TURKMENISTAN: GAC MARINE FACES THE HURDLES OF

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001181 SIPDIS SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: DECL: 11/01/2017 TAGS: PGOV EINV EPET SOCI TX SUBJECT: TURKMENISTAN: GAC MARINE FACES THE HURDLES OF DOING BUSINESS Classified By: Charge Richard E. Hoagland for reasons 1.4 (B),(D). ¶1. (SBU) SUMMARY: GAC Marine S.A. plays a vital role in Turkmenistan's hydrocarbons industry as the only contractor offering shipping and marine services to companies in offshore drilling. Gregory Flint (please protect),General Manager of the Turkmenistan office, recognizes the profitability of the industry but is discouraged by bureaucracy and lack of capacity, and worrieds about Turkmenistan's political future. Though not an ideal example, we continue to suggest to Turkmenistani authorities that they look to Kazakhstan for models that attract Western investors. END SUMMARY. ¶2. (C) Australian national Gregory Flint has been General Manager of Marine Services for GAC Marine S.A.'s Turkmenistan office since mid-2006. The Swedish-owned GAC is the only contractor offering offshore drilling marine services to the hydrocarbons industry in Turkmenistan. During an October 30 meeting with EconOff, Flint expressed his frustrations with the unfriendly business climate and his uncertainties about how it is evolving. Flint opined the quantity of offshore oil is not enough to justify the entry into the market of major international hydrocarbon firms. He believed their entry into the market would not be easy, in any case, and recounted an anecdote that an official at the Ministry of Oil and Gas allegedly told a BP executive recently, "Don't think that it will be any easier for you here, just because you're big." CONCERN FOR THE FUTURE AND FRUSTRATIONS WITH BUREAUCRACY ¶3. (C) Flint stated that GAC is considering political risk insurance due to the company's uncertainty about the direction of the Berdimuhamedov government. GAC does not exclude the possibility of government seizure of their ships. According to Flint, the government of Turkmenistan owns two working ships, while GAC has 16 ships registered in Turkmenistan. (COMMENT: Political risk insurance is prudent anywhere in the developing world. However, we have heard nothing that would remotely suggest the government intends to expropriate private business property, and doubt that is a real threat for GAC. END COMMENT.) ¶4. (C) Because Turkmenistan's insurance company does not have adequate assets to cover its clients, foreign firms like GAC use reinsurance services overseas. Since the UK and Turkmenistan have a dual taxation treaty and the company purchased a policy from a British insurance company, GAC is entitled to a refund from Turkmenistan tax authorities of 15 percent of the tax paid on its British policy. However, the Turkmenistan tax authorities claim they cannot accept the official document from UK tax authorities submitted as proof of tax paid. Unless a different form is submitted, Turkmenistan tax officials told GAC that they will not pay the refund and have threatened the company with a 40 percent penalty, retroactive to 2005. NEED TO BUILD CAPACITY ¶5. (C) Flint claimed he employs 60 Turkmenistanis to complete the work that four of his former employees did in Thailand. Turkmenistan does not have any marine training centers, so GAC trains employees on the most elementary matters in a renovated apartment in Turkmenbashy. GAC conducts some training on its ships, and sends other employees to Ukraine for advanced training at a marine academy. GOGOL WOULD HAVE UNDERSTOOD ¶6. (C) Flint recounted that Ministry officials regularly ASHGABAT 00001181 002 OF 002 approach him to "hire" their sons, nephews, cousins, and other relatives. However, these are employees in name only, since they do not show up to work. Flint said he got rid of his "ghost" employees and refuses to hire any more. However, he does hire those recommended to him who are willing to go through the training process and who are truly interested in work. ENTHUSIASTIC ABOUT A CHAMBER OF COMMERCE ¶7. (SBU) Noting that most information is exchanged with industry colleagues informally "over a beer," Flint said that some sort of multi-national Chamber of Commerce would be helpful as a forum to exchange ideas, experiences, and solutions in a more structured environment. ¶8. (C) COMMENT: As more Western companies seek to enter Turkmenistan, they are likely to encounter problems not unlike those faced by GAC. Incapacity, bureaucracy, and corruption could hinder real business development. Though not an ideal example, we continue to suggest to Turkmenistani authorities that they look to Kazakhstan for models that attract Western investors. END COMMENT. HOAGLAND