TURKMENISTAN: RUSSIAN PIPELINE WOES EXPOSED DURING

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000452

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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
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

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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.

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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