UNCLAS SECTION 01 OF 02 ASHGABAT 000369

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SENSITIVE
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STATE FOR SCA/CEN, EEB
PLEASE PASS TO USTDA DAN STEIN
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ENERGY FOR EKIMOFF/THOMPSON

E.O. 12958: N/A
TAGS: PGOV EINV BTIO KIRF TX
SUBJECT: TURKMENISTAN: PRESIDENT SIGNS NEW LAW ON FOREIGN
INVESTMENT


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: Turkmenistan's President Gurbanguly
Berdimuhamedov on March 17 unveiled a new government program
to promote domestic entrepreneural development and foreign
investment, including substantial changes to Turkmenistan's
tax code and a new law on foreign investment. While all
documents will require substantial further analysis, the new
law on foreign investment, which includes substantially
broadened protections for foreign investors (including a
simplified visa regime), seems to represent a genuine effort
by the government to improve the foreign investment climate,
although we believe it was drafted with relatively little
foreign consultation and input. END SUMMARY.


3. (U) During a cabinet meeting on the fringes of an
entrepreneurial exhibit, Turkmenistan's President Gurbanguly
Berdimuhamedov on March 17 announced that his government is
embarking on a program to promote development of small and
medium enterprises in Turkmenistan and improve the foreign
investment climate. The president announced he is requiring
the Justice Ministry and other relevant government agencies
to develop a new plan for promoting private business within
30 days (septel). On the same day, he signed a law making
major revisions to Turkmenistan's tax code (septel) and a
totally new law on foreign investment.

NEW LAW ON FOREIGN INVESTMENT LONGER THAN PREVIOUS LAW


4. (U) The new law on foreign investment replaces an old law
foreign investment law dating back to 1992. Its six chapters
and 30 articles greatly expand the previous law. New
additions in the definition of foreign investments include
new references to (and protection for) intellectual property
rights and rights for the results of intellectual activities,
and also for services and information. As in the previous
law, foreign investors can include international
organizations and foreign governments, as well as foreign
juridical entities and foreign

physical entities that are
permanent residents in foreign countries at the time of
investment. The new law also states that any international
agreements to which Turkmenistan is a party supercede the
foreign investment law.

NEW "COMPETENT BODIES" FOR NON-HYDROCARBON SECTORS


5. (U) The new law gives the Council of Ministers
responsibility for development and realization f government
policies for attracting foreign investment and for
coordinating foreign investment activities on Turkmenistan's
soil. Drawing on the example provided by the State Agency
for Management and Use of Hydrocarbon Resources, however, the
law also creates a series of representative organs that will
function as "competent bodies" for the day-to-day management
of foreign investment. These bodies will be tasked with
developing measures to promote foreign investment,
coordinating activities in the foreign investment sector
(including formulating effective mechanisms for partnerships
between the government and businesses), and assisting foreign
investors with the process of meeting relevant officials,
registering their investments, providing marketing
information and consulting services. These bodies will also
monitor investment monies from international financial
institutions and donor countries, study international capital
markets and make suggestions to the Cabinet of Ministers for
improving the investment climate. All investment projects
with foreign investment must be registered and approved by a
body of experts.

ASHGABAT 00000369 002 OF 002



NEW, BROADER PROTECTIONS FOR INVESTORS


6. (U) In laying out the legal regime for foreign investment
activities, the new law states that such activities may be
limited only to the degree to which such limitations are
required to protect the basis of Turkmenistan's constitution
and security. If there are changes in Turkmenistan's
legislation that lead to new prohibitions or restrictions,
the laws in effect at the time the investment was registered
will continue to be applied for ten years.


7. (U) The new law gives enterprises with foreign
investments and branch offices of foreign juridical entities
the right to export their products and to import products for
their own use. Foreign investors are given special
incentives in free economic zones, including the right to
rent land under special terms, and fee-free services for
themselves, their contractors and sub-contractors.
Enterprises with foreign investment are given the right to
set the conditions for selling all products where prices are
not state-regulated. The law also authorizes, in the
interests of improving Turkmenistan's social-economic
development, any other benefits needed to attract foreign
investment.


8. (U) One of the areas of broadest difference between the
new and old foreign investment laws is the substantially
broader legal protections given to foreign investors under
the new law. New guarantees include the free use of wages
and profit on the territory of Turkmenistan, including for
re-investment, unblocked repatriation of wages, profit, and
other legally received moneys in foreign currencies, the
right to pass on contractual rights and financial obligations
to other parties, a simplified visa regime (investors, their
representatives and families working in Turkmenistan are
guaranteed multi-entry visas for terms not less than one
year), access to information, repayment for termination of
investment activities and compensation for forced
confiscation of property.


9. (U) The law states that trade disputes will be resolved
through negotiation, in a Turkmen court of arbitration, or --
with the agreement of both sides -- in a third-party court.


10. (SBU) COMMENT: The government has enacted this new law
in response to growing pressure from foreign governments and
businessmen to improve Turkmenistan's foreign investment
climate. At first glance, there seem to be a number of
improvements, especially the guarantee of an eased visa
regime, that represent a real effort to respond to the points
of greatest contention. However, post will follow up in the
coming days with experts from international financial
institutes and foreign businessmen to see how they view this
new law. EBRD and World Bank, for example, tell us they had
very little input during the drafting. END COMMENT.
HOAGLAND