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

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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