TURKMENISTAN'S MINISTRY OF ECONOMY AND FINANCE

UNCLAS SECTION 01 OF 02 ASHGABAT 000864

SIPDIS

SIPDIS

SENSITIVE

STATE FOR SCA/CEN
E.G. 12958: N/A

TAGS: PREL PGOV ECON EINV EFIN ETRD EAGR TX
SUBJECT: TURKMENISTAN'S MINISTRY OF ECONOMY AND FINANCE
SPECIFIC ON WHAT IT WANTS


1. (U) Sensitive but unclassified. Not for public
Internet.


2. (SBU) SUMMARY: In an August 14 meeting at Turkmenistan's
Ministry of Economy and Finance (MOEF),EEB Assistant Secretary
Daniel Sullivan and his delegation met with MOEF First Deputy
Minister Tuwakmammet Japarov. Sullivan encouraged more cooperation
with the U.S. government and companies. Japarov detailed plans to
diversify gas export routes and the economy in general to take
advantage of regional opportunities. Japarov expanded on their
plans to increase foreign direct investment. He expressed an
interest in a bilateral investment treaty as well as a replacement
of the Soviet-era treaty that resolves dual taxation. We need to
respond. END SUMMARY.


3. (SBU) EEB Assistant Secretary Daniel Sullivan and his delegation
met August 14 with Ministry of Economy and Finance (MOEF) First
Deputy Minister Tuwakmammet Japarov. Sullivan said he wanted to
encourage regional economic
integration, expand the economic relationship between the
United States and Turkmenistan while encouraging reforms,
and promote energy diversification with the help of
world-class U.S. companies. The opening of the Imamnazar
border crossing station on August 13 was a symbol of U.S. commitment
to regional integration as well as serving an important practical
purpose. Economic trade between Turkmenistan and the United States
could be expanded beyond energy into the areas of telecommunication
and civil aviation. He said the United States could also help
Turkmenistan reform problems with dual exchange rates and taxation
and thereby lead to increased U.S. investment or even Turkmenistan's
eventual entrance into the World Trade Organization. Sullivan
stressed it was important for Turkmenistan to not just sell to one
or two buyers, but to use world-class U.S. energy companies to open
more complicated transport
routes.

DIVERSIFICATION OF GAS EXPORTS GOOD FOR TURKMENISTAN


4. (SBU) Japarov said Turkmenistan had settled into a niche in the
energy market by exporting its gas to Russia and then to Ukraine or
Europe. Increasing gas exports to Russia helped it secure European
energy supplies because by 2010 Gazprom cannot fulfill their
contracts to Europe alone. Sullivan responded that instead of
worrying about whether Russia could meet its contractual obligations
to Europe, it would be in Trumenistan's strong interest to simply
sell its gas directly to Europe and profit from the considerable
difference in the price that Russia buys gas from Turkmenistan and
then resells it to Europe. Japarov also recognized that
diversification of gas export routes was also good for Turkmenistan.
The new pipeline to China and supplies to Northern Iran were signs
of Turkmenistan's commitment to this strategy. Trans-Caspian and
Trans-Afghan pipelines were also on the agenda but were delayed by
political or security factors. These were not small investments so
implementation had to wait.


5. (SBU) Japarov said just as not having a single buyer or route
for gas was good, having diverse industries was also important. He
said MOEF was directly responsible for this diversity development
project. Turkmenistan had great opportunities to export natural
gas-based, value-added chemical products and could sell liquefied
gas to Afghanistan, India, and Pakistan without pipelines. Japarov
noted U.S. investment was increasing as trust grew in the country.
For example, Coca Cola had invested $18 million in a production
factory. Mobil and Monument had also invested with production
sharing agreements. U.S. principal trade was around $200-$300
million which had climaxed in 2005. Turkmenistan bought mostly
technical equipment from John Deer, Boeing, and Case. General
Electric had constructed thermal turbines in Dashoguz and Ashgabat.
Japarov expected U.S. companies to participate in the Avaza tourist
zone on the Caspian Sea as well. He said Turkmenistan had also
already begun a revision of the customs clearance codes and internal

ASHGABAT 00000864 002 OF 002


laws to increase trade.

SERIOUS ABOUT STIMULATING INVESTMENT


6. (SBU) Japarov agreed with Sullivan that Turkmenistan needed to
get away from Soviet principles, receive more investment, and that
cooperation with the United States was key for these goals. He
asked about signing a direct bilateral investment treaty (BIT) which
would provide mutual protection to investors of both countries.
Japarov said double taxation was also a problem, because the
U.S.-Soviet treaty on double taxation was no longer applicable. The
Government of Turkmenistan was developing a proposal. Japarov
believed that the resolution of these problems would stimulate
investment.


7. (SBU) Japarov stated that the IMF had recommended in its last
series of meetings to eliminate the dual exchange rates.
Consequently, the Turkmenistan government is looking at unifying
exchange rates but the process must be gradual. He said many
government agencies operate under the official rate and would be
quickly devastated if they switched it immediately. The Ministry
was monitoring and analyzing the potential effect. After that
internal process, Japarov said, the Ministry would consult with
other ministries to determine the wider effect. He also agreed that
streamlining legislation, removing contradictory laws, and providing
training seminars would be valuable.

WAYS TO MOVE FORWARD


8. (SBU) Sullivan noted that he would raise the issue of double
taxation and a possible revised treaty with his colleagues at the
U.S. Treasury Department, which was responsible for such issues.
Sullivan noted that countries with a high level of cross-investment
had the first priority for a negotiated bilateral investment treaty
(BIT). Therefore, it would be helpful if Turkmenistan first
improved its general investment climate to reach that level. He
said the U.S. Embassy could pass a copy of a model investment treaty
to illustrate what issues need to be worked through. Sullivan added
since the U.S. Senate must ratify any treaty, deviating from the
model was not recommended.


9. (SBU) Japarov emphasized that an increase in the bilateral
relationship and foreign direct investment with the United States
was very important to Turkmenistan. He understood that the treaty
needed to pass the Senate but that this treaty would be important
for U.S. companies as well.


10. (SBU) COMMENT: The exceptionally frank and specific nature of
the conversation indicates that the Ministry of Economy and Finance
has been given the "green light" to deal with the United States.
And the fact that Japarov proposed a bilateral investment treaty and
a revised treaty on dual taxation shows that they are willing to
take concrete steps to start to improve the business climate. We
need to respond and follow through. END COMMENT.


11. (U) A/S Sullivan cleared this cable.

HOAGLAND