for the
Caspian, but eight to ten years to train a captain.

OVERCOMING RUSSIAN OBJECTIONS TO KCTS


8. (SBU) Surprisingly, Landin did not seem overly concerned by the
impressive logistical challenges facing the KCTS project. For
example, he suggested that Russian objections to the construction or
transportation of large tankers could be overcome by involving a
Russian shipyard in the construction, shipment, and assembly in the
Caspian of the four 60,000 deadweight ton tankers required by KCTS.
Landin said he believed the Russians would support the KCTS project
if it is in their commercial interests to do so and if they are
convinced that the project will go forward without them in any case.
He dismissed, however, the suggestion that the shipyard in
Astrakhan could build or service the new vessels: "Those guys are a
bunch of crooks," he said. "Even the Russians don't trust them."

SMALL TANKER TENDER TO BE RE-BID


9. (SBU) Landin confided to Energy Officer that the government will
rebid its recent tender for three smaller, 12,000 deadweight ton
tankers, because it did not follow the new procurement procedures
established by Samruk-Kazyna National Welfare Fund (reftel A). He
also suggested that the smaller tankers would be useful in the
beginning of KCTS until the larger vessels can be phased in.

PUTTING PRESSURE ON RUSSIA AND AZERBAIJAN


10. (SBU) When asked whether KCTS or expansion of the Caspian
Pipeline Consortium (CPC) pipeline would come first, Landin said the
two projects are interconnected. "Of course, the CPC expansion
project will be completed first," he said, "but it can only move
forward if you also make incremental progress on KCTS." He said
that taking tangible steps to implement KCTS will convince the
Russians to support CPC expansion in order to capture more crude
shipments via Russian territory. Alternatively, Landin said that
progress on CPC expansion will convince the Azeris to support KCTS
to ensure that some Kazakhstani crude transits Azerbaijan. "By
2016, Kazakhstan will have 90 million tons of oil sitting on its
shores," he said. "It is up to Azerbaijan to decide how much of
that comes to Baku."

KAZAKHSTAN EXPLORING OPTION TO SHIP TO IRAN


11. (SBU) Landin confirmed that the November 14, 2008, memorandum
of understanding between KMG and SOCAR allows their KMG Trans-Caspiy
joint venture -- which is charged with implementing KCTS -- to ship
crude in "other directions," including Iran, but only with the
mutual agreement of both parties. Therefore, Landin said,
Kazakhstan is exploring the option of building a second port at
Kuryk that would not be covered by the MOU with Azerbaijan, from
which crude from Kashagan and other fields could be shipped to
Iran.

SOMETHING FOR EVERYONE


ASTANA 00000578 003.2 OF 003



12. (SBU) Despite the obvious technical and political challenges,
Landin is optimistic that the KCTS project will ultimately succeed,
because it has something of interest and value to everyone. "If we
can build a cost-efficient, reliable transportation system across
the Caspian," he said, "that will be good for everybody." Landin
was in Astana for two days at the invitation of KMG to provide
advice, counsel, and recommendations to KMG Trans-Caspiy. He will
next travel to Baku on April 6-7 to participate in meetings with
SOCAR and KMG.

HOAGLAND