IPC AGRI: ONE EXAMPLE OF COMMERCIAL SUCCESS IN

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000476 SIPDIS STATE FOR SCA/CEN, EEB E.O. 12958: DECL: 04/13/2019 TAGS: EAGR EAID EIND ETRD TX RU SUBJECT: IPC AGRI: ONE EXAMPLE OF COMMERCIAL SUCCESS IN TURKMENISTAN REF: A. ASHGABAT 268 ¶B. B: ASGABAT 197 Classified By: Charge Richard Miles, reasons 1.4 (B) and (D). ¶1. (SBU) SUMMARY: Sales of Case New Holland equipment to Turkmenistan continue apace in 2009, with shipment of 300 tractors and $30 million in spare parts underway. Exclusive importer of Case New Holland and John Deere equipment to Turkmenistan, IPC Agri feels that its business is secure due to superior service and large infrastructure with executives residing in-country. The company benefits from an agreement with the government which provides an exemption from paying value added tax on service. IPC is maximizing its infrastructure by expanding its portfolio of maintenance services to other lines of equipment. All of these factors mean that IPC Agri will likely remain Turkmenistan's primary supplier of agriculture equipment in the long term. END SUMMARY. CASE NEW HOLLAND SALES GOOD IN TURKMENISTAN THIS YEAR ¶2. (C) The General Manager of the exclusive distributor of John Deere and Case New Holland equipment in Turkmenistan, Austrian firm IPC Agri, Jason Hunt (please protect),said in a meeting on April 10 that delivery of 300 Case New Holland tractors and $30 million in spare parts is underway (Ref. A). John Deere will sell only spare parts to Turkmenistan this year. He added that the German firm "Claas is still pushing hard" to sell equipment to Turkmenistan, which he feels poses a threat to John Deere and Case New Holland's firm foothold in the market because "the President seems very oriented to Europe" from his previous experience purchasing Siemens equipment as Minister of Healthcare and Medical Industry. Hunt believes that a $5-10 million credit line from Exim Bank would provide competitive advantage against European companies and is interested in finding out if this is an option in Turkmenistan. In addition, IPC is capitalizing on its extensive infrastructure by widening its portfolio by providing service for Terex, Cummins, NTU, and JCB equipment. RUSSIAN-TURKMEN TRADE NEGOTIATED ON POLITICAL LEVEL ¶3. (C) Opposition website Gundogar reported in early April that the heavily-indebted Alttrak tractor plant in Altai Krai, Siberia, will have to close if an order for 1,200 tractors does not come through from the Turkmen. About 3,000 workers would lose their jobs if this plant closed, which is $1.18 million in debt. Hunt heard that when a Turkmen delegation visited the factory in December 2008, it was not working, and he doesn't believe that Turkmenistan will buy this Soviet technology, adding that Uzbekistan was disappointed with its order of Alltrak tractors. Hunt thinks that the Turkmen considered buying Alltrak tractors for political reasons only and that Russia might be satisfied with the purchase of 998 units of Kamaz equipment. COMPANY RECOGNIZES IMPORTANCE OF PUBLIC IMAGE ¶4. (C) Hunt added that the Ministry of Agriculture has not yet laid the foundation for the proposed Dashoguz Training Center. However, as an alternative activity to help build its public image, IPC is actively promoting in television pieces its capacity building projects, such as improving the skills of equipment maintenance workers. WHY IS IPC SO SUCCESSFUL? ¶5. (C) According to Hunt, John Deere and Case New Holland equipment is popular in Turkmenistan because the companies provide excellent customer support and respond quickly to any problems, as well as a long relationship. He estimated that 40 percent of the company's strength was built on product, and 60 percent on support and presence. Hunt said that the ASHGABAT 00000476 002 OF 002 relationship has lasted because of "a customer relationship as well as a partnership." IPC is one of the few companies with a large infrastructure permanently located in Turkmenistan, consisting of over 200 people in country, which is both visible and available to the Ministry of Agriculture and other customers at any time. Other distributors fly in and out of Turkmenistan periodically, but the Turkmen value availability to vendor representatives, so IPC has an edge by having local offices. Any competitor wanting to counter IPC Agri's edge would have to begin building infrastructure from the ground up. FLEXIBILITY ALSO KEY ¶6. (C) Unlike companies such as Polimeks and Policom (Ref. B),Hunt said that IPC will not conclude a sale without a signed contract. However, IPC wll start shipment of an order before financing is secured. Hunt said that only one time in 12 years has Turkmenistan cancelled an order after the decree was signed. IPC also offers to cover the cost of restocking product -- 15 percent of the sale price -- if Turkmenistan cancels an order, which public companies like John Deere and Case New Holland cannot do. IPC has upgraded its service to Turkmenistan by shipping parts via chartered plane, and allows customers to pay for parts and service in manat or hard currency. However, equipment can only be paid for in dollars, with a letter of credit. (NOTE: IPC does not pay value added tax -- 15 percent -- on service, which allows them to work without getting paid for service performed immediately. The requirement for Letter of Credit through Deutsche Bank for equipment guarantees the company a constant influx of funds. END NOTE.) ¶7. (SBU) COMMENT: The excellent quality of John Deere and Case New Holland equipment notwithstanding, IPC Agri's relationship with Turkmen officials and the fact that Ministry bureaucrats prefer to remain with a known quantity mean that IPC Agri will likely remain Turkmenistan's primary supplier of agriculture equipment in the long term. END COMMENT. MILES