TURKMENISTAN: GOVERNMENT CONTINUES TO BUILD ELITE

UNCLAS SECTION 01 OF 02 ASHGABAT 000514

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, EEB
STATE PLEASE PASS TO USTDA DAN STEIN
COMMERCE FOR HUEPER

E.O. 12958: N/A
TAGS: PGOV ECON EINV BEXP TX
SUBJECT: TURKMENISTAN: GOVERNMENT CONTINUES TO BUILD ELITE
APARTMENTS DESPITE BEING UNAFFORDABLE FOR MOST CITIZENS

REF: A) Ashgabat 0513, B) Ashgabat 1147


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


2. (U) SUMMARY: At the April 14 Cabinet of Ministers session,
President Berdimuhamedov approved $575 million in construction
projects, including 1,764 elite apartments that must be completed by
February 2010. Although the president is not satisfied with the
work of many of the Turkish construction companies (Ref. A),he
continues to award them contracts. Elite apartments are not
affordable for the average citizen even with 50-70 percent
discounts. Furthermore, the rising price of an elite apartment is
having a significant impact on the price of an ordinary apartment.
A new mortgage program endorsed by the government offers favorable
terms, but people are skeptical. END SUMMARY.

TURKISH COMPANIES NEED TO GET THEIR ACT TOGETHER


3. (SBU) The construction sector was one of the main topics on the
agenda of the April 14 Cabinet of Ministers meeting, during which
the President expressed dissatisfaction with the performance of some
construction companies. He stated that some companies "commit
wrongdoings and carry out low quality work." (NOTE: Corruption is
widespread for foreign construction companies working in
Turkmenistan. This is true from applying for a tender, to winning
it, and executing the project -- regardless of what type it is --
and finally, to turning it over to the government. END NOTE.)


4. (U) Deputy Chairman of the Cabinet of Ministers for
Construction Nazarguly Shaguliyev specifically named nine Turkish
companies that were placed on a "blacklist," including Delta, MACC,
and Sece Inshaat. These companies allegedly violated contractual
commitments related to quality and missed deadlines for project
completion. The president, in addition to once again urging all
construction companies to deliver high quality work on time,
instructed Turkmen officials not to issue licenses or award
contracts to foreign companies that do not have capital.
Berdimuhamedov said in the meeting that some of these companies "do
not have their own operating assets," and this was the cause of many
problems.

POLIMEKS CONTINUES TO RISE


5. (U) During the meeting, President Berdimuhamedov also endorsed
35 construction projects worth a total of $575 million. The
projects include "elite" apartment buildings, schools,
kindergartens, and shopping centers. Despite his discontent and
criticism of Turkish companies, all thirty-five projects were
nevertheless awarded to Turkish companies, except for one that he
awarded to a Russian company. (NOTE: One project, an $18 million,
12-story building with 72 apartments, was awarded to Sece Inshaat,
one of the companies on the "blacklist." END NOTE.) In addition,
the heads of three "exemplary" Turkish companies -- Polimeks, Engin
Group, and Erku -- publicly thanked the president for his trust and
assured him of their honor and willingness to actively participate
in the socio-economic development of Turkmenistan. Polimeks, which
has been winning a number of large projects of late (reftel),once
again came out a winner, with yet another large scale project -- a
137 million Euro television tower.

ELITE APARTMENTS -- NOT FOR EVERYBODY


6. (SBU) Many Turkmen citizens were surprised by the president's
announcement that an additional 1,764 elite apartments would be
built in Ashgabat by February 2010. (NOTE: Only those who are
official residents of Ashgabat - a fact noted in their passports --
are allowed to buy these apartments. END NOTE.) The late
president, Niyazov, had a vision that ministries and other
government agencies would construct elite apartments with "increased
comfort and improved design" for their employees. He created this
program in 2000 to fill Ashgabat with the white marble buildings he

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considered beautiful as well as offer incentives to government
employees. An employee who has worked for five or more years at a
ministry is entitled to purchase an elite apartment at a discount of
50-70 percent (Ref. B).


7. (SBU) However, in actuality, very few employees actually
receive the discount. An Oil and Gas Ministry employee recently
said that she has been working for 14 years and has been on the list
for an elite apartment for the last eight years. "Every year, when
the committee that decides who gets an apartment in a new building
convenes, they bypass me, because I don't pay the 'shapka,'" she
said. (NOTE: A shapka is an ad-hoc bribe, at a fixed price ranging
from $10,000-$20,000, that one has to pay just to get on a "list."
END NOTE.)

WHY AN ELITE APARTMENT?


8. (SBU) An elite apartment offers luxury and security, and has a
western-style layout and design. Most have more than one bathroom,
a luxury worth noting since several siblings and their individual
households often live under one roof. An elite apartment also
provides security, because those buildings are not susceptible to
government demolition for "urban renewal," unlike old Soviet-era
apartments.


9. (SBU) Finally, elite apartments are perceived as good
investments, because the prices of elite apartments have more than
quadrupled in the last three to four years. A post contact, who
acquired an elite apartment in the southern part of the city for
$30,000 in 2003, said that his apartment is now worth at least
$130,000. Many people -- especially those who do not currently own
property, but who would like to -- are concerned that the price for
elite apartments has skyrocketed and continues to do so. This also
may be affecting the housing market in general, especially the price
of ordinary, Soviet-style apartments. For example, two-bedroom
apartments that cost $15,000-$20,000 last year, now sell for
$25,000-$35,000.

MORTGAGE DECREE NOT CREATING MORE HOMEOWNERS SO FAR


10. (U) At the beginning of 2008, President Berdimuhamedov signed a
decree authorizing President Bank, which is a state commercial bank
and allowed to earn a profit from mortgage loans, to provide a new
mortgage program to Ashgabat residents who want to purchase an elite
apartment. The provisions include a one percent interest rate, a
down payment that has dropped from 30 to 10 percent, and a mortgage
term that has been extended from 15 to 30 years. In addition,
interest will not be charged on the principal for the first five
years. A senior employee of President Bank said that, as long as
all the paperwork is in order, ordinary citizens should have no
problem obtaining a mortgage. Rumors are circulating, however, that
the government primarily established the new mortgage program to
demonstrate to observers that it is making progress on fair housing
issues.


11. (SBU) COMMENT: Prices of elite apartments are simply not
affordable for the average citizen, who typically earns about $100
per month. Instead of building lavish, marble-coated elite
apartment buildings, the government should focus some of its energy
on building apartments the average person can actually afford. END
COMMENT.

CURRAN