US embassy cable - 05ALMATY1920

C O N F I D E N T I A L  ALMATY 001920 
 
SIPDIS 
 
 
DEPT FOR EUR/CACEN (JMUDGE) 
 
E.O. 12958: DECL: 05/11/2005 
TAGS: PGOV, ECON, EPET, KZ, ECONOMIC, Energy 
SUBJECT: KAZAKHSTAN: AMBASSADOR'S TRIP TO ATYRAU OBLAST 
 
 
Classified By: Ambassador John Ordway, reasons 1.4 (b) and (d) 
 
 1. (C) Summary: Ambassador Ordway met with a wide-range of 
civic groups, businessmen, local officials, and foreign 
investors during his March 13-16 trip to Kazakhstan's 
oil-rich Atyrau Oblast. The booming region faces skilled 
labor shortages while a large rural population idles in 
villages. Relations between investors and local officials are 
generally good, though real tensions exist over work permits, 
environmental fines, and corruption. NGOs, on the other hand, 
charge environmental harm by the region's largest investor, 
the TengizChevroil (TCO) field. They are also skeptical about 
the efficacy of TCO-sponsored social programs. End Summary. 
 
------------------ 
Feast among Famine 
------------------ 
 
2. (U) Hugging the shores of the north Caspian, Atyrau's 
salt-laden soil hold about 58% of Kazakhstan's recoverable 
oil reserves. The overwhelmingly ethnic Kazakh region pumps 
about 20% into the central budget but accounts for a mere 3% 
of Kazakhstan's total population. Within 10 years, according 
to Atyrau Oblast Akim (governor) Aslan Musin, the region 
plans to produce 70 million tons of oil annually thanks to 
two main projects, the Chevron-Texaco operated 
TengizChevroil(TCO) field and AGIP-KCO's off-shore Kashagan 
bloc. Musin reported that the average wage in the oil sector 
had hit $1,000 a month and that rents equaled those in 
Almaty. The City Akim, Manas Tasybayev, boasted that 90,000 
square meters of new construction had gone up in 2004, almost 
double the best Soviet-era figure of 55,000. 
 
3 (SBU) Nevertheless, problems exist. Musin said the region 
had been "a backwater" that still faced "many unsolved 
problems despite the oil wealth." He ticked off the main 
culprits: mono-economy; rural poverty; skilled labor 
shortage; bad roads; lack of potable water; poor schools and 
hospitals. Musin added said 65% of the population did not 
have access to clean piped water. Tasybayev added that the 
average family had five children, with the average between 
three and four. (Comment: Both Musin and Tasynbayev are 
viewed by some local residents as outsiders, appointed from 
neighboring Aktyubinsk province in 2002. End Comment). 
 
---------------------- 
Skilled Labor Shortage 
---------------------- 
 
4. (SBU) All the Ambassador's interlocutors, both state 
officials and private businessmen, complained of a growing 
shortage of skilled labor. Musin said that the region had 
"already exhausted its Soviet (skilled) labor reserves." He 
griped that three training centers set up by AGIP and TCO 
were "insufficient" and said that 40,000 workers would be 
needed in the oil sector in the next ten years. He hoped that 
as many as possible would be Kazakhstani. 
 
5.(C) AGIP-KCO District Director Mario Becherucci projected 
that 12,000 workers alone would be needed at the peak of his 
project construction. He complained of a shortage of skilled 
welders, and said that "it wasn't simply a matter, as the 
local authorities believed, of training local people." 
Becherucci added that some of the techniques and materials 
demanded advanced skills, and, most importantly, experience. 
West Pearson, the head of the Parson Flour Daniel's office 
said local vocational schools were "horrible". His company 
planned to open up a training center for welders and pipe 
fitters. 
 
--------------------------------------------- --- 
State-Investor relations: Okay, far from perfect 
--------------------------------------------- --- 
 
6.(SBU) Local authorities were upbeat over their relations 
with foreign investors. Musin praised TCO and called 
relations with them "outstanding." He also lauded their 
social programs (Note: The company has spent $86 million 
since operations began in 1993. The Akim, not TCO, determines 
priorities. End Note). Musin told the Ambassador that he 
wanted to maximize Kazakhstani work participation, which 
already is 80% for TCO, and increase the number of 
Kazakhstani sub-contractors. 
 
7.(C) At a coffee with the Ambassador, U.S. service company 
 
representatives were less cheery about relations with the 
authorities. As one oilman quipped, "it's the geology that 
keeps us here."  All cited renewing and getting work permits 
as a serious problem. The head of the local KBR office, 
Micheal Roach, said that local authorities had told them to 
leave two years ago, then sniffed around for a $20,000 bribe. 
William Borst, project manager for Parker Drilling, laughing 
added that "it was difficult to deal with all the people who 
want bribes." 
 
8. (C) At a later meeting, TCO General Manager of Production 
David Madsen said TCO was under "intense regulatory pressure" 
and was being hit up to provide discounted crude to a local, 
state-owned refinery.  He also complained that the 
authorities had refused exit permission for 400 oil-laden 
rail cars for two months this winter during one dispute. That 
clearly violates TCO's right of free export to world markets, 
he noted. Local authorities also use environmental fines to 
raise revenues and levied TCO with a $70 million dollar 
charge in 2003. Ultimately, they settled for $7 million, 
which came of the GOK's royalties under the TCO foundation 
agreement. 
 
--------------------- 
TCO in NGO crosshairs 
--------------------- 
 
8. (SBU) A roundtable of NGOs peppered the Ambassador 
regarding the latest round of investigations against NGOS. 
They also charged TCO with polluting the environment and 
claimed that TCO project money was squandered. The Ambassador 
voiced his dissatisfaction with the latest round of 
inspections against NGOs. He clarified the non-political, 
technical nature of U.S. support to the third sector and said 
the had brought up the issue with the Foreign Ministry. Most 
at the meeting appeared heartened by his support. 
 
9. (C) The NGOs also charged that TCO was emitting tens of 
thousands of tons of emissions into the air, above and beyond 
allowed limits, while stockpiling sulfur. One complained that 
the region "was in a gas chamber." Others questioned the 
efficacy of TCO-sponsored social programs and suggested 
creating a monitoring mechanism. The Ambassador, who visited 
the TCO Tengiz facility, replied that emissions were being 
reduced every year and would decrease even more once sour gas 
reinjection commenced. Regarding monitoring, he pointed out 
that this was an issue between TCO and the Akim. (Comment: 
All the companies, including TCO, worried about the efficacy 
of their programs and worked to prevent side-deals and 
looting by local authorities. End Comment) 
 
10. (C) Comment: Long abandoned by Soviet central planners, 
Atyrau is still trying to come to terms with the massive 
influx of foreign direct investment. Western oil companies 
create real job opportunities and provide training, but 
cannot alone solve endemic issues such as rural poverty. 
Despite backwardness, the region seems to be handling the 
inflow of oil dollars fairly well. Local authorities spoke 
honestly with the Ambassador about the regions shortcomings 
as well as its achievements. People are working, the main 
streets are paved, and there is a noted absence of squalor 
and tawdriness normally associated with boom towns. End 
Comment. 
ORDWAY 
 
 
NNNN