VZCZCXRO9303
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #0525/01 1190605
ZNR UUUUU ZZH
P 280605Z APR 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 0680
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 3688
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1506
RUEHKO/AMEMBASSY TOKYO PRIORITY 1373
RUEHIT/AMCONSUL ISTANBUL PRIORITY 1942
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHMFIUU/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ASHGABAT 000525 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
STATE PLEASE PASS TO USTDA DAN STEIN 
COMMERCE FOR HUEPER 
 
E.O. 12958: N/A 
TAGS: ECON EINV BEXP PGOV TX
SUBJECT: TURKMENISTAN: INTERBUDMONTAZH 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  On April 22, 2008 Turkmenistan announced its 
intention to take Ukrainian construction company Interbudmontazh to 
court for failing to fulfill the terms of a major tunnel 
construction contract.  President Berdimuhamedov warned of this 
early in January 2008.  The case of Interbudmontazh once again 
highlights the inadequacies of the Turkmen-Ukrainian barter-for-gas 
agreement that became a headache for both parties.  END SUMMARY. 
 
DON'T MESS WITH TURKMENISTAN 
 
¶3.  (U) On April 22, 2008, state media reported that the Ashgabat 
mayor's office planned to file a claim against the Ukrainian company 
Interbudmontazh in international arbitration court.  According to 
press reports, Interbudmontazh has not fulfilled its contractual 
commitments regarding the construction of an engineering 
communications tunnel project, while the Turkmen side has adhered 
strictly to the terms of the contract and made multiple large 
advance payments on time. 
 
INTERBUDMONTAZH'S ROLE IN TURKMENISTAN 
 
¶4.  (U) Interbudmontazh, created from a large Ukrainian holding 
company that started in 1993, was formed in 2000 to engage in 
construction projects in Turkmenistan.  In the same year it won a 
bid on a ten-year project to construct an underground communications 
tunnel beneath Ashgabat, and construction began in 2002.  The 
project was ostensibly intended to modernize and improve the 
capital's drainage, sewage, and communications infrastructure. 
 
¶5.  (SBU)  The Government of Turkmenistan publicly announced that 
the tunnel was part of a Turkmenistan-Ukrainian gas barter 
agreement.  In 2005, the pro-government website turkmenistaninfo.ru 
valued the project at $204 million.  The project was reevaluated 
after the dissolution of the gas barter deal and new gas-for-cash 
arrangements were agreed to by Presidents Yuschenko and Niyazov in 
March 2005.  Then, during his visit to Ashgabat in 2006, Ukrainian 
Fuel and Energy Minister Ivan Plachkov sought to recalculate the 
contract's cost, citing the rising cost of construction materials 
and unexpected project complications.  Interbudmontazh General 
Director Vadim Sulim in 2006 refused to disclose the overall cost of 
the project to a U.S. Embassy official. 
 
BERDIMUHAMEDOV LEANS ON UKRAINIAN COMPANIES 
 
¶6.  (U) On January 4, President Berdimuhamedov met on-site in Lebap 
Province with Branch Director Viktor Shevchenko of Ukrtransstroy, 
another Ukrainian company carrying out a project that initially was 
part of the gas barter deal before the shift to cash-for-gas. 
Berdimuhamedov expressed strong dissatisfaction with the performance 
of both Ukrtransstroy regarding its construction of a railroad 
bridge across the Amu Darya River, along with Interbudmontazh. 
"You've missed many deadlines and construction has almost completely 
stopped," he said. 
 
¶7.  (U)  Berdimuhamedov argued that Turkmenistan had stuck to the 
payment schedules in both contracts and gave the companies one month 
to rectify the situation.  If the situation did not change within a 
month, he said, he would file an international arbitration case. 
"You either make progress, or you leave.  You are a soldier of your 
work.  If your president were here, I would have said the same to 
him as well," Berdimuhamedov told Shevchenko.  Berdimuhamedov also 
stressed that Turkmenistan can -- and is willing to -- work with 
Russian, European, and American companies instead. 
 
TARUTA ASSURES THE ONE MONTH DEADLINE IS MET 
 
¶8.  (U) One month later, on February 4 and 18, Sergey Taruta, 
Chairman of "Industrial Union of Donbass" Corporation, met with 
President Berdimuhamedov to "agree upon a range of issues related to 
bilateral cooperation", according to Turkmen press.  Lobbying for 
 
ASHGABAT 00000525  002 OF 002 
 
 
the Ukrainian companies, Taruta presented to Berdimuhamedov specific 
measures that will accelerate the construction of the railroad 
bridge.  He also proposed forming a joint commission to conduct a 
full inventory of the project.  Then he presented the president with 
information about the measures being undertaken to resume the work 
on the Ashgabat communications tunnel. 
 
¶9.  (SBU) Issues regarding the railroad bridge project have been 
resolved, and work on it will start again soon, according to 
Ukrainian diplomat Igor Roman.  Taruta reportedly convinced a 
Russian export-import company that would directly benefit from the 
bridge's completion to contribute additional capital for the 
construction.  However, the Ashgabat tunnel project is another 
story.  The project has serious engineering and design problems 
relating to Ashgabat's problematic geology and shallow water table. 
The project will cost a great deal more than initially estimated, 
and even then may still not be possible, according to Roman.  The 
Turkmenistan government's firm refusal to re-negotiate the project 
has likely guaranteed the project's abandonment. 
 
¶10.  (SBU) COMMENT:  Niyazov's Turkmenistan-Ukraine barter deal was 
anything but transparent, and the terms of the deal may also have 
been filled with legal loopholes.  But the Turkmenistan government's 
refusal to sit down with company officials to discuss serious 
engineering problems and figure a way out of the mess is also a big 
part of the problem.  Given the political quagmire that developed as 
a result of both of these construction projects, it is not 
surprising that President Berdimuhamedov would threaten to throw all 
Ukrainian companies out and take them to court.  Perhaps his threat 
against all Ukrainian entities was intended to ensure the Ukrainian 
government's attention, and ensure that it would play an active role 
in resolving these issues once and for all.  END COMMENT. 
 
CURRAN