Identifier
Created
Classification
Origin
09ASHGABAT1257
2009-10-02 08:55:00
CONFIDENTIAL
Embassy Ashgabat
Cable title:  

TURKMENISTAN: RETHINKING THE APPROACH FOR U.S.

Tags:  EPET ECON PGOV EINV BTIO TX 
pdf how-to read a cable
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C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 001257 

SIPDIS

STATE FOR SCA/CEN; EEB; NEA/IR
ENERGY FOR JELKIND/EKIMOFF/BURPOE/COHEN
COMMERCE FOR EHOUSE

E.O. 12958: DECL: 09/30/2019
TAGS: EPET ECON PGOV EINV BTIO TX
SUBJECT: TURKMENISTAN: RETHINKING THE APPROACH FOR U.S.
ONSHORE ENERGY DEALS

REF: A. 07 ASHGABAT 598

B. ASHGABAT 1141

C. ASHGABAT 1207

D. ASHGABAT 1252

Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 04 ASHGABAT 001257

SIPDIS

STATE FOR SCA/CEN; EEB; NEA/IR
ENERGY FOR JELKIND/EKIMOFF/BURPOE/COHEN
COMMERCE FOR EHOUSE

E.O. 12958: DECL: 09/30/2019
TAGS: EPET ECON PGOV EINV BTIO TX
SUBJECT: TURKMENISTAN: RETHINKING THE APPROACH FOR U.S.
ONSHORE ENERGY DEALS

REF: A. 07 ASHGABAT 598

B. ASHGABAT 1141

C. ASHGABAT 1207

D. ASHGABAT 1252

Classified By: Charge Sylvia Reed Curran for reasons 1.4 (b) and (d).


1. (C) SUMMARY: Following the September 21 meeting between
the Secretary and President Berdimuhamedov, post received
additional feedback from GOTX officials regarding the USG
push for U.S. energy companies to develop onshore hydrocarbon
resources in Turkmenistan. The GOTX remains adamant that its
standing policy has been and will continue to be to develop
its proven, onshore gas resources without giving up control
to foreign energy companies. An official told post that the
government is "frankly tired" of repeating this policy to
U.S. companies and the USG. Some energy experts and
expatriate business people in Turkmenistan have underscored
the importance of building business relationships in
Turkmenistan via long-term service contracts or offshore
exploration, as opposed to "parachuting-in" with a big
company name, without having demonstrated a commitment to
the Turkmen. A few U.S. companies have shared their
frustration over Turkmen "obstinacy" in regard to its
"hands-off" onshore policy, declining to pursue offshore
exploration opportunities or onshore service contracts,
choosing instead to lobby the USG for more assistance in
getting onshore deals. While the GOTX did grant an exception
to its onshore policy to the Chinese, U.S. energy companies
are not offering a transcontinental pipeline to sweeten the
deal. Nor are U.S. companies currently willing to start as
service providers, like the Chinese did. U.S. conpanies also
need to make their appeals directly to the one decisionmaker,
who cares more about receiving awards and reminders of his
importance than drilling technology. Some observers in
Ashgabat continue to call for a high-level U.S.-Turkmen
meeting that would theoretically give the Turkmen more

international credibility, while assisting U.S. companies
attempting to gain a foothold in Turkmenistan. END SUMMARY.

TURKMENISTAN'S ONSHORE POLICY


2. (C) Turkmen President Gurbanguly Berdimuhamedov remains
intransigent on the question of allowing foreign energy
companies to operate onshore: only service contracts will be
considered. The GOTX onshore policy is not a law, but
overturning it would require presidential approval in the
form of a waiver. The Chinese National Petroleum Corporation
(CNPC) received such a waiver to develop the Sanan Deper and
Altyn Asyr fields in eastern Turkmenistan near the Uzbek
border under a production sharing agreement (PSA). As part
of the PSA, the Chinese agreed to build the Central Asia
pipeline, which the Turkmen hail as a key component in
diversifying their gas export options. To date, the waiver
has only been granted to CNPC, which has been a sore spot for
other foreign energy companies looking for access to massive
onshore gas fields. Despite the waiver granted to the
Chinese, GOTX officials maintain that the onshore policy
remains intact to ensure that Turkmen natural resources are
developed in a way that provides maximum benefits to
Turkmenistan.

SOME BACKGROUND FOR THE CURRENT POLICY


3. (C) According to local experts, the GOTX's standing policy
to grant only service contracts to foreign companies dates
back to 1992, when the Argentine oil company Bridas was
awarded a PSA to develop the Yashlar natural gas field in
eastern Turkmenistan. In 1993, Bridas received a second PSA
to develop the Keymir oil field in western Turkmenistan; it

ASHGABAT 00001257 002 OF 004


was reportedly understood that Bridas would build the
Trans-Afghanistan pipeline with U.S.-based Unocal as part of
the deal. Between 1995-1996, the GOTX reportedly started to
exhibit buyer's remorse for both PSAs with Bridas, when the
GOTX reportedly realized that the terms of the PSAs were too
much in Bridas' favor. Our contacts recalled that the GOTX
started putting immense pressure on Bridas' operations,
making it nearly impossible for Bridas employees to get visas
to re-enter the country. Bridas applied to international
courts after the GOTX reportedly froze Bridas oil exports,
and the company received a favorable decision, but was unable
to collect from the GOTX. By 2000, the Turkmen government
had become so annoyed with Bridas that it reportedly kicked
the company out of the country (ref A).

THE TURKMEN ONSHORE POLICY STANDS


4. (C) Head of the Americas Department at the Turkmen MFA
Serdar Bashimov told the Charge on September 25 that the GOTX
would prefer the USG stop raising the onshore issue, as it
has already given its position multiple times. Bashimov
expressed surprise that the USG has consistently either
ignored the Turkmen reply regarding the onshore policy or
misunderstood it. The fact that the issue continues to be
raised with Berdimuhamedov seems to confirm for the Turkmen
that U.S. companies and the USG have trouble taking multiple
"No's" for an answer. MFA's Bashimov added that there is
still a distrust of big companies and big countries in
Turkmenistan, despite the exception granted to the Chinese.
However, he pointed out that the Chinese started doing well
rehabilitation in 2002. They then worked as service
providers. It was after working here as service providers,
that they were able to get their waiver and work onshore in
2007, a process serveral other companies, including the
Turkish company Lotus Enerji, which is currently a service
provider, hope to duplicate.

IT'S ALL ABOUT RELATIONSHIPS...AND RESPECT


5. (C) Business people with years of experience in
Turkmenistan assert that many American companies have not yet
learned that building solid, long-term relationships precedes
any deal, especially an onshore deal, given that the Turkmen
view the onshore deposits to be the most lucrative.
Companies that "parachute-in" to Ashgabat from time-to-time
with a CEO have a difficult time competing with companies
that have established offices and people on the ground around
the clock. In addition, participation at local business,
cultural, and government-sponsored events is noted by GOTX
officials and is reportedly used as criteria for determining
which companies get high-level meetings. It is important to
note that although the Turkmen value companies which show a
long-term commitment to doing business in Turkmenistan, the
complicated and often corrupt bureaucracy does not make
setting up an office in Ashgabat easy.


6. (C) Unfortunately, some American companies have used the
same hard charging approach that they would use in the United
States. This does not work with the Turkmen. They find it
off-putting. Turkmen officials have told us that appeals
regarding the fame, industrial prowess, and technological
savvy of a company also do not work. Instead of being
impressed, the Turkmen feel they are being told Turkmen
entities are not qualified or capable of doing the job.
While that may be true, the Turkmen feel such an approach is
an affront to Turkmen pride and are insulted. Therefore, it
is counter-rpoductive.


7. (C) One way for U.S. energy companies to build better
relationships with the GOTX might be to consider alternative

ASHGABAT 00001257 003 OF 004


projects in addition to making the onshore a more long-term
goal. Turkmen oil and gas officials have expressed
difficulty in understanding why no U.S. energy companies,
besides ConocoPhillips, are interested in developing offshore
blocks or accepting an onshore service contract, as a first
phase of commercial engagement in the country. Chevron and
ExxonMobil officials have told us on more than one occasion
that they view offshore production options as too risky, and
service contracts are not in their business plans (ref B).
In addition, several international oil and gas service
companies have been in-country for many years, building
long-term relationships with the Turkmen in addition to
fulfilling their contracts with large energy companies.
Representatives from Schlumberger continue to seek direct
contracts with the GOTX, alluding to the strong, long-term
relationship they have built over the last ten years (ref C).

APPEALING TO THE DECISIONMAKER


8. (C) The current President of Turkmenistan considers
himself and Turkmenistan to be meaningful players in
international economics and politics. Moreover, the concept
of developing mutual respect before doing business is a chief
value among Turkmen. GOTX officials keep mental notes
regarding those countries and companies that have been
particularly respectful, as well as those which, according to
Turkmen standards, have not. Letters of congratulation to
the president for national holidays and his birthday, and
invitations to visit the United States are not only positive
ways for companies to show respect, but they are also
expected on the Turkmen side. The absence of such gestures
is noted and meeting requests can go unanswered for months
because the GOTX did not feel that it had the respect of a
company or country.


9. (C) Berdimuhamedov is a vain individual, who loves and
expects praise (ref D). Successful foreign businesses
recognize this fact and act accordingly. He is also the
ultimate decisionmaker in this system and increasingly relies
on his own judgment rather than that of advisors and others
in the government. He loves to receive awards and told
Charge that the favorite part of his recent trip to UNGA was
that Trenton, New Jersey had declared September 24, 2009 "Day
of the Turkmenistan President." Consequently, Trenton, New
Jersey has become the most important spot in the entire
United States for Berdimuhamedov. MFA officials have told us
that Bedimuhamedov extended an invitation to Trenton city
officials to visit and now wants to have sister city and
other direct relations with Trenton and New Jersey. While
U.S. businesses cannot engage in the corrupt business
practices that some companies from other countries do to
grease the skids here, they should understand that buttering
up Berdimuhamedov, giving him awards, and singing his praises
will get you very far. And if a U.S. business can get its
hometown or home state to declare Berdimuhamedov Day or have
hometown officials visit Turkmenistan and liberally mention
the name of the company while praising Berdimuhamedov, it
would put the company in good stead here.

ENGAGE, ENGAGE, ENGAGE


10. (C) A U.S. business representative, who has been in
Ashgabat for over ten years, recently told us that the
Chinese and the Russians have a good understanding of the
high-level respect that Berdimuhamedov requires, citing
frequent visits by both the Russian and Chinese heads of
state to Turkmenistan. He opined that the last U.S. high
ranking official in Ashgabat was Senator Lugar, who is
well-respected by the Turkmen, "but frankly not the Secretary
of State and certainly not the President." Short of a

ASHGABAT 00001257 004 OF 004


presidential invitation to visit Washington, this U.S.
company rep felt that even a regional visit by the Secretary
of State would do much for U.S. companies in Turkmenistan.
Clearly, U.S. business people and Turkmen contacts feel that
high-level U.S. engagement in Turkmenistan might provide the
Turkmen President the respect he is seeking, and go a long
way to help U.S. companies open the doors and build the trust
required to gain access to business opportunities in
Turkmenistan. It is also significant that the Turkmen tend
to reciprocate USG interest in Turkmenistan with GOTX
interest in U.S. companies.


11. (C) In 2007, right after Berdimuhamedov came to power,
an endless stream of U.S. visitors came to Turkmenistan in
order to "turn the page" in the relationship. Perhaps the
bloom is off the Turkmen rose to some extent. Nevertheless,
it is still important to "engage, engage, engage." Other
countries' officials -- to the level of head of state and
cabinet ministers - still visit Ashgabat, more now than two
years ago. This face time with other leaders is important to
the Turkmen leadership. And it no doubt helps their
businesses. We should also have regular visits by U.S.
officials to Ashgabat. Their absence has been noted by the
Turkmen. And, as already mentioned, visits by U.S. state and
local officials would also be warmly welcomed by the Turkmen.

ROAD TO ONSHORE


12. (C) Several U.S. oil and gas companies are extremely
interested in partnering with the Turkmen to develop the
"low-hanging," but still technically challenging, "fruit"
available in onshore gas fields. The GOTX has repeatedly
told us that these companies should pursue either onshore
service contracts or vie for offshore blocks. Given the
GOTX's negative experience involving its PSA with Bridas and
the GOTX's long memory when it comes to events that it found
uncomfortable or not satisfying, it is reasonable to assume
that the GOTX is still leery of granting big business access
to its onshore deposits. ExxonMobil's decision to pull out
of Turkmenistan in 2002 remains a vivid memory among chief
gas sector officials, and no doubt casts an additional cloud
over its efforts to re-enter Turkmenistan. If the current
onshore deal with the Chinese sours, it will most likely only
give the Turkmen more cause to be leery of large foreign
energy companies.


13. (C) Instead of pushing for an immediate onshore deal, it
appears that U.S. energy companies might do well to consider
other options for awhile with the idea of parlaying it
possibly into something more later. This would include
showing more flexibility in considering service contracts or
pursuing offshore opportunities, in order to build
long-lasting relationships with the Turkmen. Another tack is
to try appealing more directly to the vanity of the one
decisionmaker in the country. He cares less about drilling
technology than being reminded how great he is. It does not
appear that the GOTX has any immediate plans to veer from its
current onshore policy that keeps foreign energy companies at
arm's length. In addition, increased high-level U.S.
engagement in Turkmenistan would be taken as a positive step
that could lead to overall better bilateral relations with
this increasingly relevant regional partner.
CURRAN