Turkmenistan benefited considerably from the $4 billion soft loan it was able to negotiate in 2009 with China, authorizing the Chinese National Petroleum Company (CNPC) to build the 7,000-kilometer natural gas pipeline (the world's largest) from Turkmenistan to China and begin to pump gas this year. Originally, this pipeline was expected to pump as much as 30-40 billion cubic meters a year starting in 2015; so far it has delivered 5.83 bcm, CNPC recently reported. The loan enabled Turkmenistan to break lose from dependence on gas sales to its largest customer, Russia, and compensate for losses when Russia drastically reduced its purchases last year after a compensation dispute over a 2009 gas pipeline explosion, as well as a downturn in global demand.
Now Turkmenistan is hoping to sign another $4 billion loan with China and increase its supply of natural gas maybe even as high as 60 bcm-- but Ashgabat and Beijing have not yet agreed on a price for Turkmenistan's gas, nor gained approval from the transit states of Kazakhstan, Uzbekistan, and ultimately Russia, says Stratfor, the global intelligence group. The Chinese are reportedly offering between $100-150 per thousand cubic meters (tcm) but that's below the European market price of $250-$400 tcm that Ashgabat believes its gas should fetch, says Stratfor.
In a statement from March 3, Turkmen Deputy Prime Minister Baymyrat Hojamuhammedov gave the figure of 20 bcm per year and said the loan agreement would be signed when President Gurbanguly Berdymukhamedov travels to China later this year. Construction of an additional pipeline has been delayed, and Turkmenistan still has to work out pricing with its Central Asian neighbors. Even if Ashgabat caves to Beijing with lower prices, Uzbekistan and Kazakhstan could block transit so as not to undercut their own bargaining with China. If Turkmenistan winds up sending 60 bcm to China, more than the 50 bcm it used to sell to Russia at its peak, Russia may feel its sphere of influence is significantly encroached; it has its own pricing dispute over a potential Siberian natural gas pipeline for direct sales to China, says Stratfor.
As Ashgabat was struggling over the Chinese agreement, its attempts to showcase its potential for selling gas to Asian markets at an international trade show in Singapore was marred by an aggressive protest by Russia's MobileTelephoneSystems (MTS). MTS was understandably aggrieved in December when Turkmen authorities shut off its cell phone service to 2.4 million people -- 85 percent of the population in Turkmenistan. Stung by this abrupt end to a five-year-contract that MTS thought would be renewed, the Russian company distributed letters to all the participants of the Singapore exhibition warning investors not to go to Turkmenistan. Companies and officials from 26 countries attended, including from BP, ExxonMobil, Eni, Itocu, CNPC, Petrofak, Petronas, Buried Hill, as well as the Asian Bank for Development and banks from Switzerland, Germany, and Japan.
"We believe it's our duty to inform the investing public and other multinational enterprises of the perils of Turkmenistan," MTS said in the letter dated March 3. "There is a lack of transparency, running contrary to international business practices, and good corporate citizenry are rewarded with an ongoing risk in Turkmenistan," the MTS letter continued -- although these issues had never bothered the Russian company before in doing business in Turkmenistan, and its sudden focus on transparency in Turkmenistan was selective.
The Turkmen Foreign Ministry swiftly countered the Russian letter campaign with its own statement, claiming that "during the entire period of its work in Turkmenistan, MTS charged unreasonably high tariffs for providing communications services" and yet "transferred only a very small portion of its huge profits" to the Turkmen government -- which reportedly had asked for 20 percent. The failure to negotiate an extension of the contract reportedly revolved around the Turkmen government's new demand to take 51 percent ownership of the shares of MTS’s local affiliate. Yet the incident must be seen against the backdrop of deteriorating relations with the Kremlin and the Russian state-owned company Gazprom over the last few years, as Gazprom reduced its purchases, and a price agreement could not be reached. Ashgabat -- if it dealt with Russia at all – has recently preferred to trade with individual Russian Federation constituents like Tatarstan or Leningrad province or only a few favored companies like Itera. Despite the dispute, the Foreign Ministry said it nevertheless viewed Russian companies as "a crucial component of bilateral interstate trade" but saw the MTS reputation-bashing episode in Singapore as "inconsistent with the accepted norms of the civilized world of relationships in business."
Even without the MTS debacle, there have been cases of companies attempting to do business in Turkmenistan over the years and pulling out in frustration. The business climate has been murky enough that meetings with Turkmenistan's President Berdymukhamedov are among the scandals recently that have tarnished the reputation of Prince Andrew, the United Kingdom's trade envoy. British officials and companies have been holding meetings with the Turkmen government for many years, often to no avail, as emails released by the UK Foreign and Commonwealth Office reveal. Yet, the documents make clear that his presence was repeatedly requested by oil companies such as BP.
After a more than four-year wait, and increasingly vocal complaints, including from a former State Department official, the U.S. ambassador to Turkmenistan has finally been nominated by President Barack Obama. He is Robert E. Patterson, a fluent Russian speaker and seasoned foreign service officer who served in the former Soviet Union and was most recently posted to Nairobi where he was counselor for Somalia Affairs. Patterson must wait for confirmation by the U.S. Senate, and as other nominees have found, senators can place holds on the process for reasons not necessarily related to the nominee.
The new etrap (district) of Rukhubelent, opened by President Berdymukhamedov with much fanfare in 2007 as the model for the future of the Turkmen countryside, suffered a severe shortage of water in November and December, the Turkmen Initiative for Human Rights reported. Apparently a lack of snow led to dry wells and water had to be trucked in from 200 kilometers away. At first the local administrators were reluctant to contact higher-ranking authorities but eventually they called for help as hospitals, schools, day care centers, and other facilities were running out of water, and there was a danger people would start fleeing the area. A new administrator was appointed by the president and a prosecutor opened up a criminal investigation.
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