TURKMENISTAN'S CONSTRUCTION INDUSTRY: A

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001432 SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: DECL: 11/03/2018 TAGS: PREL EIND KCOR TX TU RS SUBJECT: TURKMENISTAN'S CONSTRUCTION INDUSTRY: A HIGH-STAKES GAME AND FULL OF RISK-TAKERS REF: 07 ASHGABAT 968 Classified By: Charge d'Affaires a.i. Sylvia Reed Curran for reasons 1. 4 (B) and (D). ¶1. (SBU) SUMMARY: As a longtime Turkmenistan expatriate resident recently observed, Turkey's arrangements with Turkmenistan let them get away with a lot, but Turkish companies -- particularly construction companies -- are also vulnerable to arrest, deportation, and other unpleasantries when things go bad, such as in cases of corruption. The local office of French construction company Bouygues reportedly also has been feeling the pinch lately, since having only one customer in the country -- the government -- can become a vulnerability when hard currency becomes scarce. Turkmenistan's rough-and-tumble construction industry is not a business for the faint of heart. END SUMMARY. TURKISH COMPANIES IN HOT WATER BECAUSE OF FINANCIAL IRREGULARITIES ¶2. (C) According to longtime Turkmenistan resident and EU-Tacis Advisor Michael Wilson (please protect throughout), a Turkish Embassy source told him that over 15 Turkish companies recently met with Ambassador Hussein Bichakli to discuss various problems, including the fact that Special Forces had raided ten of these companies -- allegedly for tax reviews and because of allegations of abuse committed against Turkmen staff, in particular women. Wilson said in a meeting on October 30 that Turkish expatriates frequent prostitutes employed by the security police, which leaves them open to blackmail and deportation. Local women are often used as pawns when the Turkmen want to punish expatriates. CORRUPTION ALLEGATIONS -- CHALIK WAS BARRED FROM DEPARTURE IN EARLY 2008 ¶3. (C) Wilson said that the Turks were surprised that these problems arose and as a consequence are being very discreet. Wilson observed that "Turkey's arrangements with the Government of Turkmenistan let them get away with a lot, but it also leaves them vulnerable when things go bad." According to Wilson, Ahmed Chalik of Group Chalik -- an old crony of former President Niyazov -- wasn't allowed to leave the country in January or February of 2008 because USD five million in spare parts were missing from a cement factory built by his company. The nonexistence of the parts was noticed when the factory was about to begin repair and maintenance work. Wilson said that Turkmenistan allowed Chalik to leave only after then-Ambassador Haki Akil stepped in. ¶4. (C) Serdar Jepbarov of the World Bank noted in a meeting on October 31 that the unification of the exchange rate hurt Turkish construction companies because they pay local employees in dollars, and had to make a choice to either increase salaries and reduce corporate profit, or allow employees to suffer a 40 percent decrease in the value of their incomes. BOUYGUES: FINANCIALLY VULNERABLE DUE TO RELIANCE ON GOTX WORK ¶5. (C) Bouygues Regional Director for Turkmenistan Charles Santer told Wilson that while Bouygues Turkmenistan's annual revenue is higher than most of Bouygues' locations around the world, the Turkmenistan unit has only one customer: the Government of Turkmenistan. This makes its business particularly vulnerable since a delay in payment from the exclusive customer can create serious credit and cash-flow problems. Wilson hypothesized that this risk is only exacerbated as a result of the economic crisis. CASH FLOW PROBLEMS? ASHGABAT 00001432 002 OF 002 ¶6. (C) Wilson added that while Turkmenistan continues to announce construction contracts, construction is not commencing, and Turkish and Turkmen inputs in Avaza (reftel) are slowing down. He hypothesized that the government isn't sending the down payment or furnishing the letter of credit necessary for a contractor to break ground. Post has also heard rumors that Turkmenistan has been slow in paying for refurbishment the Ukrainians are doing on Turkmen tanks. Wilson said that Turkmenistan is having some cash flow problems because gas payments from Russia are slow in arriving (septel). ¶7. (C) COMMENT: These stories about the rough-and-tumble world of Turkmenistan's construction industry show that this is not a business for the faint of heart. They also highlight the risks that businesses run when they engage in unethical business practices. While such practices might seem lucrative in the short run, it renders the businesses vulnerable to more demands and harsh measures down the road. END COMMENT. CURRAN