TURKMENISTAN: RUSSIAN PIPELINE WOES EXPOSED DURING

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000452 SIPDIS SCA/CEN; EEB PLEASE PASS TO USTDA DAN STEIN ENERGY FOR EKIMOFF/THOMPSON COMMERCE FOR HUEPER E.O. 12958: DECL: 04/08/2019 TAGS: PGOV EPET EINV TX SUBJECT: TURKMENISTAN: RUSSIAN PIPELINE WOES EXPOSED DURING BERDIMUHAMMEDOV VISIT TO MOSCOW REF: ASHGABAT 0408 ASHGABAT 00000452 001.5 OF 003 Classified By: Deputy Chief of Mission Sylvia Reed Curran for reasons 1 .4 (b) and (d). ¶1. (C) SUMMARY: President Berdimuhammedov's official visit to Moscow in late March produced few milestones in the Turkmen-Russian relationship, which seems to be suffering from financial stress as a result of the global crisis. The most significant item on the agenda, an agreement on the Russian construction of a pipeline that would bring Turkmen gas extracted in the eastern part of the country to the planned Caspian Littoral pipeline, was not signed, and Turkmen officials issued a public tender for the project immediately after the president's return, suggesting some frustration with the Russian negotiations. The Caspian Littoral pipeline, in its turn, is also in a rut. It would seem that Russian financial woes, among other things, are adversely affecting Russian policy ambitions to expand economic influence here. The Turkmen, for their part, seem content to let the Russians wait in line for attention like everyone else. END SUMMARY. ROSY PRESS, BUT ONLY MINOR AGREEMENTS SIGNED ¶2. (C) President Berdimuhamedov made an official visit to both Moscow and St. Petersburg March 25-27, which, according to local press, resulted in the signing of ten minor agreements, memoranda, and protocols. A number of the agreements related to bilateral cooperation between the respective countries' internal affairs, national security and border service agencies. Other agreements of note included the establishment of a rail ferry route between Turkmenbashy, Astrakhan and Makhachkala, mutual investment protection, and, encouragingly, establishment of a process to mutually recognize diplomas obtained from both countries' state universities and institutes, according to Turkmen press. ¶3. (C) Two items on the agenda, however, did not result in agreements, and seem to reflect a reality that while Turkmenistan and Russia are compatible partners, Turkmenistan remains cautious about the relationship. One was an effort to eliminate or simplify the visa regime between the two countries. Local residents told poloff they had heard that �A;the two parties had planned to discuss the establishment of a more relaxed visa regime between the two countries. UN Preventive Diplomacy Center Political Officer Armands Pupols told poloff on April 7 that Russian officials pressed Turkmenistan to join the CIS visa-free regime or to at least reduce the bureaucratic requirements for travel between the two countries, but the Turkmen side was unreceptive. According to the Russian press, there are at least 100,000 Turkmen citizens who hold Russian passports. Turkmen authorities began issuing a new biometric passport in 2008, and there were numerous reports that when Turkmen dual citizens applied for the new passport and indicated that they held dual citizenship, they were not issued the new passport. Local staff report that many keep Russian passports simply to avoid the arduous and expensive Russian visa process. RUSSIA LOSES CONTROL OF EAST-WEST PIPELINE PROJECT ¶4. (C) The second unresolved agenda item was the signing of a Russian-proposed agreement to build an "East-West" pipeline in Turkmenistan, estimated to cost more than $1 billion, which would connect the rich gas fields in the east with future export routes near the Caspian coast. On March 25, Russian press quoted Russian Presidential Aide Sergey Prihodko as stating that only minor details remained to be ASHGABAT 00000452 002.3 OF 003 worked out before the two presidents would sign an agreement, possibly in June or July. Russian press suggested the deal was imminent, but Turkmen press made no reference to a pipeline discussion at all. Although it is unclear why the agreement was not signed in Moscow, Prihodko hinted that financing of the project may have been a significant part of the problem, according to Russian press. (NOTE: Post has learned that Russian Energy Minister Sergey Shmatko is planning to attend the Turkmen government's April 23-24 pipeline security conference, during which he will likely continue a full court press on the Turkmen regarding the pipeline project agreement. END NOTE.) ¶5. (C) Only days after President Berdimuhammedov returned from Moscow and St. Petersburg, the Turkmen MFA sent out an unprecedented note to the diplomatic community in Ashgabat, and through its own embassies abroad, and also publicly announced that Turkmen State Gas Concern was issuing a tender for the design and construction of the East-West pipeline. Technical details of the project, made available on a Turkmen government website indicate that the pipeline will be 800-1000 kilometers in length, 1420 millimeters in diameter, and extend from a compressor station on the CAC-3 pipeline near the Shatlyk gas field just northeast of the Dovletabad field, terminating at a compressor station near the village of Belek, about 90 kilometers east of Turkmenbashy on the old Russian export pipeline. (NOTE: Poloff's sources have indicated that Belek is also where the planned "Pri-Caspiyskiy" pipeline would begin its path northward along the Caspian coast. END NOTE.) ¶6. (C) Polish First Secretary Robert Rokicki, who follows energy issues in Turkmenistan closely, told poloff on April 6 that he had received reporting that the Russians had not been ready to sign the pipeline construction agreement on March 25, but had also seen reports that the Turkmen had refused to sign it. He said the most significant problem had been project financing. The Turkmen side had been displeased by the Russian acknowledgement that it could not finance the construction. He assessed that neither the Russians nor the Turkmen are currently in a position to finance the expensive project, although he said "there is no question that the Russians want the pipeline deal." UN Representative Pupols said the Russian government had first proposed the pipeline project when Medvedev visited Turkmenistan in 2008. Pupols assessed that in doing so, the Russians hoped to offset Turkmenistan's capacity to feed Nabucco, and since the East-West pipeline would feed a future Caspian Littoral pipeline, would have the added benefit of moving Turkmen gas to Russia without transiting Uzbekistan, thus reducing transit costs. ¶7. (C) Rokicki claimed that the current agreement Russia has with Turkmenistan does not provide a guarantee that Russian will always pay for the gas it receives. "If Russia can't guarantee it can pay for the gas, how could it guarantee the provision of capital to build the pipeline?" he said. Rokicki said yet another sticking point in the negotiations may have been the determination of whether a Russian or Turkmen enterprise would control the operations of the finished pipeline. In spite of all this, he speculated that Turkmen officials had interpreted recent negotiations the Russians held with SOCAR to import gas from Azerbaijan as a Russian attempt to pressure Turkmenistan to work with Russia. Rokicki, describing the Turkmen government's announcement of a public tender for the pipeline project via diplomatic note to all the embassies as "quite rare," speculated that it was the Turkmen government's response to the Russian pressure. ASHGABAT 00000452 003.4 OF 003 ¶8. (C) The Polish diplomat said the two sides had, however, agreed on a trade deal that would help both sides deal with their own financial shortfalls. He said that during the Moscow meetings, Deputy Chairman for Economy and Finance Japarov had proposed a trade package that would, in effect, barter some of the value of Turkmen gas exports for Russian imports. He said that the Russian side liked the deal because of its own cash shortfalls, and the Turkmen side believed it would guarantee some of its trade with Russia (read "Russian imports") while the global financial crisis persisted. (NOTE: It is unclear how much the deal is worth. END NOTE.) WHAT USE IS EAST-WEST IF THERE'S NO CASPIAN LITTORAL? ¶9. (C) In spite of Russian press stating that a construction implementation agreement would soon be signed for the new "Pri-Caspiyskiy" or littoral pipeline, there are indications here that it has made little progress, and the global financial crisis may also dramatically slow down its development. UN Representative Pupols said that signatory parties Russia, Kazakhstan and Turkmenistan had agreed previously that a feasibility study on the pipeline should be done as a first step. However, Pupols added that the parties have been unable to agree on the terms of a feasibility study and who would pay for it. Polish diplomat Rokicki also said that the littoral pipeline project was the subject of serious financial disagreements among the parties that were preventing its advancement. ¶10. (C) COMMENT: There is little doubt that the global financial crisis has impacted Russia's ability to expand its economic influence in Turkmenistan, where money talks. Turkmenistan, for its part, has developed a somewhat warmer relationship with Russia since Niyazov's passing in 2006, but is still willing to relegate Russia to the multitude of partners who are willing to participate in Turkmenistan's development. The ability to inject investment capital into Turkmenistan--especially on large projects--and a cultural affinity with Turkmen officials are important tools that have helped Russian representatives build influence here. Without funding, the Russians are likely to be hindered in fulfilling their foreign policy desires in Turkmenistan. Further, it makes one wonder if Turkmen officials will be more receptive to alternative, fully-funded projects in coming weeks and months. END COMMENT. MILES