PRESIDENT BERDIMUHAMMEDOV RECEPTIVE TO PIPELINE

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000259

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STATE FOR SCA, NSC FOR DEHART

E.O. 12958: DECL: 03/06/2007
TAGS: PREL EPET ENRG PGOV AF KZ TX US UZ TI IR
SUBJECT: PRESIDENT BERDIMUHAMMEDOV RECEPTIVE TO PIPELINE
DIVERSIFICATION

REF: ASHGABAT 199

Classified By: Charge d'Affaires, a.i. Jennifer L. Brush for reasons 1.
4 (B) and (D).

SUMMARY
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1. (C) President of Turkmenistan Gurbanguly Berdimuhammedov
showed sincere interest in Principal Deputy Assistant
Secretary Steven Mann's detailed March 5 presentation of

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alternative paths to developing the country's energy sector.
In the context of stressing his concern for development that
benefits his country and the need to review PDAS Mann's
points with his own advisors, Berdimuhammedov was generally
open to suggestions that Turkmenistan seek expertise from
U.S. and Western energy sector companies and should attract
foreign investment. Berdimuhammedov was also favorable to
the idea of talking to Azerbaijan in order to resolve the
issue of Caspian Sea delineation. Although the meeting
focused on energy issues, PDAS Mann presented U.S. support
for Turkmenistan in this field within the broader context of
seeing genuine political, economic, and social reform. END
SUMMARY

OPEN EARS TO ENERGY SECTOR DEVELOPMENT; EXPORT DIVERSIFICATION
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2. (C) President Berdimuhammedov opened his March 5 meeting
with Mann by welcoming the latter's detailed analysis of
Turkmenistan's energy resources and their prospects for
development, extraction and export. During the meeting,
Berdimuhammedov and his Deputy Chairman for Foreign Affairs
Rashit Meredov listened with interest and accepted several
handouts detailing estimates of future prospects for
Turkmenistan,s gas and oil exports, given various investment
scenarios. Mann stressed that the overarching U.S. interest
in Turkmenistan's energy sector development was to see that
the country maintained its independence and sovereignty
through multiple outlets of its energy exports.


3. (C) In his overview, Mann first presented the vast
potential of Turkmenistan's gas and oil reserves, as
developed by USDOC expert Paul Hueper. Mann briefed on the
recent IEA gas conference in Paris and the excellent
prospects for European demand and then provided a frank
discussion of the context in which Russia,s Gazprom held a
virtual monopoly over gas exports from Turkmenistan, limiting
the country's options and profits. He also pointed to the
Primorsk pipeline and Sakhalin-2 as examples of the
unconstrained monopoly power of Transneft and Gazprom. As a
result of this context, pipeline diversification brought
major benefits in order to have more than one way to reach
world markets and reduce Turkmenistan,s dependence on
Russian monopolies. Mann also noted that future extractions
of natural gas in Turkmenistan would require world-class
technology. In comparing high, medium and current levels of
investment, Mann noted that current levels would ultimately
result in a fall in overall production due to these concerns.
A favorable investment climate therefore was necessary in
order to attract a world-class level of development. He also
described the role of American and Western energy companies
in other parts of the region as reliable partners who
invested in infrastructure and education in the course of
their partnership, noting that these benefits would coincide
with many of Berdimuhammedov's recently initiated reforms in
education.


4. (C) PDAS Mann also raised the issue of Caspian Sea
delimitation as an unresolved issue which still hindered
development of the energy sector. He offered U.S. support
for efforts to find agreement with Azerbaijan on this issue.
He suggested that an agreement would open the way for the
"Serdar" field to produce no less than 500,000 barrels per
day of potential exports.

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5. (C) Mann stressed that in order to be successful,
Turkmenistan would have to rid itself of a Soviet, state
mentality with regard to its economy and energy sector. The
TCP project of 1997-2000 failed because of this mentality.
He stressed at various points that the true test of
reliability as a trading partner was not government
pronouncements but whether or not private companies would
actually take the risk to invest and construct pipelines or
extract resources.

POSITIVE BUT CAUTIOUS RESPONSE
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6. (C) Berdimuhammedov appeared to be impressed by the
presentation but said that Turkmenistan's data differed from
that Mann presented. He believed the level of reserves was
considerably higher. He stressed his need to review the
subject and Mann,s provided figures with his own advisors
and government. However, he expressed an openness to
discussing the issue in the future with U.S. experts and a
general willingness to cooperate in the future.


7. (C) The president also placed emphasis on the fact that
his government was still new and there was still a need to
review policy before taking major decisions. He noted his
interest in foreign investment and the additional benefits
that could come from education and exchange with U.S.
companies or experts. All the while, he stressed his role as
president to make decisions for the benefit of his people.
He stated in an even tone that Turkmenistan would continue
the policy line on energy established by Turkmenbashi,
including existing contracts with Russia. Mann stressed that
it was not the U.S. desire to disturb any existing
arrangements but to focus on the future; the U.S. respects
Turkmenistan's continuing relationships with Russia and
China.

FIRST STEP ON RESOLVING THE CASPIAN DELIMITATION?
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8. (C) Berdimuhammedov clearly welcomed Mann's suggestion of
U.S. support in trying to resolve the disputed delineation of
its Caspian Sea border with Azerbaijan and was open to the
prospect of experts' talks to further advance the
possibilities for tapping into the region,s energy reserves.
He looked forward to discussing the issue personally with
President Aliyev and said he had a positive view of Aliyev.


9. (C) However, Berdimuhammedov was careful to flag that
commercial disputes might arise in future energy development
and that Turkmenistan would have to defend its interests
vigorously. Mann accepted that and advised that Turkmenistan
had not been getting the full benefit of its energy
resources, thanks to the lack of a pricing formula for
natural gas sales. Mann attempted to ease the president's
concerns by noting that the U.S. interest in pipeline
diversification was in preserving the independence and
sovereignty of the region,s countries, first and foremost by
decreasing their reliance on the Russian Gazprom monopoly.
What Turkmenistan needs above all for hydrocarbon development
is to attract the serious interest of major firms. The small
concerns that operate in Turkmenistan now -- as well as the
Russians and Chinese -- are not up to the major tasks and
Turkmenistan must take steps to attract world-class energy
firms.

BROADER CONTEXT OF BILATERAL RELATIONSHIP: REFORM NEEDED
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10. (C) Towards the end of the meeting, Mann also noted the
increased Washington interest in Turkmenistan, due partly to
Berdimuhammedov's statements and initial steps towards
reform. Mann noted that cooperation between the two
countries depended also on improvement in the political

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relationship. This has consequences for energy as well as
for other issues. Foreign firms consider Turkmenistan a bad
risk, given Bridas' and Sheraton's experience, and until rule
of law and a stable investment climate are more firmly
established, it will be a hard sell to bring those firms in.

COMMENT
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11. (C) Berdimuhammedov,s brief comments on preserving the
status quo appeared to reflect necessary lip service as well
as a wariness that the U.S. would be urging conflict with
Russia. That topic disposed of, the President followed the
discussion in detail and with real interest and gave an
unequivocal green light to develop the
government-to-government relationship on energy. The
discussion of Caspian delimitation was notably positive both
for the lack of Niyazovist bluster as well as for the quietly
reasonable willingness to engage with Azerbaijan. His
tentative but positive response to foreign investment and
export diversification in the energy sector probably reflects
his lack of expertise in the field and his still-forming
energy policy. It's clear that he has little familiarity
with the way the private sector works at a serious level.
Still, his comments throughout the meeting seemed to reflect
a sincere interest in examining and addressing the range of
issues we raised. The president,s willingness to talk
further on the topic, his welcoming words on foreign
investment and a stated readiness to work with Azerbaijan all
represent positive signs for future energy development in
Turkmenistan.END COMMENT
BRUSH