VZCZCXRO7388
RR RUEHAG RUEHAST RUEHBI RUEHCI RUEHDF RUEHIK RUEHLH RUEHLN RUEHLZ
RUEHNEH RUEHPW RUEHROV RUEHVK RUEHYG
DE RUEHAH #1481/01 3151152
ZNR UUUUU ZZH
R 101152Z NOV 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 1842
INFO RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHNSC/NSC WASHDC
RUEHVEN/USMISSION USOSCE 3056
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHDC

UNCLAS SECTION 01 OF 02 ASHGABAT 001481 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/FO, SCA/CEN, SCA/A, EUR/ACE, EEB 
USAID/W FOR EE/AA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL EAID ENRG AF TX
SUBJECT:  TURKMENISTAN: MINISTRY OF ENERGY ADMITS DELAYS DUE TO 
STRUGGLES WITH CALCULATING INVESTMENT OPTIONS 
 
REF: A. ASHGABAT 1410 
 ¶B.  ASHGABAT 0469 
 ¶C.  ASHGABAT 0957 
 
¶1.  (U) Sensitive but unclassified.  Not for public internet. 
 
¶2.  (SBU) SUMMARY:  Turkmenistan's Deputy Minister of Energy and 
Industry (MOEI) Yarmuhammet Orazgulyev told USAID on November 6 that 
the Ministry's specialists are struggling with the financial 
calculations to determine repayment times for the proposed 
construction of electrical lines to Afghanistan.  Only after these 
issues have been resolved can the Ministry bring the project 
proposal to the attention of higher levels within Turkmenistan's 
government for approval.  One official wondered since it was unclear 
what revenue Turkmenistan could expect from the sales to 
Afghanistan, maybe Turkmenistan should instead build a gas pipeline 
to Afghanistan so that it could generate its own electricity. 
Ministry Investment Department specialist Dortguly Jelilov asked for 
USAID's assistance in analyzing the various investment options and 
their potential benefits to Turkmenistan.   If an inter-ministerial 
meeting happens in the near future, as recently proposed by 
Afghanistan, the Afghan side should present a draft PPA, including 
acceptable price and length of commitment, so that the Turkmen side 
can begin to build a clearer picture of the possible returns from 
this deal.  END SUMMARY. 
 
CANDID ACKNOWLEDGEMENT OF STRUGGLES WITH CALCULATIONS 
 
¶3.  (SBU) On November 6, USAID Country Representative, USAID/CAR 
Energy Specialist and USAID/TKO Economic Growth specialist met with 
Deputy Minister of Energy and Industry (MOEI) Yarmuhammet Orazgulyev 
and MOEI Investment Department specialist Dortguly Jelilov to 
discuss Turkmen energy exports to Afghanistan and possible 
cooperation through the next phase of USAID's upcoming Regional 
Energy Markets Assistance Program (REMAP-II).  For the first time, 
Orazgulyev indicated that a new 254-megawatt plant would be 
necessary to generate the proposed electricity for sale to 
Afghanistan, in addition to the expected 420 kilometers of 
electrical lines.  (NOTE: Turkmenistan has regularly said that it 
has a 300 megawatt surplus available for export to Afghanistan.  END 
NOTE.)  Orazgulyev acknowledged that the Ministry is struggling with 
the financial investment calculations to determine repayment times 
for the proposed infrastructure investments. 
 
¶4.  (SBU) Due to its approximate cost of 300 million euros, the 
Ministry is unsure of the project's potential financial benefits to 
Turkmenistan.  Jelilov suggested that other options, like exporting 
gas to Afghanistan instead of electricity, might be more 
advantageous to both sides.  Furthermore, the Ministry has not 
received confirmation from Turkmengas that it would supply gas to 
the above-mentioned new plant if it were to be constructed.  As a 
result, Orazgulyev said "many questions still need to be resolved." 
Only once these infrastructure issues have been addressed can the 
Ministry bring the project proposal to the attention of higher 
levels within Turkmenistan's government for approval. 
 
MINISTRY REQUESTS USAID ASSISTANCE TO RESOLVE 
 
¶5.  (SBU) Jelilov said that the current sales price to Afghanistan 
of $0.02/kilowatt hour was not a purely commercial price.  (NOTE: 
The Government of Turkmenistan considers electricity exports at this 
below-cost of generation price to be "humanitarian" assistance to 
Afghanistan.  END NOTE.)  Due to the uncertainty over possible 
returns from increased exports to Afghanistan, he suggested that it 
might be more beneficial for Turkmenistan to continue exporting at 
current quantities and prices rather than construct the proposed 
infrastructure that would allow higher export levels.  (COMMENT: 
This was understood to mean that Turkmenistan might lose less money 
under this scenario.  END COMMENT.) 
 
¶6.  (SBU) The calculations, Jelilov explained, were connected to the 
export price for gas.  The new generation facility must be supplied 
with gas, and Turkmengas' prices were expected to double beginning 
in January 2009, which would raise the cost of electricity 
generation.  Since it was unclear what revenue Turkmenistan could 
expect from the sales to Afghanistan, maybe Turkmenistan should 
instead build a gas pipeline to Afghanistan so that it could 
generate its own electricity.  Jelilov asked for USAID's assistance 
 
ASHGABAT 00001481  002 OF 002 
 
 
in analyzing the various investment scenarios and their potential 
benefits to Turkmenistan. 
 
¶7.  (SBU) Jelilov said that Turkmenistan had two options with 
respect to the project.  If it was considered to be a 
political/humanitarian project, then the President must decide 
whether to proceed.  On the other hand, if it were treated as a 
commercial project, then the MOEI should make financial projections 
and communicate the financial benefits to Turkmenistan to the 
country's leadership.  If the latter, then it must be mutually 
beneficial. 
 
TIMING IN AFGHANISTAN NOT THE REASON FOR DELAYS 
 
¶7.  (SBU) In response to a direct question from USAID 
Representative, the Deputy Minister categorically denied that the 
timing of construction on the Afghan side had anything to do with 
current delays on Turkmenistan's part. (Reftel A).  He reiterated 
that they were still working through the calculations on their side, 
and could not get approval from higher level officials before 
completing this analysis. 
 
¶8.  (SBU) COMMENT: In spite of apparent progress during joint 
working group meetings in April and July meetings (Refs B and C), it 
appears Turkmenistan is stuck over the financial calculations 
related to the project(s).  In order to protect our planned 
investments in Afghanistan, we must find a way to help Turkmenistan 
analyze its options.  USAID rep was told on November 5 by a 
knowledgeable local Afghan source that Afghanistan's Minister of 
Energy and Water, Ismail Khan, recently invited his Turkmen 
counterpart to visit Kabul for meetings -- and offered to go to 
Ashgabat as an alternative.  In the next meeting, regardless of 
location, the Afghan side should clearly articulate whether it 
expects this project to be "humanitarian" or strictly commercial. 
This meeting would also provide a good chance for Afghanistan to 
present a draft power purchase agreement, so that the Turkmen side 
can begin to build a clearer picture of the possible benefits from 
this deal. END COMMENT. 
 
CURRAN