TURKMENISTAN: MORE HURDLES IN A CHALLENGING

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001487 SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: DECL: 11/12/2018 TAGS: EIND EFIN ETRD RU TX TU UP UZ AORC SUBJECT: TURKMENISTAN: MORE HURDLES IN A CHALLENGING CONSTRUCTION SECTOR REF: A. ASHGABAT 1466 ¶B. ASHGABAT 1432 Classified By: Charge d'Affaires a.i. Sylvia Reed Curran for reasons 1. 4 (B) and (D). ¶1. (C) SUMMARY: A resident IFI representative recently shared reasons for construction delays at some sites in Ashgabat: credit problems and a breakdown in the cement supply chain. According to this source, a Turkish industrial magnate active in Turkmenistan has said the Turkmen are consistent late payers on construction projects. These factors, as well as tardy payments for gas exported to Russia (Ref A),are putting pressure on players in the local construction industry, even as construction projects increase by the day. END SUMMARY. CEMENT SUPPLY CHAIN BREAKDOWN ¶2. (C) European Bank for Reconstruction and Development (EBRD) Ashgabat Resident Office Head Neil McKain (please protect throughout) said in a meeting on November 4 that delays at Ashgabat construction sites are due to shortages in the cement supply. According to McKain, a Turkish-built cement factory was shut down for three weeks in September and is still running at low capacity, which has resulted in shortages of concrete. This moved the government to lift concrete and cement import duties on trans-Caspian imports in mid-September, and then to remove duties from overland imports from Uzbekistan at the end of September. Turkish construction company Polimeks, active in the Turkmenistan market, will build a new concrete plant stocked with Ukrainian equipment in the vicinity of Turkmenbashy. In addition, McKain had heard that a consultant from leading French construction material supplier Lafarge, who had helped Turkmenistan in the past for free, may come again to assist with the country's cement supply chain. "INFORMAL CREDIT ARRANGMENTS" ARE NOT WORKING WELL ANYMORE WITH THE TURKS ¶3. (C) McKain also said that "informal credit arrangements" between Turkish construction companies and the Government of Turkmenistan, which allowed Turkmenistan to pay for buildings in installments as parts of projects were completed, are not working well anymore. The international economic crisis has reduced the Turkish companies' operating capital and made it more difficult for them to obtain credit. McKain alleges that this -- and not a shortage of capital on the Turkmen side -- is to blame for construction delays. ¶4. (C) Turkish companies now want Turkmenistan to stick to payment schedules as outlined in contracts. According to McKain, Ahmet Chalik of Chalik Group said the government has paid only USD 35 million on the total construction price of USD 135 million for the Ministry of Textile Industry building. Chalik said that the Turkmen take advantage of the "brotherhood" (between Turks and Turkmen) relationship. (NOTE: At the only non-Korean meeting held during President Berdimuhamedov's visit to the Republic of Korea November 6-7, Ahmet Chalik gave progress reports on several projects and made proposals. Berdimuhamedov reportedly emphasized the importance of accelerating projects such as the new mosque in Konye Urgench being built by Chalik's company. END NOTE.) ¶5. (C) COMMENT: As post has previously reported, the construction sector in Turkmenistan presents a challenging business environment (Ref B). Reports of supposed Turkmenistan government payment problems are currently discussed even among locals. While the source of the problem might be difficult to pin down, it most likely lies in a combination of factors, including delayed payment for gas exports and Turkmen indifference to paying construction companies promptly. Since these are not factors that foreign ASHGABAT 00001487 002.2 OF 002 construction companies can control, they'll eventually have to decide at what point the costs of doing business in Turkmenistan exceed the benefits. In the end, no construction company is here to do charity work. END COMMENT. CURRAN