TURKISH DIPLOMAT DESCRIBES RISKS AND COMPLEXITIES

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000231

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COMMERCE FOR HUEPER

E.O. 12958: DECL: 02/12/2019
TAGS: PGOV EINV ETRD TX TU
SUBJECT: TURKISH DIPLOMAT DESCRIBES RISKS AND COMPLEXITIES
OF DOING BUSINESS IN TURKMENISTAN

Classified By: Charge Richard Miles for reasons 1.4 (b) and (d).


1. (C) SUMMARY: A February 12 conversation with the
Turkish Third Secretary yielded interesting insights on
corruption and market access, the legal complexities of doing
business here, and the role that intergovernmental economic
commissions play in making it less risky for Turkmen
officials to talk business with foreign companies. The
bottom line is that even when foreign businesses learn how to
navigate the Turkmen system, they still have to manage risk,
including the potential for a run-in with the Turkmen legal
system. Turkmen Government officials, for their own part,
understand the difficulties of their bureaucracy, and appear
to be creating more bureaucratic structures * in the form of
intergovernmental commissions * to give them the
presidential authorization they think they need to develop
relationships with foreign companies. These complexities all
conspire to present a challenging environment for companies
who are willing and prepared to manage the risks. END
SUMMARY.

MARKET ACCESS IS JUST A BOX OF CHOCOLATES AWAY


2. (C) The provision of bribes, large and small, is a
standard part of the business culture here, according to
Turkish Embassy Third Secretary, Hakan Cengiz. Such gifts
must be offered to every interlocutor at every level.
Although Turkmen business decision making is still very slow
and opaque, bribes ensure the company has a better shot than
competitors, and that the company will have to wait only a
short time (days, or even hours) to get feedback on a
proposal. (NOTE: This would be more likely with easy to
understand construction projects as opposed to more
technically complex business proposals. END NOTE.)

3. (C) Both businesses that have been in Turkmenistan for
years and those seeking access to the market for the first
time have to give gifts to be seriously considered. The
gifts are considered favors, and their benefits are generally
of short duration. The size of the bribe (rarely money,
according to Hakan) usually corresponds to the size of the
desired project or proposal. Cengiz said that, for example,
serious consideration of a $100 million proposal would
probably require a gift on the scale of a car for the senior
official who decides whether to advocate for the proposal at
the presidential level. Typical bribes up and down the
chart might include a box of chocolates for an official,s
receptionist, a watch for a mid-level official, or a piece of
high-tech entertainment technology for someone more important.

MANAGING RISK WITHOUT RULE OF LAW


4. (C) Although corruption is a major issue, it is not the
biggest one impeding commerce. The absence of rule of law is
the most significant issue here, Cengiz said. As an example,
he described a recent case the Turkish Embassy had worked on:
A Turkish company, which had been in Turkmenistan for
several years, had been buying petrochemicals from Turkmen
state enterprises and exporting them to a company in
Afghanistan. Having exported the petrochemicals for several
years, the company,s manager in Turkmenistan was surprised
when the Turkmen tax service initiated an investigation to
determine whether the company had failed to pay a value-added
tax based on the sale of the chemicals in Afghanistan. The
company manager was arrested and tried in a Turkmen court.
The court, Cengiz said, determined that the company must pay
a fine four times larger than the total amount of the taxes
owed, and the company manager was sentenced to jail time.
Cengiz said that the Turkmen court,s interpretation of the
law made no sense because the Government was seeking to tax
the chemicals at the price the company sold them at in
another company, rather than at the price at which they were

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purchased.


5. (C) Cengiz opined that the Turkmen Government,s
inability to properly interpret or enforce its own laws
presented a major risk for companies. The Criminal Code
still contains provisions, he said, that hold a company
manager responsible for the mistakes of his subordinates. He
added that construction site accidents, for example, no
matter how minor the injury, routinely set off major legal
issues for companies and put Turkish managers at risk.

INTERGOVERNMENTAL COMMISSIONS ) BUREAUCRACY WITH A PURPOSE


6. (C) Cengiz said the Turkmen desire to establish
intergovernmental commissions is a relatively new one. The
Turkmen-Turkish commission, he said, had only met for the
first time in 2007, and a second meeting was being planned
for April 2009. He said the Turkmen want such commissions
because they understand the problems and complexities of
their own bureaucracy. The commissions are a needed element
because they are comprised of senior government officials
from both sides who together formulate a plan for economic
cooperation in the next several years. No business
representatives are in attendance. The Turkmen officials who
attend have no authority to approve anything, but once a
commission issues a &joint protocol8 outlining specific
areas of cooperation, the protocol can then be sent to
President Berdimuhamedov. Once he signs and stamps the
protocol, the Turkmen officials then have an approved roadmap
for economic partnership that will reduce their personal risk
and authorize them to meet with companies. It also enables
the foreign companies to then connect their proposals to
specific elements of the protocol.


7. (C) COMMENT: These perspectives come from a Turkish
diplomat who is commenting on the experiences of Turkish
firms, making it difficult to ascertain whether similar
practices occur in other foreign companies. Many of the
Turkish firms, however, have been in Turkmenistan for more
than a decade, and so offer a more experienced perspective.
Regarding the Turkmen desire to create more bureaucracy to
help them manage their existing bureaucracy, the creation of
intergovernmental commissions would seem to provide the
documentation upon which the bureaucracy depends. However,
we can also speculate that the commissions also serve the
purpose of intertwining the business relationship with the
bilateral political relationship. Then, the Government may
view future contracts with that business as being backed, or
even guaranteed, by the company,s home country. Regardless,
these complexities all conspire to present a challenging
environment for companies who are willing and prepared to
manage the risk of work in Turkmenistan. END COMMENT.
MILES