RUSSIAN DCM PLAYS UP GREAT GAME TO EXPLAIN U.S.

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 001359

SIPDIS

SIPDIS

STATE FOR SCA/CEN. SCA/PPD, EEB
DOE FOR EKIMOFF/THOMPSON
PLEASE PASS TO USTDA DAN STEIN

E.O. 12958: DECL: 12/14/2017
TAGS: PREL ECON ENERG EPET SOCI TX
SUBJECT: RUSSIAN DCM PLAYS UP GREAT GAME TO EXPLAIN U.S.
INTERESTS IN TURKMENISTAN

REF: A. ASHGABAT 1297


B. MOSCOW 5563

C. KYIV 2939

D. ASHGABAT 1222

Classified By: CHARGE SYLVIA REED CURRAN FOR REASONS 1.4 (B) AND (D).


1. (C) SUMMARY: In what was supposed to be a briefing by
Russian DCM Aleksey Demin on the recent visit of Prime
Minister Viktor Zubkov to Turkmenistan, we instead got an
earful regarding American favoritism toward Ukraine and the
U.S. hidden agenda on a trans-Caspian pipeline. He also
alleged that the United States was fearful of Russian
companies' activity in Turkmenistan. He said the only reason
Turkmenistan struck a gas deal with the Chinese was to have
better leverage in negotiating a gas deal with Russia. Demin
asserted that part of the reason for the Turkmen negotiating
for a higher price for their gas is that President
Berdimuhamedov needs more money for reforms and other
projects. Demin revealed that an announced future signing of
a packet of Russian-Turkmenistan bilateral agreements was
less than meets the eye, because officials have yet to put
anything together. While Demin's conspiratorial allegations
regarding U.S. policy in Turkmenistan are ridiculous, it
probably gives us some insight into what the Russians tell
the Turkmen about U.S. intentions. END SUMMARY.

WHY THE INCREASE IN THE PRICE OF GAS


2. (C) We met December 6 with Russian Embassy DCM Aleksey
Mihaylovich Demin to get more insight into the visit of Prime
Minister Viktor Zubkov and recent negotiations between Russia
and Turkmenistan (Ref. A). Demin outlined the new gas price
deal signed during the visit whereby Gazprom agreed to $130
per thousand cubic meters (tcm) effective January 1, 2008 and
$150 tcm effective July 1, 2008. Demin said there were
several reasons for the price increase. First of all, the
dollar has decreased in value. With the price denominated in
dollars, it was necessary to reflect that change. Secondly,
there has been an increase in the price of gas globally.
Thirdly, Demin said it was necessary for Russia to equalize
the price of gas it was getting from various sources in
Central Asia - Kazakhstan, Uzbekistan, and Turkmenistan. He
noted Gazprom paid $145 tcm for Kazakh gas. Demin said the
last and most important reason for the price increase is that
President Berdimuhamedov has projects and is conducting new
reforms and needs money to implement them.

NEW GREAT GAME


3. (C) Demin quickly turned to U.S. interests regarding
Central Asian gas and gave his interpretation of U.S. policy.
He said he knew that the U.S. presidential elections will
take place in 2008 and that is the calculus driving U.S.
plans in the region. Relations between the U.S. and Iran are
not good. However, business and the economy will play a
bigger role in the elections than U.S. military ambitions in
the region, especially toward Iran. He noted it was
interesting that the U.S. pays so close attention to the
issue of Turkmenistan gas, when none of the gas reaches U.S.
shores. The reason is the U.S. worries about its good friend
Ukraine and does not want an increase in the price of gas
that goes on to the European market, especially to "its good
friend Ukraine." Further insinuating nefarious U.S. motives,
Demin said that Russia, unlike some countries (read United
States) will never hide its plans about what it wants to do,
especially about building gas pipelines.


4. (C) Demin said he understood that the "American friends"
very much want a trans-Caspian pipeline and oppose a littoral

ASHGABAT 00001359 002 OF 003


pipeline that would take more gas through Russia. However, a
trans-Caspian pipeline is not feasible. Poor relations
between Azerbaijan and Turkmenistan prevent that pipeline
from being built. The unresolved delimitation of the Caspian
Sea also will preclude its construction. It would be
possible, he said, to build a pipeline through Iran to take
gas to Europe, but the United States would thwart it.
Therefore, the only good, stable way to bring Turkmen gas to
Europe is the littoral option. Demin stressed there was no
need to fear Russian companies' activity in Turkmenistan. He
pointed out that Lukoil does not have the technology to work
alone offshore and must collaborate with other companies,
including American ones. (COMMENT: Such as ConocoPhillips.
As noted Ref D, Lukoil and ConocoPhillips are teaming
together to strike a deal with Turkmenistan to work three
offshore blocks. although most observers believe that a
production sharing agreement is imminent, it has not yet been
signed. END COMMENT.)


5. (C) COMMENT: Demin's allegations were nonsense, and we
protested that his interpretation was inaccurate. We said
the U.S. supports a diversification of pipelines, and its
policy in Central Asia is neither anti-Russian nor driven by
our domestic political calendar. However, every statement we
made was greeted by a single cocked eyebrow that seemed to
say, "are you kidding me?" END COMMENT.

CHINESE PIPELINE


6. (C) Demin said no one knows how much gas is in
Turkmenistan, and only the future will show if there is
enough to support the Chinese pipeline. He claimed the
Turkmen had struck a deal with the Chinese only in order to
strengthen their hand in gas negotiations with the Russians.


MORE SCHOOL PLACES FOR TURKMEN STUDENTS


7. (C) Demin confirmed that during the visit both sides had
agreed on an additional 150 places for Turkmen students in
Russian universities. While the slots are not limited to
engineering or studies directly linked to the oil and gas
industry, he said Russia hoped through its exchange program
to increase the cadre of qualified Turkmen specialists in the
oil and gas area. He applauded Berdimuhamedov's emphasis on
education and plans to improve the educational system that
had been gutted by the former president, Niyazov. Demin said
everyone knows Turkmenistani education under Niyazov was
"awful." He also said American exchange programs were
positive and offer real educational opportunities to Turkmen
youth.


8. (C) Noting the still close ties between Russians and
Turkmen, Demin said Russia would continue to promote cultural
links, because there are people who still remembered the
USSR. Those people speak Russian and have a natural affinity
for Russia. It would be wrong to sever ties with them.

FUTURE AGREEMENTS?


9. (C) During Zubkov's visit it was announced that the two
sides planned in the future to sign a packet of bilateral
agreements. However, according to Demin, exactly what and
exactly when was still under discussion. He said definitely
no agreements would be signed this year. It is possible that
something could be signed next year. Before then, however,
it would be necessary for officials on both sides to fulfill
what Berdimuhamedov and Zubkov had said publicly and work to
come up with appropriate agreements. For now, it was too
early to talk about anything.

ASHGABAT 00001359 003 OF 003




10. (C) COMMENT: It would be hard to know exactly how much of
Demin's rant reflected his own personal view and how much
reflected policy. Nevertheless, it would have been odd for
him to have spent so much time offering what was only his
opinion in what was an official meeting. In addition, a much
junior Russian Embassy colleague, who also attended the
meeting, nodded her head strenuously in agreement at
everything he said. In any case, this probably gives us some
insight into what the Russians tell the Turkmen about U.S.
intentions in this region. END COMMENT.
CURRAN