VZCZCXRO7918
RR RUEHDBU
DE RUEHAH #0699/01 1841317
ZNY CCCCC ZZH
R 031317Z JUL 06
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 7506
INFO RUCNCIS/CIS COLLECTIVE
RUEHMO/AMEMBASSY MOSCOW 2924
RUEHKV/AMEMBASSY KIEV 0483
RUEHSK/AMEMBASSY MINSK 0029
RHMFISS/CDR USCENTCOM MACDILL AFB FL//CCJ2/HSE/CCJ5//
RUEKJCS/SECDEF WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC//J5/RUE//
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000699 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR SCA/CEN FOR JMUDGE AND PDAS SMANN 
 
E.O. 12958: DECL: 07/03/2016 
TAGS: PGOV PREL ENRG TX UP RS BO ZK
SUBJECT: DEAL OR NO DEAL? NIYAZOV PLAYS HARDBALL ON 
TURKMENISTAN,S GAS PRICE 
 
REF: ASHGABAT 673 
 
Classified By: Classified by Ambassador Tracey A. Jacobson, reasons 1.4 
 (b) and (d). 
 
Summary 
-------- 
 
¶1. (C) On June 29 GazProm Chairman Alexei Miller returned to 
Turkmenistan to discuss gas prices with President Niyzaov )- 
his second visit in less than two weeks.  The following day, 
a Ukrainian delegation headed by Minister Plachkov met with 
Oil and Gas Minister Atayev for a similar negotiation.  Both 
meetings were inconclusive for Russia and Ukraine, both 
insisting that they have existing contracts while Niyazov -- 
emboldened by his previous success in getting a higher price 
for Turkmen gas -- is not budging on his asking price of $100 
per billion cubic meters.  END SUMMARY 
 
It,s (Alexei) Miller Time! 
-------------------------- 
 
¶2. (C) Shortly after being summoned on June 19 (reftel) to 
negotiate prices for Turkmenistan,s natural gas with 
President Niyazov, GazProm,s Alexei Miller returned on June 
29 for another round of talks.  According to Foreign Minister 
Meredov, Miller and Niyazov met for over three hours, with 
Miller offering to buy the Turkmen gas contracted for the 
first half of 2006 -- 30 bcm -- by the end of September, for 
the previously agreed price of $65/tcm.  He made a proposal 
for Turkmenistan to sell gas to Ukraine only in the fourth 
quarter, for &the best price they could get,8 in order to 
fill Ukraine's gas reservoirs for the coming winter.  Miller 
also said Russia would sign a contract for up to 50 per 
billion cubic meters (bcm) in 2007 for the Ukrainian price, 
plus and an additional 10 percent. 
 
¶3. (C) Niyazov rejected this offer, saying it was impossible 
to sell gas for just one quarter (Note: FM Meredov also 
characterized the offer as a "sneaky" collaboration between 
the Russians and the Ukrainians. End Note.).  Niyazov also 
told Miller that after Turkmenistan delivers the contracted 
30/bcm to Russia in September, it will then be free to choose 
its buyers, selling at the border, and will be free to 
support various pipeline projects, including Nabucco, and the 
proposed Trans-Afghan, and Trans-Caspian. 
¶4. (C) Following this unsuccessful bid to keep prices low, 
Miller flew back to Moscow empty-handed to consult with 
Russian President Putin. FM Meredov called Ambassador at home 
to report that after Miller,s return, the &top boss8 
(Putin) called Niyazov to ask him to reconsider the proposal. 
 Niyazov refused again, and they agreed to talk again on June 
¶30. 
 
Russian Scoff at Niyazov,s Price... 
----------------------------------- 
 
¶5. Russian Charge Andrei Krutko told Ambassador on June 29 
that Niyazov,s proposed price for Turkmen gas -- $100/bcm -- 
is "not economically feasible" for Russia.  Krutko said that 
GazProm's prices for private domestic consumers ($35/bcm) and 
enterprises ($50/bcm) will not allow GazProm to buy Turkmen 
gas at much more than the current price of $65/bcm, due to 
transit and compression costs.  Krutko also insisted that 
Russia has enough gas to meet domestic and foreign 
obligations, and argued that the only reason to buy Turkmen 
gas was to "preserve Russia's reserves for future 
generations."   If Niyazov continues to insist on $100/bcm, 
Russia will simply not buy beyond the approximately 10 
trillion cubic meters remaining on this year's 30 bcm 
contract. 
 
...And Casts Aspersions on the Ukrainians 
----------------------------------------- 
 
¶6. (C) Russian Charg Krutko also doubted the Ukrainians 
delegation would be able to make a deal either, arguing that 
Ukraine is not able to pay more than $70/bcm at the border. 
He also said that the pipeline is only working at 30 percent 
capacity, implying due to Ukrainian sabotage (Note: most of 
Turkmenistan,s gas pipeline infrastructure is Ukrainian 
 
ASHGABAT 00000699  002 OF 003 
 
 
manufactured. End Note.). 
 
Russians Stay on Message about Turkmenistan and Ukraine 
--------------------------------------------- ---------- 
 
¶7. (C) During a separate June 30 meeting with PolOff, Russian 
Economic Counselor Dyemyin said that Alexei Miller,s recent 
trips to Ashgabat were not unexpected since during last year 
visit by Russian FM Lavrov, Niyazov hinted that gas prices 
might go up.  However, Dyemyin said that the $100 price 
increase was &very sharp8 although he admitted that 
Niyazov,s argument for a price increase now was fair, given 
the recent agreement with Kazakhstan was for $140/bcm. 
However, Dyemyin suggested that Niyazov should be 
&starting8 with a &more reasonable8 price of $83 or $85 
per bcm instead.  He noted that by September of this year, 
Turkmenistan will supply the remaining portion of the 30 bcm 
specified in their contract with Russia and then they need to 
make an agreement, because despite Turkmenistan,s ultimatum 
about cutting gas delivery without a contract, &it is 
technically impossible to store this gas.8  Dyemyin also 
speculated that after the G-8 Summit meeting in St. 
Petersburg, oil and gas prices will increase anyway. 
 
¶8. (C) Concerning Ukraine, Dyemyin said that the $100 price 
would potentially &ruin Ukraine,s economy8 because the gas 
will be more expensive in Ukraine due to the various 
transport costs.  He also said that the &two precursors8 to 
any gas agreement would have to be that Ukraine a) pay its 
existing debt of $64 million and b) conclude an agreement 
with Russia on the transit of Turkmen gas through Russia to 
Ukraine.  Also, he defended GazProm,s non-market price 
variances between what it charges Ukraine and other CIS 
countries -- like Belarus or Armenia -- citing that prices 
are necessarily higher in countries where GazProm does not 
own the gas transport infrastructure. 
 
Platchkov Meets with Atayev 
--------------------------- 
 
¶9. (C) On June 29 and July 3, PolOff met with Alexander 
Kucheruk and Igor Roman of the Ukrainian Embassy to discuss 
the Ukrainian delegation,s activities.  They acknowledged 
that Ukraine sent a large delegation headed by Plachkov and 
that their June 30 meeting was with Oil and Gas Minister 
Atayev, Deputy Minister Nuriyev, TurkmenGas Chairman 
Hajigurbanov and other members of Turkmenistan,s petroleum 
sector.  According to Roman and Kucheruk, Plachkov came to 
the table with nothing more than an attempt to get 
Turkmenistan to fulfill the terms of the signed in December 
(sales price between $50 and $60 per bcm). 
 
¶10. (C) According to the Ukrainians, the Turkmenistani side 
proposed that Ukraine purchase between 10 and 11 bcm of gas 
during the fourth quarter at a price of $100/bcm, after 
Turkmenistan has supplied Russia with the rest of the 
contracted gas volumes Atayev also said Turkmenistan would 
consider supplying gas in 2007 if Ukraine gets a transit 
license for gas export though Russia.  Because the Ukrainians 
insisted that they have an existing contract at the lower 
$50/bcm price, the negotiations were inconclusive.  Roman 
also told PolOff that Ukrainian Prime Minister Tymoshenko 
planned to visit Moscow and later Turkmenistan in late 
July/early August, in order to discuss Central Asian gas 
supplies and transit arrangements. 
 
¶11. (C) During the Plachkov meeting, the Ukrainians confirmed 
their $64 million in debt to Turkmenistan for gas supplied 
from 2003-2005, and agreed to cover this amount through the 
supply of large pipes on September 4th.  The government of 
Turkmenistan also agreed to recalculate the costs of several 
large Ukrainian investment projects, including the 
construction of a drainage and communication tunnel under 
Ashgabat, the Gotur-Depe compressor station and the 
construction of the railway bridge over the Amu-Darya river 
(Note: The Ukrainian diplomats confided to PolOff that 
much-needed repairs on Turkmenistan,s gas transport system 
would work in their favor, since the Ukraniaian-manufactured 
turbines and compressors are were in need of &immediate 
renovation8 and faces imminent &breakdown,8 according to 
recent conversations that Kucheruk had with TurkmenGaz 
 
ASHGABAT 00000699  003 OF 003 
 
 
representatives. End Note.). 
 
Belarus Not A Factor 
-------------------- 
 
¶12. (SBU) Despite numerous press reports from the Belarusian 
state claiming that the state gas transit concern BelTansGas 
sent a &group of expert negotiators8 to discuss buying gas 
directly from Turkmenistan as part of their &energy security 
plan,8 according to Belarusian First Secretary Andrey 
Malashevitch, this patently is not the case.  During a 
meeting with PolOff on June 29, Malashevitch confirmed that a 
person who works for BelTransGas did come to Ashgabat for 
four days and had an &informational8 meeting at the 
Ministry of Oil and Gas with a &department head level8 
official, but this was a personal friend of the Ambassador, 
and the meeting was &just to provide official cover8 for 
the Ashgabat vacation of an old schoolmate. 
 
Comment 
------- 
 
¶13. (C) Just like the carpet dealers in Tolkuchka Bazaar, 
Niyazov is asking an unreasonably high initial price for 
Turkmenistan,s gas in hopes of settling on a better deal 
than he has now with Russia.  Buoyed by this year,s earlier 
success at extracting a higher price, and reveling in the 
pomp and ceremony of his many high-level trips and visits 
about gas, Niyazov is standing firm on his price for now. 
After three delegations have left Ashgabat in the past two 
weeks without any firm deals, it remains to be seen if his 
price posturing is pure bargaining bravado or if he,s really 
willing to risk angering Russia )- his gas, only real 
export route -- in order to squeeze more money out of them. 
END COMMENT. 
 
JACOBSON 
JACOBSON