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 ASHGABAT 00000514 002 OF 002 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