TURKMENISTAN: MORE CHINESE LOANS

UNCLAS ASHGABAT 001627

SENSITIVE

SIPDIS

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

E.O. 12958: N/A
TAGS: EPET PGOV EINV EFIN CH TX
SUBJECT: TURKMENISTAN: MORE CHINESE LOANS

REFS: A) ASHGABAT 1249; B) ASHGABAT 1481


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) On December 13, Turkmen and Chinese officials signed a
number of intergovernmental agreements stipulating that the Chinese
government will provide soft loans to Turkmenistan through China's
Export-Import Bank. According to the agreements, the Turkmen
Government will use the loans to purchase Chinese equipment and
services for Turkmenistan's transportation, communications, and
energy sectors. Besides stating that the loans required repayment
in 20 years, the Turkmen Government has not disclosed the amounts
and additional terms of the loans.


3. (SBU) The Chinese Government will provide a 20-year soft loan
(loan with a below-market interest rate) to the Turkmen Government
for the purpose of implementing the third phase of communications
network modernization project. On December 13, the Ministry of
Communications signed a commercial contract with Huawei Technologies
Ltd., a Chinese company that has been present in the Turkmen
communications market since 2004. Huawei supplied equipment and
provided services for the first two phases of the modernization
project. As a result, it is likely that the loan will be used to
purchase additional products and services from Huawei. The Turkmen
Government implemented the previous two phases of the communications
modernization project without the help of Chinese loans, but it now
faces budget constraints due to discontinued gas sales to Russia.


4. (SBU) In the transportation sector, China will provide a 20-year
soft loan to the Turkmen Government for purchasing Chinese-produced
railway passenger cars to implement the second phase of railway
passenger cars procurement. Chinese companies have supplied
passenger railway cars to Turkmenistan since 2005, when the first
phase of the procurement started. Most of the first phase was
covered by Chinese soft loans provided both by the Chinese
Government and Chinese railway car companies.


5. (SBU) The Turkmen Government will also receive a 20-year Chinese
soft loan to purchase oil and gas equipment for Turkmennebit
produced by the China Petroleum Technology and Development
Corporation, a wholly-owned subsidiary of CNPC. The loan will be
provided in accordance with the Turkmen-Chinese Framework Agreement
on Financing Oil and Gas Equipment Procurements signed on June 24.
This loan is different from and is significantly smaller than the
USD four billion loan that Turkmengaz received from the State
Development Bank of China for the purposes of developing the South
Yolotan gas field.


6. (SBU) COMMENT: Despite information regarding the Turkmen
Government's desire to gradually curb the Chinese economic presence
in the country (Ref A),the Chinese are intensifying their economic
ties with Turkmenistan. The Chinese Government's financial
resources have allowed them to gain a foothold in Turkmenistan. Its
soft-loan strategy is especially timely given that Turkmenistan
cannot currently count on selling large volumes of gas to Russia.
China has already appeared more than willing to fill Turkmenistan's
budgetary breach (Ref B). Moreover, Turkmenistan will reportedly
repay the Chinese loans by in-kind natural gas supplies, which might
also make the Chinese loans even more attractive to the Turkmen
Government. END COMMENT.

CURRAN