Identifier
Created
Classification
Origin
08ASHGABAT49
2008-01-10 12:47:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

TURKMENISTAN: HYDROCARBON AGENCY'S MURADOV

Tags:  PREL PGOV EPET RS KZ TX 
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C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000049 

SIPDIS

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STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HEUPER

E.O. 12958: DECL: 01/10/2018
TAGS: PREL PGOV EPET RS KZ TX
SUBJECT: TURKMENISTAN: HYDROCARBON AGENCY'S MURADOV
CONFIRMS CASPIAN LITTORAL PIPELINE COST STRUCTURE UNDECIDED

REF: ASHGABAT 0033

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

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000049

SIPDIS

SIPDIS

STATE FOR SCA/CEN, EUR/RUS, EUR/CARC, EEB
PLEASE PASS TO USTDA DAN STEIN
ENERGY FOR EKIMOFF/THOMPSON
COMMERCE FOR HEUPER

E.O. 12958: DECL: 01/10/2018
TAGS: PREL PGOV EPET RS KZ TX
SUBJECT: TURKMENISTAN: HYDROCARBON AGENCY'S MURADOV
CONFIRMS CASPIAN LITTORAL PIPELINE COST STRUCTURE UNDECIDED

REF: ASHGABAT 0033

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


1. (U) See action request in para 11.


2. (C) SUMMARY: During a January 10 meeting, the Executive
Director of Turkmenistan's State Agency for Management and
Use of Hydrocarbon Resources, Byrammurat Muradov, told the
Charge that press reports that each of the three countries
involved in construction of a new Caspian littoral pipeline
is responsible for financing its own segment are not entirely
true. Under the littoral pipeline agreement signed December
20 in Moscow, each country will own the section of the
pipeline on its soil and will be responsible for deciding the
financing for that section. The financing structure itself
remains undecided as the countries seek to identify whether
to fund through a consortium or on their own. However,
Muradov expects decisions in the next month, with pipeline
construction to begin as early as the second half of 2008.
(COMMENT: Wildly optimistic. END COMMENT.) Muradov also
confirmed that Turkmenistan will carry out a new audit of its
hydrocarbon reserves, probably through a foreign firm, and
that it will likely make public the general results in an
effort to boost Turkmenistan's credibility. The State Agency
still feels insecure negotiating various types of agreements.
At least some of the delay in U.S. companies' ongoing
negotiations with the State Agency may be due to its
continued lack of understanding of international hydrocarbon
practices and agreements. END SUMMARY.


3. (SBU) Charge met with Muradov January 10 to discuss with
the State Agency head the status of the training program
developed by the U.S. Trade and Development Agency (USTDA).
The Charge said the program would start in mid-February,
which Muradov welcomed. The Charge also gave Muradov a
heads-up that Ambassador Steve Mann might visit soon to

discuss energy issues. Meredov said he would warmly welcome
such a visit.

CASPIAN LITTORAL PIPELINE: EACH COUNTRY OWNS ITS OWN SECTION


4. (C) Noting that there is much interest in the United
States and Europe in the Caspian littoral pipeline, the
Charge asked whether each country would pay for the
construction of its own section, as reported in the press.
Muradov responded this information is not quite true. Each
country -- Turkmenistan, Kazakhstan, and Russia -- will own
the section of the pipeline on its territory. In addition,
under the terms of the agreement signed in Moscow on December
20, the pipeline's financing structure is also quite
flexible: each country can decide whether it wants domestic
or foreign financing, or a combination of the two.

FINANCING STILL UNRESOLVED


5. (C) Muradov said Turkmenistan is still internally
discussing financing options and expects to reach a decision
on what type of tender it wants to offer within a month. All
three countries are discussing their options. If they reach
a decision to issue one tender for the entire pipeline, the
tender decision must be vetted and fully approved by all
three countries. However, he emphasized, Turkmenistan is
looking at several scenarios, including a single
three-country tender for financing the pipeline, or a tender
for just Turkmenistan's portion of the pipeline. Noting that
Turkmenistan is consulting with various international
experts, he invited the United States to offer its opinion.


6. (C) One of the options Turkmenistan is considering is

ASHGABAT 00000049 002 OF 003


forming a consortium with Kazakhstan, Muradov said. Even if
it decides to form a financing consortium, however, it is
important that the Turkmenistan section of the pipeline
belong to Turkmenistan. This puts the country in a favorable
position, Muradov emphasized. He suggested that pipeline
construction could begin in the second half of 2008.
(COMMENT: This seems wildly optimistic. END COMMENT.)
Turkmenistan's main objective at this point is to make a
decision on the financing structure for its section of the
pipeline, and to prepare the tender. Muradov mused the
proposed USTDA training for the State Agency would have been
useful two months ago.

NEW AUDIT WILL STRENGTHEN CREDIBILITY


7. (C) Responding to a question on the new audit of
Turkmenistan's hydrocarbon reserves that the president
ordered in a December 29 cabinet meeting, Muradov confirmed
that Turkmenistan will carry out the audit in order to try to
resolve questions about the volume of Turkmenistan's
reserves. They hope to hire an international firm this year
to allay any doubts about the audit's integrity. The amount
of time required to carry it out will depend on the auditors
chosen, as well as the scope of work involved and the
auditors' efficiency. While Turkmenistan will consider the
details of the auditing results to be proprietary
information, it recognizes that it needs to make the general
results public to enhance the country's credibility. When
the Charge congratulated Muradov on the care and attention to
Turkmenistan's interests that officials are giving to oil and
gas decisions, Muradov said, "Our president set a goal, and
we have to try to achieve this."

CONOCOPHILLIPS NEGOTIATIONS CLOSEST TO AGREEMENT


8. (C) When the Charge asked how Turkmenistan's negotiations
with several international companies -- Chevron,
ConocoPhillips/Lukoil and BP -- have been going, Muradov said
that negotiations with ConocoPhillips/Lukoil were the closest
to reaching an agreement. The State Agency has had serious,
detailed discussions with ConocoPhillips, and will have a new
round of negotiations shortly. While there are still
differences between the two sides, Muradov suggested that
ConocoPhillips/Lukoil seems to understand the reasons for
Turkmenistan's position. If ConocoPhillips/Lukoil's position
has not changed since the last round of negotiations, he
predicted, the two sides could reach an agreement very soon.
He said, "We are very, very close."

BP AND CHEVRON PROPOSALS NEED ADDITIONAL TIME


9. (C) By comparison, Muradov said, Chevron and BP are
serious companies, but those negotiations will take
additional time. He said BP has explained in general terms
its philosophy for developing the Caspian Sea, but has not
yet offered a concrete proposal. Chevron offered a joint
venture -- an idea that Turkmenistan likes -- but the
government needs additional time to evaluate the proposal.

MURADOV REQUESTS LIST OF REPUTABLE HYDROCARBONS ATTORNEYS


10. (C) The Charge reminded Muradov that it is possible to
hire international lawyers to review final contracts before
signature, as Bulgaria recently did before signing an
agreement Russia had proposed for the Southstream pipeline.
The lawyers Bulgaria hired significantly helped the
government. Muradov said that Turkmenistan wants to hire
lawyers, but several companies do not have good reputations.
He added, "The quality and integrity of the person is more
important than the size of the company." Agreeing that

ASHGABAT 00000049 003 OF 003


Turkmenistan needs real experts, the Charge suggested that
Turkmenistan consult with Kazakhstan to learn which
international law firms Astana has employed. "We've done
that," Muradov replied, "but we'd gladly take your
recommendations as well." The Charge agreed to provide a
list of experienced law firms that specialize in
international hydrocarbon law, but stressed that the U.S.
government cannot recommend any particular firm. Muradov
said, "We accept your offer with pleasure."

ACTION REQUEST


11. (U) Embassy requests the assistance of the Departments
of Energy and Commerce in compiling a list of firms/attorneys
experienced in international hydrocarbon law that it can pass
as soon as possible to the State Agency.


12. (C) COMMENT: Unlike many of his government
counterparts, Muradov tends to be relatively straightforward
in meetings, usually demurring rather than lying in response
to questions he does not want to or cannot answer. Most of
what he said on the Caspian littoral pipeline and the audit
rings true. More striking, however, was the eager enthusiasm
with which he accepted the Charge's offer of a list of
internationally recognized contract attorneys with experience
in the hydrocarbon sector. All this seems to confirm
reftel's suggestion that the State Agency continues to feel
out of its league after nearly ten months of operations. END
COMMENT.
HOAGLAND