BERDIMUHAMMEDOV, PUTIN, AND NAZARBAYEV: BACK IN

C O N F I D E N T I A L SECTION 01 OF 06 ASHGABAT 000489

SIPDIS

SIPDIS

DEPT FOR SCA/CEN (PERRY)

E.O. 12958: DECL: 04/12/2017
TAGS: PREL TX RS KZ EPET ENRG
SUBJECT: BERDIMUHAMMEDOV, PUTIN, AND NAZARBAYEV: BACK IN
THE USSR

REF: A. A) MOSCOW 2166

B. B) ASHGABAT 464

C. C) 06 ASHGABAT 1150

ASHGABAT 00000489 001.2 OF 006


Classified By: Charge d'Affaires, a.i. Jennifer L. Brush for
reasons 1.4 (B) and (D).

SUMMARY
--------------


1. (C) In a May 12 tripartite summit in Turkmenistan's
western port of Turkmenbashy, President Berdimuhammedov --
along with visiting Russian President Putin and Kazakhstani
President Nazarbayev -- agreed in principle to expand the
Caspian littoral pipeline route (including possible
construction of a parallel pipeline along that route) and to
increase the capacity of the existing Central Asia-Center
pipeline that runs through Uzbekistan and Kazakhstan,
significantly increasing the amount of natural gas
Turkmenistan can export to Russia.


2. (C) The pipeline agreements, touted in international media
as a victory for Putin on his Central Asia tour, could also
be construed as a victory for Turkmenistan's new president:
although the littoral pipeline does not solve the problem of
Turkmenistan's dependence on Russia as a natural gas
purchaser, over the near term it will increase export
capacity and gas revenue for Turkmenistan. On May 14, Deputy
Chairman for International Relations Meredov summoned the
Charge to underscore that Berdimuhammedov publicly stated
Turkmenistan's position of support for pipeline
diversification, including, specifically, the Trans Caspian
Pipeline (TCP). He said he looked forward to seeing a
"concrete proposal" from the United States in this regard.
Long-time Russia/Central Asia observer, Polish Ambassador
Maceij Lang told Charge on May 14 that Turkmenistan was
moving inexoriably back into the bosom of post -Soviet Mother
Russia. The only way to reverse this trend was for the West
to "do something," rather than sit around lamenting the loss
of an opportunity. End Summary.

JOINT DECLARATION 1: NEW CASPIAN LITTORAL A "GO"
-------------- --


3. (U) During their May 12 tripartite summit in the Caspian
port of Turkmenbashy, Russian President Putin, Kazakhstani
President Nazarbayev, and Turkmenistani President
Berdimuhammedov agreed to increase the capacity of the
Caspian littoral pipeline (the "pri-Kaspiskii" pipeline,
known in Soviet times as the Central Asia-Center Three),and
to construct a new parallel pipeline along the same route
that would increase Turkmenistan's gas exports to Russia by

2012. The joint declaration published following the summit
contained general language instructing the three governments
to prepare feasibility studies for the new pipeline and to
sign a cooperation agreement by September 1, 2007, with
construction scheduled to begin during the second half of

2008.


4. (U) In a statement following the summit, Putin said that a
corresponding agreement on the pipeline's construction would
be signed before July, and that concrete work on the pipeline
was scheduled to begin in early 2008.


5. (U) The pipeline's cost was not publicly announced, but
Russian media cited 2003 estimates placing construction costs
at $1 billion. (Comment: The pipeline's true cost probably
will run much higher because of the rising costs of materials
such as steel. End Comment.)


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CURRENT AND PLANNED LITTORAL PIPELINE CAPACITITES
-------------- --------------


6. (U) According to energy officials present at the summit,
the existing Caspian littoral pipeline currently carries 4.2
billion cubic meters (bcm) annually (Comment: Our
understanding is that because of degraded infrastructure the
capacity is closer to 2 bcm per year. End Comment.),but
with repairs its capacity is expected to reach 10 bcm per
year. Putin said the new parallel littoral pipeline would
pump at least 20 bcm of gas annually by 2012, and Russian
Industry and Energy Minister Khristenko said that it could
eventually carry 30 bcm, according to Russian press.
According to Russian officials, increasing the capacity of
the existing Caspian littoral pipeline and constructing the
new parallel littoral pipeline will increase Turkmenistan's
exports to Russia to approximately 80 bcm annually. (Note:
This would include the Central Asia-Center pipeline that runs
through Uzbekistan. Last year, according to Khristenko,
Russia imported 41 bcm from Turkmenistan. End Note.)

EVERYTHING ACCORDING TO PLAN. . .
--------------


7. (SBU) Turkmenistan's ambitious Oil and Gas Development
Plan (2007-2030),rolled out last November (ref C),estimated
that Turkmenistan would double its gas production -- from 63
bcm (of which 45 bcm was exported) in 2005 to 120 bcm (100
bcm for export) by 2010. By 2030, according to the plan,
Turkmenistan would increase its gas production to 250 bcm,
exporting 200 bcm abroad, an impossible feat using the
current pipeline network, which had a total approximate
capacity of 60 bcm per year. Then- Deputy Chairman for Oil
and Gas Gurbanmyrat Atayev said in November 2006 that in
order to increase exports according to plan by 2030,
Turkmenistan would build a new pipeline to the north along
the Caspian coastline. He estimated that the new pipeline's
capacity would start around 6 bcm per year, and by 2025 it
would have a capacity of 30 bcm per year.

GAS PRICES CONSTANT
--------------


8. (U) Gazprom CEO Alexei Miller, who accompanied Putin in
Turkmenbashy, said that the $100 per thousand cubic meter
(tcm) price for Turkmenistan's gas would last through 2009
and that new price negotiations would take place by July 2009.

JOINT DECLARATION 2: EXPAND CENTRAL ASIA-CENTER
-------------- --


9. (U) The summit's second publicized joint declaration,
signed by the three presidents together with Uzbekistani
President Karimov, who signed it ahead of the summit on May
9, concerned the rebuilding of the existing Central Asian
pipeline network. The language of the published declaration
-- similar to the declaration on the Caspian littoral
pipeline -- was very general with no mention of eventual
capacity, and called for a cooperation agreement to be
prepared and signed by September 1, 2007, and for work to
begin on reconstruction in the first half of 2008.


10. (U) Press reports suggested that the presidents reached
an agreement to increase the transport capacity of the
existing pipeline that currently carries Turkmenistan's gas
to Russia through Kazakhstan and Uzbekistan to 90 bcm per
year. (Note: The pipeline's capacity has declined over time
because of degraded infrastructure, and the actual capacity
is currently estimated at roughly 50 bcm per year. End Note.)


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FIVE AREAS OF DEVELOPMENT
--------------


11. (U) Altogether, the presidents agreed to five areas of
development:

-- Constructing the new Caspian littoral pipeline and
expanding the existing CAC pipeline.

-- Improving transportation links between the three
countries, including construction of a
"Yeraliyevo-Turkmenbashy" railroad that Berdimuhammedov said
could eventually extend to the Iranian town of Gorgan to
connect into the Turkish and Persian Gulf railway networks.

-- Creating a free economic zone in Turkmenbashy.

-- Increasing the frequency of cultural festivals.

-- Continuing discussions on Caspian Sea delimitation, which
Berdimuhammedov said would be "friendly and prosperous" for
all countries involved.

DEPUTY CHAIRMAN MEREDOV: TCP IS STILL ON THE TABLE
-------------- --------------


12. (C) Deputy Chairman for International Relations Rashit
Meredov called Charge into his office on May 14 to discuss
the summit and to reassure the USG that TCP was still an
option. Meredov -- in high spirits following the weekend's
festivities -- strongly emphasized that the Caspian littoral
pipeline was an already-existing export route and would use
only gas from the Caspian shelf and shore. In response to
Charge's question, Meredov categorically said that the
Dowletabat gas field was not a factor in negotiations with
the Russians; "this is a completely separate issue."
(Comment: Dowletabat is the promised reserve for any future
TCP or Turkmenistan-Afghanistan-Pakistan (-India) pipeline.
End Comment.)


13. (C) Meredov asked Charge to note Berdimuhammedov's
publicized statements following the summit as proof that TCP
was still on the table. In press statements, Berdimuhammedov
twice mentioned that he was considering multiple directions
for gas export, and specifically mentioned China, Iran,
TAP(I),and TCP as possible future options.


14. (C) In response to Charge's question, Meredov said he
"was not in the room," during the Berdimuhammedov-Putin
negotiations and therefore did not know if either raised the
TCP. Charge cited Russian press reports stating that Putin
would prevent a TCP and said she found it surprising that the
subject was not raised during the negotiations. Charge said
that Washington was likely to interpret the summit as a
success for Russia and Gazprom, though Berdimuhammedov talked
about pipeline diversification, the only concrete steps he
was taking was to improve and increase gas delivery through
Russia. Meredov countered, saying, "then give us a concrete
proposal for a TCP and you'll see our policy really is
diversification."

Poland - Less Talk, More Action
--------------


15. (C) During a May 14 meeting Polish Ambassador Maceij
Lang, an expert both in post-Soviet and energy issues, told
Charge the littoral pipeline deal could effectively kill any
plans for a TCP. "If they go up to 80 bcm, there's not
enough gas for a TCP," he said. He agreed that exploitation
of Dowletabad could supply a TCP, but said an additional

ASHGABAT 00000489 004.2 OF 006


pipeline would be needed to get the gas from Dowletabad to
the Caspian. Noting the successful Chinese gambit to get
on-shore rights on the right side of the Amu Darya, Lang
prediced this would be Russia's next step, "and if that
happens, the game's over."


16. (C) According to Lang, the equally important story was
the role of Kazakhstan (where he served prior to coming to
Ashgabat). Lang said it was no coincidence that Putin
scheduled the Turkmenbashy summit for the exact dates as the
Krakow European Energy Summit. "He didn't want Nazarbayev to
go to Krakow." According to Lang, Kazakhstan had given up on
its own gas diversification, and put its gas future with
Russia. In exchange, Lang said, Kazakhstan would explore
expanded oil options with the West.


17. (C) Lang agreed that the current leadership in
Turkmenistan both was nostalgic for and more comfortable with
a return to the Soviet fold. "In Eastern Europe and the
Baltics, the fall of the Soviet Union was liberation from
oppression and was welcomed," he said, "in Central Asia,
independence is a burden." Russia only now, he said, was
getting better at bringing the post-Soviet states back into
the fold. Citing the science fiction essay of a colleague
who had worked as a Polish language teacher in
post-independence Kyrgystan: "Imagine the United States
dissolving, leaving 50 independent states. Imagine an
independent state of Arizona where suddenly the Apaches took
back their tribal lands and imposed the Apache language and
culture on the colonialists. Imagine the colonialized
Apaches suddenly at a disadvantage because they had immersed
themselves in American cuture. Imagine the colonialists
completely marginalized as they couldn't go to school or get
a job. That's how the Russians felt in Central Asia. Only
now are they figuring out how to proceed."


18. (C) Lang was pessimistic that there was anything the
West could do to stop Berdimuhammedov from returning to the
Russian bosom, but said we had to try. He said he had
proposed to Deputy Foreign Minister Hajyev that Polish Deputy
Energy Minister Piotr Naimsky come to Ashgabat to encourage
diversification, but at this point he doubted if Turkmenistan
would agree to the visit. Charge encouraged him to try
anyway. "We have to do something," Lang concluded, "if we
don't show them we can give them something, they'll move even
closer to Russia."

THE CHINESE SPIN: A GRAND RUSSIAN STRATEGY
--------------


19. (C) Over lunch with the A/DCM on May 12, Chinese DCM Li
Hua claimed that the construction of a
Caspian littoral pipeline would have little immediate impact
on China's own gas exploration agreement
with Turkmenistan. If China decided to act on the agreement,
it would receive its gas from the Amu Darya
region; gas prices and the size of the reserves would
determine China's course.


20. (C) That said, however, Li was concerned that Russia's
efforts to control Turkmenistan's gas exports
was directed toward keeping the United States out of Russia's
"near abroad," increasing Russia's political
clout over Europe and creating a wedge between Europe and the
United States. Pointing out that Putin had just signed a
uranium enrichment agreement with Nazerbayev, Li suggested
that the littoral
pipeline agreement between the three presidents was part of a
larger Russian strategy designed to control
all sources of energy in Western Europe. However, Li

ASHGABAT 00000489 005.2 OF 006


believed that the United States would almost
certainly have to oppose such a strategy, increasing tensions
and -- possibly -- leading to a new
"Cold War." Li was generally dismissive of the Warsaw energy
summit, though he suggested that
Russia might be willing to "give" the United States an
assurance that it would not meddle with Polish
efforts to establish a pipeline that did not run through
Russia in exchange for U.S. agreement to abandon
a Trans-Caspian pipeline.

MONEY CAN'T BUY YOU LOVE
--------------


21. (C) The summit was topped off by a Soviet-style
spectacle in Turkmenbashy's new theater with Putin,
Berdimuhammedov and Nazabayev seated in massive gold thrones
surrounded by the mandatory audience of
rythmically-clapping socialist front participants, the "white
beards," youth, women, trade unions,
veterans, etc. The show itself consisted of -- to Western
ears -- sensory assaulting modernized folk
songs and dances with Moog-balalaikas and polyester gold lame
national costumes. Ironically, one of the
show's highlights was a string ensemble's version of the
Beatles' classic, "Money Can't Buy You Love."
The televised emission showed a visibly bored Putin, an
apparently asleep Nazarbayev and a nervous-looking
Berdimuhammedov. That these awful events still resonate in
Turkmenistan is in and of itself
evidence of Soviet nostalgia. As an embassy driver
enthusiastically answered Charge's question,
"it was wonderful, proof that music knows no borders."

COMMENT
--------------


22. (C) The Turkmenbashy summit declarations, as suggested in
the press, represent a victory for Putin, who launched his
Central Asia tour determined to secure commitments from his
southern neighbors that would bolster Russia's energy
supplies. The declarations, however, might also represent a
win for Berdimuhammedov, who -- just a few months into his
presidency -- has not only secured construction of an
expanded pipeline route that was central to Niyazov's Oil and
Gas Development Plan, but in doing so has left the door open
for additional routes and investors. His courting of Chevron
and British Petroleum (whose delegation's visit is now
scheduled for late May) for development of the country's oil
reserves is a way of keeping a foot in each camp, dealing on
one level with Western energy leaders and on another level
with Turkmenistan's most familiar partner -- Russia.


23. (C) If the reserves that are intended for the expanded
Caspian littoral pipeline are indeed the Caspian shelf and
shore reserves, then expansion of this pipeline route is a
practical move. Late last year, embassy officers heard from
Turkmenistani officials and company representatives that gas
was being flared in that area due to insufficient export
capacity, a practice that we assume has continued.


24. (C) Meredov's call to Charge following the summit, an
effort to reassure the USG that all export options are still
open, may be just another move in the Turkmenistan gas game.
It could, however, also reflect a real expectation in
Ashgabat that Turkmenistan can and will pursue pipelines in
every direction. At the end of the day, Berdimuhammedov's
first energy commitments -- not unexpectedly -- were to
Russia, a familiar partner that represents a greater level of
political security to a new and less experienced president.

ASHGABAT 00000489 006.2 OF 006


Following through on additional diversification options,
however, in particular a Western-oriented TCP,will involve a
characteristic we have yet to see in Berdimuhammedov -- guts.
End Comment.
BRUSH