Identifier
Created
Classification
Origin
08ASHGABAT1058
2008-08-13 13:41:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ashgabat
Cable title:
TURKMENISTAN: BUSINESS REFORMS SUGGEST CONTINUING
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UNCLAS SECTION 01 OF 02 ASHGABAT 001058
SENSITIVE
SIPDIS
STATE FOR SCA/CEN;
E.O. 12958: N/A
TAGS: ECON EFIN EINV TX
SUBJECT: TURKMENISTAN: BUSINESS REFORMS SUGGEST CONTINUING
PROGRESS (WITH A FEW LAGGING SECTORS)
UNCLAS SECTION 01 OF 02 ASHGABAT 001058
SENSITIVE
SIPDIS
STATE FOR SCA/CEN;
E.O. 12958: N/A
TAGS: ECON EFIN EINV TX
SUBJECT: TURKMENISTAN: BUSINESS REFORMS SUGGEST CONTINUING
PROGRESS (WITH A FEW LAGGING SECTORS)
1. (U) Sensitive but unclassified. Not for public Internet.
2. (SBU) SUMMARY. Turkmenistan's efforts to rewrite laws
affecting foreign businessmen are beginning to take hold,
according to four U.S. businessmen active in Turkmenistan.
All agreed that the scale of recent reforms suggests a
long-term government vision, but added that many officials'
hesitation to take responsibility for acting on these reforms
remains problematic. Although the business environment is
improving, court arbitration remains corrupt and
exploitative. Reforms in the tax code have removed a
tremendous paperwork burden, but the tax system suffers from
a lack of digitalization. The banking sector remains
stubbornly resistant to reform. Despite this, all
businessmen acknowledged that their revenues are increasing,
and most are optimistic about further change. END SUMMARY.
BUSINESS CLIMATE WARMING UP ...
3. (SBU) Over the last year, Turkmenistan has made strides
in rewriting laws and regulations to improve its business
operating environment. To see whether this new legislation
is making a difference, Emboff met with representatives of
four U.S. companies active in Turkmenistan -- Bertling,
Cameron, Deloitte and Weatherford -- to solicit their views.
All these companies are service companies for the hydrocarbon
sector. All previously have also been outspoken in their
criticisms of Turkmenistan's investment climate.
4. (SBU) The representatives all said that their revenues
are increasing. They concurred that the climate is
improving, although slowly. Specifically, they cited as an
improvement the fact that companies can now more easily
obtain letters of credit for large deals, whereas before they
were forced to receive partial payments with large time
delays. Several stated that business generally proceeds
smoothly after tenders are awarded. However, they also noted
that tenders can only be awarded to another company through
the Ministry of Oil & Gas, which frequently overturns
decisions in favor of well-known companies, like Schlumberger
and Weatherford.
... WHILE BUSINESS ARBITRATION REMAINS FROSTY
5. (SBU) Offshore firms (mostly Russian and Chinese
companies) are forced to use Turkmen arbitration courts,
which are corrupt, lack knowledge of international standards
and can only conduct court cases in Turkmen and Russian. The
result: the courts rule in favor of Turkmen interests 90% of
the time. Western firms who wish to preserve good legal
status by only using neutral arbitration parties such as the
Stockholm Chamber of Commerce are periodically forced to
decline buyers.
TAX CODE: "EVERYTHING IS IN PROCESS" ...
6. (SBU) The tax environment is visibly improving. The
representative from Deloitte remarked, "Every month brings
with it a new legislative reform ) everything is in
process." Where there previously were many types of each tax
(for example, several species of Value-Added Tax, each one
requiring a separate set of instructions),the simplified,
unified and comprehensive tax code recently implemented makes
it easier for companies to work and allows fewer loopholes to
be exploited. The reforms remove much of the tremendous
paperwork burden. Tax officials are becoming more savvy and
friendly to the needs of international financial
organizations and foreign investment. Practical training
tours are now conducted in the regions and officials are more
willing to use tax audits. However, they added, there
continues to be no unified system for taxing individuals.
ASHGABAT 00001058 002 OF 002
... BUT LAGGING BEHIND ITS NEIGHBORS
7. (SBU) Turkmenistan has a long way to go in modernizing
its tax system when compared to its neighbors. The State Tax
Administration largely does not keep electronic files, nor
does it make use of electronic databases such as Westlaw or
Lexus. One positive sign of reform is a tax amnesty awarded
recently, an act without precedent in this country.
Furthermore, the Bertling representative said he expects
several laws requiring mandatory fees to be eliminated later
this year.
BANKING SECTOR REMAINS LARGELY IMMUNE TO REFORM
8. (SBU) Getting credit is still the biggest problem.
Additionally, companies continue to periodically be denied
licenses for bank transfers, despite agreements reached on
both sides of a deal. There is the possibility of a private
bank opening. Nevertheless, many are skeptical as to when
this will happen. Until then, citizens continue to distrust
the banking system and hide dollars, and increasingly euros,
under the mattress.
MINISTERS STILL CONFUSED ABOUT REFORM PROCESS
9. (SBU) Many international companies seem to be waiting for
the new laws to be fully implemented. A Weatherford
representative described as "frustrating" government
ministers' confusion as to where they want to take reform.
Additionally, ministers are dismissed or replaced after a
company has built up a relationship with them, forcing
everyone to start from scratch in this relationship-driven
business environment. Many officials still do not understand
the new laws, although several companies believe this is
changing. As the Cameron representative remarked, it is a
sign of progress that "the roadblocks are slowly being
addressed."
10. (SBU) COMMENT. The scale of recent reforms suggests that
the government does have a long-term vision of the economy,
but remains unsure of how to reach Point B from Point A.
Officials' hesitation to accept responsibility for acting on
reforms presents a significant roadblock. If the president
is serious about promoting reform, the government will need
to continue to push these reforms unambiguously, dismissing
officials who refuse to comply. Additionally, to really set
the foundations for a good business climate, Turkmenistan
will need to relax travel restrictions and improve the
business climate -- an issue that these businessmen, all of
whom are registered, did not raise, but which other
businessmen have cited as one of the top problems in getting
established. END COMMENT.
CURRAN
SENSITIVE
SIPDIS
STATE FOR SCA/CEN;
E.O. 12958: N/A
TAGS: ECON EFIN EINV TX
SUBJECT: TURKMENISTAN: BUSINESS REFORMS SUGGEST CONTINUING
PROGRESS (WITH A FEW LAGGING SECTORS)
1. (U) Sensitive but unclassified. Not for public Internet.
2. (SBU) SUMMARY. Turkmenistan's efforts to rewrite laws
affecting foreign businessmen are beginning to take hold,
according to four U.S. businessmen active in Turkmenistan.
All agreed that the scale of recent reforms suggests a
long-term government vision, but added that many officials'
hesitation to take responsibility for acting on these reforms
remains problematic. Although the business environment is
improving, court arbitration remains corrupt and
exploitative. Reforms in the tax code have removed a
tremendous paperwork burden, but the tax system suffers from
a lack of digitalization. The banking sector remains
stubbornly resistant to reform. Despite this, all
businessmen acknowledged that their revenues are increasing,
and most are optimistic about further change. END SUMMARY.
BUSINESS CLIMATE WARMING UP ...
3. (SBU) Over the last year, Turkmenistan has made strides
in rewriting laws and regulations to improve its business
operating environment. To see whether this new legislation
is making a difference, Emboff met with representatives of
four U.S. companies active in Turkmenistan -- Bertling,
Cameron, Deloitte and Weatherford -- to solicit their views.
All these companies are service companies for the hydrocarbon
sector. All previously have also been outspoken in their
criticisms of Turkmenistan's investment climate.
4. (SBU) The representatives all said that their revenues
are increasing. They concurred that the climate is
improving, although slowly. Specifically, they cited as an
improvement the fact that companies can now more easily
obtain letters of credit for large deals, whereas before they
were forced to receive partial payments with large time
delays. Several stated that business generally proceeds
smoothly after tenders are awarded. However, they also noted
that tenders can only be awarded to another company through
the Ministry of Oil & Gas, which frequently overturns
decisions in favor of well-known companies, like Schlumberger
and Weatherford.
... WHILE BUSINESS ARBITRATION REMAINS FROSTY
5. (SBU) Offshore firms (mostly Russian and Chinese
companies) are forced to use Turkmen arbitration courts,
which are corrupt, lack knowledge of international standards
and can only conduct court cases in Turkmen and Russian. The
result: the courts rule in favor of Turkmen interests 90% of
the time. Western firms who wish to preserve good legal
status by only using neutral arbitration parties such as the
Stockholm Chamber of Commerce are periodically forced to
decline buyers.
TAX CODE: "EVERYTHING IS IN PROCESS" ...
6. (SBU) The tax environment is visibly improving. The
representative from Deloitte remarked, "Every month brings
with it a new legislative reform ) everything is in
process." Where there previously were many types of each tax
(for example, several species of Value-Added Tax, each one
requiring a separate set of instructions),the simplified,
unified and comprehensive tax code recently implemented makes
it easier for companies to work and allows fewer loopholes to
be exploited. The reforms remove much of the tremendous
paperwork burden. Tax officials are becoming more savvy and
friendly to the needs of international financial
organizations and foreign investment. Practical training
tours are now conducted in the regions and officials are more
willing to use tax audits. However, they added, there
continues to be no unified system for taxing individuals.
ASHGABAT 00001058 002 OF 002
... BUT LAGGING BEHIND ITS NEIGHBORS
7. (SBU) Turkmenistan has a long way to go in modernizing
its tax system when compared to its neighbors. The State Tax
Administration largely does not keep electronic files, nor
does it make use of electronic databases such as Westlaw or
Lexus. One positive sign of reform is a tax amnesty awarded
recently, an act without precedent in this country.
Furthermore, the Bertling representative said he expects
several laws requiring mandatory fees to be eliminated later
this year.
BANKING SECTOR REMAINS LARGELY IMMUNE TO REFORM
8. (SBU) Getting credit is still the biggest problem.
Additionally, companies continue to periodically be denied
licenses for bank transfers, despite agreements reached on
both sides of a deal. There is the possibility of a private
bank opening. Nevertheless, many are skeptical as to when
this will happen. Until then, citizens continue to distrust
the banking system and hide dollars, and increasingly euros,
under the mattress.
MINISTERS STILL CONFUSED ABOUT REFORM PROCESS
9. (SBU) Many international companies seem to be waiting for
the new laws to be fully implemented. A Weatherford
representative described as "frustrating" government
ministers' confusion as to where they want to take reform.
Additionally, ministers are dismissed or replaced after a
company has built up a relationship with them, forcing
everyone to start from scratch in this relationship-driven
business environment. Many officials still do not understand
the new laws, although several companies believe this is
changing. As the Cameron representative remarked, it is a
sign of progress that "the roadblocks are slowly being
addressed."
10. (SBU) COMMENT. The scale of recent reforms suggests that
the government does have a long-term vision of the economy,
but remains unsure of how to reach Point B from Point A.
Officials' hesitation to accept responsibility for acting on
reforms presents a significant roadblock. If the president
is serious about promoting reform, the government will need
to continue to push these reforms unambiguously, dismissing
officials who refuse to comply. Additionally, to really set
the foundations for a good business climate, Turkmenistan
will need to relax travel restrictions and improve the
business climate -- an issue that these businessmen, all of
whom are registered, did not raise, but which other
businessmen have cited as one of the top problems in getting
established. END COMMENT.
CURRAN