VINTAGE -- BUT SUBDUED -- NIYAZOV ON TRANS-CASPIAN

1. (C) During an August 14 two-hour meeting with SCA
Principal Deputy Assistant Secretary (PDAS) Steven Mann,
Turkmenistan's President Niyazov expressed interest in
multiple gas pipelines but failed to endorse the practical
steps involved. Niyazov supported a new trans)Caspian line,
but stated that a (wildly unrealistic) delimitation agreement
with Azerbaijan would be a prerequisite. His August 15 phone
call to Russian President Putin (after Niyazov told Mann that
they had not spoken in over three months), is further
indication that the goal of his talk of pipeline
diversification remains obtaining higher gas prices from
Gazprom. Mann had not seen Niyazov in five years and
characterized him as a "significantly diminished man." End
Summary.

Russians Fanning Conflict in FSU; Azeris are their Cat's Paw


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2. (SBU) PDAS Mann met with President Niyazov for two hours
on August 14. Deputy Chairman of Oil and Gas Gurbanmuradov
Atayev and Foreign Minister Rashit Meredov also attended.



3. (C) Noting Mann's portfolio following his tour as U.S.
Ambassador to Turkmenistan, Niyazov provided his own analysis
of the conflict in Nagorno-Karabagh, setting the scene for
his leitmotif for the meeting: the Russians are fanning
conflict in the Former Soviet Union and the Azeris are their
willing foot soldiers. Just as permanent unrest in
Nagorno-Karabagh was in Russian interests, so was lack of
delimitation of the Caspian Sea.

Multiple Pipelines Key to Turkmenistan's Sovereignty


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4. (C) Saying he had come to Ashgabat to "measure the
temperature" of our bilateral relationship, especially with
regard to new gas pipeline projects, including construction
of a Trans-Caspian Pipeline (TCP), Mann noted that the time
was ripe for exploring a TCP given the July opening of the
Baku-Tbilisi-Ceyhan and Shah-Deniz pipelines. The demand for
natural gas in Europe was increasing and, even with the
Shah-Deniz pipeline, there was a profitable market for more:
"Now is the time for the second phase of the development of
the Caspian basin energy reserves," Mann told Niyazov "and
that could include a Trans-Caspian Pipeline." U.S. support
for a TCP remained as firm as ever, but Turkmenistan must do
its part.



6. (C) Peevishly waving a draft of the former failed TCP
Agreement from 2000, Niyazov claimed, "We had an agreement
years ago, but your negotiator insulted me with his offer of
$18 per thousand cubic meters (tcm), less than we already
were getting from Gazprom." Mann contradicted that, saying
that Niyazov had been offered $53/tcm, and that at a time
when oil was $18/barrel. "If I had been offered that much I
would have accepted," Niyazov claimed. (Comment: Niyazov is
dissembling, again, about why the 2000 deal died. All
parties had agreed to the terms up until the final signing
when Niyazov asked for $500m in "pre-financing," at which
point western investors -- including Shell Oil, GE and
Bechtel -- walked away from the deal. We note as well that
the $18 figure may reflect lower netback in the CAPEX payback
period ) a concept surely alien to Turkmenbashi. End
Comment.)



7. (C) Mann told Niyazov that the USG could not order U.S.
companies to invest in Turkmenistan's gas, and that, given
their prior experience with Turkmenistan (i.e., the 2000
deal), the president needed to send a clear signal that
Turkmenistan could be a reliable business partner. The
private sector considered Turkmenistan unreliable and no
first-tier companies were showing any interest. Niyazov
balked at this as well, saying "what are you talking about,
we've never cheated anyone; we always deliver what we say we
will."

Niyazov Requests U.S. Help with Caspian Delimitation

ASHGABAT 00000884 002 OF 004




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8. (C) In response to Mann's observation, Niyazov agreed
that delimitation was not a prerequisite for building a TCP,
but then he asked for Mann's help in getting the Azeris to
agree to give Turkmenistan the contested Serdar/Kapaz as well
as the Azeri and Chirag fields. Referring to a list of
alleged prior historic agreements, Niyazov insisted he would
not compromise on Turkmenistan's ownership of these fields.
He also rejected Mann's comment that determination of
delimitation required agreement on methodologies and that
Niyazov was using a land-based methodology in contrast to a
widely-accepted maritime methodology. Mann agreed to raise
Turkmenistan's position with the Government of Azerbaijan,
but told Niyazov to hold his anger if Baku failed to agree.
When Niyazov noted that even were Azerbaijan to agree to a
delimitation, Iran and Russia also would have to brought into
the loop on building a TCP, Mann asked, "Why? Did the
Russians ask the Black Sea states' permission when they built
the Blue Stream pipeline to Turkey?"

Full of Gas


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9. (C) According to Niyazov, Turkmenistan is full of gas:

-- Seven trillion cubic meters of gas in the Dovletebad Field
Reserves.

-- Petronas (Malaysia) had found 1 trillion cubic meters of
gas in Block 1 in the Caspian Sea, all of which it intended
to sell to Turkmenistan, and

-- Parker Drilling (U.S., a subcontractor to the Turkish
company Calyk Enerji) had found new reserves at Yoloten (near
Mary).



10. (C) Mann responded that Turkmenistan could be making
significantly more profit if it shifted from its dependence
on Gazprom's monopoly and pursued pipeline diversification.
He noted Gazprom was selling gas for $249/tcm in Turkey and
Azerbaijan was being charged $300/tcm. Iran was offering to
sell gas to India for $262/tcm, which India had declined.
According to Niyazov, Iran was bluffing; it had no gas
supplies in northern Iran and could only re-export Turkmen
gas, which explicitly was in violation of the existing
Turkmenistan/Iran gas agreement. He added that Turkmenistan
currently had an agreement to supply 14 bcm annually to Iran,
but that Tehran wanted more. According to Niyazov, Iran
wanted to store the gas in Tabriz, and then resell it to
Azerbaijan, Georgia and Armenia, which also violated the no
re-export terms of the agreement.

More on Iran


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11. (C) Turning to Iranian Caspian Sea delimitation tactics,
both Mann and the president agreed that Iranian demands for
20% were completely unreasonable. Niyazov told Mann that the
July 24-25 visit to Turkmenistan of Iranian President
Ahmadinejad had been "difficult," and that the two leaders
had been unable to make any progress on delimitation.
Nonetheless, the president said Turkmenistan would send a
delegation to Tehran for the November 31 meeting of Caspian
littoral states in Tehran.

Gazpromistan


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12. (C) According to Mann, Turkmenistan's most profitable
and realistic option was to sell gas to Europe; the problem
was Gazprom's monopoly. "In Moscow, Turkmenistan is referred
to as Gazpromistan; Russia wants to keep you under its
thumb," he told the president. Niyazov agreed but said that
transit through the Caucasus still was not secure. Mann
disagreed, saying that there had been no problems with either
the Shah-Deniz or Baku-Tbilisi-Ceyhan pipelines. The
problem, he said was the pipelines' capacities were
insufficient to satisfy the growing European market. Both
agreed that the potential was there, but Niyazov asserted the
major stumbling block was political -- lack of Caspian Sea
delimitation.


ASHGABAT 00000884 003 OF 004


Trans-Turkmenistan-Pipeline?


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13. (C) Walking over to a huge gilt-framed pipeline map
specially set up in his office for the visit, the president
said, "I want to show you a compromise" (Comment: i.e., how
to supply a TCP while still meeting Gazprom demands. End
Comment.) Pointing to the South-North Central Asia Center
Pipeline I,II and IV, Niyazov pointed midway up to a point
called "Colyk," and said, "if we build a new East-West
Pipeline from Colyk to Turkmenbashy, we can use Dovletabat
reserves both to satisfy the Gazprom accounts and to supply a
new TCP." (Note: Colyk does not appear on any maps in
embassy's possession; we do not know if it refers to a
settlement or gas field. It appears to be at/near the supply
point identified as "Pustiniya" in the TCP project. End
Note.) Mann noted that this was an interesting idea but that
attracting foreign investment interest in building the
pipeline would involve divulging the volume of the Dovletabat
reserves and again emphasized that Turkmenistan needed to
send a clear signal it could be a reliable business partner.

TAP
---



14. (C) The president showed less interest in a Trans-Afghan
pipeline (TAP). Mann agreed this was a less realistic option
and stressed that India should take a leadership role and
that, although the Indian and Pakistani markets were big,
there so far had been no U.S. companies expressing interest.

China


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15. (C) Noting that Turkmenistan had good relations with
China, Niyazov said that China was working with Kazakhstan
and Uzbekistan to build a pipeline to western China for
Turkmenistan's gas from the Amu Darya gas field. In addition
to the pipeline project, he added that Chinese firms already
had significant contracts to repair and maintain oil and gas
equipment. Mann said that the U.S. policy of supporting
pipeline diversity also extended to support for Central Asia
- Chinese pipelines.

Afghanistan


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16. (C) In response to Mann's interest in seeing
Turkmenistan increase its electricity exports to Afghanistan,
Niyazov noted that Turkmenistan had forgiven a $7 million
debt to Afghanistan, and was selling electricity to
Afghanistan for half the price (i.e., for one cent per
kilowatt hour) that Ashgabat was getting from Iran. In
addition, Turkmenistan had signed an agreement to "educate"
30 Afghan students a year. Mann encouraged Niyazov's support
for expansion of electricity sales. Mann also asked about
the possibility of exporting Turkmenistan's cotton south.
According to the president, Turkmenistan sent its cotton to
the Persian Gulf by rail through Iran. Uzbekistan, which
wanted to avoid transiting its cotton through Turkmenistan,
shipped its cotton through Bandar Abbas (Niyazov wasn't clear
whether this meant through Afghanistan).

Meeting Takes Top Billing in News


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17. (C) The meeting received top-of-the-fold coverage in all
major government newspapers, and top billing in the evening
news broadcast. Official reporting was largely factual,
though the Russian black propaganda machine already is seized
with the story and spinning away from the TCP to claim the
USG supported a TAP and a Chinese Pipeline instead. Press
reaction will be reported septel.

No Follow-on Meetings, PDAS Mann Holds Press Conference


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18. (C) On the way out of the presidential palace, Meredov
told Mann they would meet later. This never happened
however, as the follow-on meetings with both Meredov and
Deputy Chairman for Oil and Gas Atayev first were postponed
to later that day, then to the next day (August 15), and then
MFA Protocol simply stopped taking embassy calls.

ASHGABAT 00000884 004 OF 004





19. (U) Mann scheduled a press conference prior to his
departure wherein he discussed pipeline diversification with
reporters from Agence France Presse and the Central Asia
Times and also emphasized USG support for the development of
democracy and civil society in Turkmenistan.

Russians Panic


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20. At an August 14 reception for the Ashgabat Diplomatic
Corps, following Mann's remarks emphasizing the need to begin
"Phase Two" of development of the Caspian Sea's resources, a
visibly panicked Russian Ambassador Blatov asked Charge,
"What does he mean by phase two?" When Charge replied it
meant re-examining the feasibility of a Trans-Caspian
Pipeline, Blatov warned, "well you know you'll need our
approval for that." The August 16 official press headlined
with the story that Niyazov had telephoned Russian President
Putin on August 15 to discuss "humanitarian, economic and
energy issues." At an August 16 reception in honor of a
visiting Libyan delegation, Russian DCM Krutko said to
Charge, "well, Blatov finally got a meeting with Foreign
Minister Meredov, thanks to your Mann visit."

Bio Note: President a "Much-Diminished Man"


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21. (C) Mann, who had not seen the president for five years,
considered him "a much-diminished man." Though Niyazov
continued with his stubborn persistence in pursuing
irrational ends, he did so in a dull, listless manner,
compared to his bullying animation of years past. Niyazov
also was not wearing his signature gem-encrusted rings and
watch, a possible indication of poor circulation or bloating.
He also had a small bandage on his chin, likely from a
shaving accident, though the next day's press did not carry a
picture of the president from the meeting, substituting an
earlier photo instead.

Comment


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22. (C) Judging from the president's weaker health, his
insistence on unachievable objectives, and his immediate
contact with Putin, Niyazov's primary goal remains obtaining
higher gas prices from Gazprom. He just does not seem to
have the fight in him to take on Russia in pursuing a TCP.
His wildly unrealistic claims on the major part of
Azerbaijan's oil fields are vintage Niyazov and sadly,
indicate that as before, whatever desire he may have for a
new line is jumbled with large measures of grandiosity and
greed. His refusal to let Mann meet with either Meredov, and
less so, Atayev, is both an indication of Niyazov's
increasingly suspicious, inward-focused world view and a
reminder of the extremely tight reins on officials in the
Court of Turkmenbashi. End Comment.
BRUSH