TURKMENISTAN'S PRESIDENT BERDIMUHAMMEDOV PROMISES

C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 000550

SIPDIS

SIPDIS

DEPT FOR SCA/CEN (PERRY)

E.O. 12958: DECL: 06/01/2017
TAGS: ENRG EPET PGOV PREL TX US
SUBJECT: TURKMENISTAN'S PRESIDENT BERDIMUHAMMEDOV PROMISES
"STEP-BY-STEP" REFORMS

REF: A. (A) ASHGABAT 259

B. (B) ASHGABAT 489

C. (C) ASHGABAT 520

ASHGABAT 00000550 001.2 OF 004


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

Summary
--------------


1. (C) Turkmenistan's President Berdimuhammedov offered PDAS
Mann and a high-level USG delegation on May 31 a mix of
openness and old thinking. After hearing detailed USG
proposals for technical assistance, feasibility studies and
experts' exchanges -- all contributing to making Turkmenistan
a "global player in the energy field" -- Berdimuhammedov
lauded the U.S. delegation's concrete proposals, but showed a
sharp allergy to hints of great power competition. In a
subsequent session with just Mann and the Charge from the
U.S. side, Berdimuhammedov admitted he understood the scope
of changes necessary for Turkmenistan to develop a favorable
investment climate, and requested that Mann and the USG be
more patient with Turkmenistan's need to change gradually.
Mann responded that under the current overly-controlling
paranoid bureaucracy, business couldn't "breathe," and again
encouraged Berdimuhammedov to give a sign of good will. End
Summary.

Gas to the Border
--------------


2. (C) On May 31 a high-level USG oil and gas delegation
consisting of SCA/PDAS Steven Mann, EBRD Executive Director
Mark Sullivan, Department of Energy Director for Russian and
Eurasian Affairs Lana Ekimoff, U.S. Trade and Development
Regional Director for Europe and Eurasia Daniel Stein, and
CIA Senior Energy Analyst Wendell "Bud" Coote met with
Turkmenistan's President Gurbanguly Berdimuhammedov and
Deputy Chairmen Rashit Meredov (Foreign Affairs) and
Tachberdi Tagyev (Oil and Gas).


3. (C) In response to Mann's request that the delegation had
come to Turkmenistan to hear Berdimuhammedov's vision of
development of the oil and gas sector in Turkmenistan,
Berdimuhammedov cited his May 28-29 visit to Astana and
Azerbaijani Foreign Minister Mammadyarov's May 23 to
Ashgabat, saying that these visits were a positive step in
Turkmenistan's development. Berdimuhammedov emphasized that
the May 19 Putin-Nazarbayev-Berdimuhammedov declaration
notwithstanding, that "they would not take away" a
Trans-Caspian Pipeline from us (Ref B). Berdimuhammedov also
noted the recent successful of representatives from Chevron,
Shell, BP, Total and Conoco Phillips, saying these visits
were indications of world class companies' interest in
investing in Turkmenistan. He thanked Mann for his help in
encouraging these companies to visit. But in the end,
Berdimuhammedov insisted, Turkmenistan's policy would follow
late President Niyazov's instruction that gas be sold at the
border. "Where it goes after that is not our problem, we
don't want to get into politics." Later, however, the
president showed interest in a gas sales formula and showed
notable interest in a model gas sales agreement Mann
conveyed. Mann also passed across a selection of graphs on
Eurasian gas supply and transit data, which were received
with interest, though at different points Berdimuhammedov
decried "politicizing" energy issues. Mann downplayed talk
of pipelines, suggested a focus on the upstream and noted
that the only political aspects related to supporting
Turkmenistan's independence.

ASHGABAT 00000550 002.2 OF 004



Join the Global Energy and Financial Community
-------------- -


4. (C) Mann said that from the USG perspective the main
political issue was support for Turkmenistan's sovereignty
and independence and to this end enhancement and development
of Turkmenistan's hydrocarbon resources and export routes was
critical. Mann said that he was pleased international oil
companies recently had visited Turkmenistan, but this was
just a first step, it was now up to Turkmenistan to attract
real world-class foreign investment and the USG was willing
to assist.


5. (C) Turning to the delegation, Mann asked the
representatives to brief the president on available
assistance:

-- DOE - Russian and Eurasian Affairs Director Ekimoff
presented the president with an invitation from DOE Secretary
Bodman for Turkmenistan's top energy experts to visit
Washington and Houston for talks with public and private
sector oil and gas experts. Ekimoff noted that this would be
an opportunity for the U.S. to share its experience in
developing energy policy and to learn more about
Turkmenistan's energy vision. The meetings with U.S.
companies would highlight their technology and experience in
developing projects around the world.

-- EBRD - Executive Director Sullivan informed the president
of EBRD's mission of converting ex-communist economies into
competitive open market-oriented economies. He described
EBRD's activities in the region and emphasized EBRD's shift
in focus from the EU member countries to the countries south
and east, including Central Asia. According to Sullivan, 45%
of EBRD's loans in the past 12 months have been to Russia and
10% to Kazakhstan. Sullivan noted that the bank could
provide technical assistance in reforming Turkmenistan's
financial and banking sectors and that its board would be
considering a project in the Turkmenistan banking sector.
EBRD also had provided financing for the Baku-Tbilisi-Ceyhan
pipeline.

-- USTDA - Regional Director Stein briefed the president on
USTDA's activities in Turkmenistan and the region and
possible technical assistance to Turkmenistan's Oil and Gas
Sector, including sending a technical expert to the ministry
for a visit to further explore feasibility study and
technical assistance opportunities. Stein said USTDA already
has assisted Kazakhstan and Azerbaijan in improving oil
transportation over the Caspian and was planning to soon
commission a feasibility study on Trans-Caspian oil and gas
pipelines from Kazakhstan to Azerbaijan. Stein also
suggested the possibility of legal technical assistance in
negotiating a TCP and in negotiating Oil and Gas Pricing
Agreements. Mann added that the current pricing agreement
between Turkmenistan and Russia was the exception to standard
pricing agreements world-wide, and provided Berdimuhammedov
with a sample pricing agreement. Stein said USTDA was
assisting Azerbaijan's State Oil Fund in managing its oil
revenues. Stein offered USTDA's assistance in organizing the
visit to the United States for Turkmenistan's top oil and gas
officials, as proposed by DOE, as well as sponsoring an
investment conference in the United States. Finally Stein
said USTDA could assist in providing training to
Turkmenistan's oil and gas specialists. Ultimately, the
Government of Turkmenistan would need to identify its
priorities for USTDA assistance.


ASHGABAT 00000550 003.2 OF 004


-- CIA - Senior Analyst Coote told the president he was
responsible for providing analysis to senior USG officials on
Caspian Sea issues. Coote said that his analysis of Caspian
Sea energy development includes both physical security as
well as technical challenges to projects, including the
impact on a Trans-Caspian pipeline of geologic faults and mud
volcanoes on the seabed. Coote added that Gazprom was
actively telling European customers that Turkmenistan's gas
was controlled by Russia and Turkmenistan would be unable to
fulfill any new contracts. Coote said that his assessments
of Turkmenistan's Caspian and Amu Darya resources pointed to
the need for state-of-the-art exploration and exploitation
technology and that U.S. companies already were doing this
kind of work.

We're not Communists
--------------


6. (C) Berdimuhammedov thanked the delegation for their
useful proposals and said his side would consider them
seriously. He thanked Ekimoff for the DOE invitation and
said Turkmenistan would accept, with details to be worked out
by Deputy Chairman Tagyev. Berdimuhammedov noted the annual
oil and gas conference, scheduled for December, hosted by the
government and said this would be another opportunity for USG
experts to come to Turkmenistan and address the conference.
Looking at Mann, he said, "yes we lived in communist times,
but none of us sitting here ever was a communist."

Do Something
--------------


7. (C) Excusing the rest of the delegation from the meeting,
Mann told the president that the USG was sincere in
supporting the development of Turkmenistan's oil and gas
sector and proposed the following:

-- Actively soliciting the government's proposals for how the
USG could assist with development,

-- Supporting Turkmenistan's development through additional
visits and conferences and also by providing support for
energy security and protection of infrastructure,

-- Providing assistance in "reconnecting" with the
international financial sector, including, but not limited
to, EBRD,

-- Assisting with delimitation efforts with Azerbaijan and
Kazakhstan, but only/rpt/only at Turkmenistan's request, and

-- Assisting with developing the domestic financial sector
infrastructure requisite for attracting foreign direct
investment (FDI).


8. (C) "You have to do a few things too," Mann continued, in
order to attract FDI, specifically:

-- Facilitate the visits of international companies.

-- Continue productive talks with Azerbaijan and Kazakhstan.

-- Re-orient Turkmenistan's development model away from the
current "sell at the border to Gazprom model," to a series of
gas sales agreements with the end-user.

-- Make it easier for businesses to "breathe" in Turkmenistan
by addressing the huge paranoid government control over all
avenues of life. Specially Mann noting the overwhelming

ASHGABAT 00000550 004.2 OF 004


presence of Turkmenistan's security organs, as well as
difficulties in obtaining visas and in general government
obstruction of exchange programs.

-- Register the Ashgabat International School, "businesses
will only come here if there is a legitimate international
school."

Can't Break Everything at Once
--------------


9. (C) In response, Berdimuhammedov said, "We can't break
everything at once." He urged Mann to inform Washington that
he, Berdimuhammedov, had to move step by step, but added,
"You will have positive outcomes to all your points."


10. (C) Tipping his hand as a vehement nationalist,
Berdimuhammedov reminded Mann that he had worked with USG
exchange programs for six years while Deputy Chairman for
Education, Health, Culture and Science. "The problem with
your programs is that you don't focus entirely on pure ethnic
Turkmen. Why do you bother with those other nationalities,
our future is just with our Turkmen. More than half of the
children you send on exchange programs are non-ethnic
Turkmen." (Comment: This rant was all the more astonishing
as his half-Azeri, arguably second-in-command Foreign
Minister Meredov sat silently by his side. End Comment.)
Mann responded that the USG only looked at citizenship not
nationality and that the U.S. would never administer the
program any other way.


11. (C) Specifically addressing government control,
Berdimuhammedov said "we're working on this, don't worry;
Minister Meredov and your Charge know of specific steps we're
planning to take. (Comment: Berdimuhammedov may have been
referring to a circuitous message from the Ministry of
National Security that the black list would be abolished (ref
c). End Comment.)


12. (C) Mann responded that he had been coming to
Turkmenistan since 1980 and that he had explained to high
policy levels the need for patience during this Turkmen
transition, but he was met in return with the question, "when
are they going to do something?" His message remained that
the USG needed to see concrete steps that Berdimuhammedov was
serious about reform.

Comment
--------------


13. (C) The timing of Mann's visit apparently was carefully
choreographed to follow events leading up to the Tripartite
Agreement on enlarging a Caspian littoral pipeline and also
overtures to Azerbaijan and Kazakhstan on a Trans-Caspian
pipeline and delimitation. Berdimuhammedov's administration
is lacking in oil and gas know-how, and the easy solution
would be to fall back into bed with Gazprom. The challenge
to the United States and Europe is to remain engaged with
Berdimuhammedov on energy, as on the full range of issues,
while continuing to push for actual steps forward. Getting
his people to the United States and continuing to send
well-targeted oil and gas and investment climate experts to
Turkmenistan is essential both to developing local expertise
and acclimating Berdimuhammedov's government to dealing with
challenges of attracting real foreign investment. End
Comment.


14. PDAS Mann has cleared this cable.
BRUSH