TURKMENISTAN: INTERBUDMONTAZH

UNCLAS SECTION 01 OF 02 ASHGABAT 000525 SIPDIS SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB STATE PLEASE PASS TO USTDA DAN STEIN COMMERCE FOR HUEPER E.O. 12958: N/A TAGS: ECON EINV BEXP PGOV TX SUBJECT: TURKMENISTAN: INTERBUDMONTAZH ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: On April 22, 2008 Turkmenistan announced its intention to take Ukrainian construction company Interbudmontazh to court for failing to fulfill the terms of a major tunnel construction contract. President Berdimuhamedov warned of this early in January 2008. The case of Interbudmontazh once again highlights the inadequacies of the Turkmen-Ukrainian barter-for-gas agreement that became a headache for both parties. END SUMMARY. DON'T MESS WITH TURKMENISTAN ¶3. (U) On April 22, 2008, state media reported that the Ashgabat mayor's office planned to file a claim against the Ukrainian company Interbudmontazh in international arbitration court. According to press reports, Interbudmontazh has not fulfilled its contractual commitments regarding the construction of an engineering communications tunnel project, while the Turkmen side has adhered strictly to the terms of the contract and made multiple large advance payments on time. INTERBUDMONTAZH'S ROLE IN TURKMENISTAN ¶4. (U) Interbudmontazh, created from a large Ukrainian holding company that started in 1993, was formed in 2000 to engage in construction projects in Turkmenistan. In the same year it won a bid on a ten-year project to construct an underground communications tunnel beneath Ashgabat, and construction began in 2002. The project was ostensibly intended to modernize and improve the capital's drainage, sewage, and communications infrastructure. ¶5. (SBU) The Government of Turkmenistan publicly announced that the tunnel was part of a Turkmenistan-Ukrainian gas barter agreement. In 2005, the pro-government website turkmenistaninfo.ru valued the project at $204 million. The project was reevaluated after the dissolution of the gas barter deal and new gas-for-cash arrangements were agreed to by Presidents Yuschenko and Niyazov in March 2005. Then, during his visit to Ashgabat in 2006, Ukrainian Fuel and Energy Minister Ivan Plachkov sought to recalculate the contract's cost, citing the rising cost of construction materials and unexpected project complications. Interbudmontazh General Director Vadim Sulim in 2006 refused to disclose the overall cost of the project to a U.S. Embassy official. BERDIMUHAMEDOV LEANS ON UKRAINIAN COMPANIES ¶6. (U) On January 4, President Berdimuhamedov met on-site in Lebap Province with Branch Director Viktor Shevchenko of Ukrtransstroy, another Ukrainian company carrying out a project that initially was part of the gas barter deal before the shift to cash-for-gas. Berdimuhamedov expressed strong dissatisfaction with the performance of both Ukrtransstroy regarding its construction of a railroad bridge across the Amu Darya River, along with Interbudmontazh. "You've missed many deadlines and construction has almost completely stopped," he said. ¶7. (U) Berdimuhamedov argued that Turkmenistan had stuck to the payment schedules in both contracts and gave the companies one month to rectify the situation. If the situation did not change within a month, he said, he would file an international arbitration case. "You either make progress, or you leave. You are a soldier of your work. If your president were here, I would have said the same to him as well," Berdimuhamedov told Shevchenko. Berdimuhamedov also stressed that Turkmenistan can -- and is willing to -- work with Russian, European, and American companies instead. TARUTA ASSURES THE ONE MONTH DEADLINE IS MET ¶8. (U) One month later, on February 4 and 18, Sergey Taruta, Chairman of "Industrial Union of Donbass" Corporation, met with President Berdimuhamedov to "agree upon a range of issues related to bilateral cooperation", according to Turkmen press. Lobbying for ASHGABAT 00000525 002 OF 002 the Ukrainian companies, Taruta presented to Berdimuhamedov specific measures that will accelerate the construction of the railroad bridge. He also proposed forming a joint commission to conduct a full inventory of the project. Then he presented the president with information about the measures being undertaken to resume the work on the Ashgabat communications tunnel. ¶9. (SBU) Issues regarding the railroad bridge project have been resolved, and work on it will start again soon, according to Ukrainian diplomat Igor Roman. Taruta reportedly convinced a Russian export-import company that would directly benefit from the bridge's completion to contribute additional capital for the construction. However, the Ashgabat tunnel project is another story. The project has serious engineering and design problems relating to Ashgabat's problematic geology and shallow water table. The project will cost a great deal more than initially estimated, and even then may still not be possible, according to Roman. The Turkmenistan government's firm refusal to re-negotiate the project has likely guaranteed the project's abandonment. ¶10. (SBU) COMMENT: Niyazov's Turkmenistan-Ukraine barter deal was anything but transparent, and the terms of the deal may also have been filled with legal loopholes. But the Turkmenistan government's refusal to sit down with company officials to discuss serious engineering problems and figure a way out of the mess is also a big part of the problem. Given the political quagmire that developed as a result of both of these construction projects, it is not surprising that President Berdimuhamedov would threaten to throw all Ukrainian companies out and take them to court. Perhaps his threat against all Ukrainian entities was intended to ensure the Ukrainian government's attention, and ensure that it would play an active role in resolving these issues once and for all. END COMMENT. CURRAN