KAZAKHSTAN: UK ENERGY ENVOY TOURS REGION

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SUBJECT: KAZAKHSTAN: UK ENERGY ENVOY TOURS REGION

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


2. (SBU) SUMMARY: On April 29, the Ambassador met with UK Caspian
Energy Envoy Angus Miller (protect throughout) to discuss his
six-week tour through the Caucasus and Central Asia. Miller said
that an investor from the United Arab Emirates plans to develop and
modernize the port terminal of Poti on the Georgian Black Sea coast
and added that the sunken dredging ship blocking entry to the port
of Kulevy is now being disassembled. He downplayed the announcement
that German energy company RWE signed a Memorandum of Understanding
with the government of Turkmenistan and said the government missed
an opportunity during its energy security conference on April 23-24
to award a license to a major international oil company. Miller
also told the Ambassador that he is concerned that Bautino bay on
the Kazakhstani shores of the Caspian Sea is being overdeveloped and
said the area lacks necessary power and other supporting
infrastructure. Miller is interested in coordinating U.S. and UK
energy policies and looks forward to an opportunity to meet
Ambassador Morningstar at his earliest convenience. END SUMMARY.

BIG PLANS FOR POTI


3. (SBU) UK Caspian Energy Envoy Angus Miller paid the Ambassador a
courtesy call at the end of a six-week tour through the Caucasus and
Central Asia. Recalling his visit to Georgia in March, he called
the port city of Poti "a disaster," but reported that an investor
from the United Arab Emirates recently announced plans to invest up
to $10 billion to develop 400 hectares of land behind the port, as
well as land outside Tbilisi. According to Miller, the investor
also recently purchased the Sheraton hotel in Tbilisi.

DISGRUNTLED DEPUTY AT BATUMI


4. (SBU) Miller also toured the oil terminal at Batumi, owned and
operated by Kazakhstani national oil company KazMunaiGas, and was
struck by comments made by the deputy manager, who is Georgian,
about the general manager, who is Kazakhstani. Miller said the
deputy manager was openly critical and contemptuous about the
company's Kazakhstani leadership. According to Miller, the deputy
manager said the Kazakhstanis "have not kept their promises" to
upgrade the oil terminal's facilities since acquiring the asset in
February 2008 from Greenoak Holdings. Miller added that, based on
what he could see, there was no indication that KMG was likely to
modernize the terminal anytime soon.

AZERBAIJANI INTERESTS IN GEORGIA


5. (SBU) Miller was skeptical about the future of the oil terminal
at Kulevy, Georgia, which is owned by the State Oil Company of the
Azerbaijani Republic (SOCAR). He said the dredger that was
submerged in front of the port is now being disassembled, but noted
that even once that obstacle is removed, ships loading crude oil
will still face delays due to bad weather and silting at the berths.
Finally, he commented that it appeared to him that the Azerbaijanis
were "determined to buy the Georgian railway," and said they had
plans to invest $5.4 billion to renovate the rail system in Georgia.


NO BREAKTHROUGHS IN ASHGABAT


6. (SBU) Calling the government of Turkmenistan's Memorandum of
Understanding with German firm RWE "just a piece of paper," Miller
was dismissive of the company's plans to develop block 23, an
offshore reservoir in the Caspian Sea: "The block is a little
triangle, close to the Iranian border, which will complicate
development to say the least." While acknowledging the symbolic
importance of negotiations between the government of Turkmenistan
and a Western energy company, Miller nevertheless said RWE is "not
taken seriously by the Turkmen, because they are not a Western
major."


7. (SBU) He said Turkmenistan "missed an opportunity" to take a
dramatic step forward by signing an agreement or awarding a license

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to a major Western oil company during the energy security conference
in Ashgabat on April 23-24. Miller lamented that the conference did
not alter the perception that the government of Turkmenistan is
opposed to Western development of onshore assets and will not
actively facilitate trans-Caspian transportation. According to
Miller, Turkmen President Berdymukhamedov told EU Special
Representative for Central Asia Pierre Morel, "We have the gas
available, all you have to do is come and get it."

RUSSIANS LEAVE EARLY AND UNHAPPY


8. (SBU) Miller told the Ambassador that Russia's Deputy Prime
Minister Igor Sechin "left Ashgabat early and unhappy," following
his bilateral meeting with President Berdymukhamedov on April 21.
Miller speculated that Berdymukhamedov blamed Gazprom for the recent
gas pipeline explosion, although he himself considered the incident
a result of both "Russian bullying and Turkmen ineptitude."
According to Miller, the Bulgarian delegation to the Ashgabat
conference circulated the Russian version of a proposed joint
declaration and asked other countries to support it. However, the
final conference declaration contained very little of the Russian
text, said Miller.

BAUTINO BAY BECOMING CROWDED


9. (SBU) According to Miller, who toured the steel fabrication yard
at Bautino on April 9-10, the bay is being unwisely overdeveloped.
Miller said those developing the area are "trying to cram too much
in there, too soon" and worried that the bay will silt because of
the number of jetties being added. He also noted that the immediate
area lacks supporting infrastructure such as power and water, as
well as skilled labor.

EUROPEAN ENERGY SECURITY COORDINATION


10. (SBU) Miller told the Ambassador that the United Kingdom is
"pushing Europe" to adopt a coordinated energy policy in Central
Asia that embraces the diversification of export routes for oil and
gas, and will continue to do so. "Europe is fixated on gas," he
said, "but liquids are essential. We must not forget that oil
exports from the Caspian region are crucial to our energy security."
Miller said it is important for Europe to speak with one voice on
energy policy, but this is complicated by the divide between the
countries of "New Europe," which advocate openly and forcefully for
alternatives to reduce their dependence on energy supplies from
Russia, and the countries of "Old Europe," which want to lock in and
secure those same supplies from Russia. Miller said that if EC
Energy Commissioner Andris Piebalgs departs when his term expires in
October, it could throw EU energy policy into disarray.

UK EURASIAN ENERGY POLICY


11. (SBU) During the Atyrau Oil and Gas Conference on April 8,
Miller outlined the UK government's support for Kazakhstan's
multi-vector energy export policy that would ship crude in four
directions: (1) domestically; (2) through Russia; (3) to China; and
(4) across the Caspian to world markets. Miller called the
Baku-Tbilisi-Ceyhan (BTC) pipeline "the catalyst for change and a
triumph for oil exports." In his prepared remarks, Miller praised
the BTC partners for overcoming "keen opposition from at least one
very powerful opponent," but he left this phrase out when he
delivered his speech at the conference.


12. (SBU) Miller did, however, say that the existing route through
Russia "is vulnerable to political and economic constraints imposed
by the host government. Shipping of hydrocarbons via Russian
facilities also raises serious questions about retained value, the
lack of quality banks and access to Black Sea ports." He advocated
effectively for the development of the trans-Caspian option best
known as the Kazakhstan Caspian Transportation System. "Yes, it is
vulnerable," he acknowledged, "as Russia's adventures in Georgia
last August demonstrated, but it still offers an established and
proven route with direct international market access." According to

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Miller, the UK's preferred route, the Southern Corridor, would bring
efficiency and clarity to markets, including producers at the
eastern end of the Southern Corridor and consumers at its western
end.

THE IRANIAN OPTION


13. (SBU) Miller attempted to anticipate and address questions
about Iran. He conceded, for example, that it might be "quicker and
cheaper" to export oil from Kazakhstan to world markets via Iran's
Gulf ports, but he was quick to add that this depended entirely on
Iran's nuclear ambitions and its relationship with its neighbors and
the world community. Miller said that the future of U.S.-Iranian
relations was unpredictable, but he noted that a rapprochement would
have significant implications for oil export opportunities for
western and especially U.S. investors in Kazakhstan.

MILAS