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