TURKMENISTAN: PRESIDENT PRESSURING STATE AGENCY

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000033

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EEB (AMB. MANN)
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HUEPER
AID/W FOR EE/AA

E.O. 12958: DECL: 01/08/2018
TAGS: PGOV EPET TX
SUBJECT: TURKMENISTAN: PRESIDENT PRESSURING STATE AGENCY
FOR HYDROCARBON USE

REF: 07 ASHGABAT 1381

Classified By: Charge Richard E. Hoagland for reasons 1.4(B) and (D).


1. (C) SUMMARY: Bayrammyrat Muradov, the Executive
Director of Turkmenistan's State Agency for Management and
Use of Hydrocarbon Resources, who the president publicly but
indirectly criticized during a December 18 cabinet meeting
(reftel),is reportedly under growing pressure and could lose
his job before the end of 2008 unless he is able to start
delivering new agreements with foreign firms for the Caspian
blocks, according to the General Manager of
Wintershall/Maersk. During a January 4 meeting with Emboff,
the General Manager laid out a picture of the State Agency as
a body whose lack of technical expertise is leading to
gridlock. While most insiders here agree that the real
obstacle to meeting the 2030 Plan oil production goals is
declining production by state concerns, the fact that Muradov
is not finalizing on-going negotiations is not helping his
own case. Moving forward soon with USTDA and Department of
Energy training may be critical if we want to see Muradov --
who up to now has seemed to be a much more strategic and
flexible thinker than Deputy Prime Minister for Oil and Gas
Tagiyev -- continue in his job. END SUMMARY.


2. (C) Commenting on the president's December 18 criticism
of the State Agency for Management and Use of Hydrocarbon
Resources (reftel),Kal Sandhu, General Manager of
Wintershall/Maersk, told Emboff during a January 4 meeting
that the State Agency's Executive Director, Barammyrat
Muradov, feels under massive pressure and may be forced to
leave his job within the next year. According to Sandhu, who
claims to meet regularly one-on-one with Muradov, Muradov
came to his current job as a very bright individual the
president trusted but with absolutely no technical knowledge
of the hydrocarbons sector. Muradov was chosen for the job
as the person most capable of going out, interfacing with and
attracting western companies to bid on Turkmenistan's Caspian
Sea blocks. This is what he excels at, and he has, in fact,
netted some bids from foreign companies, but his lack of
knowledge of the oil trade has prevented him from taking any
of the bids that he has attracted to their final stage --
signed agreements.

MURADOV THE STAR OF A ONE-MAN-SHOW


3. (C) According to Sandhu, Muradov is also handicapped by
the lack of experience and knowledge of his subordinates.
Although everybody is quite smart and the State Agency's
approximately 17 employees are working 18-hour days, they do
not know what they are doing. Everybody in the hydrocarbon
sector is conscious of the fate of the Competent Body (the
State Agency's predecessor under former President Niyazov),
which declined sharply and finally was closed after
then-Deputy Chairman for Oil and Gas Yolly Gurbanmuradov's
arrest on corruption charges. For this reason, technical
experts continue to migrate to the Ministry of Oil and Gas or
one of the state hydrocarbons concerns, believing that they
will have shorter hours and more secure jobs. This is
keeping the State Agency undermanned, overworked, and -- with
Muradov left making most of the major decisions -- largely a
one-man show.


4. (C) Sandhu noted that there are only a small number of
"real experts" in the State Agency left over from the
Competent Body, limiting the State Agency's ability to
support foreign firms. These individuals are attached to
foreign firms already working Caspian blocks and help to
smooth the company's interaction with other Turkmenistan
government agencies. The State Agency employee attached to

ASHGABAT 00000033 002 OF 003


Dragon Oil, who has been in the business for 18 years, is one
of the best. (COMMENT: Compared to Wintershall/Maersk,
Dragon Oil has no real complaints about the State Agency,
though the company's general manager suggested that decisions
sometimes take longer than Dragon Oil would wish. END
COMMENT.) The individual who used to be attached to Burren
Energy has been reassigned to Petronas, and that individual
is described as "okay." Burren now has a less competent
person, and the individual attached to Wintershall/Maersk is
allegedly "terrible." As a result, Wintershall/Maersk has
been beset with troubles, including with the tax authorities.
Sandhu expressed concern about the State Agency's ability to
support a much-larger list of client companies if more
international agreements are signed.

PRESIDENT PUSHING FOR MORE FAVORABLE AGREEMENTS


5. (C) Also complicating Muradov's situation is rumored
pressure from the president to conclude agreements more
favorable to Turkmenistan, according to Sandhu. Particularly
looking at the recent sale of Burren Energy to the Italian
giant ENI, the president apparently has decided that the
foreign firms' profit margin is too great. (NOTE: The
Dragon Oil general manager has also picked up similar vibes
from his contacts with Turkmenistan's hydrocarbons agencies.
END NOTE.) Thus, the State Agency is seeking as it
negotiates new PSAs to push for a cost-recovery schedule that
is more favorable to the government. (NOTE: There are also
rumors that the government is seeking to change royalty and
marketing and lifting clauses. END NOTE.)

MURADOV NEEDS TO ACT SOON OR LOSE HIS JOB?


6. (C) Sandhu denied that there is a competition between
Deputy Chairman of the Cabinet of Ministers for Oil and Gas
Tachberdi Tagiyev -- Muradov's boss -- and Muradov himself.
Sandhu claimed that Tagiyev, a career hydrocarbons expert, is
technically extremely proficient, but he lacks a larger
strategic sense for developing Turkmenistan's hydrocarbons
market. By comparison, Muradov is a technical neophyte and
thus poses no threat to Tagiyev, including in his ability to
argue hydrocarbon decisions with the president. Athough it
is state concerns like Turkmenneft rather than the foreign
companies working oil that are responsible for the leveling
of oil production in recent years, Tagiyev could still point
to Muradov's inability to finalize any agreements as
Muradov's contribution to the problem. (NOTE: Foreign oil
production under current agreements is actually increasing
across the board, while the years of too-little investment
under Niyazov is leading to declining production in the state
concerns. END NOTE.) Muradov, Sandhu concluded, badly needs
to conclude an agreement with Conoco/Phillips Lukoil very
soon, or his job could be in jeopardy.


7. (C) Sandhu noted to help the State Agency become more
professional Wintershall/Maersk is sending 10 students to
Germany to study. However, he added, this is only a
long-term solution, since it will take some years for these
students to complete their courses and return to
Turkmenistan. He urged the United States seek to assist the
State Agency.


8. (C) COMMENT: Wintershall/Maersk has yet to hit oil in
its Caspian operations, and that may be part of the reason
that it is getting a State Agency third-stringer. While
Sandhu can be a tad pessimistic, many of his comments
regarding the State Agency ring true to us, particularly
about the general lack of confidence and experience within
the body. Unlike the situation under Niyazov, receiving
presidential criticism no longer leads to automatic

ASHGABAT 00000033 003 OF 003


dismissal, and the president did not mentioned Muradov by
name. Nonetheless, we agree that the fact that Muradov has
not achieved any new agreements yet does not enhance his
chances for longevity in his position. Moving forward soon
with USTDA and Department of Energy training may be vital if
we want to see Muradov -- who up to now has seemed to be a
much more strategic and flexible thinker than Tagiyev --
continue in his job. END COMMENT.
HOAGLAND