Turkmenistan: The President Strives to Show Investor-Friendly Face

While keeping the lid on Turkmenistan's political sphere, President Gurbanguly Berdymukhammedov appears intent on making the country a friendlier place for foreign investors. It would seem that Russia and Iran stand to be beneficiaries of Turkmenistan's economic makeover.

Berdymukhammedov has been busy in June, striking deals with Russian energy concerns, seeking a rapprochement with Azerbaijan, and making a June 15-16 trip to Tehran to promote closer bilateral economic links. [For background see the Eurasia Insight archive].

Iran has been at odds with the four other Caspian littoral states – Azerbaijan, Kazakhstan, Russia and Turkmenistan – on the issue of the sea's demarcation. Political analysts believe that Berdymukhammedov probed for a breakthrough in the long-stalled Caspian Sea treaty negotiations. He also reportedly sought Tehran's commitment not to interfere with the planned development of three off-shore oil blocks that are in Turkmenistan's territorial waters, though not far from areas claimed by Iran.

Iran -- a country under heavy international pressure over its nuclear program, and, therefore, eager to forge foreign friendships that can relieve some of the strain -- gave Berdymukhammedov a warm reception. Iranian President Mahmoud Ahmadinejad described Iran and Turkmenistan as "brother nations." Both leaders expressed a desire to develop energy links, but no agreements were signed during Berdymukhammedov's stay in Iran. "The potential and capabilities of the two countries require ongoing negotiations," said a joint statement issued June 16.

The visit did produce one significant announcement: Iran expressed a desire to participate in the North-South railway project. The rail link was outlined during a tripartite summit in May involving Turkmenistan, Kazakhstan and Russia. [For background see the Eurasia Insight archive]. The timing for the signing of a formal agreement on an Iranian-Turkmen railway link remains to be determined, according to Berdymukhammedov. In addition, Ahmadinejad reportedly accepted an invitation by Berdymukhammedov to visit Ashgabat.

Official media outlets in Russia devoted a considerable amount of coverage to Berdymukhammedov's Iran visit. Just two days before the Turkmen leader departed for Tehran, Vagit Alekperov, the CEO of LUKoil, announced that the Russian energy giant had received a concession from Ashgabat to develop the three off-shore Caspian oil blocks.

On June 12, reports circulated that Berdymukhammedov had held talks with senior executives of TNK-BP, a Russia-based joint venture that is among the top 10 crude oil producers in the world. According to a report distributed by the Russian business daily Kommersant, it was Berdymukhammedov, and not Russian executives, who initiated contact between Turkmenistan and the two Russian energy companies. The Turkmen leader's "desire for investment" motivated him to reach out, the Kommersant report added. The results, if any, of Berdymukhammedov's discussions with TNK-BP representatives were not publicly disclosed.

The LUKoil deal is not the first time that Turkmenistan has tried to develop oil deposits situated near Iranian territory. In late 2003, the former Turkmen dictator Saparmurat Niyazov signaled a desire to sign a 25-year production sharing agreement (PSA) with a consortium of Russian energy companies, known as Zarit. The PSA would have covered four blocks containing both oil and natural gas reserves. Ultimately, Turkmenistan decided not to finalize the deal, apparently out of concern that pushing ahead would have stoked a territorial dispute with Iran. Some experts believe that Zarit may become a player in this new attempt to develop Turkmen reserves near the Iranian border, yet no formal announcement to this effect has been made.

The LUKoil deal is a most welcome development for Russian President Vladimir Putin's administration. Since signing a landmark deal in May to expand pipeline links between Russia and Turkmenistan, Putin has pushed cabinet ministers to aggressively promote expanded trade ties. During a June 18 cabinet meeting, Putin ordered Deputy Prime Minister Sergei Naryshkin to compile a progress report on Russian-Turkmen trade. Naryshkin, who co-chairs the bilateral commission on economic cooperation, is expected to travel to Ashgabat in late June.

Beyond pipelines, Russian leaders are promoting other means to bind Caspian Basin energy producers more tightly to the Kremlin. On June 15, First Deputy Prime Minister Sergei Ivanov quickly endorsed an idea floated by Kazakhstani President Nursultan Nazarbayev, who called for the construction of a new canal, which he dubbed "Eurasia," connecting the Caspian and Black seas. Such a canal, if built, would give Azerbaijan, Kazakhstan and Turkmenistan ready access to the open seas, thus enabling the three states to dramatically increase freighter volume.

The proposed Eurasia canal would provide a shorter link to the outside world than the existing Volga-Don canal, which dates to the 1950s. Russia currently maintains heavy restrictions for Azerbaijani, Kazakhstani and Turkmenistani vessels seeking to use the Volga-Don route.

The canal would cost $6 billion, according to an estimate given by Nazarbayev. The price tag is sufficiently steep, Ivanov said, that the project would require the participation of foreign investors. At the same time, Ivanov stressed, that Moscow would view a new canal as an internal waterway, raising the possibility that the Kremlin could impose arbitrary restrictions on freighter traffic.