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