TURKMENISTAN: TURKISH ENERGY COMPANY LOTUS

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000325

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E.O. 12958: DECL: 03/11/2019
TAGS: PGOV EINV EPET TX
SUBJECT: TURKMENISTAN: TURKISH ENERGY COMPANY LOTUS
EXPANDING ITS BUSINESS DEVELOPMENT UPSTREAM

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


1. (C) SUMMARY: The Turkish-born Chairman of Lotus Enerji
discussed the company's ongoing electricity, petrochemical
and compressed natural gas refueling station projects, which
are the first projects it has landed in Turkmenistan since
its 2007 founding. The company has its eye on some potential
onshore and offshore field development opportunities as well,
but in spite of possessing geologic data for the South
Yolatan gas field, it has not managed to land a contract.
The chairman expounded on the company's strengths and goals,
and discussed his concerns about recent Turkmen Government
deals with Iran and Russia. He may be on target in assessing
that deals of this kind could adversely impact Turkmenistan's
diversification goals. END SUMMARY.

LOTUS OFF TO A GOOD START


2. (C) Politcal Officer met March 10 with Erdal Celik,
Founder and Chairman of the Turkish-based company Lotus
Enerji. Celik was eager to share a bit about his background,
and how Lotus came to be. Calik said he was the former CEO
of Calik Enerji. Celik Enerji is a subsidiary of Calik
Holding, a firm founded by the Turkish advisor to former
President Niyazov, Ahmet Calik. Erdal Celik said that he
left the larger company and formed Lotus in 2007 out of a
desire to focus more on innovation and employ more creative
strategies to promote business development in countries like
Turkmenistan. Celik noted proudly that he is a graduate of
the Thunderbird Academy for Business and Management in
Arizona.


3. (C) Lotus, which focuses on energy efficiency projects
as well as oil and gas development, has won tenders for four
significant projects in Turkmenistan thus far. Two are for
regional power plants that are being constructed in Ahal
province and for the Avaza Tourist Zone, one is a
petrochemical facility connected to the Turkmenbashy oil
refinery, and the fourth is an ambitious automobile refueling
station that will dispense gasoline and compressed natural
gas in Anau, outside of Ashgabat. Celik indicated that he is
most proud of this refueling station, because it represents
the kind of innovative thinking that his company brings to
projects. He said he had been personally advocating the use
of compressed natural gas (CNG) in vehicles here since 2004,
and intensified his efforts in 2008 when world oil prices
skyrocketed.


4. (C) Celik said it was one of the first projects that he
proposed to the Turkmen Government. He argued to Foreign
Minister Meredov that with 500,000 vehicles on the road here,
gasoline free or greatly subsidized for the population, and
quantities of gasoline being illicitly sold across borders,
the Turkmen Government was losing millions in potential
revenue. Lotus did not sign a contract to build the
refueling station, but Celik claims that Meredov permitted
Lotus to "gift" the refueling station to the Turkmen
Government. He said that from his company's perspective, it
will be an opportunity to demonstrate to the Government that
operating vehicles here on CNG is possible and will have a
positive effect on the Government's bottom line regarding
domestic gasoline consumption. He noted that the Anau
station is a fairly simple concept, in that it will be
supplied with natural gas, which will be pressurized on site.
The station will also have shop facilities for carrying out
the conversion of ordinary gasoline vehicles to CNG use.
Converting a vehicle to burn CNG can cost as little as $600
per vehicle, if low-quality Chinese components are used.

ASHGABAT 00000325 002 OF 002


Quality U.S.-made components put the cost at $1500-2000 per
vehicle. He said he encouraged the Government to provide the
conversion to citizens free of charge to encourage their
participation. Celik said he is hoping this model station
will prove its value, and become the first of many to be
built in Turkmenistan.

LOTUS ALSO FORAGING FOR UPSTREAM PROJECTS


5. (C) Celik noted that the company is also looking for
upstream opportunities both offshore and onshore, but
acknowledged that Lotus will need capable partners to do so.
He said Lotus has been in talks with BHP Billiton and
ConocoPhillips, seeking a partner with the technology and
expertise needed to tackle projects in Turkmenistan. Lotus's
strategy, he said, is to offer to cover all investment costs
for such projects, and promote the infusion of technology and
expertise needed to boost Turkmenistan's lagging production
numbers. The price of this service, Celik said, would be a
percentage of the increased production, a kind of semi-PSA
that he perceived would be more palatable to the Turkmen.

6. (C) Lotus and an Indian energy company jointly own a
subsidiary company called Seana Energy, he said, and
Turkmengaz had given the company seismic and other evaluative
data for the South Yolatan field. Celik claimed that Seana
was able to assess the field's potential before Gaffney,
Cline and Associates completed their audit. Seana had
therefore expected to win the contract to develop part of the
field, in coordination with sub-contractors such as
Schlumberger and Nabors Drilling, he said. This particular
development project was expected to be overseen and
controlled by President Berdimuhamedov himself. After
Seana's extensive effort to assess the field, however, the
Turkmen Government turned down its proposal. Celik estimated
that the Government would need to direct $6 billion toward
the field if it wanted to see it produce 20 bcm per year.
Lotus is now looking at some onshore sites in western
Turkmenistan as it considers its next proposal, he said.
WORRYING IRANIAN, RUSSIAN DEALS


7. (C) Celik expressed concern at the recent Turkmen
agreement with the Iranian Government to help develop South
Yolatan, and said he had heard that Gazprom had copied the
terms of the Iranian proposal, which likely included the
provision of all capital needed to construct necessary
infrastructure. In exchange, all the gas produced at
facilities that Iran -- and now possibly Gazprom -- will
build, will be dedicated supplies that go exclusively to the
Iranian and Russian markets, he said. Celik opined that such
deals were not good for Turkmenistan.

8. (C) COMMENT: Celik is a bright, well-educated
businessman with a good understanding of how the system works
in Turkmenistan. Although he would not likely be a suitable
poster child for best business practices, Celik is a prime
example of a business professional in a highly technical
sector who is able to communicate new ideas and new
technologies to a less-educated audience in a way that it can
understand. Regarding his comments on the recent deals
between Turkmenistan and Iran and Russia, if his claims are
true, the Turkmen Government is giving preference to
development partners who are willing to foot the bill for
development, but the ultimate price may be paid as
Turkmenistan loses sight of its diversification potential.
END COMMENT.
MILES