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P 171217Z APR 08
FM AMEMBASSY ASHGABAT
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UNCLAS SECTION 01 OF 03 ASHGABAT 000488 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR E, SCA/CEN, EUR, EEB 
PLEASE PASS TO USTDA DAN STEIN 
E FOR U/S JEFFERY 
USEU FOR AMB. GRAY 
COMMERCE FOR HUEPER 
ENERGY FOR EKIMOFF/THOMPSON 
 
E.O. 12958: N/A 
TAGS: PGOV PINR PREL EPET SOCI TX
SUBJECT: TECHNOCRATS AND GENERALISTS IN TURKMENISTAN'S PETROLEUM 
SECTOR 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2. (SBU) SUMMARY:  As Turkmenistan reforms its oil and gas industry, 
two principally different development strategies exist among the 
country's hydrocarbon leadership.  One school of thought -- the 
technocrats -- places primary emphasis on accessing modern 
technology and/or services.  The technocrats believe that 
Turkmenistan has adequate institutional, financial and human 
capacity to develop the country's resources (at least, onshore) 
independently of international oil companies.  Proponents of the 
other approach -- the generalists -- are less categorical and 
interested in closer engagement and know-how transfer.  While 
representatives of the latter approach also understand the 
relationship between the presence of international oil companies and 
the general investment climate in the country, they continue to lose 
the debate about future policy because they lack the technical 
expertise that would give them credibility.  END SUMMARY 
 
THE CONTEXT 
 
¶3. (SBU) From the outset, President Gurbanguly Berdimuhamedov made a 
promise to bring prosperity to his people.  He inherited from his 
predecessor, former President-for-Life Saparmurat Niyazov, an 
economy nearly totally dependent on the hydrocarbon industry, 
leaving Berdimuhamedov little choice but to continue relying on 
hydrocarbon revenue, at least for the foreseeable future.  But with 
economic and rural development high on the president's list of 
priorities, Turkmenistan must not just sustain its current oil and 
gas production level, but increase it significantly. 
 
THE TECHNOCRATS 
 
¶4. (SBU) Turkmenistan's 16 years of independence have not produced a 
new, modern gas and oil elite, and the old Soviet-trained 
hydrocarbon engineering cadre (or rather, what is left of it after 
Niyazov's purges of 2005) is still the dominant force in 
Turkmenistan's petroleum industry.  This old guard - personified by 
Deputy Prime Minister of Gas and Oil Tachberdi Tagiyev - hold top- 
and mid-level management and analytical positions.  These cadres, 
although technically competent, have had limited exposure to modern 
technologies and have never received formal training or significant 
experience in commercial and economic aspects of the oil and gas 
business. 
 
¶5. (SBU) These technocrats, who spent their entire professional 
careers in a state-run system, are firmly wedded to a "we can do it 
all ourselves" way of thinking.  In their opinion, the current 
industry structure can be efficient with advanced equipment.  The 
technocrats fail to understand that Turkmenistan's reliance on 
foreign companies solely in a service capacity does not allow 
creation of a value chain - the standard across the industrialized 
world.  They see limited value in working with international oil 
companies and in learning from them.  However, in promoting a system 
of inviting international service companies and purchasing foreign 
hardware, they have run up against some problems: 
 
-- The number of petroleum service companies is limited, and not all 
operating in Turkmenistan are of the highest technical caliber and 
have made some serious mistakes.  For example, Turkish firm Chalik 
Enerji, drilling under contract for the government, had some major 
blowouts in 2006. 
 
-- State oil production, which relies heavily on service operators, 
is declining, while the production of foreign operators, like Dragon 
Oil and Burren Energy, working under production sharing agreements 
(PSAs), is on the rise. 
 
ASHGABAT 00000488  002 OF 003 
 
 
 
-- The state's sole reliance on imported technology in an upgrade of 
Turkmenbashy refinery cost $1.5 billion, but delivered low returns 
due to continued state control of crude and gasoline prices. 
 
¶6. (SBU) Perhaps their most serious problem, however, is the 
gas-and-oil sector technocratic leadership's inability to engage in 
a full-fledged and equal partnership with gas pipeline and marketing 
companies.  The technocrats simply do not understand the 
complexities of legal arrangements for joint infrastructure 
management and gas sales mechanisms.  As a result, Turkmenistan has 
limited itself to a policy of selling gas at the border, ruling out 
alternatives that might actually increase Turkmenistan's overall 
profit margin. 
 
THE GENERALISTS 
 
¶7. (SBU) Most positive developments in Turkmenistan's oil and gas 
industry took place in the mid 1990's when a cadre of generalists 
emerged under the leadership of then-Deputy Chairman of the Cabinet 
of Ministers for Gas and Oil Yolly Gurbanmuradov.  The strength of 
Gurbanmuradov and his team was their knowledge of the international 
financial system and modern business practices.  During 
Gurbanmuradov's time in office, Turkmenistan passed a Petroleum Law 
laying the foundation for PSAs and establishing an agency to manage 
PSAs.  To date, the law remains in effect.  But Gurbanmuradov became 
too powerful and was perceived as a threat to Niyazov.  The 
resulting purge of Gurbanmuradov and his apparatus, including the 
former "competent body" and Turkmenneftegaz (the body responsible 
for managing downstream and marketing arrangements), decimated the 
ranks of generalists, leaving only the unskilled behind. 
 
¶8. (SBU) In March 2007, perhaps understanding the need for an agency 
that would be responsible for general petroleum investment issues, 
Berdimuhamedov re-established the former "competent body" as the 
State Agency for the Management and Use of Hydrocarbon Resources. 
President Berdimuhamedov appointed Bayrammurat Muradov, an official 
with banking, fiscal and financial management experience, as the 
Executive Director of the State Agency.  As a generalist, Muradov is 
less categorical than his technocratic colleagues and appreciates 
the fact that international oil companies can bring to Turkmenistan 
not only technology and capital, but also a wealth of management and 
marketing experience.  He also understands the positive effect of an 
international oil company presence on the overall investment climate 
in the country.  However, his and his team's lack of virtually any 
technical background in the gas and oil sector leaves them at a 
disadvantage in discussions with their technocratic colleagues. 
 
¶9. (SBU) Muradov is by far a better strategist than any of the 
technocrats.  He is of the opinion that the Government needs to set 
up a vertically integrated petroleum company, similar to 
Azerbaijan's SOCAR or Kazakhstan's KazMunaiGaz.  Such a company 
could eliminate the coordination gap between the upstream and 
downstream sectors, as well as between the analytical and 
operational entities.  More importantly, he seems to appreciate the 
fact that an integrated national company would be more independent 
and flexible -- and, ultimately, an efficient business entity. 
Executive Director Muradov looks further into the future and 
foresees a need for foreign capital.  He instructed his relevant 
personnel to learn about the listing requirements at major stock 
exchanges, including the New York Stock Exchange, in preparation for 
the possible listing of a Turkmenistani national petroleum company. 
 
 
¶10. (SBU) COMMENT:  Although it seems obvious to outsiders that the 
two groups should be able to work together in a complementary 
 
ASHGABAT 00000488  003 OF 003 
 
 
fashion that is not yet possible in Turkmenistan.  The country's 15 
years of relative isolation from the outside world and its lack of 
exposure under former President Niyazov to Western management 
techniques have allowed issues of power, prestige and tradition to 
dominate business, often at the expense of profit.  With the 
technocrats disinclined to give up any of their authority and the 
generalists unable, to date, to shift the focus of the debate away 
from solely technical issues to include a broader discussion of 
whether the old policies are really serving Turkmenistan's long-term 
interests -- an area where they should be on more even ground -- the 
generalists have not been able to date to sway the president into 
reconsidering policies of engagement with international oil 
companies.  In the short term, continued support for a broader 
market-oriented approach and advocacy on behalf of U.S. oil business 
may ultimately convince the government to review its ways.  However, 
in the longer term, generalists do not stand a chance without 
development of young petroleum professionals with mastery of market 
principles and advanced engineering.  END COMMENT. 
 
HOAGLAND