Kazakhstan: Investment and Trade

Let me begin by thanking the Government of Kazakhstan for the effort extended to make this conference possible. I am pleased to see Minister Tokayev and Minister Shkolnik.

As Secretary, I have had the chance to work with both these able gentlemen and we have made excellent progress in our efforts. I welcome you both to this important event.

In addition to the productive relationship we ministers have enjoyed, I also had the pleasure of meeting President Nazarbayev last November in Moscow. I was most impressed by the President's interest in expanding Kazakhstan's economy -- especially its energy sector.

I also want to thank Senator Sam Brownback for his role in organizing this conference. Senator Brownback is an old friend of mine. We served together in the U.S. Senate.

He has a long track record of interest in and commitment to Central Asia. His strong belief that it is in America's political and economic interests to be involved in this important region is a major reason why we are all here today.

Last year Kazakhstan celebrated the tenth anniversary of its independence from the Soviet Union. In the years since independence, remarkable progress has been made.

Other speakers at this conference will record these accomplishments, especially the reforms in economic and fiscal policy that have made it possible for us to gather here to discuss the significant opportunities that have been created for investment and trade between our two countries.

I would like to talk first about the relationship between our governments. Although not the topic of this conference, I must mention one important area in which we have had exceptionally close cooperation -- nuclear non-proliferation.

Having regained its independence, Kazakhstan renounced the 4th largest nuclear arsenal in the world and closed the Semipalatinsk nuclear test site where about 500 nuclear explosions took place in Soviet times.

Since 1995, the United States and Kazakhstan have cooperated in a number of projects to improve the physical protection of Kazakhstan's BN-350 reactor.

We've also been cooperating on safely disposing of roughly 300 metric tons of fuel, including plutonium, from the reactor. This has been a major initiative that continues to this day.

Together with the United States, Kazakhstan also initiated a covert operation to ship 1,320 pounds of highly enriched uranium to the United States for safe storage, and undertook to eliminate the infrastructure of biological weapons that Kazakhstan inherited from the Soviet Union.

This was an act of significant courage from a country that early on made a clear decision about the course it would take as an independent nation, building new relationships with the international community of nations.

The United States was a partner then, and we have remained a partner with Kazakhstan as it has evolved economically and politically. We remain partners in non-proliferation activities, economic and energy development and, more recently, in the war on terrorism.

With that introduction, let me turn now to the subject of this conference -- trade and investment. The Bush Administration's National Energy Plan points out the importance to U.S. energy security of events in the global energy marketplace. Our energy security is linked directly to the energy supplies of our trading partners.

Our energy security also depends on an effective international infrastructure to support all segments of the energy supply chain.

The National Energy Plan directs us to strengthen our energy security, and the shared prosperity of the global economy, by working cooperatively with other countries to expand global energy supplies. It directs us to strengthen our trade alliances and deepen our dialogue with major producers.

Kazakhstan is a key partner in this process. The National Energy Plan specifically identifies Kazakhstan's Kashagan field as, potentially, one of the most important petroleum reservoirs to begin development in the last thirty years.

The following statistics will help set the stage for the energy dialogue at this conference. Estimates of Kazakhstan's proven reserves range from 5.4 billion to 17.6 billion barrels of oil. The country's possible reserves, both onshore and offshore, dwarf proven oil reserves.

Proven natural gas reserves are between 65 and 70 trillion cubic feet, ranking it in the top 20 countries of the world. As a result, foreign investment has poured into Kazakhstan's oil and gas sector over the past ten years, boosting oil production from 530,000 barrels per day in 1992 to 803,000 barrels per day in 2001.

After nearly a decade of decline, Kazakhstani coal production is also increasing. It is the largest exporter of coal to the other former Soviet republics.

American private sector firms, many of them represented here, have been enthusiastic partners with Kazakhstan as it has expanded development of its substantial energy resources.

The government of Kazakhstan has worked to establish a new market-based economic system… new sets of laws to reflect the values and goals of an independent Kazakhstan… and to empower its citizens.

The U.S. government has provided resources, exchanged technical information and lessons learned, and maintained a commitment to support Kazakhstan in this exciting journey.

At one point, Kazakhstan was the recipient of significant U.S. aid. With economic success that aid has diminished, but we are and will remain a close partner.

One specific area of cooperation that deserves special note is the development of pipeline routes to assist Kazakhstan to deliver oil and gas to world markets. The U.S. government has worked closely with private companies and the countries in the region to develop commercially viable export routes, such as the Baku-Tbilisi-Ceyhan, or BTC oil pipeline, and the Caspian Pipeline Consortium, or CPC oil pipeline.

Our multiple route policy offers the benefits of competition and minimizes the political risks of countries such as Kazakhstan.

CPC began shipping oil in November 2001 and, while ground has not yet been broken, BTC is close to final agreement. We hope that agreement will be reached on adding Aktau to that route very soon.

With these pipelines and others that will be built, Kazkakhstan and other countries of Central Asia can effectively use their energy resources to support growing and diversified economies with the rising standards of living their citizens have every right to expect.

As testimony to our partnership in the energy area and commitment to continue that partnership in the future, on December 21, 2001, the governments of the United States and Kazakhstan signed an energy partnership declaration.

The goal of the partnership is to establish and develop a long-term, mutually beneficial energy partnership between our two counties embracing all stakeholders, especially the private sector.

Our governments delegated accomplishing this goal to me and to Minister Skholnik. I am quite confident that we will be successful in our efforts.

The energy partnership covers energy security, oil and gas development, electric power, nuclear energy and environmental protection. The first meeting of the group occurred in Almaty last March.

At this point, I want to recognize the support I have had from Ambassador Steven Mann, Director of our State Department's Caspian Basin Energy Policy Office, who co-chaired the March meeting.

He is a staunch supporter of the partnership and has been an active participant in follow-on activities related to the first meeting.

Since the March meeting, we have been reviewing the proposals presented by the government of Kazakhstan and developing some additional proposals of interest to us. Minister Shkolnik and I expect to co-chair another session in September to make decisions on these proposals.

Prior to that meeting, the Department of Energy and the Department of Commerce will co-sponsor a meeting with U.S. private sector energy companies to solicit additional views on the activities of the partnership.

I am pleased to announce that we already have some important activities underway. At the request of the Department of Energy, the U.S. Trade and Development Agency is seriously considering funding a study of the security of Kazakhstan's oil and gas facilities, a project originally proposed to me by Minister Shkolnik.

This study will be an important tool for the Kazakhstan government to establish policies and priorities for protecting these facilities.

In addition, the Trade and Development Agency is in the final stages of considering a study of a domestic pipeline to supply gas to southern Kazakhstan.

These studies, if approved by the Trade and Development Agency Board, will represent a significant commitment of U.S. government funds to Kazakhstan's energy market.

We have also been working with the government of Kazakhstan on establishing an effective oil spill response system for the Kazakhstan section of the Caspian Sea.

Continuing our work in this area implements one of the National Energy Plan's recommendations for the Caspian region and establishes an important part of the oil industry infrastructure. U.S. oil companies have been full partners in this effort and we appreciate their support and commitment.

Our interest in partnering with Kazakhstan to develop its resources is not limited to energy exploration and production. We are also investing in technology commercialization projects that offer promising long-term benefits for Kazakhstan and its private commercial partners.

Just a few months ago, I announced the launch of the first joint Kazakh-U.S. project for recovery of low enriched uranium for use by the U.S. nuclear fuel industry.

This work will take place at the ULBA Metallurgical Plant -- formerly Kazakhstan's leading nuclear weapons facility.

Today, I am pleased to announce a second project at ULBA: the expansion of that plant's capacity to produce copper beryllium master alloy. Copper beryllium master alloy is an international commodity in great demand for commercial applications ranging from small appliances and computers to telecommunications and automotive electronics.

With financial investment and technical assistance from two leading companies, Kazakhstan will become the world's second largest producer of this critical material.

Elsewhere in Kazakhstan, we are considering development of a remote sensing geophysical and geo-chemical laboratory for use in mineral exploration.

And we are supporting efforts that will employ former biological weapons scientists in commercial production of novel "probiotics," friendly bacteria that protect human beings from viruses and other pathogens.

These projects, sponsored by the Department of Energy's Initiatives for Proliferation Prevention program, center on cost-sharing partnerships with U.S. companies, and thus represent a winning combination of private enterprise and market development with nonproliferation and national security interests.

Kazakhstan has made considerable progress in establishing an attractive, transparent and predictable investment climate. Yet no one knows better than Kazakhstan's leaders that there is work yet to be done to give potential investors greater confidence as they evaluate investment opportunities.

Having said that, I want to repeat that Kazakhstan has made significant progress toward creating the legal and regulatory framework for a market-based economy.

That progress -- and the government's determination to expand Kazakhstan's economy -- is a harbinger of a very promising future for Kazakhstan.

President Bush, in his greetings to conference participants, noted Kazakhstan's potential, based on its prosperity and stability, to exercise leadership in Central Asia.

The impressive progress Kazakhstan has made in developing new laws and new governmental institutions to implement those laws has produced economic growth rates -- an astounding 13.8% in 2001 -- to be envied by any nation in the world.

Energy has been the engine for this growth. This was true for the United States in the early twentieth century and it is true for Kazakhstan in the early twenty-first century. The next step is to build a diversified economy benefiting all sectors.

This conference, and the broad-based delegation sent by the government of Kazakhstan, clearly demonstrates that they understand the challenge and are committed to a long-term strategy of balanced economic growth that will serve their citizens well.

Kazakhstan is well on its way to becoming an important participant in global economic and energy markets. The United States will be both a friend and partner on this journey. Working together, I'm sure we will make great progress, both here at this conference and in the future.