TURKMENISTAN: NEGOTIATIONS FINALLY MOVING FORWARD

C O N F I D E N T I A L ASHGABAT 001027 SENSITIVE SIPDIS STATE FOR SCA/CEN; EEB E.O. 12958: DECL: 08/06/2018 TAGS: PGOV EIND EAGR TX SUBJECT: TURKMENISTAN: NEGOTIATIONS FINALLY MOVING FORWARD AGAIN FOR CASE NEW HOLLAND EQUIPMENT REF: ASHGABAT 00851 Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: Case New Holland representatives have finally gotten the ball rolling again in regard to negotiations for the sale of tractors, cotton harvesters, and other agricultural equipment that had been slowing down since they began in September 2007. After the Case CEO's successful meeting with President Berdimuhamedov on July 31, the company is reporting good progress in finally closing at least part of the deal. Competition among rival companies selling similar equipment, however, is making a stepped-up marketing effort a greater priority. END SUMMARY. ¶2. (C) Jason Hunt, General Manager of IPC Group here, which represents the interests of Case New Holland and John Deere, updated Poloff August 6 on Case's recent business developments. Hunt said that Case New Holland CEO Franco Fusignani's July 31 meeting with President Berdimuhamedov went very well, and finally propelled contract discussions forward that had been languishing for almost a year. Fusignani had attempted to meet with the president in June, in order to restart negotiations for the purchase of agricultural machinery that foundered after his September 2007 meeting with Berdimuhamedov. Although the government agreed to meetings, they canceled them the day before they were to occur. ¶3. (C) The July 31 meeting, however, went very well, and Berdimuhamedov signed an agreement to open negotiations for the purchase of 300 pieces of Case machinery that will be delivered before March 2009. The agreement also included an additional order of 400 pieces, although delivery will take longer. Hunt said Case factories were producing this machinery at maximum capacity, and would not be able to deliver the additional 400 until possibly 2010. The most complex part of the negotiations was on pricing. The president and other officials sought to purchase the machinery at last year's prices, which is not possible with increased energy prices and inflation raising production costs. ¶4. (C) Hunt anticipated that a final sales contract for the initial 300 pieces would hopefully be signed in about three weeks. The company has already submitted the contract proposal, and the bureaucratic approval process, via the president, the Agricultural Ministry, the relevant bank, and the commodities exchange would be acquired during that time. During the July 31 presidential meeting, Fusignani agreed to Berdimuhamedov's request to come to Turkmenistan when the initial consignment of Case equipment arrives, possibly in November or December 2008. ¶5. (C) Agricultural officials have expressed interest in a long-term cooperation agreement with Case, and company representatives are formulating its terms now. The agreement could include the company's assistance with training, equipment and the provision of experts to the new agricultural institute that is to be opened in Dashoguz (reftel). Currently, IPC is providing service for Case equipment at provincial repair centers. ¶6. (C) Hunt said that there is a new business environment in Turkmenistan now, and there are more foreign companies competing to sell the government the same products. Therefore, companies are having to work harder to market their wares. Case had organized a demonstration of their agricultural equipment in Dashoguz over the summer for local and government officials, and another demonstration was organized during Fusignani's late July visit. Local and national agricultural officials hosted the demonstration, which Berdimuhamedov attended in Baharly. ¶7. (C) Hunt said that Case is also pursuing negotiations for the sale of cotton harvesters now, in the hopes of closing the deal and delivering some 100-200 harvesters in advance of the fall 2010 season. In addition, the company has been pursuing a 12 million USD parts deal, in order to respond to agricultural agencies' urgent requests to provide them with much-needed parts in advance of the fall 2008 harvest season. Hunt doubted that such a deal could be closed so quickly, but the company is still trying to do what it can to get a contract signed in the next two weeks, and will sell the parts for manats, in order to streamline the purchase process. ¶8. (C) Hunt said that he has noticed that different agencies are starting to make different demands in their contract terms, which is frustrating some foreign companies seeking to do business here. A U.S. firm called Lincoln Electric, based in Cleveland, Ohio (which IPC also represents) is in contract negotiations with both the Turkmen Oil and Gas Construction Concern and with the Turkmen Oil State Concern to sell both entities welding equipment. However, Hunt said that while the Construction Concern is ready to purchase 100 welding units under the standard contract and use payment procedures with which foreign companies are familiar, Oil Concern representatives are refusing to pay for the 10 welding units they want to buy before they arrive in Turkmenistan. Hunt had no idea why the agency was insisting on a different payment regime, but said the U.S. firm was not going to accept the terms. ¶9. (C) COMMENT: Post was interested to learn that local government agricultural representatives are urgently asking for spare parts in advance of the cotton harvest. If a significant number of cotton harvesters are inoperable, it could have a damaging impact on cotton harvest numbers. Case representatives are ready to do what they can from their end to help. Government authorities higher up the chain, no doubt, are also likely aware of this problem. Nevertheless, it seems unlikely that anyone will come up with a way to cut through the national bureaucracy to facilitate the expedited delivery of parts, which would require someone in authority to take a professional risk and find an alternative purchasing plan. END COMMENT. CURRAN