TURKMENISTAN: PRESIDENT NOTES REFORM PROGRESS,

C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 001381

SIPDIS

SIPDIS

STATE FOR SCA/CEN, DRL, EEB
STATE PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER
AID/W FOR EE/AA (WALLIN)

E.O. 12958: DECL: 12/19/2017
TAGS: PREL PGOV EPET EINV EFIN ECON TX
SUBJECT: TURKMENISTAN: PRESIDENT NOTES REFORM PROGRESS,
CALLS FOR MORE DURING YEAR-END CABINET MEETING


Classified By: CHARGE RICHARD E. HOAGLAND FOR REASONS 1.4 (B),(D)


1. (SBU) SUMMARY. During an unusually wide-ranging December
18 Cabinet of Ministers meeting, Turkmenistan's President
Gurbanguly Berdimuhamedov reviewed his government's
accomplishments over the past year. Although the president
said he was generally pleased with the pace of reforms, he
nonetheless reiterated previous complaints about many of his
cabinet members' inability to "move with the times." The
State Agency for Management and Use of Hydrocarbon Resources
and Deputy Chairman for Industry and Communications Ashyrov
faced particular criticism, and the president fired the
Turkmen Agricultural Machinery Association chairman for
"grave shortcomings." During the meeting, the president laid
out his priorities for 2008, including more construction and
the need to increase human capacity. The president announced
establishment of a new special commission to improve
legislation, as well as a new Institute of Law under the
Supreme Council on Science and Technology. He also approved
a new 12-year national program on rural development, and
called for new investors in the communications sector to
better increase competitiveness. At the end, Berdimuhamedov
backtracked somewhat from previous calls to "be happy" during
the holiday season, rather than to focus on his predecessor's
death. Announcing that "the elder" was a "dear person to us
all," he laid out a modest program -- including a
flower-laying -- to commemorate frmer President Niyazov's
death a year ago. END SUMMARY.


2. (U) Berdimuhamedov characterized the unusually
wide-ranging December 18 Cabinet of Ministers meeting as a
review of what the government had accomplished over the last
year. Using an expanded version of his by-now familiar
monthly review sessions, which involve both cabinet members
and provincial governors, the president first listened to
reports by most of his vice premiers, offering up reprimands
for those cabinet members he felt have not performed
adequately, then offered his own assessment. (Deputy
Chairman of the Cabinet of Ministers/Foreign Minister Rashit
Meredov was the only deputy premier who did not report.) In
his opening statement, Berdimuhamedov emphasized that 2007
has been a year of fundamental changes in Turkmenistan, and
it therefore is extremely important to assess achievements
objectively, to plan new tasks based on thorough analysis and
to determine priority areas for further reform.


3. (C) Highlights of the give-and-take on the reports
include:

-- Minister of Economy and Finance Geldimuradov claimed that
Turkmenistan's Aggregate Industrial Output (AIO) grew by 21%
over 2006, while its GDP growth is reported at 11.6%.
(COMMENT: This is the first time the government has reported
the two indices separately. In the past, it used to report
only the AIO index. The EBRD representative in Turkmenistan
described the figure of 21% as "nonsense." END COMMENT.)
Geldimuradov also stated that the Government expects the
inflation rate to decrease from 7% in 2006 to 6% by the end
of 2007. (NOTE: EBRD has pegged inflation between September
2006 and September 2007 at 19%, and prices have continued to
increase since September. END NOTE.)

-- Oil and gas production has increased by 9%, and exports of
gas will have increased by 10% over 2006 levels. However,
Berdimuhamedov noted that the level of investment exceeds the
level of return. Turkmenistan has not achieved its target
volume of 10.4 million tons of oil production, and stated
that the establishment of the State Agency for Management and

ASHGABAT 00001381 002 OF 004


Use of Hydrocarbon Resources "has not changed anything." The
president also instructed hydrocarbons sector officials to
unconditionally implement the 2030 Petroleum Development
Plan, including providing gas to remote areas. (COMMENT:
All agree that, under current conditions, the targets laid
out in the Petroleum Development Plan are totally
unrealistic. Although oil production by foreign firms
operating under production sharing agreements is increasing,
state production is decreasing. This should increase
pressure for Turkmenistan to agree to new production sharing
agreements that are in the works. END COMMENT.)

-- When Mejlis (Parliament) Speaker Nurberdiyeva reported on
Mejlis efforts to promote democratic reforms, Berdimuhamedov
stated that Turkmenistan has entered into a new stage of
reform, and stressed that the drafting of new legislation and
amendment of old legislation must be directed toward
achieving the norms of international laws.

-- The President told Deputy Chairman of the Cabinet of
Ministers for Education Saparlyev that education reforms must
be speeded up. Emphasizing the role of literature in
education, the president called for better books, especially
for children.

-- Deputy Chairman for Industry and Communications Ashyrov
(whose portfolio includes the perennial problem spots of
railways and civil aviation) was criticized by the president
for not ensuring an adequate level of management over
transportation and communications and especially for
insufficient coordination with investors on the
Kazakhstan-Turkmenistan-Iran railway project. The president
again singled out Turkmen Airlines for special censure,
noting the system's many shortcomings. (NOTE: This is the
fourth time this year that Ashyrov has been criticized. END
NOTE.)

-- Berdimuhamedov called for more world-class technology in
textile production, especially in marketing, and criticized
"old, outdated approaches" to overall trade efforts.

-- Minister of Agriculture Orazgeldiyev announced that
Turkmenistan will begin using a new, scientifically tested
crop rotation program, and the president called for a new
newspaper -- "Fruitful Land" -- that will help farmers learn
about the most modern technology and the best international
practices. A. Esenov was appointed the newspaper's editor.

-- The president singled out Chairman Tajov of the Turkmen
Agricultural Machinery Association for special censure.
Accusing Tajov of grave shortcomings for a number of alleged
financial violations (including prematurely writing off
expensive machinery, improperly using spare parts and
lubrication oils) that led to the loss of 49 John Deere and
Case New Holland units over the last eight years, the
president fired Tajov and referred his case to the Office of
the Prosecutor General for investigation into possible
criminal wrongdoing. (COMMENT: This investigation
apparently is one of the first carried out by the Supreme
Auditing Chamber under the leadership of former Deputy
Minister for Economy and Finance Jeparov. Some observers
have suggested that this investigation demonstrates Jeparov's
willingness to go after blatant wrongdoing, auguring well for
the Chamber's future. END COMMENT.)

THE PRESIDENT'S NEW PRIORITIES: CONSTRUCTION AND INCREASING
HUMAN CAPACITY


ASHGABAT 00001381 003 OF 004



4. (U) Offering a generally positive assessment of the the
reports he had heard, the president noted that 2007 has seen
implementation of broad agricultural, education, economic,
and other reforms that are supported by Turkmenistan's
people. In foreign policy, there had been a big breakthrough
and an expansion of international cooperation. In
particular, increased foreign investment has contributed to a
large extent to implementation of serious economic and social
reforms.


5. (U) Stating that all achievements will be directed toward
the public's well-being, the president announced that he
would sign decrees to build 38 new projects in Ashgabat by
the end of 2009, including residential apartments, schools
and kindergartens. He announced that the Turkish firm,
Polimeks, would be awarded a 125 million Euro contract to
overhaul the airport facilities in the Caspian port city of
Turkmenbashy. He also gave Kotam Enterprises, another
Turkish construction firm, a contract to build a $7.5 million
medicinal cotton factory in Ashgabat, and Kylych Insaat a
contract to build an $11 million school and $5 million
kindergarten in Dashoguz. The president also once again
plugged a number of "his" large international construction
projects, including the Turkmenistan-China and Caspian
littoral gas pipelines, the laying of the North-South
transportation corridor from Kazakhstan to Iran, and the
establishment of the multi-billion dollar Awaza tourist zone
near Turkmenbashy.


6. (U) The president focused most of his attention on the
need to increase human capacity. He characterized the work
of a number of his cabinet members as lacking, both in terms
of bad management and also in terms of misunderstanding top
priorities. Many officials are having problems orienting
themselves to the here-and-now, and are thinking and acting
in an outdated manner. He made clear that this must stop.


7. (U) Other priorities include:

-- The president called on his cabinet to do more in the area
of science, and particularly in searching out and educating
talented youth.

-- Despite having the most modern equipment, television,
radio, and publications lack creativity. He also noted that
the cinematography sector has almost closed down, and no new
movies have been produced lately.

-- Unification of the foreign exchange rates by 2009 must be
implemented extremely carefully. The president called on the
responsible officials to carry out this program only after a
thorough analysis and assessment, in order to avoid hurting
the people.

-- Stressing the need to improve Turkmenistan's legislative
base, the president announced that there is a need for "a new
look at laws, the elimination of existing discrepancies, and
the need to bring our legislation into compliance with
international law." To this end, the president established a
new special commission to improve legislation, which he will
chair. The commission will focus on passing legislation that
will attract foreign investment and technology to
Turkmensitan. He also established an Institute of Law under
the Supreme Council on Science and Technology.

-- The president reiterated his intention to earmark $4
billion for rural development and approved the "National
Program to 2020 on Reforming Social and Living Conditions of

ASHGABAT 00001381 004 OF 004


the Population of Villages, Settlements, Towns within
Districts and District Centers." Among other things, the
program requires provincial governors and relevant agencies
to develop an annual plan of activities, with all proposed
construction projects to be approved by February 15.

-- The president stated that Internet and the mobile phone
network will only be accessible to everyone when there is a
system of healthy competition in place, which means that
Turkmenistan needs to learn work with partners. The
president called for new investors in this sector, stating
that "Monopoly does not promote progress. People must have a
choice."

COMMEMORATING NIYAZOV'S DEATH: THE BARE MINIMUM


8. (SBU) The president, who at a previous cabinet meeting
had decided that the Eid al-Adha and New Year's holidays
should be "happy" and not focused on commemorating former
President Niyazov's December 21, 2006, death, noted that "the
elder did a lot for the country, for the people and the
one-year anniversary has to be marked." Having consulted
with clergymen, Berdimuhamedov during the meeting set
commemoration events -- including a flower-laying -- for
December 20 and 21. He concluded by calling all to
participate in the events because the "elder" was a dear
person to "us all." (COMMENT: Despite the president's
words, we find the scale of commemoration events -- at least,
those that we know about now -- to be the bare minimum. It
is clear that Berdimuhamedov has no intention of creating a
major day of mourning. END COMMENT.)


9. (C) COMMENT: Held almost one year after Niyazov's death,
this meeting offers interesting insights into
Berdimuhamedov's own assessment of the year's greatest
achievements and disappointments. Despite the president's
"generally positive" assessment, we sense in his comments
about officials' old-fashioned attitudes substantial (and
well-deserved) frustration with the lack of human capacity
and slow pace of reform to date in some sectors. The
Catch-22 is his demand for rapid change has to be implemented
by those lacking capacity and who are reluctant to accept
outside advice. Even so, there is also plenty to cheer about
in this one-year review, including his new initiatives to
assist with bringing Turkmenistan's laws up to international
standards, his emphasis on economic competition and foreign
partners, and -- most particularly -- the indications that he
plans to continue moving his country forward with much-needed
reform. END COMMENT.
HOAGLAND