TURKMENISTAN: DONORS DISCUSS POSSIBILITIES FOR

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001352

SIPDIS

STATE FOR SCA/CEN, EEB

E.O. 12958: DECL: 10/11/2018
TAGS: PREL ECON EFIN EINV EPET AORC TX
SUBJECT: TURKMENISTAN: DONORS DISCUSS POSSIBILITIES FOR
IMPROVING BUSINESS ENVIRONMENT

Classified By: Charge d'Affaires a.i. Sylvia Reed Curran for reasons 1.
4 (B) and (D).


1. (C) SUMMARY: During a recent meeting hosted by the
European Bank for Reconstruction and Development (EBRD)
resident representative, donor country diplomats said that
there is more discussion about developing the private sector
in Turkmenistan than ever before. Some were doubtful,
however, that there is actually any real desire for a vibrant
private sector within top leadership. Turkmenistan is
reportedly interested in learning more about national wealth
funds. EBRD has suggested a national investors council as
one mechanism that would help improve the business
environment. Donor countries should be delivering a
consistent message to the Turkmen government about the
importance of improving the business climate in order to
encourage needed change. END SUMMARY.


2. (C) On October 9, the Head of EBRD's Resident Office in
Turkmenistan, Neil McKain, held the first of what he
envisions will be quarterly lunch meetings for local
diplomats from EBRD shareholder countries to discuss economic
issues of interest in Turkmenistan. Post reported on EBRD's
draft Transition Report and its latest inflation estimate
septel. Representatives from the French, Georgian, German,
Japanese, Turkish, UK, and U.S. Embassies attended the lunch.

DISCUSSION ON POSITIVE STEPS FORWARD


3. (C) Group members agreed that amount of discussion about
developing the private sector in Turkmenistan has increased,
noting one year ago "it was out of the question." President
Berdimuhamedov has encouraged privatization. Former Textile
Minister Jemal Goeklenova had also been a proponent of
private sector development. However, UK Ambassador Peter
Butcher (please protect) later said that he is not sure that
there is the "will at the top" for an increase in foreign
investment.


4. (C) McKain said that for the first time, the Turkmen
government supplied all the data -- "all the boxes were
checked" -- that EBRD requested in order to complete its
Transition Report.

...INCLUDING OIL AND GAS/NATIONAL WEALTH FUND DEVELOPMENTS


5. (C) According to McKain, Arnold Hoiting, an Australian
consultant working through Europa House in the Ministry of
Finance, said that Turkmenistan has shown interest in
developing a national wealth fund, but has not committed to
anything yet. McKain said that one example of concrete
interest from the Turkmen would be high-level participation
in a study tour to Norway to learn how such a fund operates.
McKain said that the Norwegian firm Statoil is establishing
an office in Ashgabat. McKain thought that the International
Monetary Fund (IMF) may have planted the idea of a national
wealth fund with the Turkmen during a seminar they led in
November/December 2007. Turkmenistan also requested
information from the World Bank on national wealth funds.
McKain said that EBRD may look at starting some small oil-
and gas-related projects in the future, for example a
conservation project, noting that Chevron estimates 10
billion cubic meters of Turkmen gas is wasted each year due
to inefficiencies (leaks in pipes, etc.).

PROBLEMS IN THE BUSINESS ENVIRONMENT


6. (C) The group agreed that Turkmenistan's restrictive visa
regime, taxation policy, and the lack of any real commercial
arbitration are the most serious impediments to encouraging a
private sector. McKain added that an arbitration expert
sponsored by the European Union should come soon to consult
with the government. Meeting attendees offered Turkmen

ASHGABAT 00001352 002 OF 002


officials react most positively when provided with Kazakh
examples of different concepts, and markedly less so to
Kyrgyz or Tajik examples.

HOW TO HELP TURKMENISTAN IMPROVE ITS BUSINESS ENVIRONMENT


7. (C) McKain said Kazakhstan's Foreign Investor Council
meets twice a year and has played a valuable role in helping
to improve that country's business environment. He also
suggested that working groups established by ministers to
address problems would be another activity that could help in
Turkmenistan. An essential component of this work would
include information on what EBRD has done elsewhere, and case
studies. McKain welcomed collaboration with other countries
and international organizations on this effort, and said that
EBRD will present the idea of an investor council when the
bank commences new investment projects in Turkmenistan again.
He hopes to have progress on the establishment of such a
council by early next year. McKain believes Turkmenistan is
already aware of what is needed to foster a better business
environment -- basically the list of incentives and
privileges offered to attract foreign investors to the new
tourism zone currently under construction in Avaza.

TURKEY'S BUSINESS FORUM WITH TURKMENISTAN


8. (C) Turkish Charge Hakan Cengiz shared that Turkmenistan
has not named a new co-chair for the Turkmen-Turkish Business
Forum since the resignation of Minister of Textiles Jemal
Goeklenova. He noted that the Turkish side has raised the
problems posed by the restrictive visa regime, but Turkmen
economic ministers and officials responded that this was not
their business -- power ministries decide all visa matters
and the economic ministries have no say in the matter.

OTHER COUNTRIES ASSIST BUSINESSMEN WITH VISAS


9. (C) Georgian Ambassador Alexi Petriashvili explained that
the Turkmen MFA has refused to give 90 percent of the
Georgian Embassy's "guest of embassy" visa applicants
(businessmen) visas in the recent past. Chiefs of mission
present at the lunch were surprised that post does not offer
a similar service to U.S. businessmen since it is practically
impossible to come to Turkmenistan without contacts, and it
is virtually impossible to develop contacts outside of
Turkmenistan.


10. (C) COMMENT: The U.S. and other donors need to
consistently press the importance of improving the business
climate at high level meetings with Turkmen officials in
order to encourage needed change. This will be the only way
to achieve forward movement. END COMMENT.
CURRAN