Search

 

Cablegate: Mangystau - Kazakhstan's Other Oil Center

VZCZCXYZ0005
RR RUEHWEB

DE RUEHTA #2349/01 3301417
ZNR UUUUU ZZH
R 251417Z NOV 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 3957
INFO RUCNCIS/CIS COLLECTIVE 0856
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0255
RUEHKO/AMEMBASSY TOKYO 0965
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHDC 0338
RHEHNSC/NSC WASHDC 0423
RHEFAAA/DIA WASHDC
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS ASTANA 002349

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB

E.O. 12958: N/A
TAGS: PGOV ECON EINV EPET CH IR KZ
SUBJECT: MANGYSTAU - KAZAKHSTAN'S OTHER OIL CENTER

REF: ASTANA 01865

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

2. (SBU) SUMMARY: On November 6, DCM and poloff met with
several oil companies to discuss the state of the energy
industry in Kazakhstan,s Mangystau oblast. Oil companies in
Mangystau noted the region,s untapped potential, good
infrastructure, a supportive local government, and
well-qualified work force as reasons for their success.
Companies also reiterated the need to develop the region,s
environment and social services. END SUMMARY.

REGIONAL COMPARATIVE ADVANTAGES: MODERN INFRASTRUCTURE AND
SUPPORTIVE LOCAL GOVERNMENT

3. (SBU) On November 5, Poloff and DCM met with the General
Director of Caspiy Meruerty Operating Company BV, a 50-person
operating company and subsidiary of Shell and Oman Pearls.
The company made a strategic decision to establish itself in
Mangystau province, rather than Atyrau, where most Western
companies are based. Caspiy Meruerty,s General Director,
Marcus Antonini, told DCM and poloff that the decision has
worked out well for the company, due to its access to
Mangystau,s relatively untapped reserves. (NOTE: Caspiy
Meruerty struck oil last month on two test wells. END NOTE.)
Caspiy officials also said that Mangystau has better
infrastructure than Atyrau, in particular, better port
facilities and a very accommodating local government.
Antonini noted that &joint ventures are very important to
the region, and the Akim (governor) is ambitious, and, in a
good sense, nationalistic.8 Caspiy has had no problems
getting work permits or other paperwork approved. Antonini
also stated that the capital city of Mangystau, Aktau, is
also a more attractive city than Atyrau, an important factor
in attracting foreign investment.

4. (SBU) FMC Technologies representative Tanat Ishangali
echoed Antonini,s comments and said that the business
climate in Mangystau is excellent. FMC has two major
customers in the oblast, Agip and Myers, and competes on
quality, not price. Ishangali, whose brother works in a
Chinese firm, claims that FMC,s Chinese competitors
manufacture oil pumping equipment that is five times less
expensive, but made of soft metal and prone to leaks. To
meet local content requirements, FMC purchases parts from
Kazakhstan, then makes the casing spool bodies at a factory
in France and completes welding in Almaty. Ishangali
declared that FMC, which employs 51 people in Aktau, also has
had no problems processing work permits in Mangystau.

MANGYSTAU HAS PLENTY OF WELL-QUALIFIED WORKERS

5. (SBU) Caspiy Meruerty,s Antonini also said that the
Mangystau region has plenty of well-qualified workers, noting
that he has hired 40 people over the last year. Many of
Caspiy Meruerty,s new employees have previous experience in
the oil service industry and oil well work, having worked at
other international oil companies such as Schlumberger,
Baker-Hughes and Agip. Antonini commented that Shell has
also noticed a trend of Kazakhstani citizens overseas
returning to Kazakhstan to work, despite the fact that many
will lose the tax-free status they enjoyed when employed
outside their home country.

REGION HAS POTENTIAL UNDER VARIOUS TRANSPORTATION SYSTEMS

6. (SBU) Antonini told poloff that there is huge growth
potential in Mangystau, particularly in the four fields
located 20 kilometers offshore. Antonini reminded DCM and
poloff that, as an operator, he is less concerned with
transportation issues. Whether oil is exported via the
Kazakhstan Caspian Transportation System (KCTS) or the
Caspian Pipeline Consortium (CPC) pipeline, Antonini sees
significant growth opportunities. In particular, Antonini
noted that domestic refining capacity in Kazakhstan is
limited and therefore Kazakhstan imports the majority of its
refined products. If Kazakhstan had increased refining
capacity, this would present domestic business opportunities
for a number of companies. (COMMENT: Kazakhstan has been
considering how to address its under-investment in refining
capacity, per reftel. END COMMENT.) In Antonini,s view,
future cooperation with Iran remains difficult due to the
political situation. Nevertheless, Antonini said that Total
has studied plans to build a pipeline from Kazakhstan to Iran
and called this potentially &a brilliant investment8 that
could have a big pay-off someday. (COMMENT: Poloff could
not independently confirm this report, which goes beyond
statements made by international oil companies operating in
Kazakhstan. END COMMENT.) A pipeline south to India and
Pakistan would be ideal, too, he said, if the situation in
Afghanistan were secure enough to make it worthwhile.
Antonini also commented that the most interesting aspect of
the Kazakhstan International Oil and Gas Exhibition in Almaty
this year was the lack of a Chinese presence, considering the
joint project to build an oil pipeline from the Caspian Sea
to China.

ENVIRONMENTAL PROTECTION AND SOCIAL INFRASTRUCTURE NOT YET
ADEQUATE

7. (SBU) As part of their Production Sharing Agreements, oil
companies are required to invest in projects to develop the
local social infrastructure, and investing in Astana or
Almaty is forbidden. Antonini notes that initially, Caspiy
Meruerty invested primarily in small projects, such as public
lavatories and playgrounds. This year, however, several
companies combined their investments to construct a
kindergarten and a water pipeline to a nearby town. Although
Antonini stated that environmental restrictions, such as the
zero discharge policy, are strict and discourage testing of
wells, his company was able to work successfully within such
environmental protection constraints. Caspiy Meruerty used
special equipment, including burners from Venezuela, to run
an emission-free test. Waste disposal and processing, and
other quality-of-life issues, however, are critical to
Mangystau,s future. According to Antonini, the region could
do more to clean up the beaches and develop its recreational
potential. Antonini also noted his concern that regional
education and health-care systems have been placed too much
&on the back burner.8 Antonini commented that from the
very large number of border guards patrolling the Caspian
Sea, illegal fishing is clearly a large problem, and he said
the illegal nets create a hassle for off-shore oil companies
such as Caspiy Meruerty.

LOCAL PARTNERSHIPS ARE KEY

8. (SBU) Antonini told DCM and poloff that he believes that
Caspiy Meruerty has succeeded because the company carefully
studied every other foreign company in Kazakhstan to see what
difficulties they encountered and tried to avoid these
challenges. Noting that many foreign enterprises were caught
off guard by subsoil legislation changes, Antonini commented
that companies have to be realistic and proactively engage
government partners. For instance, in its second round of
tenders, Caspiy Meruerty leveraged the local government,s
extensive experience to help select good candidates.
Antonini remarked that he looks for long-term partnership
with local Kazakhstani enterprises, particularly with
companies that have decent equipment, sufficient capital, and
a broad, flexible outlook. (COMMENT: Currently, Aktau is
clearly number two behind Atyrau as a Caspian oil center.
However, many of the offshore fields are equidistant between
Aktau and Atyrau, and a number of Western companies feel that
the local administration (oblast) in Atyrau has become
difficult and greedy. Aktau, on the other hand, seems more
business-friendly and is certainly trying harder to welcome
investment at this point. END COMMENT.)
HOAGLAND

© Scoop Media

 
 
 
 
 
World Headlines

 

Werewolf: Gordon Campbell On North Korea, Neo-Nazism, And Milo

With a bit of luck the planet won’t be devastated by nuclear war in the next few days. US President Donald Trump will have begun to fixate on some other way to gratify his self-esteem – maybe by invading Venezuela or starting a war with Iran. More>>

Victory Declared: New Stabilisation Funding From NZ As Mosul Is Retaken

New Zealand has congratulated the Iraqi government on the successful liberation of Mosul from ISIS after a long and hard-fought campaign. More>>

Gordon Campbell: On The Current US Moves Against North Korea

If Martians visited early last week, they’d probably be scratching their heads as to why North Korea was being treated as a potential trigger for global conflict... More>>

ALSO:

Gordon Campbell: On The Lessons From Corbyn’s Campaign

Leaving partisan politics aside – and ignoring Jeremy Corbyn’s sensational election campaign for a moment – it has to be said that Britain is now really up shit creek... More>>

ALSO:

Another US Court: Fourth Circuit Rules Muslim Ban Discriminatory

ACLU: Step by step, point by point, the court laid out what has been clear from the start: The president promised to ban Muslims from the United States, and his executive orders are an attempt to do just that. More>>

ALSO: