VZCZCXRO9578
PP RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #1058/01 2261341
ZNR UUUUU ZZH
P 131341Z AUG 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 1345
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE PRIORITY
RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 4153
RUEHBJ/AMEMBASSY BEIJING PRIORITY 1965
RUEHKO/AMEMBASSY TOKYO PRIORITY 1830
RUEHIT/AMCONSUL ISTANBUL PRIORITY 2401
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHMFIUU/CDR USCENTCOM MACDILL AFB FL PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHVEN/USMISSION USOSCE PRIORITY 2776
RUEAIIA/CIA WASHDC PRIORITY
RHEFDIA/DIA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEKJCS/SECDEF WASHDC PRIORITY
RUEKJCS/JOINT STAFF WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 ASHGABAT 001058 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN; 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV TX
SUBJECT: TURKMENISTAN: BUSINESS REFORMS SUGGEST CONTINUING 
PROGRESS (WITH A FEW LAGGING SECTORS) 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY. Turkmenistan's efforts to rewrite laws 
affecting foreign businessmen are beginning to take hold, 
according to four U.S. businessmen active in Turkmenistan. 
All agreed that the scale of recent reforms suggests a 
long-term government vision, but added that many officials' 
hesitation to take responsibility for acting on these reforms 
remains problematic.  Although the business environment is 
improving, court arbitration remains corrupt and 
exploitative.  Reforms in the tax code have removed a 
tremendous paperwork burden, but the tax system suffers from 
a lack of digitalization.  The banking sector remains 
stubbornly resistant to reform.  Despite this, all 
businessmen acknowledged that their revenues are increasing, 
and most are optimistic about further change.  END SUMMARY. 
 
BUSINESS CLIMATE WARMING UP ... 
 
¶3.  (SBU) Over the last year, Turkmenistan has made strides 
in rewriting laws and regulations to improve its business 
operating environment.  To see whether this new legislation 
is making a difference, Emboff met with representatives of 
four U.S. companies active in Turkmenistan -- Bertling, 
Cameron, Deloitte and Weatherford -- to solicit their views. 
All these companies are service companies for the hydrocarbon 
sector.  All previously have also been outspoken in their 
criticisms of Turkmenistan's investment climate. 
 
¶4.  (SBU) The representatives all said that their revenues 
are increasing.  They concurred that the climate is 
improving, although slowly.  Specifically, they cited as an 
improvement the fact that companies can now more easily 
obtain letters of credit for large deals, whereas before they 
were forced to receive partial payments with large time 
delays.  Several stated that business generally proceeds 
smoothly after tenders are awarded.  However, they also noted 
that tenders can only be awarded to another company through 
the Ministry of Oil & Gas, which frequently overturns 
decisions in favor of well-known companies, like Schlumberger 
and Weatherford. 
 
... WHILE BUSINESS ARBITRATION REMAINS FROSTY 
 
¶5.  (SBU) Offshore firms (mostly Russian and Chinese 
companies) are forced to use Turkmen arbitration courts, 
which are corrupt, lack knowledge of international standards 
and can only conduct court cases in Turkmen and Russian.  The 
result:  the courts rule in favor of Turkmen interests 90% of 
the time.  Western firms who wish to preserve good legal 
status by only using neutral arbitration parties such as the 
Stockholm Chamber of Commerce are periodically forced to 
decline buyers. 
 
TAX CODE: "EVERYTHING IS IN PROCESS" ... 
 
¶6.  (SBU) The tax environment is visibly improving.  The 
representative from Deloitte remarked, "Every month brings 
with it a new legislative reform ) everything is in 
process."  Where there previously were many types of each tax 
(for example, several species of Value-Added Tax, each one 
requiring a separate set of instructions), the simplified, 
unified and comprehensive tax code recently implemented makes 
it easier for companies to work and allows fewer loopholes to 
be exploited.  The reforms remove much of the tremendous 
paperwork burden.  Tax officials are becoming more savvy and 
friendly to the needs of international financial 
organizations and foreign investment.  Practical training 
tours are now conducted in the regions and officials are more 
willing to use tax audits.  However, they added, there 
continues to be no unified system for taxing individuals. 
 
 
ASHGABAT 00001058  002 OF 002 
 
 
... BUT LAGGING BEHIND ITS NEIGHBORS 
 
¶7.  (SBU) Turkmenistan has a long way to go in modernizing 
its tax system when compared to its neighbors.  The State Tax 
Administration largely does not keep electronic files, nor 
does it make use of electronic databases such as Westlaw or 
Lexus.  One positive sign of reform is a tax amnesty awarded 
recently, an act without precedent in this country. 
Furthermore, the Bertling representative said he expects 
several laws requiring mandatory fees to be eliminated later 
this year. 
 
BANKING SECTOR REMAINS LARGELY IMMUNE TO REFORM 
 
¶8.  (SBU) Getting credit is still the biggest problem. 
Additionally, companies continue to periodically be denied 
licenses for bank transfers, despite agreements reached on 
both sides of a deal.  There is the possibility of a private 
bank opening.  Nevertheless, many are skeptical as to when 
this will happen.  Until then, citizens continue to distrust 
the banking system and hide dollars, and increasingly euros, 
under the mattress. 
 
MINISTERS STILL CONFUSED ABOUT REFORM PROCESS 
 
¶9.  (SBU) Many international companies seem to be waiting for 
the new laws to be fully implemented.  A Weatherford 
representative described as "frustrating" government 
ministers' confusion as to where they want to take reform. 
Additionally, ministers are dismissed or replaced after a 
company has built up a relationship with them, forcing 
everyone to start from scratch in this relationship-driven 
business environment.  Many officials still do not understand 
the new laws, although several companies believe this is 
changing.  As the Cameron representative remarked, it is a 
sign of progress that "the roadblocks are slowly being 
addressed." 
 
¶10.  (SBU) COMMENT. The scale of recent reforms suggests that 
the government does have a long-term vision of the economy, 
but remains unsure of how to reach Point B from Point A. 
Officials' hesitation to accept responsibility for acting on 
reforms presents a significant roadblock.  If the president 
is serious about promoting reform, the government will need 
to continue to push these reforms unambiguously, dismissing 
officials who refuse to comply.  Additionally, to really set 
the foundations for a good business climate, Turkmenistan 
will need to relax travel restrictions and improve the 
business climate -- an issue that these businessmen, all of 
whom are registered, did not raise, but which other 
businessmen have cited as one of the top problems in getting 
established.  END COMMENT. 
CURRAN