VZCZCXRO5448
OO RUEHAST RUEHDBU RUEHFL RUEHLA RUEHLN RUEHMRE RUEHPOD RUEHROV RUEHSR
RUEHVK RUEHYG
DE RUEHAH #0260/01 0641340
ZNR UUUUU ZZH
O 051340Z MAR 07
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8493
INFO RUCNOSC/OSCE POST COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0651
RUEHNE/AMEMBASSY NEW DELHI 0705
RUEHIL/AMEMBASSY ISLAMABAD 1908
RUEHLM/AMEMBASSY COLOMBO 0215
RUEHKA/AMEMBASSY DHAKA 0237
RHMFIUU/CDR USCENTCOM MACDILL AFB FL//CCJ2/HSE/CCJ5//
RUEKJCS/SECDEF WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC//J5/RUE//
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC//DHO-2/REA/NMJIC-J2//

UNCLAS SECTION 01 OF 02 ASHGABAT 000260 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR SCA/CEN (PERRY) 
 
E.O. 12958: N/A 
TAGS: ENRG PREL SOCI EAID AF TX US
SUBJECT: PRIVATE SECTOR OIL AND GAS TELLS PDAS MANN MORE FOREIGN 
INVESTMENT NEEDED 
 
Refs: A) Ashgabat 128 
  B) 06 Ashgabat 1205 
 
Summary 
------- 
 
¶1.  (SBU) Private sector oil and gas representatives told visiting 
PDAS Steven Mann during a March 4 lunch that the primary inhibition 
to the further (and long-term) development of Turkmenistan's oil and 
gas sector was lack of foreign direct investment (FDI).  They also 
believed that a corollary to Turkmenistan's future success was an 
improved educational system.  The community was unanimous in its 
positive assessment of the new Deputy Chairman of the Cabinet of 
Ministers for Oil and Gas Tachberdi Tagyev's technical ability to 
manage the internal functions of the industry, but divided over 
Tagyev's perceived aptitude to oversee the international business 
sections of his new, and expanded, portfolio.  All agreed that the 
current decision-making authority in the oil and gas sector had not 
been clarified.  The group welcomed increased attention by the 
United States Government to Turkmenistan's hydrocarbon discussions. 
End Summary. 
 
Representatives Clear and United . . 
------------------------------------------ 
 
¶2.  (SBU) Familiar interlocutors for the embassy met with PDAS Mann 
at the Charge's residence for a Saturday lunch to discuss the oil 
and gas sector from the private sector perspective.  Representatives 
from Burren Resources Petroleum, Dragon Oil, Maersk Oil, Calyk 
Energy, Cooper Cameroon, Merhav, and the European Bank for 
Reconstruction and Development (EBRD) and European Union Technical 
Assistance to the Commonwealth of Independent States (EU-TACIS) 
contributed both a deep and broad perspective on the current 
situation in Turkmenistan and the prospects for future development. 
The group was united in the call for an improved educational system 
to support their work, but divided in prioritizing the educational 
needs and instructional language.  One representative simply said 
that the system was so impoverished that discussions regarding the 
best strategy should not delay the overhaul of the system, including 
better quality instructors and an improved curriculum. 
 
Future Uncertain Without Investment and Leadership 
--------------------------------------------- ----- 
 
¶3.  (SBU) Collectively, private sector oil and gas companies enjoyed 
a profitable 2006.  The numbers were encouraging, but companies saw 
the opportunity for more money in the state coffers and their own 
pockets with an improved business investment climate.  The private 
sector presence was needed to improve Turkmenistan's insufficient 
and deteriorating infrastructure and to expand exploration of 
petroleum deposits.  Maersk General Manager Peter Barnett complained 
openly about the difficult year (2006) Maersk experienced with the 
national tax authorities, then confirmed that on March 1, Maersk 
sold 50% of their interests on Caspian Sea Blocks 11-12 to ONGC 
Videsh Ltd (OVL).  (Comment:  On February 26, Pol/Econoff had the 
most recent of a series of meetings with local U.S. company 
representatives, this time Weatherford - evaluation, drilling and 
intervention, on questions regarding double-taxation.  Weatherford's 
country manager confirmed that business exploded for the company in 
2006, and the local tax authorities had taken a new and more 
aggressive interest in their business.  End Comment.)  Others at the 
table disclosed similar frustrations, starting with the daunting 
challenge of securing visas, a process which cost up to $700. 
Turkmenistan's "unwelcome" mat minimized foreign investment 
prospects (ref A). 
 
¶4.  (SBU) The group waxed nostalgic for the clear and competent 
leadership of the international companies that was enjoyed when 
Yolly Gurbanmuradov was at the helm as Deputy Chairman for Oil and 
Gas (1999-2005).  After Gurbanmuradov was imprisoned by Niyazov in 
2005, Niyazov usurped all oil and gas industry decision-making 
authority.  No decision-making authority had been clarified under 
Berdimuhammedov, and all were uncertain as to who would be the 
important strategist for the future of Turkmenistan's oil and gas. 
Dragon Oil's Vlad Pashkin described Deputy Chairman Tagyev as being 
 
ASHGABAT 00000260  002 OF 002 
 
 
out of his element when it came to non-technical discussions, but 
Calyk Energy representative Aziz Cengel quickly came to Tagyev's 
defense and said that Tagyev had worked well with Calyk Energy. 
(Comment: Tagyev was mentored by Gurbanmuradov, who was also known 
to have a working liaison with Calyk Energy company owner Ahmet 
Calyk.  Cengel's quick defense of Tagyev and the above-the-fold 
placement in the state-run newspapers of Calyk's meeting with the 
new president days after Berdimuhammedov's inauguration suggests 
this business liaison is continuing.  End Comment). 
 
¶5.  (SBU) All of the private sector representatives said that there 
had been little movement in the industry since Niyazov's December 21 
death, except for continued rumors of "the Chinese" being awarded 
onshore drilling Production Sharing Agreements (PSAs), an obvious 
sore spot for several of the lunch attendees (ref B).  During 
Niyazov's time, foreign companies were only permitted to work 
offshore under the successful PSA system.  Several representatives 
said that "the Chinese" lacked expertise in the field and cited the 
late November 2006 Chinese drilling well blow-out in South Yoloten 
as an example but some advised that the fire had been extinguished 
in mid-January by an "American company." 
 
Fuzzy Statistics, Not a Problem 
------------------------------- 
 
¶6.  (SBU) Transparency has never been the Government of 
Turkmenistan's hallmark, and the industry representatives seem 
unconcerned.  When the government's 2005 gas production statistic of 
63 billion cubic meters (bcm) was announced at the table, 2006 
statistics had not been publicly released, the initial chuckles over 
the government's claim that 20 bcm was for domestic demand abated 
when the collection instruments were explained.  Included in this 
number was the fueling of power stations and, according to Dragon 
Oil and Burren Resources Petroleum, their companies had to report 
all flared natural gas volumes, which was then recorded by the 
government as production volume.  When the need for open disclosure 
of Turkmenistan's recoverable reserves was put on the table, Mann 
said that the audit information was unimportant.  The industry knew 
there was something in the ground, so private industry should 
explore the potential, and business would determine whether it was 
recoverable. 
 
Comment 
------- 
 
¶7.  (SBU) The group's cautious optimism since Gurbanguly 
Berdimuhammedov became president seems to be justified.  EBRD 
Resident Head Office Tony Myron confirmed that it was not only the 
private companies that were doing well in Turkmenistan, but that 
available banking evidence suggested that the government's reserves 
had grown with the increased world hydrocarbon prices and Gazprom's 
deal to more than double last year's contract price for 
Turkmenistan's natural gas.  All agreed that Turkmenistan's 
infrastructure could not currently support more output but that the 
country was rich with possibilities.  However, with its extra cash, 
the government potentially had the financial ability to make some 
internal oil and gas investments.  And, with Turkmenistan's future 
potential as a direct energy supplier to Europe and South Asia 
boosting exploratory prospects, the markets were eager to support 
additional supplies.  End Comment. 
 
¶8. PSAS Mann has cleared this cable. 
 
BRUSH