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FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 2231
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 4767
RUEHBJ/AMEMBASSY BEIJING 2559
RUEHKO/AMEMBASSY TOKYO 2424
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RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 3288

C O N F I D E N T I A L SECTION 01 OF 03 ASHGABAT 000154 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
PLEASE PASS TO USTDA DAN STEIN 
ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 01/30/2019 
TAGS: PREL EPET ESTH TX
SUBJECT: TURKMENISTAN: U.S. ENTREPRENEUR AWARDED CONTRACT 
FOR OIL CLEANUP PROJECT 
 
REF: 07 ASHGABAT 968 
 
Classified By: Charge d'Affaires a.i. Richard Miles.  Reasons 1.4 (B) a 
nd (D). 
 
¶1.  (C) SUMMARY:  Due to President Berdimuhamedov's interest 
in cleaning up oil pollution located around the Avaza Tourist 
Zone on the Caspian Sea, an Amcit businessman has concluded a 
contract for cleaning up oil spills -- contingent, however, 
on a successful demonstration that his technology can do the 
job.  Estimates for revenues from the sale of the recovered 
oil are USD one billion.  The businessman estimates that this 
job could keep him busy for the rest of his life since it 
will take at least 20 years to clean up such spills all over 
the country.  It took him about 18 months to get the 
contract, after endless presentations and contract 
negotiations.  Oil and Gas Ministry officials did not 
understand how to analyze contracts, and demands for bribes 
at the State Commodity and Raw Materials Exchange ranged from 
USD 10,000 to USD 220,000.  His insights provide a snapshot 
of what it takes to conclude contracts in Turkmenistan.  END 
SUMMARY. 
 
LARGE PROFITS TO BE MADE FROM RECOVERABLE OIL 
 
¶2.  (C) An Amcit businessman said in a meeting on January 29 
that the Ministry of Oil and Gas approved his proposal to 
clean up oil spills located around the coastal town of Hazar 
in Balkan province.  However, the contract is contingent upon 
a successful demonstration of an oil spill cleanup.  If the 
demonstration cleanup proves successful, the Ministry will 
award the company with a contract for as much work as the 
company can handle.  The Amcit estimates that it will take 
over 20 years to clean up various pools of spilled oil around 
the country, which contain billions of tons of recoverable -- 
and sellable -- oil.  The exact amount is difficult to 
estimate without further testing, but within ten years, he 
estimates that this project will generate USD one billion. 
His profit estimates through 2012 are:  Government of 
Turkmenistan - about USD 71 million, and his company - about 
USD 98 million (assuming oil is selling at USD 60 per barrel 
on the world market). 
 
HOW DID THE OIL LAKES FORM? 
 
¶3.  (C) Following a year of negotiation, former Minister of 
Oil and Gas, Bayramgeldi Nedirov, signed this contract in 
July 2008.  The initial site is located near the Nobel Oil 
Field, northQhe city of Hazar (formerly Cheleken) which 
operated from 1890 until 1950.  Numerous pools dot the 
landscape in the Galkynysh district, from the Nobel Oil 
Field, arcing east of town and then down to the "Hazar Oil 
Lake" located approximately seven kilometers south of town on 
the Caspian Sea coast.  The Amcit explained that at the time 
of this field's operation, workers drilled for oil until it 
came gushing out, causing millions of gallons to be spilled. 
The fields were also improperly capped when drilling stopped. 
 Nowadays, open pools of oil remain all over the area, 
covering many tens of square kilometers, which have over time 
mixed with sand and thickened from evaporation.  Photos of 
the crude oil pools show that underneath a crust of sandy 
dirt, sand and oil have mixed into a tar-like substance, 
which the Amcit claims is comprised of about 50 percent oil. 
He claims his equipment can remove approximately 95 percent 
of the oil and convert it to usable crude oil.  His company's 
method to separate the oil, water, and sand is a complex 
process by which the sludge is liquified, main ingredients 
are separated via centrifuge, and then the usable crude is 
collected. 
 
 
ASHGABAT 00000154  002 OF 003 
 
 
AVAZA TOURIST ZONE BRINGS OFFICIAL INTEREST TO THE AREA 
 
¶4.  (C) The Amcit estimates that cleanup of the Hazar Oil 
Lake alone will take two years, a priority for the Ministry 
because of its location on the Caspian Sea, an area of great 
focus for the government because of its desire to develop the 
Avaza Tourism Zone (reftel).  The lake is also a solid test 
case to prove the capabilities of this technology since the 
oil in this lake has essentially turned into cement after so 
many years of evaporation and mixture with sediment.  It also 
contains decades of ancient raw sewage, so the company must 
still consider the process by which it will neutralize the 
facility's output to make it safe.  The Hazar Oil Lake 
cleanup project will create about 100 jobs for Turkmen and 20 
expatriate staff.  The company will build a USD three million 
desalinization plant at the Hazar Oil Lake site over the next 
year, as a way to foster good relations with city officials. 
The desalinization plant will eventually also provide clean 
water for Hazar.  After plant construction is completed, the 
company will separate the oil, water, and sand during a 
one-month test phase, during which he expects to recover 
3,000 tons of crude oil. 
 
POTENTIAL FOR THIS WORK IS ENDLESS, ALSO IN THE REGION 
 
¶5.  (C) He also said that companies are still drilling for 
oil in the Goturdepe area -- located further inland in Balkan 
province -- and additional "liquid lakes" that can be cleaned 
up are forming all the time.  Simonov Lake, which used to 
function as a sturgeon breeding ground outside of 
Turkmenbashy, is a small project compared to other sites 
around the country with an estimated 200,000 tons of oil. 
The company expects that the BBC will shoot footage at the 
Hazar site that will be used to make a documentary.  The 
company hopes that this will generate interest in this 
company's services, which it can then export to countries 
such as Kazakhstan and Azerbaijan. 
 
BUSINESS CLIMATE:  NOT SO GOOD 
 
¶6.  (C) The Amcit reported that the State Commodity and Raw 
Materials Exchange, which has to approve all contracts 
between Turkmen ministries and agencies and foreign 
companies, held the contract up for five months because his 
company would not pay bribes.  He also reported that State 
Commodity and Raw Materials Exchange officials demanded 
bribes ranging from USD 10,000 to USD 220,000, until the 
Minister of Oil and Gas stepped in and -- in the hallways of 
the Exchange -- demanded to know what was happening with this 
contract and what was holding it up.  He shared a list of 
lessons learned: 
 
-- It is important that your project be worthwhile, and that 
it will present no risk -- financial or otherwise -- to 
Turkmenistan.  (NOTE:  This company is supplying all of the 
initial investment funds, totaling $35 million, which it has 
privately raised.  END NOTE.) 
 
-- The company has found that their local lawyer, who the 
Amcit describes as having "good connections in government" 
due to longstanding relationships with key individuals, an 
indispensable part of the project. 
 
-- Turkmen government officials display alternating qualities 
of naivete (in believing the financial plan as presented) and 
disbelief (in what the technology can do).  For example, the 
Turkmen accepted the estimated profit figures without 
questioning them, but because they don't understand the 
technology -- regardless of the company's many site 
testimonies from all over the world -- this agreement is 
 
ASHGABAT 00000154  003 OF 003 
 
 
simply a contract and not a production sharing agreement 
until the company can prove that it can do the job of 
recovering oil.  Curiously, the Turkmen also made sure during 
the negotiations that the Amcit's company would make enough 
profit. 
 
-- It was critical to the project's approval that technical 
experts from the Ministry and the Institute of Oil and Gas 
developed a positive view of the project's potential because 
Ministry officials expected to get their stamp of approval 
before the project would move forward. 
 
-- The Amcit presented the project to the Ministry just a few 
days after the president told the Minister to get the oil 
spills cleaned up, so the company benefited from being in the 
right place at the right time.  This example also illustrates 
that when the President says jump, the ministers do just that. 
 
-- The Amcit said that companies shouldn't "assume that they 
(the Turkmen) will understand, and you should know how much 
explanation is required" in terms of contract analysis and 
technical issues.  He specifically recommended that Turkmen 
officials get training in project evaluation, net present 
value, and internal rate of return, so that they have skills 
that will give them the confidence to conclude deals in a 
timely manner. 
 
-- No one in the Turkmen government wants to be held 
responsible for making the wrong decision.  This contributes 
to the delay in concluding contracts, because officials keep 
passing the buck up the food chain until someone feels that 
he has the authority to make a decision and sign a contract. 
 
¶7.  (C) COMMENT:  These insights provide a snapshot of what 
is necessary to conclude contracts in Turkmenistan, and 
recommendations for capacity-building projects that can help 
this country make progress.  The story is not over yet:  in a 
country where rule of law is not respected and international 
arbitration doesn't exist, it remains to be seen whether this 
U.S. businessman has found a reliable partner in the 
Government of Turkmenistan.  END COMMENT. 
MILES