TURKMENISTAN TO PRODUCE METAL CONSTRUCTION MATERIALS

UNCLAS SECTION 01 OF 02 ASHGABAT 000655 SENSITIVE SIPDIS STATE FOR SCA/CEN; EEB E.O. 12958: N/A TAGS: PGOV EIND EINV ECON TX SUBJECT: TURKMENISTAN TO PRODUCE METAL CONSTRUCTION MATERIALS ASHGABAT 00000655 001.2 OF 002 ¶1. (U) Sensitive but unclassified. Not for Internet distribution. ¶2. (SBU) SUMMARY: Last week, President Berdimuhamedov commissioned Turkmenistan's first metal works plant. The project, which was approved when former President Niyazov was still alive, was intended to reduce the importation of metal materials used for construction. However, opening such a factory makes little economic sense given the country's lack of raw materials needed for such production. Although the original idea was to produce new materials made from recycled metal waste, the supply of metal waste will be too limited to keep the factory operating for very long, raising questions about why the decision was made by the post-Niyazov Government to continue with its construction. END SUMMARY. NIYAZOV'S IDEA TO BUILD THE PLANT ¶3. (SBU) In June 2005, the late President Niyazov instructed the Turkmen State Mechanical Engineering Concern to sign a $64.5 million contract with two Turkish companies to build the first metalworks in Turkmenistan. According to the decree, the Turkish companies Erdemir and Sehil were to have begun construction in August 2005 and finish before February 2007. President Niyazov instructed all government organizations and agencies to collect metal waste materials and send them to the plant. However, the plant's construction floundered for four years before it was commissioned in early May 2009. The factory's mission was to manufacture metal construction materials that are in high demand in Turkmenistan but are imported at great expense. THE PLANT IS READY, BUT ... ¶4. (SBU) Last week, President Berdimuhamedov hosted the diplomatic community at the opening ceremony of the plant located in Owadan Depe, about 20 kilometers northwest of Ashgabat. During the ceremony, the Turkmen leader said the plant is the first of many heavy industry factories to be built in the country, and will initially employ 150 people. He stated that in the future, the number of employees will reach 600-800 and the plant will reach full production capacity in a couple of years. The plant is capable of producing 160,000 tons of metal products a year, and is supposed to produce rebars, U-sections, L-steel and rolled metal materials. According to an Embassy Locally Employed Staff person who knows the plant's manager, the plant's commissioning was delayed because of serious problems, including lack of cement, that arose while it was under construction. Knowing that corners had been cut during construction, the manager had refused to sign documentation declaring it operational more than a year ago, and a decision was then made to correct the deficiencies, according to the manager. ... HOW TO FEED IT? ¶5. (SBU) Turkmenistan has no significant metal deposits or other minerals used in metallurgy. Metal materials were imported from other former republics during the Soviet era. Thousands of small metal foundries and light industrial facilities were established here after the Second World War to strengthen Soviet industry, fed by raw materials shipped in by rail. After independence, Turkmenistan still had thousands of tons of scrap metal, but most was exported in the 1990s, via local businessmen who exported all the scrap metal they could find, including cast-iron manhole covers, to Iran, China and others. In June 2005, Niyazov ordered the construction of the plant and also banned the export of scrap metal. Nevertheless, due to previous export activity and the lack of heavy industry in Turkmenistan, the supply of scrap metal is thought to be currently limited, so the plant will probably operate well below its production capacity and therefore well below the level needed to generate a profit. In his speech at the ribbon cutting ceremony, President Berdimuhamedov said that in the future, exploration and development of metal and mineral deposits would become a key government priority. ¶6. (SBU) COMMENT: It is perplexing how a project like this, ASHGABAT 00000655 002 OF 002 apparently conceived without consideration of the long-term availability of raw or scrap materials, managed to survive the presidential transition and reach completion. Like some other ill-conceived industrial projects Embassy officers have encountered here (like the glass plant and paper plant, both of which lacked critical sources of raw materials),this plant will probably crank out a small number of recycled metal materials that will be used for minor provincial construction projects, and employ a skeletal staff of employees who will keep it minimally operational. The plant is unlikely to ever see the 600-800 employees the President trumpeted at the ceremony, which is unfortunate in a country where unemployment is sometimes estimated as high as 60 percent. END COMMENT. MILES