TURKMENISTAN: FURTHER INSIGHTS INTO OFFICIAL

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 000492 SIPDIS SCA/CEN; EEB PLEASE PASS TO USTDA DAN STEIN COMMERCE FOR HUEPER E.O. 12958: DECL: 04/17/2019 TAGS: PGOV EIND EINV ECON TX TU RS SUBJECT: TURKMENISTAN: FURTHER INSIGHTS INTO OFFICIAL CORRUPTION Classified By: Charge Richard Miles for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: A recent opposition website article about Turkmen government purchases of trucks from the Russian company KAMAZ exposed some interesting facts that suggest the government buys the vehicles for an inflated purchase price, leaving room for intermediaries and those who sign the contracts to personally profit. Other practices, including the hosting of large international conferences and major expenditures on low-priority projects or those with inflated costs, may also be routine methods by which individuals--especially those high up in government--have found ways to quietly divert funds away from the national budget, to the detriment of the average citizen. END SUMMARY. THAT'S ONE PRICEY TRUCK ¶2. (C) In February 2009, the Turkmen press announced that President Berdimuhammedov instructed the Ministry of Trade and Foreign Economic Relations to procure 1,040 Russian KAMAZ truck and special machinery from KAMAZ FTC Corporation and distribute them to the provincial governments and Ashgabat. The contract was to total some $100 million. After the report's publication, a Turkmen opposition website (www.watan.ru) conducted an investigation to determine the actual prices of the trucks and equipment. Opposition journalists contacted official KAMAZ dealers through a company website to get price quotes. They discovered that the most expensive model of KAMAZ truck (model 65222-10) for export (VAT not applicable for export trucks) was priced at about $60,000 in February 2009. However, according to Berdimuhammedov's decree, the Turkmen government was going to purchase each truck for approximately $96,000--a difference of about $36,000 per truck. If these figures are acccurate, more than $37 million--or some 37 percent--of the overall $100 million deal may have disappeared into private pockets. The journalists were unable to learn anything about the ownership or leadership of the intermediary firm KAMAZ FTC Corporation, aside from its registration in the British Virgin Islands. ¶3. (C) According to Russian and Turkmen press, in 2008 Turkmenistan was the third largest buyer of KAMAZ trucks, after Kazakhstan and Ukraine. The government purchased 2,549 trucks in 2008, six times more than in 2007. The first two contracts of 2008 alone had included 655 trucks and spare parts totaling $47 million. In cases over the past year in which the press stated the number of trucks and the total cost, per unit costs of the trucks ranged between $91,367 and as much as $119,000--an almost 50 percent markup ($59,000 over the actual $60,000 price). By comparison, in 2006, the government purchased the same standard KAMAZ trucks for $38,500 per unit. In July 2008, Berdimuhammedov and Russian President Medvedev cut the ribbon opening a new KAMAZ Service Center in Ashgabat, which was also supposed to supply trucks and spare parts. It is unclear why KAMAZ FTC is handling Turkmen government orders as an intermediary when a KAMAZ dealership is here. The larger question is who all may be benefiting from the markup. OTHER EXPENSIVE PROJECTS SUGGEST GRAFT ¶4. (C) The first week of April, the president authorized the signing of a $44 million contract with favored Turkish construction company Polimeks to re-finish park fountains along an Ashgabat street with black granite veneers and new electrical systems. He also authorized a $177 million contract--also to Polimeks--to build a new ice hockey stadium, training facilities, conference hall and several restaurants as the first phase of the planned $1.5 billion ASHGABAT 00000492 002 OF 002 "Olympic Village" complex. This year, Berdimuhammedov has already made $221 million available in the state budget for large-scale construction projects, largely directed to Polimeks and the French construction company, Bouygues. Ironically, the day after the ice stadium contract was announced, Ashgabat hosted an IMF-sponsored seminar entitled "International practices to combat money laundering and terrorist finance." CONFERENCES ANOTHER WAY TO SIPHON FROM BUDGET? ¶5. (C) A Pol/Econ staffer spoke with an employee at one of the ministries who said he believes that the numerous international festivals, fora and conferences held in Ashgabat are used by corrupt officials to embezzle state funds. As examples, he cited the international conference held in February called "Muhammet Gaimaz Turkmen--Reknowned Eastern Scientist." Scientists and researchers from 20 countries attended the conference. On March 11, he said a similar conference devoted to the literature and arts of the Seljuks hosted representatives from more than 30 countries. According to Turkmen press, these events, along with many other forums, were organized by the Presidential Apparatus. The Ministry employee said that significant funds from the state budget are allocated to the Apparatus to conduct these events. However, he claimed that Apparatus staff then pass the costs of transportation, accommodation in expensive hotels, gifts, formal lunches, dinners, and other expenses on to other ministries and agencies to pay. "You better ask the president's aide, V. Khramov how funds allocated for these events are spent," the Ministry employee said. Turkmen citizens consider the international fora that are given broad coverage by the Turkmen press to be events of little significance in both practical and scientific terms, according to local staff. ¶6. (C) COMMENT: These cases provide another window onto the culture of corruption that is so pervasive in Turkmenistan. If the 37 percent "signing bonus" suggested in the KAMAZ case is accurate and typical, then those who are authorized to sign such large contracts are getting very, very wealthy. Post's view is that the number of such people is very small, and clustered at the top. In the larger view, it strongly suggests also that a substantial portion of the national budget is being steadily and quietly drained away, to the detriment of the Turkmen citizen. END COMMENT. MILES