SCENESETTER FOR THE VISIT OF SECRETARY OF ENERGY

UNCLAS SECTION 01 OF 06 ASHGABAT 001211

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB
ENERGY FOR EKIMOFF/THOMPSON

E.O. 12958: N/A
TAGS: PGOV PREL EPET ECON TX
SUBJECT: SCENESETTER FOR THE VISIT OF SECRETARY OF ENERGY
SAMUEL BODMAN TO TURKMENISTAN, NOVEMBER 15-16, 2007


1. Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: Your visit to Turkmenistan, the first by
a cabinet-level official since 2002, will add value to the
newly reinvigorated Turkmenistan International Oil and Gas
Exhibition (TIOGE). This visit will advance our bilateral
dialogue on energy issues, while reinforce the progress made
by the United States since December 2006 in "turning a new
page" in its overall relationship with Turkmenistan.
Although the new president, Gurbanguly Berdimuhamedov, is
making significant changes in some sectors, it is important
to realize the country is at the very beginning of a new era.
The wreck of a country left behind by the now-deceased
President-for-Life Niyazov, combined with 70 years of
colonial Soviet rule, compounded by nomadic/tribal customs
that lacked a modern nation-state concept, create the need
for a new model. Turkmenistan was never North Korea, but it
is not yet Denmark. Rather, the current state offers a rare
opportunity to develop a new model; a model molded by, and
representative of, the proud people of Turkmenistan, with
patient but consistent nudges by the international community
toward international standards and practices.


3. (SBU) SUMMARY CONTINUED: Turkmenistan has world-class
natural gas reserves, but Russia's near monopoly of its
energy exports has left Turkmenistan receiving less than the
world price and overly beholden to Russia. Berdimuhamedov
seems to support the U.S. position that pipeline
diversification strengthens Turkmenistan's sovereignty and
states publically he has not closed the door to a
Trans-Caspian pipeline. However, he continues to maintain
that such a pipeline -- or even a less politically sensitive
connector pipeline between already-existing oil platforms in
Turkmenistan's Caspian basin and pipelines in Azerbaijan's
Shah-Deniz or ACG oilfields -- is impossible without
delimitation of Turkmenistan's and Azerbaijan's common border
in the Caspian Sea. While Baku and Ashgabat's return to the
negotiating table is promising, ongoing niggling not only
over boundary lines in the disputed territory but also over
possible compensation leaves the situation vulnerable to
heavy pressure by Russian and Iranian governments eager to
play a spoiler role. END SUMMARY.

ENERGY RESOURCES


4. (SBU) Turkmenistan has world-class natural gas reservesQ
but Russia's near monopoly of its energy exports has left
Turkmenistan receiving much less than the world price and
overly beholden to Russia. Pipeline diversification,
including both a pipeline to China proposed for 2009 and the
possibility of resurrecting plans for Trans-Caspian and
Trans-Afghanistan pipelines that would avoid the Russian
routes, and construction of high-power electricity lines to
transport excess energy to Turkmenistan's neighbors,
including Afghanistan, would not only enhance Turkmenistan's
economic and political sovereignty, but also help fuel new
levels of prosperity throughout the region. Berdimuhamedov
has told U.S. interlocutors he recognizes the need for more
options and has taken the first steps to this end, but he
also took the first steps needed to increase the volume of
gas exports to Russia -- agreeing in principle to refurbish
and enlarge a Soviet-era Caspian littoral pipeline -- during
the May tripartite summit in Turkmenbashy. He will require
encouragement and assistance from the international community
if he is to maintain a course of diversification in the face
of almost certain Russian efforts to keep Turkmenistan from
weaning itself away from Russia.


5. (SBU) In promoting a pipeline that would allow westward
gas exports to Azerbaijan, the United States and other
interested countries face a number of obstacles:

ASHGABAT 00001211 002 OF 006



-- A quirky export policy focused on gas sales at the border
and a national bias against allowing foreign -- particularly
western -- companies a foothold in Turkmenistan's on-shore
gas fields.

-- Limited human capacity and understanding of world energy
practices among officials, including the president. In the
president, this lack of understanding has been manifested in
his seemingly naive and unrealistic expectations of what is
required to build new pipelines, while the limited knowledge
of lower-level officials has led to a lack of confidence and
decisiveness in dealing with new players and unwillingness to
consider new policy approaches.

-- An aging and inefficient production infrastructure that
draws into question Turkmenistan's ability to meet delivery
commitments without a massive infusion of new investment,
technology and expertise.

-- Russia's opposition to what it perceives as growing U.S.
influence in an area that it continues to consider its own
special sphere of influence, as well as Iranian concern that
a Trans-Caspian pipeline would strengthen U.S. influence to
its north while undermining Iran's efforts to work out its
own lucrative gas deal with Turkey.

-- Turkmenistan's insistence that it cannot even consider a
westward-flowing pipeline until it has successfully delimited
its common border with Azerbaijan.


6. (SBU) Recognizing the limited window of opportunity for a
pipeline, the U.S. government has been encouraging
Turkmenistan's hydrocarbons officials to reexamine their
thinking, including through a very successful U.S.-funded
visit by five upper-level hydrocarbon officials to Washington
and Houston September 22-29. Through the U.S. Trade and
Development Agency, the United States is working to provide
officials with the knowledge and information they need to
make informed decisions, and the U.S. government is
encouraging the Azeri and Turkmen governments to engage in
delimitation negotiations. These efforts are bearing fruit:
there have been indications that hydrocarbon officials for
the first time are looking more realistically at their
options, reconsidering some key policies, and even engaging
seriously in delimitation talks. But recent indications that
Turkmenistan wants to extend the scope of the delimitation
talks to include compensation it claims it is owed from
Azerbaijan's and BP's ongoing extraction of hydrocarbons in
the disputed territory offers a new wrinkle that could draw
out the talks even longer and leave the talks vulnerable to
Russian and Iranian manipulation.

TURKMENISTAN POST-NIYAZOV


7. (SBU) A hydrocarbon-rich state that shares borders with
Afghanistan and Iran, Turkmenistan is in the midst of an
historic political transition. The unexpected death of
President Niyazov on December 21, 2006, ended the
authoritarian, one-man dictatorship that by the end of his
life had made Turkmenistan's government among the most
repressive in the world. The peaceful transfer of power
following Niyazov's death confounded many who had predicted
instability because the former president had no succession
plan. President Berdimuhamedov quickly assumed power
following Niyazov's death with the assistance of the "power
ministries" -- including the Ministries of National Security
and Defense, and the Presidential Guard. His position was
subsequently confirmed through a public election in which the
population eagerly participated, even though it did not meet
international standards.

ASHGABAT 00001211 003 OF 006



NIYAZOV'S LEGACY


8. (SBU) Berdimuhamedov inherited a country that former
President Niyazov had come close to running into the ground.
Niyazov siphoned off much of Turkmenistan's hydrocarbon
proceeds into non-transparent slush funds used, in part, to
finance his massive construction program in Ashgabat at the
expense of the country's education and health-care systems.
Politically, his increasing paranoia -- particularly after
the 2002 armed attack on his motorcade -- led to high-speed
revolving-door personnel changes at the provincial and
national level, and an obsessive inclination to micro-manage
the details of government. Criticizing or questioning
Niyazov's decisions was treated as disloyalty, and could be
grounds for removal from jobs, if not worse. Niyazov's
"neutral" foreign policy led to Turkmenistan's political and
economic isolation from the rest of the world. His policies
calling for mandatory increases in cotton and wheat
production led to destructive agricultural and water-use
policies that left some of Turkmenistan's arable land salty
and played-out.

EDUCATION -- "DIMMER PEOPLE EASIER TO RULE"


9. (SBU) Niyazov's attacks on the educational system grew
increasingly destructive in his later years. The Soviet-era
educational system was broadly turned into a system designed
to isolate students from the outside world and to mold them
into loyal Turkmen-speaking presidential thralls. President
Niyazov famously defended this policy when, in 2004, he told
a fellow Central Asian president, "Dimmer people are easier
to rule." Niyazov's destruction of his country's education
system included cutting the Soviet standard of ten years of
compulsory education to nine, firing large numbers of
teachers, and introducing his own works as core curriculum at
the expense of the traditional building blocks of a basic
education. He slashed higher education to two years of study
and discouraged foreign study by refusing to recognize
foreign academic degrees. Taken together, these steps
created a "lost generation" of under-educated youth
ill-equipped to help Turkmenistan take its place on the world
stage.

RULE OF LAW -- A LOW BAR


10. (SBU) Niyazov seriously harmed Turkmenistan's political
system. His capricious authoritarianism left a legacy of
corrupt officials lacking initiative, accountability, and --
in many cases -- the expertise needed to do their jobs.
Young officials who came of age after Niyazov's destructive
changes to the education system are particularly deficient in
skills and broader world vision needed to facilitate
Turkmenistan's entry into the international community. Many
laws lack transparency and provision for oversight and
recourse. The population's lack of understanding of the
meaning of rule of law has left the bar low in terms of
citizens' expectations of their government.

BERDIMUHAMEDOV BEGINS TO REBUILD THE SYSTEM


11. (SBU) Berdimuhamedov still pays nominal lip service to
maintaining his predecessor's policies, but he has started
reversing many of the most destructive, especially in the
areas of education, health, and social welfare. He has
restored -- and in many cases -- increased old-age pensions
that Niyazov had largely eliminated. The president is
embarking on a course of hospital-building, with the main
focus on improving medical facilities in Turkmenistan's five
provinces. To this end, he has already authorized
construction of five provincial mother-and-children

ASHGABAT 00001211 004 OF 006


(maternity) hospitals. He has also publicly committed to
improve rural infrastructure and to ensure that every village
has communications, electricity and running water.


12. (SBU) In education, Berdimuhamedov is reversing many of
the policies Niyazov ordered him to implement while he served
as Deputy Chairman of the Cabinet of Ministers for Education
and Health. Since his inauguration, Berdimuhamedov has
ordered a return to the compulsory standard of ten years'
education, a return of universities to five years of
classroom study, and a new emphasis on exchange programs and
the hard sciences. On July 13, he called for recognition of
foreign academic degrees, a major step which would allow
exchange students to receive credit for their overseas study.
The goal is to repair Turkmenistan's broken education system
as quickly as possible and to give the country the educated
workforce that it needs to compete commercially. These
efforts, however, are hampered by old-thinking bureaucrats,
especially in the Ministry of Education and Ministry of
National security, who sometimes block or otherwise impede
foreign assistance programs. This may perhaps be a legacy of
the culture of xenophobia Niyazov had encouraged.

ELIMINATING THE CULT OF PERSONALITY


13. (SBU) Berdimuhamedov has incrementally started
dismantling Niyazov's cult of personality. Huge posters of
the deceased president are beginning to be removed from
public buildings. References to Niyazov's "literary" works,
especially the Ruhnama, are less frequent and probably will
fade away over time. The new president has banned the huge
stadium gatherings in his honor and requirement for students
and government workers to line the streets, often for hours,
along presidential motorcade routes. That said, in some
places, Niyazov's picture has been replaced by
Berdimuhamedov's, and the new president's quotations have
replaced Ruhnama quotations on newspaper mastheads. However,
these are practices common in Central Asia. One hopeful
trend is that Berdimuhamedov appears to be signaling that the
country should draw its inspiration from its history rather
from the cult of the leader. Posters of Turkmen historical
figures have started to appear. In addition, all but one of
the new currency banknotes scheduled to introduced in 2009
will carry pictures of historical and cultural figures (the
largest bill has Niyazov on it).

FIRST STAGES OF POLITICAL REFORM


14. (SBU) Berdimuhamedov has replaced some of the ministers
he inherited from Niyazov. His focus seems to be on finding
better-qualified individuals. On August 24, he established a
"Human Rights Commission" to help bring the practices and
policies of Turkmenistan's government agencies into line with
international standards and human rights conventions. He has
established a state commission to review complaints of
citizens against law enforcement agencies, which has become a
vehicle for pardoning at least some of those imprisoned )
including for complicity in the 2002 attack on the
presidential motorcade ) under Niyazov. Berdimuhamedov
pardoned 11 prisoners, including the former Grand Mufti of
Turkmenistan, Nasrullah ibn Ibadullah, in early August, and
promised he would pardon more in the future. Several other
prisoners of concern were freed in the October amnesty.
Berdimuhamedov has also agreed to allow UNDP to provide human
rights training to police.


15. (SBU) In addition, he has slowly begun to walk back some
of the most restrictive controls on movement within the
country, first removing police checkpoints on the roads
between cities, then -- on July 13 -- eliminating the
requirement for Turkmenistan's citizens to obtain permits to

ASHGABAT 00001211 005 OF 006


travel to border zones (however, the permit system remains in
force for foreigners). Although the president has been
slower to strengthen the rule of law, correct Turkmenistan's
previous human rights and religious freedom record, and
promote economic reform, he has told U.S. officials he wants
to "turn the page" on the bilateral relationship and is
willing to work on areas that hindered improved relations
under Niyazov. He has approved an unprecedented number of
visits by U.S. delegations since he took office, including
those directed toward promoting change.

ECONOMY AND FINANCE


16. (SBU) Turkmenistan's economy is closely controlled by
the state and is heavily dependent on hydrocarbon revenue.
Although the government for many years regularly proclaimed
its wish to attract foreign investment, it made little effort
up to now to change the state-control mechanisms, restrictive
currency-exchange system and dual currency exchange rates
that created a difficult foreign investment climate.
However, in recent months, we have seen greater willingness
among upper-level personnel at Turkmenistan's main economic
and financial institutions -- including both the Ministry of
Economy and Finance and the Central Bank -- to acknowledge
that reforms are necessary. Part of this new attitude is
linked to the president's growing frustration, expressed
publicly during several cabinet-level meetings in August,
with Turkmenistan's complex, opaque web of on- and off-budget
funds, which have made a thorough accounting of state income
and disbursements/expenses virtually impossible. And, in
fact, President Berdimuhamedov's frustration with the lack of
accountability in the budget was one of the key factors that
led, in late July, to the creation of a Supreme Auditing
Chamber. That said, growing interest in investing in
investing in Turkmenistan among western businessmen in hopes
that the new government eventually will make the changes
necessary to improve the investment climate is also providing
an incentive for change.

FOREIGN POLICY: A NEW FOCUS ON ENGAGEMENT


17. (SBU) Notwithstanding his statements that he plans to
continue the "neutrality" policies of his predecessor,
Berdimuhamedov -- probably on the advice of Deputy Chairman
of the Cabinet of Ministers and Foreign Minister Rashit
Meredov -- has put a virtually unprecedented emphasis on
foreign affairs. Indeed, Berdimuhamedov has met or spoken by
telephone with all the leaders in the region -- including
with President Aliyev of Azerbaijan, with whom Niyazov
hadmaintained a running feud. He has exchanged visits with
Russia's President Putin, and held a high-profile gas summit
with Putin and Kazakhstan's President Nazarbayev in
Turkmenistan's Caspian seaside city of Turkmenbashy
(Krasnovodsk). China has a strong and growing commercial
presence in Turkmenistan, and continues to court
Berdimuhamedov through a series of high-level commercial and
political visits. In mid-July, Berdimuhamedov made a state
visit to China, focused mainly on natural gas and pipeline
deals. While Turkey has given Berdimuhamedov top-level
treatment, including an invitation to Ankara, its
relationship with Turkmenistan continues to be colored more
by the image of its lucrative trade and construction
contracts that are siphoning hundreds of millions of dollars
away from state budgets here than by generous development
assistance or fraternal support. He has also held positive
meetings with high-level U.S. State Department officials and
leaders of the Organization for Security and Cooperation in
Europe (OSCE) and United Nations to discuss areas of
potential assistance. He met with UN High Commissioner on
Human Rights Louise Arbour in May, the Head of the OSCE's
Office for Democratic Institutions and Human Rights (ODIHR),

ASHGABAT 00001211 006 OF 006


Christian Strohal, and agreed to a visit by the UN's Special
Rapporteur on Religious Freedom at an as-yet undetermined
date. He most recently made his first trip to the United
States as president to participate in the UNGA session in
September. November 5-7 was his first visit to EU and NATO
headquarters in Brussels.

U.S. POLICY


18. (SBU) U.S. policy in Turkmenistan is three-fold:

-- Encourage democratic reform and increased respect for
human rights and fundamental freedoms, including support for
improvements in the education and health systems;

-- Encourage economic reform and growth of a market economy
and private-sector agriculture, as well as diversification of
Turkmenistan's energy export options; and

-- Promote security cooperation.


19. (SBU) In raising human rights concerns, the United
States:

-- Encourages further relaxation of Niyazov-era abuses and
restrictions on freedom of movement;

-- Promotes greater religious freedom, including registration
of unrecognized groups like the Roman Catholic Church, and
making legal provision for conscientious objectors; and

-- Advocates the growth of civil society by urging the
government to register non-governmental organizations.
HOAGLAND