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PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #0015/01 0041131
ZNR UUUUU ZZH
P 041131Z JAN 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 9993
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 3194
RUEHBJ/AMEMBASSY BEIJING 1009
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RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
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RUCPCIM/CIMS NTDB WASHDC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 2069

UNCLAS SECTION 01 OF 06 ASHGABAT 000015 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CA AND EB/IFD/OIA; STATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON EFIN OPIC KTDB USTR TX
SUBJECT:  TURKMENISTAN 2008 INVESTMENT CLIMATE REPORT 
 
¶1.  (U) Text of Embassy Ashgabat's Investment Climate Statement for 
2008 is as follows: 
 
BEGIN TEXT OF PART II OF II: 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
Foreign and domestic private entities in Turkmenistan have the right 
to establish and own business enterprises, though this is associated 
with onerous bureaucratic requirements.  The 2000 Law on Enterprises 
establishes state and private businesses in various legal forms 
(state enterprises, sole proprietorships, cooperatives, 
partnerships, corporations and enterprises of non-government 
organizations).  The law allows foreign companies to establish 
subsidiaries, but the Government does not currently register 
subsidiaries.  The Civil Code of Turkmenistan and the Law on 
Enterprises provide for representative and branch offices to operate 
in Turkmenistan; these offices do not have legal entity status, but 
have to be registered at the Ministry of Economy and Finance. 
 
The government prohibits engagement in certain areas of commercial 
activity, such as mass media.  The 1999 Law on Licensing Certain 
Types of Activities lists 65 types of activities that require 
government licenses.  Currently, state entities do not require 
licenses.  Often private entities need to do more than public 
enterprises to access markets and credit. 
 
The Law on Enterprises and the Law on Corporations provide for 
acquisitions and mergers.  However, Turkmenistan's legislation is 
not clear about acquisitions and mergers involving foreign parties, 
nor does it have specific provisions for disposition of interests in 
business enterprises, both local and with foreign participation. 
Government approval is necessary for acquisitions and mergers of 
certain enterprises, specifically those with state shares. 
 
PROTECTION OF PROPERTY RIGHTS 
 
All land is owned by the government.  The 1993 Law on Property 
defines the following types of property:  private, state, 
non-government organizations, cooperative, joint-venture, foreign 
states, legal entities and citizens, international organizations and 
mixed private and state.  Most housing is state-owned and may not be 
resold.  Turkmenistan adopted a new land code in 2004, addressing 
farmers' land rights.  According to the new land law, citizens may 
have rights up to three hectares of land but they cannot sell, 
exchange, or transfer it, except to their children.  Based on the 
law, foreign citizens and stateless persons, foreign states, and 
companies and international organizations may only lease land.  The 
October 1, 2007 amendments to the Land Code provide for up to 
40-year land leases for hotels and recreational facilities in the 
National Tourism Zone (NTZ).  Land and built facilities have to be 
transferred after the expiry of the contract.  According to the Law 
on Foreign Investment, foreign investments in Turkmenistan are not 
subject to nationalization and requisition; foreign properties may 
be confiscated only by a court decision. 
 
The government has enacted laws designed to protect intellectual 
property rights domestically, but these laws are either arbitrarily 
implemented or not implemented at all.  Among them are the 1993 Law 
on the Protection of Scientific Research and the 1993 Patent Law. 
Also in 1993, the government established the Patent Agency.  There 
is no requirement to register with the Patent Agency, but doing so 
gives a company exclusive rights to use the registered material and 
certain tax benefits defined by the Cabinet of Ministers.  However, 
due to significant deficiencies in Turkmenistan's intellectual 
property protection regime, there is an ongoing review of 
Turkmenistan's status as a beneficiary country under the U.S. 
Generalized System of Preferences (GSP) Program.  Turkmenistan has 
been on the Special 301 Watch List since 2000. 
 
The Law on Foreign Investment guarantees the protection of 
intellectual property of foreign investors, including literary, 
 
ASHGABAT 00000015  002 OF 006 
 
 
artistic and scientific works, software, databases, patents and 
other copyrighted items, but Turkmenistan has yet to adopt more 
explicitly and comprehensive administrative and civil procedures and 
criminal penalties for Intellectual Property Rights (IPR) 
violations.  Turkmenistan has not adopted a separate Copyright Law 
and consequently does not provide any protection to foreign sound 
recordings or pre-existing works.  The 1993 Most Favored Nation 
Agreement between the United States and Turkmenistan also provides 
for favorable treatment of copyrighted materials.  The agreement 
envisages Turkmenistan's accession to the Berne Convention of 1971 
for the Protection of Literary and Artistic Works and Creation of a 
Working Group on Intellectual Property Matters.  To date, 
Turkmenistan has not joined the Berne Convention nor the Geneva 
Phonograms Convention.  It is a challenge to purchase legal recorded 
material in Turkmenistan.  Current border enforcement is weak.  As a 
result, pirated recordings freely cross into Turkmenistan for sale. 
Additional personnel and training courses are needed for more 
effective border enforcement.  Turkmenistan does not provide for 
either civil or criminal ex parte search procedures needed for 
effective anti-piracy enforcement. 
 
Turkmenistan signed the World Intellectual Property Organization's 
(WIPO) documents on industrial property rights and patent 
cooperation in 1995.  Turkmenistan has also joined the Eurasian 
Patent Organization that was created as part of the WIPO for the CIS 
countries.  Turkmenistan has not signed the 1996 WIPO Copyright 
Treaty (WCT), WIPO Performances and Phonograms Treaty (WPPT), or 
WIPO Internet Treaties. 
 
The Copyright Law was enacted as part of Turkmenistan's Civil Code, 
in force since 2000.  The Law defines copyrighted products and the 
rights of owners of the copyrighted products, and provides their 
legal protection.  However, there is no agency responsible for 
implementing or enforcing the copyright law.  Turkmenistan has not 
adopted criminal penalties for IPR violations, and currently 
articles such as videos, cassette tapes, and literature are freely 
copied and sold.  In general, state products increasingly dominate 
local markets and are well-protected by law enforcement bodies. 
State products, petroleum and textiles exported from Turkmenistan 
have been assigned trademarks to protect them in foreign markets. 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
 
The government does not use transparent policies to foster 
competition and foreign investment.  Laws have frequent references 
to by-laws that are often not publicly available.  Most by-laws are 
passed in the form of presidential decrees.  Such decrees are not 
categorized by subject, which makes it difficult to find relevant 
cross references.  Previously, government officials acted on the 
president's verbal instructions, rather than written orders or 
governing legislation.  Most often, personal relations with 
government officials have played a decisive role in determining how 
and when government regulations are applied. 
 
Bureaucratic procedures are confusing and cumbersome.  There is no 
single body that coordinates registration and activities of domestic 
and foreign private companies.  The government does not generally 
provide information support to investors, and officials use the lack 
of information to their personal benefit.  Foreign companies may 
spend months conducting due diligence in Turkmenistan. 
 
A serious impediment to foreign investment is the lack of knowledge 
of internationally-recognized business practices and concepts and of 
English speakers.  Good quality English-language material on 
Turkmenistan legislation is scarce, and there are very few business 
consultants to assist investors. 
 
There are no standards-setting consortia or organizations besides 
the Turkmen State Standards (TDS) and the relevant licensing 
government agency. 
 
There is no independent body for filing complaints. 
 
ASHGABAT 00000015  003 OF 006 
 
 
Financial-disclosure requirements are not transparent and consistent 
with international norms, and government enterprises are not 
required to publicize financial statements, even to foreign 
partners.  Financial audits are often conducted by local auditors, 
not internationally recognized firms. 
 
The Law on Petroleum was a partial step toward creating a more 
transparent policy in the oil and gas sector; it provides a detailed 
legal framework for conducting oil and gas business.  Under this 
law, three types of licenses can be issued:  exploration, 
extraction, and a single exploration and extraction license.  Two 
types of agreements can be signed for oil production:  a production 
sharing agreement and a joint venture agreement.  In 2006, the 
Government indicated it was considering the possibility of allowing 
joint operations in the gas sector, but no appropriate amendments 
have been made to that effect. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
Turkmenistan's financial system significantly hinders the free flow 
of financial resources.  Most numerous and largest in size are the 
six state banks:  State Bank for Foreign Economic Relations 
(Vnesheconombank), Dayhanbank, Turkmenbashy Bank, Turkmenistan Bank, 
Halk Bank, and President Bank.  These state banks have narrow 
specializations-- foreign trade, agriculture, industry, society, 
savings and mortgages, respectively.  Two additional commercial 
banks, one joint (with Ziraat Bank) Turkmen-Turkish bank, and a 
branch of the National Bank of Pakistan also operate in 
Turkmenistan.  Total assets of the country's largest bank, 
Vnesheconombank, are estimated at $1.3 billion (2006) at the 
official exchange rate of 5,200 manats per dollar.  Assets of the 
other banks are much smaller. 
 
All banks, including commercial banks, are controlled by the state. 
Commercial banks are prohibited from providing services to state 
enterprises. 
 
The U.S. Export Import (EXIM) Bank is not currently considering 
short and medium-term U.S. export financing for projects in 
urkmenistan, although a number of U.S. companies have used EXIM 
Bank funds or guarantees in the past to finance their exports to 
Turkmenistan.  State banks mostly serve state enterprises and 
allocate credit on subsidized terms to the state enterprises. 
Foreign investors are only able to get credit on the local market 
through EBRD equity loans. 
 
There is no capital market in Turkmenistan, although the 1993 Law on 
Securities and Stock Exchanges outlines the main principles for 
issuing, selling and circulating securities.  The Law on 
Corporations further provides for issuance of common and preferred 
stock, and bonds and convertible securities in Turkmenistan, but in 
the absence of a stock exchange or investment company, there is no 
market for securities.  In the mid 1990's, the government turned 
some nearly bankrupt state-run enterprises into corporations. 
Foreign entities may theoretically purchase shares in these 
companies, but have shown no interest in so doing. 
 
POLITICAL VIOLENCE 
 
Saparmyrat Niyazov, the president since Turkmenistan received its 
independence in 1991, died in December 2006.  Since Gurbanguly 
Berdimuhamedov's ascension to the presidency in February 2007, 
Turkmenistan's political system has showed no sign of immediate 
change, though promises to reform the social sector -- education, 
health and agriculture -- are promising. 
 
The politically repressive but stable existence Turkmenistan 
experienced in its first ten years of independence halted in 
November 2002 with an armed attack against President Niyazov's 
motorcade in central Ashgabat.  The regime reacted with a series of 
mass arrests, show trials and purges of government ministries. 
There were credible reports that torture was employed to gain signed 
 
ASHGABAT 00000015  004 OF 006 
 
 
confessions.  Authorities violated the Vienna Convention for 
diplomatic immunity when they raided the Uzbekistan Ambassador's 
compound in December 2002. 
 
The government prohibits political opposition by banning opposition 
parties and requiring registration for all organizations.  There 
have been no incidents involving politically-motivated damage to 
projects or installations. 
 
CORRUPTION 
 
Turkmenistan has legislation to combat corruption, but the laws are 
ineffective and corruption is rampant.  The non-transparency of the 
economic system provides fertile soil for corruption, and the common 
assumption is that nearly any decision desired can be obtained for a 
price.  U.S. firms have identified widespread government corruption, 
usually in the form of bribe requests, as an obstacle to investment 
and business throughout all economic sectors and regions.  It is 
most pervasive in the areas of government procurement and 
performance requirements.  There are several known cases of local 
businessmen being arrested without charges until they pay local 
officials for their release. 
 
Turkmenistan joined the UN Convention against Corruption in March 
¶2005.  The non-government organization Transparency International, 
ranked Turkmenistan 162 among 179 countries in the world in its 
Corruption Perceptions Index for 2007.  President Berdimuhamedov has 
restructured some offices in charge of expenditures that appear to 
be geared toward rooting out corruption.  Formally, the Ministry of 
Internal Affairs, the Ministry of National Security, and the General 
Prosecutor's Office are responsible for combating corruption. 
President Berdimuhamedov has repeatedly stated that corruption will 
not be tolerated.  Berdimuhamedov replaced the Minister of Internal 
Affairs at an April 2007 session of the Cabinet of Ministers and 
directed the incoming minister to wipe out corruption.  In contrast 
to official corruption, violent criminal organizations are largely 
non-existent in Turkmenistan. 
 
BILATERAL INVESTMENT AGREEMENTS 
 
The Governments of Turkmenistan and the United States began 
negotiations on a bilateral investment treaty after 1991, but talks 
were suspended in early 1994.  The Government of Turkmenistan 
expressed interest in renewing the talks in 1998, but negotiations 
have not recommenced.  The United States government considers the 
Convention with the Union of Soviet Socialist Republics on Matters 
of Taxation, which entered into force in 1976, to continue to be in 
effect and applicable between the United States and Turkmenistan. 
There have been no discussions on a new dual taxation treaty. 
 
Turkmenistan has signed bilateral investment agreements with Turkey, 
China, France, Malaysia, Pakistan, Romania, Slovakia, the United 
Kingdom, Northern Ireland, Egypt, India, Uzbekistan, Iran, Armenia, 
Georgia, Germany, Ukraine, and the United Arab Emirates. 
 
In 2006, the European Union decided to withdraw from negotiations on 
a trade agreement with Turkmenistan, citing the county's poor 
human-rights record. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
Turkmenistan signed an Investment Incentive Agreement with the U.S. 
government in 1992, but there has been no investment insurance, 
investment guarantees or financing provided by the Overseas Private 
Investment Corporation (OPIC) for Turkmenistan. 
 
LABOR 
 
Labor matters are governed by the Labor Code of Turkmenistan, the 
Law on Leaves of Absence, the Law on Occupational Safety, the Law on 
Pensions and a number of regulations approved by presidential 
resolutions.  Turkmenistan joined the International Labor 
 
ASHGABAT 00000015  005 OF 006 
 
 
Organization in 1993. 
 
Unemployment and underemployment are major problems.  The last 
official survey, conducted in 1995, implausibly estimated 
unemployment at 3% of the labor force.  Current unofficial estimates 
are above 50%. 
 
Since 1997, Turkmenistan has introduced "labor exchanges" or 
employment offices, operating as self-sustaining entities under 
local government offices.  Turkmenistan's regulations require that 
all vacancies be posted via such labor offices.  Although most 
vacancies in the labor exchanges' databases are low-skilled jobs, 
employment offices have not been an effective tool in reducing 
unemployment.  Finding suitable candidates via these offices is also 
problematic for international companies.  Investors recruit 
directly, though candidates still pay a nominal fee to the relevant 
labor exchange.  Although the government requires foreign companies 
to have 70% of the local workforce be local citizens, it has made 
exceptions for foreign construction companies executing large-scale 
turnkey projects.  Officials are known to request investors to 
employ their relatives and friends. 
 
The government had greatly weakened Turkmenistan's education system. 
 Under President Niyazov, mandatory secondary education was reduced 
from 10 to 9 years, further contributing to unemployment.  However, 
in February 2007, Turkmenistan's newly-elected President, Gurbanguly 
Berdimuhamedov, announced the reinstatement of 10 years' mandatory 
education starting with the 2007-2008 academic year.  The president 
also increased higher education from two to five years and medical 
training to six years.  After years when teaching of English and 
other foreign languages had little part in most schools' curricula, 
President Niyazov in 2006 reinstated mandatory English-language 
training.  The general lack of foreign language learning has 
hampered the ability of students to study outside Turkmenistan and 
work with international companies.  The adult population of 
Turkmenistan was relatively well-educated under the Soviet system, 
but lacked various marketable skills, including foreign languages 
and computer literacy.  The lack of quality educational institutions 
and the government's unwillingness, until recently, to support 
technical training has impeded the development of a work force 
capable of supporting high-tech foreign investment projects.  Lack 
of familiarity with modern technology and business practices has 
been an additional weakness within the available labor pool, but the 
recent reforms should begin to address these shortcomings. 
 
The Association of Trade Unions of Turkmenistan -- successor to the 
Soviet-era system of government-controlled trade unions -- is the 
only trade union allowed in the country.  The Association's unions 
are divided along both sectoral and regional lines, and all social 
and economical activities are limited. 
 
The normal workday in Turkmenistan is 8 hours, and the standard 
workweek is 5 days/40 hours.  In practice, many employees are 
required to work at least half a day on a sixth day.  The minimum 
age for employment of children is 16.  In a few heavy industries it 
is 18.  The labor law prohibits 16-18 year-olds from working more 
than 6 hours a day, and only with parental and trade union 
permission.  Health and safety regulations exist, but are commonly 
not enforced.  Foreigners with government permission to reside in 
Turkmenistan may work, but are subject to the same labor regulations 
as citizens unless otherwise specified by law. 
 
FOREIGN TRADE ZONES/FREE PORTS 
 
The Law on Economic Zones for Free Enterprise was enacted in 1993. 
The law guarantees the rights of businesses -- foreign and domestic 
-- to operate in these zones without profit ceilings.  The law 
forbids nationalization of enterprises operating in the zones and 
discrimination against foreign investors.  Other rights guaranteed 
include: 
 
-- Preferential tax status, including exemption from profit tax if 
 
ASHGABAT 00000015  006 OF 006 
 
 
profits are reinvested in export-oriented, advanced technology 
enterprises; 
-- Repatriation of after-tax profits; 
-- Exemption from customs duties, except on product of foreign 
origin; 
-- Export of products; 
-- Setting product prices. 
 
There are ten such zones in Turkmenistan:  Mary-Bayramaly, 
Ekerem-Hazar, Turkmenabat-Seydi, Bakharly-Serdar, Ashgabat-Anew, 
Ashgabat-Abadan, Saragt, Guneshli, Ashgabat International Airport, 
and Dashoguz Airport.  The zones have not been successful in drawing 
increased economic activity.  Despite the legal guarantees, the 
government continues to meddle in business decisions even for firms 
located in these zones.  The zones have not been financially 
supported by the government and lack infrastructure, such as 
advanced telecommunications, to attract businesses.  The 
infrastructure at Ashgabat International Airport is more developed 
and has modern cargo transit facilities. 
 
In July 2007, President Berdimuhamedov announced the creation of the 
Avaza free tourist zone along 16 kilometers of the Caspian Sea 
coast.  The Ministry of Economy and Finance (MOEF) promised 
exemption from MOEF registration fees and Value Added Tax (VAT) to 
contracting and management companies, full convertibility of all 
manat-denominated operations earnings into hard currency for 
amortization of foreign loans, payment for construction work or 
services, purchase of raw materials, equipment, and goods.  This 
zone will have a special regime for making cash payments and 
overseas electronic transfers, and equipment and materials used in 
facility construction or management will be exempt from calibration 
fees in the zone.  Amendments to the Land Code passed in October 
2007 include a provision for 40-year land leases for construction of 
tourism facilities and five-year leases for retail and services 
points, warehouses and car parking lots.  Tourism-related services 
such as catering and hotels -- but not casinos -- are also granted 
VAT exemption.  Construction equipment used in the Zone will not be 
subject to the one percent property tax.  In addition, the 
government will not levy income taxes related to tourist 
accommodations and catering for the first 15 years. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
State data on many economic indicators, including Foreign Direct 
Investment (FDI) remain unreliable and mostly unavailable.  However, 
according to various independent analysts, most foreign investment 
is directed toward the country's oil and gas sector.  Such 
investments include three onshore Production Sharing Agreements 
(PSAs):  the Nebitdag project operated by Burren Energy UK, the 
Khazar project operated jointly by the Turkmenneft state concern and 
Mitro International of Austria, and a PSA signed with the China 
National Petroleum Corporation (CNPC) in 2007.  The remaining three 
PSAs are offshore operations, including the Cheleken project 
operated by Dragon Oil of the United Arab Emirates, the Block-1 
project operated by Petronas of Malaysia and the Blocks 11, 12 
project operated jointly by Maersk Oil of Denmark and Wintershall of 
Germany. 
 
By early 2007, Dragon Oil has invested a total of  $618 million.  It 
has estimated that its  investment for 2007 will total about $250 
million and its investment in 2008 will be $500 million.  Petronas' 
total investment by the beginning of 2007 amounted to $705 million. 
Petronas intends to invest $600 million in 2007.  Burren and Mitro 
have invested $450 and $225 million respectively.  Although, these 
investment statistics are incomplete, they represent at least a 
two-fold increase over the $418 million foreign investment figure in 
2005 (The EBRD Transition Report 2007). 
Other potential investors, including Chevron, BP, Lukoil and 
ConocoPhillips, are holding high-level discussions with the 
Government of Turkmenistan. 
END TEXT OF PART II OF II. 
HOAGLAND