STARWOOD HOTEL MANAGEMENT PULLING OUT OF

UNCLAS ASHGABAT 000263

SIPDIS

SIPDIS

SCA FOR DAS GASTRIGHT, EUR FOR DAS BRYZA, SCA/CEN FOR PERRY
ANKARA FOR FCS

E.O. 12958: N/A
TAGS: AMGT ECON EINV PGOV PREL TX
SUBJECT: STARWOOD HOTEL MANAGEMENT PULLING OUT OF
TURKMENISTAN


1. Summary: Starwood General Manager Holger Wessel informed
Ambassador today that Starwood, which manages the Sheraton
Grand Turkmen and Four Points Ak Atlyn Hotels, will be
pulling out of Turkmenistan by the end of the month.
According to Wessel, the move has been a long time in coming.
The State Committee under the Ministry of Sport and Tourism,
which owns the hotels, has refused to invest in the
infrastructure and training required to meet Starwood
standards as required under the terms and conditions of the
management contract. End Summary.


2. Holger reported that "secret shopper" inspections of the
property showed them meeting only 55 percent of Starwood
standards. According to Holger, the owners have no
understanding of preventative maintenance and no willingness
to fund maintenance contracts. They have refused to allow
local employees to go abroad for training, and insist on
awarding service and supply contracts in a non-transparent
way (read: lining their own pockets),resulting in a poor
level of service.


3. During a Starwood corporate visit in December, the State
Committee confirmed that it "did not have the money" for the
physical maintenance or employee training required by
Starwood. At that time, Starwood and the State Committee
agreed verbally to an "amicable divorce" at the end of March.
Starwood requested written confirmation, but the Chair of
the State Commmittee said he was not able to take the
official decision himself -- it would require a decree from
the President. Holger does not believe anyone ever informed
Niyazov. Starwood has sent two letters to the State
Committee stating the company's intention to leave by the end
of March, but has not received any response. The three
expatriate managers intend to depart on April 2; it is
unclear how the GOTX will run the hotels afterwards.


4. Comment: We have all noticed the decline of the Grand
Turkmen and Ak Altyn over the last year; many embassies and
companies have been shifting business to the President and
Nissa hotels, which are owned by the Presidential Apparat and
managed by a team of Italians. We have just occupied our new
Public Diplomacy Center in the Ak Altyn (which also houses
the British, French, German and Japanese Embassies) and will
be working with the MFA to determine how best to protect our
interests.


5. Comment continued: The sad Starwood saga is yet another
example of the declining business environment in
Turkmenistan. As is typical, the construction of hotels,
factories and other properties is financed from the off-shore
Presidential Fund, but government ministries do not have the
budget to maintain them. It is possible that the Tourism
Ministry's problems with financing result from the
Presidential Apparat's desire to push them out of business in
favor of its own, newer properties. The overall hotel market
here is difficult, and even the best hotel has low occupancy
rates. It is typical of the GOTX approach to economic
development that rather than investing in the infrastructure
of the hotels themselves (or improving the overall climate
for foreign business people and tourists) the GOTX is
attempting to boost occupancy by forbidding single expats
from renting apartments or houses.
JACOBSON