NIYAZOV WANTS TO "SOLVE GAS ISSUES PEACEFULLY"

1. (C) SUMMARY. Ambassador was called in by Niyazov Monday
morning for a briefing on his Moscow meeting with Putin last
week. Unexpectedly, it transpired that the Turkish
ambassador had been called in for the same briefing. Niyazov
said he had resisted Putin,s pressure to take sides against
Ukraine in gas negotiations. He then noted that Russia is
taking delivery of Turkmenistan gas under its 2006 contract
at an accelerated rate of 5-6 bcm a month, and that he,
Niyazov, is ready to sign a contract extension in May not
only for further deliveries in 2006 at a price of $100/tcm,
but for up to three more years on the single condition that
the price increase by $10 (ten)/tcm each year. Niyazov
earnestly expounded the basic ABCs of the Trans-Caspian vs
Caspian littoral pipeline options, spoke with new enthusiasm
of the latter and blandly ignored the fact that it would do
zero to diversify the transit monopoly. GazProm CEO Miller
and team supposedly arrive in Ashgabat for talks by or before
February 15. Niyazov gave it to be understood he expected to
sign a deal with the Russians absent new pledges of material
Western backing for a TCP. See Para 9 for comment. END
SUMMARY.



2. C) Niyazov,s one-on-one meeting with Putin lasted three
times the scheduled half-hour, he said. Putin pressed for
support in the Moscow/Kyiv gas tussle, but Niyazov &said
openly8 that Turkmenistan wouldn,t get involved, and
criticized GazProm for blocking passage to Ukraine of
contracted Turkmenistan gas. He handed the two Ambassadors a
sheet charting the ultimate destination of daily deliveries
of Turkmenistan gas to the Uzbek border, to show that none
was making it to Ukraine. Niyazov said Putin had made it
nakedly clear that the Kremlin viewed Ukraine as a political
enemy and potential NATO entrant; it would never allow
Turkmenistan to sell gas directly to Ukraine, or to Europe
via Ukraine. When Ukraine came up with the $88 million of
overdue payments for Turkemenistan gas, Putin had tried to
convince Niyazov not to accept it, saying Russia would make
the payment instead, he alleged.



3. (C) Gas deliveries to Russia are proceeding at an
accelerated pace, five to six bcm each month, Niyazov noted.
The Russians are &urgently drawing down8 their quota under
the December 29 bilateral agreement of 30 bcm at $65 tcm for
calendar 2006. Thus, the whole 30 bcm is set to be shipped
by June. This was fine by Turkmenistan, said Niyazov. He
would be agreeable to supplementing 2006 sales after May, but
only at $100/tcm. The past and current prices Russia has
paid have been &robbery, theft8. Niyazov then volunteered
that he had told Moscow he would sign a three year agreement
for 50 bcm per year under the sole condition that the price
be increased by an extra $10/tcm each year, i.e., to $110 for
2007, $120 for 2008 and $130 for 2009. Putin wanted to
negotiate the future prices via a formula or mechanism linked
to international markets, but Niyazov had turned him down,
insisting on the simple ten-dollar-per-year increment. Even
though $130 was a fair price, the Russians had suggested that
at that level they could charge $30 for transit; in that
case, Niyazov said, he could charge the Russians for the 700
km of Turkmenistani pipeline through which the gas would also
need to be sent en route.



4. (C) NOTE: Niyazov,s scenario, if realized, evidently
would mean gas deliveries to Russia in calendar 2006 of as
much as 60 bcm. END NOTE.



5. (SBU) Gesturing at his huge wall map, Niyazov reviewed
westward pipeline alternatives: under the Caspian, or on the
littoral around to the north, i.e., via Russia. &I proposed
to Putin8 joint construction of a littoral pipeline, of 50
bcm annual capacity, said Niyazov. Through it, Turkmenistan
gas would be sold both to Ukraine and to Europe. Russia
would sell its own gas to those markets through the littoral
pipeline, too. Russia had not encouraged the TCP option,
invoking environmental concerns, said Niyazov blandly. At
this point, the Turkish ambassador made the obvious point
that a joint Russian-Turkmenistan Caspian-littoral pipeline

ASHGABAT 00000151 002 OF 003


would do zero to dilute Russia,s transit monopoly on
Central-Asian gas supplies to Europe. Niyazov shrugged the
point aside.



6. (SBU) Gazprom CEO Miller will come with a delegation to
Ashgabat sometime during February 8-15 to discuss the gas
contract and pipeline issues further. Moscow is intent on
settling the question before the July summit in St
Petersburg, observed Niyazov. He proceeded to note that
Georgian president Saakashvili had sent him a letter last
Saturday (January 28) proposing a GUAM meeting in Tbilisi,
with Turkmenistan present in observer status, to discuss the
TCP. To hold such a meeting at this juncture would be
premature and provocative, Niyazov warned. &First, we (the
GOTX) need to come to a resolution with the Russians,8
Niyazov insisted It is vital not to ratchet existing
political tensions still higher in the course of finding a
satisfactory settlement to the regional energy supply
question. But, if the U.S. supports the notion, sometime in
April or May would be appropriate to convene such a meeting.
However, it would only be useful if it produced cash for the
project (&sbor sdelat, nada8), not just empty
declarations, which moreover were politically dangerous. It
would also be incumbent to arrive at a commitment by European
consumers to contract at least 20-25 bcm per year through the
TCP. The latter,s annual capacity would be some 50 bcm, and
Turkey, Azerbaijan and Georgia together will not account for
more than half. The Russians should be invited to the
meeting, too; it would be their right to boycott if they
chose.



7. (C) At various points, Niyazov also:

-- Said Iran,s Foreign Minister and Deputy Oil Minister are
flying to Ashgabat this Friday, but that Turkmenistan will
refuse the main Iranian objectives. He disparaged the
Iranians for buying gas at $42 and selling to Georgia and
Azerbaijan at $150, and to Turkey at still higher prices;

-- Stressed continued GOTX support of a TAP and confirmed the
scheduling of a high-level meeting of interested parties on
the subject in Ashgabat mid-February;

-- Asserted that Moscow was adding pressure on Turkmenistan
by signing joint gas-exploration agreements with all the
other ex-Soviet )stans, even Kyrgyzstan. Nazarbayev had
called him to boast of his own recent agreement; according to
Niyazov his counterpart had been told to expect production of
40 bcm to result, but the field didn,t hold more than half
that amount;

-- Stated that Lukoil hankers to buy a controlling interest
in the Turkmenistan operations of Malaysia,s oil-producer
Petronas. &But Petronas here is working solidly,8 has all
the cash it needs, and refuses to entertain the idea;

-- Added that the Chinese likewise are insistently trying to
buy Turkmenistan,s gas deposits outright. Turkmenistan will
never countenance this, and moreover has reiterated to the
Chinese that they can only have access to deposits to the
right bank of the Amu Darya.



8. (C) Ambassador noted that the USG is interested in
supporting projects that will enhance competition for gas
supply to Europe, not further extend Gazprom's monopoly. As
with the Turkish Ambassador's observation that a
Russia-Turkmenistan Caspian Littoral pipeline project would
not create a real alternative for Turkmenistan, and leave it
at the mercy of Russian export routes, Niyazov was
non-committal. Ambassador also noted that any deepening of
energy cooperation would require concommitant progress in
other areas as well.

COMMENT


--------------------------




9. (C) Niyazov's 90 minute tete-a-tete with Putin left him
much less positive about the possibilities of a Trans-Caspian
pipeline than he was during this month's visits by DAS Bryza
and Turkish energy minister Guler (reftels). The optics of
having the Turkish and U.S. Ambassadors at the table together
to get a readout of Niyazov's Moscow trip were likely
designed to bolster the hand he can play when Miller visits
in 10 days or so. However, both we and the Turks here
believe there is still some small room for negotiations on

ASHGABAT 00000151 003 OF 003


pursuing an independent TCP and not selling out to the
Russians -- but only with a clear political signal from the
West. Niyazov has heard words of interest and support from
the US and Turkish governments, but nothing from the EU (we
note that the EU is beginning to discuss this issue with EB
Assistant Secretary Tony Wayne, although it has apparently
not yet made public its position on energy security (Ref D).
Even public European support, if (miraculously) appearing in
the next week or so, might not be enough to overcome
Niyazov's fear of Russian ire. At current production levels,
a 50 bcm contract with Russia would not leave much gas for a
TCP or any other export possibility.
JACOBSON