VZCZCXRO3836
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #0670/01 1481252
ZNR UUUUU ZZH
P 271252Z MAY 08
FM AMEMBASSY ASHGABAT
TO RUEHBS/USEU BRUSSELS PRIORITY
RUEHC/SECSTATE WASHDC PRIORITY 0873
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0329
RUEHAK/AMEMBASSY ANKARA PRIORITY 3811
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1629
RUEHKL/AMEMBASSY KUALA LUMPUR PRIORITY 0134
RUEHKO/AMEMBASSY TOKYO PRIORITY 1496
RUEHIT/AMCONSUL ISTANBUL PRIORITY 2065
RHMFIUU/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY

UNCLAS SECTION 01 OF 04 ASHGABAT 000670 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
PLEASE PASS TO USTDA DAN STEIN 
USEU FOR SPECIAL ENVOY GRAY 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: N/A 
TAGS: PREL PGOV ECON EPET TX
SUBJECT:  TURKMENISTAN:  SCENESETTER FOR VISIT BY SPECIAL 
ENVOY FOR EURASIAN ENERGY C. BOYDEN GRAY, JUNE 5-6 
 
REF: A. ASHGABAT 0219 
     ¶B. ASHGABAT 0363 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  Embassy Ashgabat warmly welcomes your 
visit to Turkmenistan as an important opportunity to advance 
our bilateral dialogue on energy.  President Bush met briefly 
with President Gurbanguly Berdimuhamedov on April 3 at the 
NATO Summit in Bucharest.  Other high-level U.S. meetings 
with him were Senator Richard Lugar in January, Energy 
Secretary Bodman in November 2007, and Secretary Rice in 
September 2007 during the UNGA in New York.  Coordinator for 
Eurasian Energy Diplomacy Ambassador Steven Mann meets with 
Berdimuhamedov regularly, most recently on February 28.  Into 
the second year of his presidency, Berdimuhamedov is 
increasingly self-confident and will not hesitate to speak 
his mind.  We believe his instincts are generally right, even 
if his understanding is elementary and his implementation 
timelines unrealistically quick.  In Summer 2007, he told 
U.S. visitors, "The debate is over.  We have chosen to be a 
market economy."  But he's starting from almost zero with 
very few on his team who have the experience and capacity to 
implement the reforms he says he wants.  Like many ex-Soviet 
governments, Turkmenistan relies too heavily on presidential 
decrees and the power of law-on-paper.  The longer-term 
monumental task will be to change a century of national 
political psychology, the entrenched bureaucracy, and the 
culture of rent-seeking.  END SUMMARY. 
 
TURKMENISTAN POST-NIYAZOV 
 
¶3.  (SBU) A little more than a year into the new era, it is 
clear Turkmenistan is becoming significantly different from 
the international bad-joke pariah state it was under former 
President-for-Life Niyazov.  But precisely what Turkmenistan 
is becoming is still a work in progress.  Evidence 
increasingly suggests it could well one day become a 
responsible partner for the United States and a normal 
international player.  As detailed in both reftels, 
Berdimuhamedov's fundamental policies have been promising: 
reform education, health care and the social sector; initiate 
financial reform and work toward becoming a market economy; 
redraft a new Constitution, draft or rewrite more than 30 
laws -- including the laws on religion and civic 
organizations and the criminal and criminal procedures codes 
-- to bring them up to international standards, re-establish 
international relations and become a cooperative regional 
player; and open its vast hydrocarbon sector to international 
investment. 
 
¶4.  (SBU) However, he faces an uphill struggle against 
political traditions that favor autocratic governance models 
and a bureaucratic capacity stunted by 15 years of Niyazovian 
repression and solipcism.  The challenge will not be to get 
new reforms on the books -- Berdimuhamedov is already 
beginning to do this -- but rather, to change the attitudes 
and modi operandi of those officials responsible for 
implementing the new policies. 
 
U.S.-TURKMENISTAN RELATIONS:  PUSHING WHERE DOORS ARE OPENING 
 
¶5.  (SBU) U.S. policy in Turkmenistan is three-fold: 
 
-- Encourage democratic reform and increased respect for 
human rights and fundamental freedoms, including support for 
 
ASHGABAT 00000670  002 OF 004 
 
 
improvements in the education and health systems; 
 
-- Promote economic reform and growth of a market economy and 
private-sector agriculture, as well as diversification of 
Turkmenistan's energy export options; and 
 
-- Expand security cooperation. 
 
¶6.  (SBU) Following Niyazov's death at the end of 2006, the 
United States offered to re-engage with Turkmenistan without 
preconditions.  With about 30 delegations in the first year 
-- more in that year than in the previous six years combined 
-- we proposed multi-sector cooperation, and the embassy's 
access at the working level has been increasingly productive, 
especially in the fields of basic democratic/legislative and 
economic reforms.  Turkmenistan matters because it is a 
Caspian littoral state important to the West for energy 
security.  It could become like Azerbaijan and Kazakhstan -- 
generally independent of Russia and willing to work with the 
West.  It also has strategic importance because of its long 
shared borders with Iran and Afghanistan (terrorism and 
narcotics), as well as its historic and potentially 
suffocating relationship with Russia.  The fundamentals 
underlying our first year of re-engagement have been correct: 
 push where the doors are opening, but do not try to force 
open doors that are not ready to open for us.  We are 
achieving progress:  we want to build on and enlarge that 
progress. 
 
ENERGY 
 
¶7.  (SBU) Turkmenistan has world-class natural gas reserves, 
but Russia's near monopoly of its energy exports has left 
Turkmenistan receiving much less than the world price and 
overly beholden to Russia, although Gazprom has agreed to pay 
"world price" starting in 2009.  Pipeline diversification, 
including both a pipeline to China proposed for 2009 and the 
possibility of resurrecting plans for Trans-Caspian and 
Trans-Afghanistan pipelines that would avoid the Russian 
routes, and construction of high-voltage electricity lines to 
transport excess energy to Turkmenistan's neighbors, 
including Afghanistan, would not only enhance Turkmenistan's 
economic and political sovereignty, but also help fuel new 
levels of prosperity throughout the region.  (NOTE: 
Turkmenistan agreed in April to begin providing an additional 
300 Megawatts of electricity to Afghanistan in 2010 and to 
extend the current price at which Turkmenistan is selling 
electricity to Afghanistan -- 2 cents per kilowatt hour -- to 
¶2010.  END NOTE.)  Berdimuhamedov has told U.S. interlocutors 
he recognizes the need for more options and has taken the 
first steps to this end, but he also took the steps needed to 
increase the volume of gas exports to Russia, signing an 
agreement (with Russia and Kazakhstan) in Moscow in December 
2007 to enlarge and rebuild a non-functioning Soviet-era 
Caspian littoral pipeline.  To date, little progress has been 
publicized on this project.  He will require encouragement 
and assistance from the international community if he is to 
maintain a course of diversification in the face of ongoing 
Russian efforts to keep Turkmenistan from weaning itself away 
from Russia. 
 
¶8.  (SBU) One of the biggest challenges that Turkmenistan's 
hydrocarbon sector will have to face, if it is to succeed in 
pipeline diversification, is the need for increased 
natural-gas production.  Turkmenistan produced a reported 
72.3 billion cubic meters (bcm) in 2007, a figure that barely 
 
ASHGABAT 00000670  003 OF 004 
 
 
meets its existing domestic needs and export commitments. 
The president directed that production should increase to 
81.5 bcm in 2008.  Even larger increases will be needed as/if 
new pipelines come online.  While Turkmenistan has welcomed 
foreign companies to work its offshore (primarily oil) 
Caspian blocks, it has up to now largely rejected allowing 
foreign energy companies to work its onshore gas fields, 
maintaining that it can handle the drilling itself.  But 
onshore natural gas production offers some tough challenges, 
including ultra-deep, high-pressure, high-sulphur, sub-salt 
drilling, which requires special skills and technologies and 
lots of investment.  One Western analyst suggested that costs 
could run as high as $100 billion over the next five years. 
No one outside of the Turkmen government believes 
Turkmenistan has either the skills or the investment needed. 
U.S. policy has been to promote onshore production by major 
western oil companies.  We know there has been huge debate 
within the government about this, and we have watched views 
evolve.  We believe, in the end, there will be major Western 
companies working onshore -- but we aren't there yet.  (NOTE: 
 Cables on Turkmenistan's hydrocarbon sector and developments 
in the hydrocarbon sector will follow.  END NOTE.) 
 
ECONOMY AND FINANCE 
 
¶9.  (SBU) President Berdimuhamedov has stated repeatedly, in 
many fora, that he wants to develop an international-standard 
market economy and to promote foreign investment.  To those 
ends, he has placed a new priority over the past eight months 
on promoting economic and financial reform.  Turkmenistan has 
announced that it will redenominate its currency in 2009, 
lopping off three zeros, and has slowly begun to unify the 
country's dual exchange rates.  The president has stated that 
some state enterprises will be privatized -- though not in 
"strategic" sectors like oil and gas, electricity, textiles, 
construction, transportation, and communications.  He has 
signed a new foreign investment law, which, among other 
things, guarantees resident foreign businessmen and their 
families one-year, multi-entry visas, and approved changes to 
the tax code.  The president divided the overworked Ministry 
of Economy and Finance into two bodies -- a Ministry of 
Economy and Development, and a Ministry of Finance, and he 
has created a Supreme Auditing Chamber with the goal of 
providing transparency in the budget process.  In a notable 
development, the president also announced that he will 
abolish the opaque extrabudgetary funds that were prone under 
his predecessor to misuse and corruption.  Finally, the state 
has slowly begun to raise the price of electricity and price 
of vehicle fuel.  These measures may be part of an early 
effort to gradually phase out the state's extensive and 
tremendously expensive subsidies system. 
 
¶10.  (SBU) Even though the president has reshaped his 
bureaucracy, put in place the structures that theoretically 
should help promote a market economy, and opened Turkmenistan 
to cooperation with IFIs, the lack of basic understanding and 
bureaucratic capacity remains an enormous impediment to 
change.  New reforms are being rolled out with inadequate 
preparation, understanding of their consequences and 
explanation -- and are leading to increased public 
dissatisfaction.  USAID is working through its contractor, 
BearingPoint, to implement a new program to increase 
bureaucratic capacity and to support growth of private 
business in Turkmenistan.  Department of Treasury 
representatives will also visit Turkmenistan in June and July 
to identify areas where Treasury might play a role in 
 
ASHGABAT 00000670  004 OF 004 
 
 
promoting reform, should funding be available. 
 
FOREIGN POLICY 
 
¶11.  (SBU) Despite his statements that he plans to continue 
the "neutrality" policies of his predecessor, Berdimuhamedov 
has put an unprecedented emphasis on foreign affairs to 
repair Turkmenistan's international and regional relations 
and to become a respected player on the international stage. 
Under the president's leadership, Turkmenistan has reached 
out to participate actively in regional organizations.  He 
has met with all the leaders in the region, as well as with 
those of other countries of importance to Turkmenistan. 
China has a strong and growing commercial presence in 
Turkmenistan, and continues to court the president through a 
series of high-level commercial and political visits, 
including a July 2007 Berdimuhamedov trip to Beijing focused 
on natural gas and pipeline deals.  Presidents Berdimuhamedov 
and Gul (Turkey) have exchanged visits, but bilateral 
relations continue to be colored more by the image of 
Turkey's lucrative trade and construction contracts that are 
eating up large amounts of money from the national budget. 
Berdimuhamedov has held positive meetings with high-level 
leaders of international organizations (including both the UN 
and the Organization for Security and Cooperation in Europe) 
and IFIs that have led to productive, cooperative 
relationships.  The UN High Commissioner on Human Rights, 
Louise Arbour, visited Turkmenistan in May 2007, and the High 
Commissioner on Religion will visit in September. 
 
¶12.  (SBU) Berdimuhamedov has held positive meetings with 
high-level U.S. officials and is well-disposed toward the 
United States.  He made his first trip to the United States 
as president to participate in the UNGA session in September 
2007, where he also met with Secretary of State Rice.  In 
November 2007, Secretary of Energy Bodman met with 
Berdimuhamedov in Ashgabat, and Berdimuhamedov's meeting with 
President Bush during the April Bucharest NATO summit 
received extensive and very positive media coverage in 
Turkmenistan.  Berdimuhamedov made his first visit to EU and 
NATO headquarters in Brussels in November 2007. 
 
SECURITY 
 
¶13.  (SBU) The U.S. security relationship with Turkmenistan 
continues to unfold, with slow but consistent cooperation. 
Although basing is not an option, Turkmenistan remains an 
important conduit for the U.S. military to Afghanistan. 
Maintaining blanket overflight permission and the military 
refueling operation at Ashgabat Airport remains a key U.S. 
goal.  CENTCOM and Turkmenistan's military maintain an active 
military-to-military cooperation plan, and CENTCOM and the 
Nevada National Guard (operating through the State 
Partnership Program and CENTCOM's military cooperation 
program) have a productive counter-narcotics program that has 
funded training and completion of two border-crossing 
stations on the Iranian and Afghan borders and the 
construction of three more checkpoints, including one 
currently underway on the Uzbekistan border.  With the 
assistance of the Embassy's EXBS program, the Embassy works 
to strengthen Turkmenistan's border security and to increase 
its ability to interdict smuggling of weapons of mass 
destruction. 
HOAGLAND