Viewing cable 08ASTANA338, CHEVRON INCIDENT REFLECTS CHANGING DYNAMICS IN

Viewing cable 08ASTANA338, CHEVRON INCIDENT REFLECTS CHANGING DYNAMICS IN

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Reference ID	Created	Released	Classification	Origin
08ASTANA338	2008-02-15 11:11	2010-11-29 23:11	CONFIDENTIAL	Embassy Astana

VZCZCXYZ0001
PP RUEHWEB

DE RUEHTA #0338/01 0461118
ZNY CCCCC ZZH
P 151118Z FEB 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1789
INFO RUCNCIS/CIS COLLECTIVE PRIORITY 0396
RUEAIIA/CIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

C O N F I D E N T I A L ASTANA 000338 

SIPDIS 

SIPDIS 

STATE FOR SCA/CEN, EEB 

EO 12958 DECL: 02/14/2018 
TAGS PGOV, PREL, EPET, PINR, KZ 
SUBJECT: CHEVRON INCIDENT REFLECTS CHANGING DYNAMICS IN 
KAZAKHSTAN’S ENERGY HIERARCHY

REF: A. ASTANA 65 B. ASTANA 225

Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4(B) AND (D)

1.(C) On January 15, KazMunaiGas First Vice President Maskat Idenov expelled from a meeting Chevron executives Guy Hollingsworth, President for Chevron Eurasia, Europe, and Middle East Exploration and Production, and James Johnson, Chevron Eurasia Strategic Business Unit Managing Director. In press reports, an unnamed source stated that the two were thrown out of the meeting because of “improper comments on Kashagan negotiations and disrespectful conduct towards KazMunaiGas management.” Johnson told us later that the incident occurred at the end of a meeting that had gone generally well, and resulted from an innocent issue over the newly-arrived Johnson not having his cell phone number handy to exchange with Idenov. Idenov,s version of the conversation was heavy with descriptions of Hollingsworth &pounding on the table8 and Johnson slowly tapping a business card on the table while telling Idenov all he needed was his secretary,s phone number. Idenov almost immediately sent a letter of protest to Chevron CEO Dave O,Reilly, and faxed (twice) a cc to the Ambassador. Knowledge of the incident, and the letter, have been the talk of the diplomatic and business community ever since, with sources ranging from the Indian Ambassador to the local ABN Amro chief raising it with the Ambassador.

¶2. (C) In subsequent conversations with the Ambassador and Eurasian Energy Diplomacy Coordinator Steve Mann, Idenov emphasized that his actions were not an indication of poor relations with Chevron. In both conversations, Idenov amplified his anger with Hollingsworth by explaining that Hollingsworth does not understand &how we are doing business now8 ) followed immediately by a detailed recitation of Hollingsworth,s extensive contacts with Timur Kulibayev in locations ranging from the Astana golf course to the beach in Spain.
Comment
------- 

¶3. What really appears to be at issue here is Idenov demonstrating that he, not Timur Kulibayev, is now the &go to8 guy in Kazakhstani oil and gas. Idenov, the chief negotiator for Kazakhstan on Kashagan, is now &number 1A8 at KMG, according to one international oil company representative. Under restructuring at KMG, all employees report to Idenov, and only Idenov to KMG President Uzakbay Karabalin. The ascendant Idenov appears determined to show the international majors that they need to deal with him. In an early stage of the Kashagan negotiations, he tossed some less senior ConocoPhillips representatives out of a meeting to deliver the message that he should be dealing with the upper levels of KMG,s corporate partners. In the case of Chevron, he felt secure enough to throw out of a meeting executives from one of Kazakhstan’s biggest money-makers. It is difficult to imagine that any KMG official would have so criticized Kulibayev, even in private to American diplomats, if he were not very confident of his position.

¶4. (C) One very substantive aspect of determining who,s on top is related to the oil pipeline that must be built to connect Kashagan (and Tengiz) to the planned trans-Caspian oil terminal in Kurik. Both Hollingsworth and Prime Minister Masimov have told the Ambassador that discussions are underway to make this pipeline project a joint project between the GOK/KMG and Chevron. Masimov has noted that the Kashagan companies, the natural partners for such a pipeline, have been unable to agree on how to do this despite several years of trying. Chevron, which is not involved with Kashagan, has a major interest in additional transportation routes for Tengiz crude ) which it is 100 percent responsible for marketing. The proposed pipeline would run right past the Tengiz field on its way to the terminal; even a 25 percent Chevron share would give them an inside track at getting their crude into that pipeline if there were capacity problems with both Kashagan and Tengiz volumes. Idenov, by contrast, told the Ambassador and Mann that KMG would build the pipeline &100 percent by ourselves8 and conclude commercial contracts with the Kashagan shippers to transport their oil. He specifically said that it would be a violation of business principles to cut the Kashagan partners out of the process of determining how to build the pipeline ) a direct swipe at the Chevron proposal. To make this mix even more complicated, ExxonMobil country rep told Mann that his company was working with KMG on a new legal basis to build
the pipeline that would allow the Kashagan partners to share ownership.

¶5. (C) Idenov’s actions are designed not only to demonstrate that he,s up, but that Timur Kulibayev is down, if not actually out. We had already concluded that Kulibayev,s influence in the oil and gas sector had been significantly reduced with his removal late last year from a senior executive position at Samruk, the state holding company that owns KMG. Shortly after Kulibayev was fired, Hollingsworth told us that Kulibayev had explained (during a golf game) that it was the desire of the President to &protect8 him from responsibility for the Kashagan negotiations if they went wrong. This appears to be somewhat self-serving: A former USG official told the Ambassador that she had been at a dinner in Astana with the CEO of Samruk, Kanat Bozumbayev, immediately after Kulibayev lost his position. According to Bozumbayev, he had been instructed to personally deliver the news of the firing to Kulibayev, who appeared to have no inkling that it was going to happen.

6.(C) Kulibayev is still the head of Kazenergy, the semi-official trade group, and has obvious links to key government officials, including his father-in-law, the President. Kulibayev is by all accounts a very savvy and effective businessman. Samruk Board Chairman Richard Evans (retired CEO of BAE), told the Ambassador that Kulibayev was the one real businessman he had met in the entire Samruk structure. Our guess is that Nazarbayev, in the aftermath of the Rakhat Aliyev affair, decided to minimize risks to him and his reputation by removing all of his close relatives from major government positions. 
ORDWAY