CATERPILLAR EXEC NOTES CHALLENGES, BUT "IN

UNCLAS SECTION 01 OF 02 ASHGABAT 001039

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB

E.O. 12958: N/A
TAGS: PGOV PREL ETRD JA TX
SUBJECT: CATERPILLAR EXEC NOTES CHALLENGES, BUT "IN
TURKMENISTAN TO STAY"

REF: ASHGABAT 925


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: During a September 26 meeting, Vladimir
Naumov, General Manager of Zeppelin Caterpillar Turkmenistan
JV said while President Gurbanguly Berdimuhamedov continues
his predecessor's hands-on habits in terms of making most
sales-related decisions, he nonetheless is focusing less on
business than his predecessor, complicating Zeppelin
Caterpillar's efforts to move business forward. Zeppelin
Caterpillar is also facing a number of other challenges in
adjusting its strategy for Turkmenistan's new business
environment Naumov said. For example, the company is facing
growing competition from Komatsu, which both offers
lower-priced products and benefits from the Japanese
government's more business-oriented foreign policy. That
said, Caterpillar plans to stay in Turkmenistan for the long
term. It also is hoping to break into new local markets by
collaborating with U.S. oil and gas firms, perhaps through a
contract offering licensing, financing, and equipment, all in
one. END SUMMARY.

BERDIMUHAMEDOV HAS OTHER PRIORITIES...SO WHO IS DOING
BUSINESS?


3. (SBU) Over lunch with econoff September 26, Vladimir
Naumov, General Manager of Zeppelin Caterpillar Turkmenistan
JV, a long-time player in Ashgabat's expatriate business
circles, shared observations on the changes in the business
climate which have taken place since Gurbanguly
Berdimuhamedov became president of Turkmenistan in February

2007. According to Naumov, Berdimuhamedov is paying less
attention to business and more to politics. Pointing out
that Berdimuhamedov did not meet with a visiting Caterpillar
executive in March, Naumov claimed that the president is
meeting with fewer foreign companies than his predecessor,
Saparmyrat Niyazov. This had lead to a longer delay than in
the past on reaching decisions on contracts. Naumov
estimated that 90% of Zeppelin's ministry partners or
government contacts have changed since Berdimuhamedov became
president. Because new ministry officials are hesitant to
develop relationships with foreigners or foreign business
contacts, Naumov now has trouble finding someone who can
discuss deals.

TRYING TO MAKE SENSE, WHERE THERE IS NONE. BUT DON'T WORRY,
WE DON'T PAY BRIBES.


4. (SBU) Naumov said that Turkmenistan's officials, who
under Niyazov knew they would only rarely spend more than a
few months in any one office, often may make shortsighted
business decisions because they will not have to deal with
the consequences. As a result, a ministry official may
indicate one thing in a meeting, then make a business
decision that does not make sense or contradicts signals in
the meeting. Naumov also suggested that Zeppelin, which
practices U.S. business standards, may be at a disadvantage
in the bidding process because it does not pay bribes.

DESPITE CHALLENGES, HERE TO STAY


5. (SBU) Naumov claimed ministers are not in a position to
make informed business decisions, and price is their only
consideration. Lower-level officials understand day-to-day
needs and value Caterpillar's quick-response and on-site
customer service -- one of the company's main strengths --
but many higher-level Turkmenistan officials are reluctant to
pay for this service. Naumov agrees with other foreign
businessmen in Ashgabat that the government of Turkmenistan
deliberates on contracts for a long time, but expects
immediate delivery when it reaches a decision. This can

ASHGABAT 00001039 002 OF 002


create difficulties, since the construction industry is
currently exploding worldwide, and keeping adequate stock of
Caterpillar's wide product line on hand is a challenge.
However, if Caterpillar cannot supply the requested
equipment, a competitor -- in Turkmenistan, the Japanese
company, Komatsu -- will find a way to fill the order on
short notice. (NOTE: Turkmenistan recently gave Komatsu a
contract for $54 million of road construction equipment. END
NOTE.) Despite these challenges, Zeppelin has long-term
plans to remain in Turkmenistan.

PLEASE ADVOCATE FOR US


6. (SBU) Naumov stated several times that Japanese
government diplomacy is basically economic advocacy work on
behalf of Japanese business, which gives Komatsu a large
advantage. He also said that Japanese companies write
contracts for projects, and include financing and equipment
in the contract. Naumov showed interest in the oil sector,
and in partnering with U.S. firms, pointing out that
Caterpillar otherwise may miss opportunities in
Turkmenistan's unique business climate. Naumov also
enthusiastically mentioned that, during a lunch with U.S.
business leaders in New York this week, Berdimuhamedov
expressed interest in establishing a business council for the
United States, similar to the Japanese governmental
organization which promotes Japanese business in Turkmenistan.


7. (SBU) COMMENT: Post has been hearing rumors that
Zeppelin Caterpillar, which did a profitable business under
the prestige name-oriented Niyazov, is now facing more
difficulties than Naumov let on. At the heart of this may be
a wish on Berdimuhamedov's part to try to wean Turkmenistan
away from large-ticket purchases from prestigious companies
in cases where minimal differences in quality do not justify
paying higher costs -- a policy which we are also seeing in
the areas of agricultural equipment. That said,
Turkmenistan's uniquely difficult business climate and
inefficient financial sector as exemplified by the
top-centered power structure and the dual exchange rate may
require creative support from the Commerce Department going
beyond what is currently or usually offered to assist U.S.
businesses in gaining a foothold. END COMMENT.
HOAGLAND