TURKMENISTAN: NAZARBAYEV VISIT YIELDS GOODWILL,

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000990

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EEB
PLEASE PASS TO USTDA DAN STEIN

E.O. 12958: DECL: 09/19/2017
TAGS: PGOV PREL ECON ENRG EPET IR TX
SUBJECT: TURKMENISTAN: NAZARBAYEV VISIT YIELDS GOODWILL,
BUT REAL COOPERATION STILL DISTANT

REF: ASHGABAT 0970

Classified By: CHARGE SYLVIA REED CURRAN FOR REASONS 1.4 (B) AND (D).


1. (C) SUMMARY: President Nazarbayev and President
Berdimuhamedov held expansive meetings on strengthening
economic ties between the two countries, focusing extensively
on establishing hydrocarbon development joint ventures in the
Caspian and improving land transportation networks between
the states, during Nazarbayev's September 11-12 visit to
Ashgabat. They acknowledged discussing all regional oil and
natural gas export projects currently under consideration,
but avoided comment in favor of any one project.
Nazarbayev's public statements and the comments of a
Kazakhstani diplomat make it clear that the Government of
Kazakhstan would like to see more substantive progress take
place on Caspian energy and delimitation issues, as well as
on issues of bilateral trade and investment, but it is
maintaining realistic expectations in terms of its
participation in Turkmenistan's development. END SUMMARY.


2. (U) President Nazarbayev concluded his September 11-12
visit to Ashgabat having secured minor agreements on
cooperation,
including on a sister-city relationship between Ashgabat and
Astana, on sanitary-epidemiological healthcare issues,
and on deepening trade and economic cooperation.


3. (U) Regional media, however, was focused on cooperative
energy resource and transportation corridor development.
The presidents commented on their willingness to engage in
joint hydrocarbon exploration and development projects on
the Caspian shelf, with Kazakhstan's private oil and gas
industry playing a role.

HAPPINESS IS MULTIPLE PIPELINES


4. (SBU) According to press reports, President Nazarbayev
appeared intent on continuing to play to all sides of the
energy game, saying he supported
cooperation on the transit of hydrocarbons not only through
the existing northern route, but also other transport routes
to the east, west and south. "Kazakhstan has great oil
reserves. Turkmenistan has enormous gas reserves. Our joint
goal is to bring them to the international market and sell at
a good price." "Everyone is looking for an alternative to
a single source," he added.


5. (U) Expressing support for shipping hydrocarbons to
China and the Persian Gulf via Iran, Nazarbayev did not
exclude
the possibility of using a Trans-Caspian export route,
noting that Kazakhstan is already exporting oil via tankers
to
Baku. President Berdimuhamedov took Nazarbayev's cues and
concurred with his comments during the press conference.


6. (U) At the same time, however, Nazarbayev and
Berdimuhamedov hinted that the Caspian littoral gas pipeline
agreement that
they signed with Russia in May would be formalized this
month. (NOTE: In May, the three sides agreed to sign the
littoral pipeline contract by September 1. Turkmenistan's
Deputy Chairman of the Cabinet of Ministers for Oil and Gas,
Tachberdi Tagyev, reported to Berdimuhamedov September 6
that Turkmenistan had done everything it needed to do for the
contract to be signed. END NOTE.) At another point during
their meetings, the leaders also agreed that signing a
convention on the Caspian Sea's legal status should be a top
priority, and agreed to move the initiative forward during
the Caspian Summit.


ASHGABAT 00000990 002 OF 002



7. (C) A Kazakhstani diplomat later clarified the status of
the littoral pipeline discussions during a meeting with
poloff. Second Secretary Asset Makhmetov said that they are
hoping to sign the trilateral
agreement in late September or early October, but added that
experts from all sides were still hammering out financial
as well as technical disputes. But Makhmetov confirmed that
Kazakhstan supports full consideration of the various
export pipeline proposals, including a potential
Trans-Caspian pipeline, and is encouraging Turkmenistan to
consider
all of its options.

TRADE NEEDS TRANSPORT AND INVESTMENT


8. (SBU) The presidents also announced that they want to
sign a political document to initiate construction of the
North-South railway from Kazakhstan to Iran during the
Caspian Summit in mid-October. The leaders promoted the
joint
construction of this new rail line, which President Putin had
advocated in May, as one of several initiatives designed
to speed up and facilitate regional trade. President
Berdimuhamedov won approval of the plan from the government
of
Iran in June, which suggests that, with all three states in
agreement, construction of the railway could potentially
begin soon, if all three sign a key agreement in October.


9. (C) The presidents also discussed Kazakhstan's
participation in President Berdimuhamedov's pet project in
Turkmenbashi, the Avaza Free Trade Zone (REFTEL). Turkmen
press played up presidential discussions regarding
Kazakhstan's
investment in projects there, but the conversation with
Mahmetov revealed that Kazakhstan's private businesses have
shown little interest in participating before the investment
environment in Turkmenistan improves. Only one
Kazakhstani company has expressed willingness to participate
in the Avaza project, in the form of a small cement
factory. And although President Berdimuhamedov publicly
stated that nine Kazakhstani companies are registered to
operate here, including KazTransGaz, few are willing to test
the waters before currency exchange, profit return
issues, and foreign company registration issues are resolved.


10. (C) Makhmetov noted that Kazakhstani banks are
interested in establishing branches in Turkmenistan, but
registration fees and confusing and voluminous regulations
regarding the complex currency exchange environment
prevent them from doing more than engaging in consultation
with Pakistani and Iranian banks that have entered
the Turkmen marketplace.


10. (SBU) COMMENT: While the two presidents lauded the
expansion of their new relationship, it did not appear
that they had reached agreement on key details, making it
unlikely that substantial agreements on energy
exploration, business and trade issues, or regional
transportation development will occur at anything but
a gradual pace. Although it is clear that Kazakhstan has the
potential to be a positive influence in Turkmenistan's
development, it seems clear that Berdimuhamedov wants to move
forward on this bilateral relationship as slowly and
carefully as he is doing with others.

CURRAN