KAZAKHSTAN: VICE MINISTER OF ENERGY DISCUSSES NUCLEAR

UNCLAS SECTION 01 OF 03 ASTANA 000813 SIPDIS STATE FOR SCA/CEN, EEB/ESC STATE PLEASE PASS TO USTDA FOR DAN STEIN E.O. 12958: N/A TAGS: PGOV PREL ECON ENRG EPET EINV KNNP KZ SUBJECT: KAZAKHSTAN: VICE MINISTER OF ENERGY DISCUSSES NUCLEAR NON-PROLIFERATION, EITI, AND ENERGY PARTNERSHIP PRIORITIES REF: (A) ASTANA 0734 (B) O'MARA-FAGIN APRIL 22 EMAIL (C) STATE 07756 (D) STATE 28858 ASTANA 00000813 001.2 OF 003 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: On May 6, the Charge d'Affaires met with Vice Minister of Energy Asset Magauov to discuss the Kazakhstani government's financial commitments to the safe storage of spent fuel from the decommissioned BN-350 nuclear reactor, as well as the Extractive Industries Transparency Initiative (EITI),the Global Nuclear Energy Partnership, and the U.S.-Kazakhstan Energy Partnership. During a cordial and friendly conversation, Magauov assured Charge and visitors from the Department of Energy's Office of Russian and Eurasian Affairs that the Ministry of Energy and Mineral Resources (MEMR) will secure $5 million this year for the BN-350 spent fuel program. He also said Kazakhstan has accelerated reporting under the EITI and expressed confidence that the government will meet the March 9, 2010 deadline for validation. Magauov was pleased to receive an invitation to attend the next Infrastructure Development Working Group meeting of the Global Nuclear Energy Partnership. He said Kazakhstan has valuable experience and expertise to share and promised that the government would send "an appropriately high-level representative" to the meeting. The Vice Minister reiterated Kazakhstan's multi-vector policy on oil and gas exports, but emphasized that Kazakhstan will make energy transport decisions for commercial, not political, reasons. He also requested that U.S. companies and U.S. government agencies working on nuclear safety issues brief him on their activities when they visit Kazakhstan. END SUMMARY. FINDING FUNDING FOR BN-350 ¶3. (SBU) Charge reviewed recent discussions about Kazakhstani government funding for the BN-350 Spent Fuel Disposition Program and gave Magauov a non-paper which stressed the importance of Kazakhstan meeting its funding commitments (see refs A, B, and C). Magauov thanked the Charge and DOE representatives for the substantial technical assistance provided by the U.S. government and reiterated Kazakhstan's commitment to the program. He said that MEMR's first request for $5 million to the Ministry of Economy and Budget Planning was rejected, but MEMR sent a second request on April 24, which Magauov said should be sufficient to secure funding. According to Magauov, he and Minister of Energy Sauat Mynbayev "need to have a long talk" with Prime Minister Karim Masimov about the program, because of its strategic importance to Kazakhstan and the significant resources that will be required to complete it. Magauov estimated that the program could cost upwards of $400 million. PROGRESS TOWARD EITI VALIDATION ¶4. (SBU) Charge delivered talking points in reftel D, applauding Kazakhstan's progress on EITI and urging that it meet its deadline for EITI validation. Magauov thanked the Charge for his support and praised the efforts of U.S. companies in particular to help Kazakhstan complete validation. He said Kazakhstan is committed to the initiative, increased its budget for the program, and expects to complete validation by the deadline of March 9, 2010. (NOTE: On May 6, Odd Magne Instefjord, General Director of StatoilHydro Kazakhstan, who is on the EITI national council, told Energy Officer that the government has allocated $50 million in 2009 toward the initiative. Also on May 6, World Bank Country Manager Sergei Shatalov acknowledged that the government has made excellent progress on EITI, but said that only 110 out of more than 300 companies working in the extractive sector have signed up to date. Shatalov expressed doubt that Kazakhstan would meet the March 9, 2010 deadline for validation, but he is confident that they will complete validation within two years. END NOTE.) Magauov said that the additional funding has enabled the government to accelerate its reporting and auditing activities and he expects the national ASTANA 00000813 002.2 OF 003 council this year to complete audits of the 2007 and 2008 reports. Magauov also said there has been an "open, honest, and often heated debate" with the NGO community and the international oil companies over the most effective way to demonstrate and document transparency from oil revenues. He then asked Charge if the United States had any plans to join EITI in the near future and said he would welcome an opportunity to compare notes and share lessons learned about EITI with colleagues in the United States. GLOBAL NUCLEAR ENERGY PARTNERSHIP ¶5. (SBU) Charge encouraged the government to become a more active participant in the Global Nuclear Energy Partnership (GNEP) and attend the next Infrastructure Development Working Group meeting from May 18-20, in Manchester, UK. He also delivered a non-paper on this subject. Magauov appeared delighted to receive the invitation and said, "We will definitely send someone at the appropriate level." He told the Charge and the DOE representatives that Kazakhstan has much to offer in such a forum, including technical expertise and experienced personnel. MULTI-VECTOR OIL AND GAS EXPORTS ¶6. (SBU) When asked about Kazakhstan's plans to develop alternative export routes for its oil and gas resources, Magauov said that, historically, all of Kazakhstan's hydrocarbons were exported via Russia. "While our relations with Russia are excellent and the majority of our oil will still go through Russia," he said, "we need alternative options to accommodate increased production." He then listed several of the transportation projects currently under development, including the oil and gas pipelines to China, which he expects to be completed this year, the Eskene-Kuryk pipeline that is a central feature of the Kazakhstan Caspian Transportation System (KCTS),and the Caspian littoral (Prikaspiskiy) gas pipeline, which he said will initially have a design capacity of 20 billion cubic meters (bcm),but will likely be expanded to 40 bcm. On KCTS, Magauov said Kazakhstan is wary of "unexpected requests" from Azerbaijan, such as tariffs, fees, or taxes, that could be assessed even after negotiations are complete. "If that happens," he said, "we might come to the realization that sending our oil to Russia is actually a better deal." Ultimately, however, Magauov insisted that Kazakhstan will base its oil export decisions on commercial, not political, factors. When asked about Kazakhstan's dealings with Iran, Magauov said he did not know of any major joint projects with Iran, other than the fact that private oil traders were conducting "some oil swaps" with Neka. A PLEA FOR MORE LOCAL CONTENT ¶7. (SBU) Magauov said he was relieved that the negotiations over Kashagan were complete and that work has continued to develop the field despite its enormous complexity and technical challenges. He appealed for U.S. companies to invest in the local economy and increase local content, particularly when hiring workers for less skilled positions. Magauov acknowledged that Kazakhstan lacks a sufficient number of skilled technicians in the oil and gas sector, and said that Kazakhstan's technical colleges are not prestigious, do not attract the best and brightest students, and graduates often have difficulty finding jobs. EAGER FOR ENERGY PARTNERSHIP ¶8. (SBU) Magauov expressed interest in reviving the U.S.-Kazakhstan Energy Partnership and asked for a little time to discuss the issue internally before presenting DOE a list of Kazakhstan's priorities for the Partnership. He did mention, however, his interest in infrastructure, oil exports, and uranium mining. When asked about renewable energy, Magauov said that the issue is actively discussed at the Ministry and that a new department was recently established to direct the government's policies and programs on renewable energy. He then asked, rhetorically, how committed Western ASTANA 00000813 003.2 OF 003 countries are to renewable energy sources, particularly if they are not economical or consume more energy than they generate. For example, Magauov said, consumers in Kazakhstan have a choice: they can purchase electricity from the coal-fired power plant at Ekibastuz for $0.03/kilowatt hour (kwh) or they can buy it from the wind farm at Zhengarsky for $0.07/kwh. Magauov was nevertheless very receptive to a proposal from DOE to conduct a survey of Kazakhstan's renewable energy potential and welcomed additional information and resources in this regard. Finally, the Vice Minister stated -- politely but firmly -- that U.S. companies and U.S. government agencies working on nuclear safety issues should brief him when they visit Kazakhstan. He reminded the Charge and DOE that he is responsible for nuclear power and nuclear non-proliferation issues at the Ministry of Energy and said it is important for him to be informed about U.S. activities in these areas. MILAS