TURKMENISTAN: U.S. HYDROCARBON SERVICE COMPANY

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000207 SIPDIS SCA/CEN; EEB PLEASE PASS TO USTDA DAN STEIN ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: DECL: 02/09/2019 TAGS: PGOV EINV EPET TX SUBJECT: TURKMENISTAN: U.S. HYDROCARBON SERVICE COMPANY MOVES FROM SUBCONTRACTOR TO CONTRACTOR Classified By: Charge Richard Miles for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: The U.S. energy development services company, Weatherford, is continuing to enjoy success in Turkmenistan, and has recently shifted from subcontracting work for big foreign oil companies to working directly with Turkmen Government enterprises, according to its country manager. The company has begun expanding its presence in Turkmenistan, in spite of issues that emerged in January after the directors of the two state enterprises with whom the company signed contracts were fired. Weatherford's country manager also willingly shared insights on the nature of high-level corruption. When it comes to service agreements, Turkmen officials appear to be turning to the companies they have learned to trust over time, as a way of minimizing risk. END SUMMARY. ¶2. (C) Political Officer met February 3 with Weatherford hydrocarbon services country manager, Trevor Fish, to see how business was going and what plans the company had for 2009. Fish said that business had been doing very well in Turkmenistan in 2008, and that 2009 was shaping up to be a very profitable year as well. He said that from 1998 through 2008, Weatherford had been operating as a subcontractor to some of the foreign PSA holders in Turkmenistan, such as CNPC, Dragon Oil, and Burren, providing a range of services that included pipeline construction, drilling support, well testing, and production work. ¶3. (C) However, this year the company signed service agreement contracts directly with both the Turkmen Oil and Turkmen Geological State Concerns to help the Government develop hydrocarbon fields on its own, and in accordance with its own national plan. He said that so far the company has had few problems shifting from subcontract work to direct contract work with Government enterprises. Weatherford currently has 44 foreign employees and 103 local staff. Directors' Firings Bring Investigations ¶4. (C) Fish said that shortly after the company signed the contracts, Weatherford became the target of state tax service and Ministry of National Security (MNB) investigations. Officials from the tax service came and pored over Weatherford's books, and the MNB also conducted an investigation, which included surveillance of the company's offices for a time. Fish said he thinks the investigation was related to the January 15 firings of Turkmen Oil State Concern Director, Garyagdy Tashliyev, and Turkmen Geological State Corporation Director, Sapargeldy Jumayev. ¶5. (C) He surmised that both directors had been fired for corruption, and since Weatherford had just signed contracts with both entities, officials had been looking for related evidence. Fish said that after a week or two, both the tax service and MNB had terminated their investigations, and although the company has not been notified of any impropriety found in their accounting, officials had indicated that the company might be fined $4 million. If such a fine is levied against the company, Fish, expressing no emotion, suggested that the company would be prepared to challenge it in the Turkmen legal system, if necessary. ¶6. (C) The company currently operates four supply bases to support the work going on in Balkan province, and a new base is being planned for Lebap province near Turkmenabat, he said. The company engages in some procurement activity, and also has machine tool capacity, enabling it to manufacture some needed materials. The first contract the company ASHGABAT 00000207 002 OF 002 signed, Fish noted, was with Turkmengeologiya, which contracted with Weatherford to refurbish a pipe manufacturing facility in Balkan province. The company also procures and ships needed equipment and materials. In the past, materials were shipped via the United Arab Emirates, but now the company is looking more carefully at options for ground or air freight, possibly across the Caucasus region. Comments on High-level Corruption ¶7. (C) Political Officer asked Fish what he had heard in commercial circles about what it takes to get access to the highest levels of Government. He replied that his foreign business contacts had said that it now costs $100,000-$150,000 to obtain a business meeting with President Berdimuhamedov. He indicated that in his own meetings with Deputy Cabinet Chairman for Oil and Gas Tagiyev, the Deputy Chairman had been very direct saying that for about three percent of the President's "fee" (about $3,000),he could bring a company's request to the President. (NOTE: The Weatherford manager did not elaborate on what the company had been requesting. END NOTE.) Fortunately, since Weatherford had been a reputable company working in Turkmenistan since 1998, it had not taken such efforts to get the recent Government contracts signed. Rather, Turkmen Geological and Turkmen Oil officials knew Weatherford's work and signed the contracts readily, Fish said. ¶8. (C) COMMENT: Weatherford has the advantage of having been here a long time and having established a good reputation as a services partner. The Turkmen enterprises, which are already operating under the presidential mandate of signing only service agreements with foreign companies onshore, appear to prefer and seek out partners they know and trust. Regarding high-level corruption, this is the first detailed information Political Officer has heard regarding Tagiyev's receipt of bribes for taking something to the President, confirming rumors about the extent to which such payments are a necessary "icebreaker" for newly-arrived foreign businesses. END COMMENT. MILES