TURKMENISTAN: OFFSHORE REGISTERED COMPANIES NEED NOT APPLY

UNCLAS ASHGABAT 001283 SENSITIVE SIPDIS STATE FOR SCA/CEN; EEB; NEA/IR ENERGY FOR EKIMOFF/BURPOE/COHEN COMMERCE FOR EHOUSE E.O. 12958: N/A TAGS: EPET PGOV EINV TX SUBJECT: TURKMENISTAN: OFFSHORE REGISTERED COMPANIES NEED NOT APPLY ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) The two latest tender announcements published on the Turkmenistan Oil and Gas Ministry's website contained a bracketed note saying that tender bids from companies registered in offshore zones or possessing banking accounts in those zones will not be accepted. This provision confirms a rumor that started circulating in Turkmenistan about a month ago stating that the Turkmen government was going to exclude offshore registered companies from supplying spare parts and equipment for Turkmenistan's oil and gas industry. ¶3. (SBU) According to a Ministry of Oil and Gas official, the government is serious about curbing the presence of offshore registered companies in the oil and gas equipment and materials market, although no official regulations have been issued to this effect so far. She opined that the government is pursuing two goals: to remove some of intermediaries from the market; and to force some suppliers to register in Turkmenistan and keep their accounts in Turkmen banks. ¶4. (SBU) The presence of intermediary offshore companies in this market is caused by different approaches to payment by Turkmen state oil and gas companies, on one hand, and many equipment producers, on the other. Many of the latter request direct, upfront partial payment, whereas the former can pay only through letters of credit or upon delivery of the goods, according to Turkmen government regulations. Intermediary offshore companies are much more flexible and agree to receive payment after equipment is delivered. Another factor favoring the use of intermediary offshore companies is that they agree to designate a local Turkmen court as a court of arbitration in their contracts, whereas equipment producers typically designate a third-country court as a court of arbitration. Finally, as a rule, offshore companies operating in Turkmenistan often resort to corruption. ¶5. (SBU) The oil and gas industry equipment and spare parts market is one of the most profitable and, reportedly, corrupt markets in Turkmenistan with millions of dollars in turnover. The market players are a very narrow circle of persons who have direct access to the main decision makers in the country's energy industry. This narrow circle controls the lion's share of the market and regularly wins supply contracts thanks to their good connections with government officials. ¶6. (SBU) COMMENT: On one hand, the Turkmen government's exclusion of offshore companies might indicate its intention to make this business more transparent and minimize corruption to the extent possible. On the other hand, this idea might have been initiated by a group of people who simply want to re-divide the market and bring in new players, thus getting a bigger piece of the pie. END COMMENT CURRAN