NO RE-EXPORTS OF TURKMEN GAS?

UNCLAS ASHGABAT 001320 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: NO RE-EXPORTS OF TURKMEN GAS? ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: According to Turkmen media, Turkmen Deputy Chairman Baymyrat Hojamuhammedov, who oversees the country's energy sector, stated on Friday that Turkmenistan is going to put a clause in future gas sale contracts which will prohibit re-exports of Turkmen gas. The statement came a few days before Gazprom Chairman Miller's negotiations with the Turkmen Government on resuming gas supplies and a couple of months before Turkmenistan opens new export routes to China and Iran. Hojamuhammedov did not specify to which contracts the re-export prohibition will apply. It should be noted that such a statement would never be made without prior approval from President Berdimuhamedov. No official reaction from Gazprom has followed so far. END SUMMARY. ¶3. (SBU) Hojamuhammedov's statement was most likely intended for Gazprom as the Russian monopoly is the only Turkmen gas purchaser that has officially re-exported Turkmen gas. At the same time, Gazprom also prohibits the re-exportation of either Russian gas or gas purchased from Turkmenistan in its own export contracts with CIS end consumers like Ukraine. In addition, Gazprom benefits greatly from re-exporting Turkmen gas, since Gazprom does not have to pay the 30 percent export fee to the Russian state budget for re-exported gas, making it more profitable for Gazprom to re-export Turkmen gas rather than export Russian gas. A local gas industry expert also opined that Gazprom might use a certain percentage of Turkmen gas in Russia's southern provinces and replace it with Russian gas in Russia's western parts, while still claiming that the gas was from Turkmenistan. By doing so, Gazprom would save on steep export fees and reduce transit costs at the same time. ¶4. (SBU) Theoretically, it is possible for Turkmenistan to add a re-export-prohibition clause to the gas sale contract, but practically, there are many problems associated with implementation. Even if Gazprom agrees to such an amendment to the contract, it will be technically impossible for the Turkmen Government to check whether Gazprom observes the re-export prohibition clause without having direct access to Gazprom's pipelines and other gas transportation facilities. Moreover, Gazprom is unlikely to provide access to its facilities to any non-Russian company or government official. Economically, it does not make much sense for Turkmenistan to ban re-exports, as it would reduce Gazprom's profit, thus making it even more difficult for Gazprom to pay a higher price for Turkmen gas. ¶5. (SBU) Gazprom Chairman Miller's October 19 visit to Ashgabat seems to have yielded little results as Gazprom's press-service only released a few sentences acknowledging that Miller and Berdimuhamedov discussed long-term strategic cooperation without providing any further details. As for the Turkmen state media, there was no mention of the meeting. ¶6. (SBU) COMMENT: Turkmen Deputy Chairman Hojamuhammedov's re-export prohibition statement was most likely intended to put additional pressure on Gazprom before Miller's visit to Ashgabat, and the Turkmen Government will probably use it in future negotiations with Gazprom over the gas price. Such a statement combined with Miller's seemingly fruitless visit might indicate that the positions of the Turkmen Government and Gazprom over the gas price still differ significantly, resulting in more negotiations before the two sides reach agreement. END COMMENT. CURRAN