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TO RUEHC/SECSTATE WASHDC PRIORITY 4047
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 6106
RUEHBJ/AMEMBASSY BEIJING 3796
RUEHKO/AMEMBASSY TOKYO 3655
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RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 1395
RUEHVEN/USMISSION USOSCE 4280

UNCLAS SECTION 01 OF 14 ASHGABAT 000045 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN; EEB; 
TREASURY FOR DO/JWALLACE; 
USDOC FOR ITA/JKOZLOWSKI/DSTARKS/EHOUSE; 
USTR FOR JKALLMER 
OPIC FOR RO'SULLIVAN 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC TX
SUBJECT: TURKMENISTAN 2010 INVESTMENT CLIMATE STATEMENT 
 
ASHGABAT 00000045  001.2 OF 014 
 
 
¶1. (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) The following is Post's 2010 Investment Climate 
Statement for Turkmenistan. 
 
OPENNESS TO FOREIGN INVESTMENT 
 
Turkmenistan is relatively large (slightly larger than 
California), but sparsely inhabited (about five million), 
with abundant hydrocarbon resources.  The government 
regularly announces its desire to attract more foreign 
investment, but tight state control of the economy, the slow 
pace of economic reform, and a restrictive visa regime have 
hindered the creation of an attractive foreign investment 
climate.  Historically, the most promising areas for 
investment are in the oil and gas, agricultural and 
construction sectors.  As a result of President Gurbanguly 
Berdimuhamedov's policy of providing "Internet access to 
every home, school and kindergarten," the visibility of 
Turkmenistan's communication sector has also risen.  Even in 
these areas, companies must conduct extensive due diligence. 
President Berdimuhamedov has expressed his intent to improve 
investment conditions, and since the beginning of 2008, the 
Government of Turkmenistan (GOTX) has adopted legal reforms 
on foreign investment and licensing.  Nevertheless, the lack 
of established rule of law, inconsistent regulatory 
practices, and unfamiliarity with international business 
norms are major disincentives to foreign investment. 
 
Turkmenistan's economy depends heavily on production of 
natural gas, oil, petrochemicals and, to a lesser degree, 
cotton and textiles.  The country remains one of the largest 
gas producers among the former Soviet republics.  All other 
existing industrial production, with the exception of food 
processing, needs substantial investment.  The country's key 
industries are still state-owned.  According to independent 
estimates (European Bank of Reconstruction and Development 
(EBRD) Transition Report 2009), the private-sector share of 
GDP in 2008 was 25 percent, mostly concentrated in retail 
trade, services and food processing. 
 
The top economic development priority of the Government of 
Turkmenistan since independence in 1991 has been 
self-sufficiency in food supplies and an increase in 
import-substituting production using hydrocarbon revenues. 
Other industries where the government has been most receptive 
to foreign investment are textile and communications, which 
acutely need modern technology, knowledge of international 
markets and experience in international business practices. 
All investment proposals are screened for compliance with 
these government priorities.  The national program entitled 
"Economic, Political and Cultural Development Strategy for 
Turkmenistan to 2020" specifies government plans for the 
petroleum, chemical, power generation, mining, metallurgy, 
textile, construction, agriculture, transportation, 
communication and other industries.  In October 2006, 
Turkmenistan adopted the Oil and Gas Development Plan for 
2007-2030. 
 
Turkmenistan currently has a closed investment climate. 
Decisions to allow foreign investment are politically driven; 
companies from "friendly" countries are more successful in 
winning tenders and signing contracts.  In this environment, 
where the government selectively chooses its investment 
partners, a strong relationship with the government is 
essential.  Often, government officials expect personal gain 
for allowing or helping foreign investors enter the local 
market.  One way to penetrate the market has been to work 
 
ASHGABAT 00000045  002.2 OF 014 
 
 
through established foreign businessmen, who arrange deals 
through their personal relationship with top leaders, or to 
secure the advocacy of high-ranking foreign government 
officials in a bilateral context. 
 
Since independence, Turkmenistan has accepted financing from 
IFIs for a variety of projects.  In 2009, the GOTX accepted a 
loan reported at $4 billion from the Chinese Development Bank 
and significantly smaller loans for transportation and 
communication from the Chinese Export-Import Bank.  The GOTX 
also accepted a $1 billion dollar loan from the Islamic 
Development Bank for road and social infrastructure 
construction projects. 
 
Incoming foreign investment is regulated by the Law on 
Foreign Investment (last amended in 2008), the Law on 
Investments (last amended in 1993) and the Law on 
Corporations of 1999, with respect to start-up corporations, 
acquisitions, mergers and takeovers of corporations. 
Foreign-investment activities are affected by appropriate 
bilateral or multilateral investment treaties, the Law on 
Enterprises of 2000, the Law on Business Activities (last 
amended in 2008), and the Land Code approved in 2004. 
Foreign investment in the oil and gas sectors is subject to 
the 2008 Petroleum Law.  The Tax Code provides the legal 
framework for the taxation of foreign investment.  The 2000 
Civil Code defines what constitutes a legal entity in 
Turkmenistan, as well as requirements for registration.  Much 
foreign investment is governed by project-specific 
presidential resolutions, which may grant privileges not 
provided by the general legislation. 
 
Legally, there are no limits on foreign ownership or control 
of companies.  In practice, the government has allowed 
fully-owned foreign operations only in the oil sector and, in 
one case, in cellular communications (MTS of Russia).  There 
are various ways for the government to discriminate against 
disfavored foreign as well as domestic investors:  excessive 
tax examinations, license extension denial, and customs 
clearance and visa issuance obstacles.  Since 2008, a Western 
energy company has had difficulty getting Turkmen visas for 
its employees, after the GOTX publicly complained about the 
energy company's purchase of a smaller foreign firm with 
operations in Turkmenistan.  The Western energy company 
reportedly failed to consult with the GOTX prior to the 
acquisition, which involved an existing production sharing 
agreement for natural gas development with the GOTX. 
 
In most cases, the government has insisted on maintaining a 
majority interest in any joint venture (JV).  Foreign 
investors have been reluctant to enter JVs controlled by the 
government, as a result of competing business cultures and 
conflicting management styles.  Foreign investors may only 
sell shares or divest with government permission, although 
there is no specific legislation.  A Western soft drink 
company has been in Turkmenistan since the mid 1990s in a JV 
with the government, and reported that business has greatly 
improved in 2009. 
 
Government efforts since 1991 to privatize former state 
enterprises have attracted little foreign investment. 
Privatization has been limited to the service and trade 
sectors, with most industry still in state hands.  Out-dated 
technology, poor business structures, and governmental 
obstacles make privatized firms unattractive as outright 
purchases for foreign investors.  To date, government 
privatization efforts have also been counteracted by 
lingering prejudice against the private sector.  In cases 
 
ASHGABAT 00000045  003.2 OF 014 
 
 
where there is income potential, the government has been 
quick to crowd out the private sector as a competitor. 
Despite official comments regarding the priority of the 
growth of the private sector, privatization is low on the 
government's agenda. 
 
All land is government-owned.  Neither domestic nor foreign 
businesses can receive long-term land-use rights for 
"non-agricultural" purposes.  Private citizens have land 
rights under specific circumstances.  However, these rights 
exclude the sale or mortgage of land.  Land rights can only 
be transferred through inheritance.  Foreign companies or 
individuals are permitted to lease land for non-agricultural 
purposes, but only the president has the authority to grant 
the lease. 
 
The government has attempted to introduce an element of 
competition for state contracts by announcing international 
tenders for some projects.  Often these projects are 
politically motivated and/or economically unsound, and the 
tender process is badly managed and nontransparent, untimely, 
ill-prepared, or inaccessible.  Following the president's 
announcement of a potential project, interested foreign 
investors and/or suppliers often contact the relevant 
government agency directly in case the tender is not 
announced publicly.  There is one case of a U.S. company 
being told it was awarded a tender, investing in initial 
project design, and then being informed the government was 
considering other options.  The tender was offered a second 
time, and the contract was awarded to a new company at double 
the U.S. company's tender price.  Investors should always put 
agreed upon terms in writing and never act on verbal promises. 
 
Turkmenistan signed a Trade and Investment Framework 
Agreement (TIFA) with the United States, Kazakhstan, 
Tajikistan, Kyrgyzstan, and Uzbekistan on June 1, 2004.  In 
October 2009, the Turkmen Minister of Economy and Development 
participated in the 4th round of the U.S.- Central Asia TIFA 
Council meeting held in Washington D.C.  The TIFA established 
a regional forum to discuss ways to improve investment 
climates and expand trade within Central Asia.  However, the 
GOTX does not actively engage in regional efforts aimed at 
boosting investment projects.  Turkmenistan does sell 
electricity to Afghanistan at subsidized rates. 
 
In November 2009, GOTX officials reported that foreign direct 
investment (FDI) during the first nine  months of 2009 
exceeded $1.8 billion.  The EBRD Transition Report 2009 
projected net FDI for 2009 to total almost $1.3 billion, per 
statistics furnished by Turkmenistan's State Statistics 
Committee. 
 
CONVERSION AND TRANSFER POLICIES 
 
The Government of Turkmenistan maintains tight control over 
the country's main foreign-exchange flows.  On May 1, 2008, 
the government introduced a single exchange rate, which 
remained fixed at 14,250 Turkmen Manat (TM) per $1 until 
January 1, 2009, when it introduced redenominated manat 
(Denominated Turkmen Manat, or DTM) at 2.85 manat per $1. 
The government also opened more than 100 exchange points all 
over the country in May 2008.  The GOTX allowed "old" manat 
to remain a usable currency until January 1, 2010.  Foreign 
bankers considered the unified exchange rate and expansion of 
currency exchange points modest steps towards overall 
liberalization of the foreign exchange market.  An unofficial 
exchange market still operates on a very small scale, and 
provides exchanges at rates that are very close to official 
 
ASHGABAT 00000045  004.2 OF 014 
 
 
rates.  The current unofficial exchange rate is 2.842 DTM per 
$1.  The Central Bank controls the fixed rate by releasing 
U.S. dollars into the official and unofficial (but legal) 
exchange markets.  New foreign exchange regulations in June 
2008 allow the Central Bank to provide banks with ready 
access to foreign exchange.  These regulations also allowed 
commercial banks to open correspondent accounts.  Along with 
exchange rate unification on May 1,2008, limits on foreign 
exchange transactions were officially lifted. 
 
Oil producers operate under the Petroleum Law and receive 
their profit share in crude oil, which they ship by tankers 
to other Caspian Sea littoral states or swap in Iran or 
Persian Gulf countries.  In many cases, investors in 
petrochemicals have negotiated deals with the Government of 
Turkmenistan to recoup their investment in the form of future 
petroleum products.  Foreign investors generating revenue in 
foreign currency, such as textile factories, do not generally 
have problems with repatriating their profits.  However, some 
foreign companies receiving income in local currency, such as 
Coca-Cola, seek indirect ways to convert local currency to 
hard currency through the purchase of petroleum and textile 
products in manat for resale on the world market. 
 
Turkmenistan imports the vast majority of its industrial 
equipment and consumer goods.  The government's 
foreign-exchange reserves and foreign loans pay for this 
industrial equipment and various investment projects.  The 
demand for hard currency in Turkmenistan's private retail 
sector seems to be satisfied by the official and unofficial 
but legal exchange markets. 
 
EXPROPRIATION AND COMPENSATION 
 
Turkmenistan's legislation does not provide for private 
ownership of land, and thus allows the government to force 
investors to vacate their land.  Article 21 of the Investment 
Law allows investors' property to be confiscated via an 
official court decision.  Although there have been no 
reported expropriatory actions against foreign investors in 
the last year, the Government of Turkmenistan has a history 
of arbitrary expropriation of the property of local 
businesses and individuals.  Under the previous leadership, 
the government often refused to pay any compensation, much 
less fair market value, when exercising "the right of eminent 
domain."  However, during a March 2007 Cabinet of Ministers 
meeting, current President Berdimuhamedov stated that 
residents of affected apartments or houses would be provided 
with alternative housing before their homes were demolished. 
In 2007, neighbors who were promised housing six months after 
their apartments were to be destroyed appealed to 
international organizations in order to obtain new housing 
immediately, and were given new apartments shortly 
thereafter.  In 2009, the GOTX ordered some residents to 
vacate their homes in the Berzengi neighborhood of Ashgabat. 
Property owners in this neighborhood reportedly have no right 
to compensation for improvements since this area was 
originally zoned for summer cottages and not for permanent 
domiciles. 
 
DISPUTE SETTLEMENT 
 
Most contracts negotiated with the government have an 
arbitration clause.  Embassy strongly advises U.S. companies 
to include an arbitration clause with a venue outside 
Turkmenistan. 
 
There have been several commercial disputes over the past few 
 
ASHGABAT 00000045  005.2 OF 014 
 
 
years involving U.S. and other foreign investors or 
contractors in Turkmenistan, though not all the disputes were 
filed with arbitration courts.  Investment and commercial 
disputes involving Turkmenistan have three common themes: 
non-payment of debts, non-delivery of goods or services, and 
contract renegotiations.  The government may claim the 
provider did not meet the terms of a contract as 
justification for non-payment.  Most disputes have centered 
on the government's unwillingness to pay in hard currency as 
contractually required.  In cases where government entities 
have not delivered goods or services, the government has 
often ignored demands for delivery.  Finally, a change in the 
leadership of a government agency that signed the original 
contract often triggers a government call to re-evaluate an 
entire contract, including profit distribution, management 
responsibilities and payment schedules. 
 
A western oil and gas company and Turkmenneft, the 
government-owned oil company, have been in litigation since 
¶1996.  Under the auspices of the International Chamber of 
Commerce, in 2001 the western company was awarded of $495 
million in damages.  In spring 2006, the U.S. Court of 
Appeals upheld the 2001 decision and bound the Government of 
Turkmenistan to an arbitral award rendered by a tribunal 
sitting in Houston, Texas, in favor of a foreign party 
against State Concern Turkmenneft.  In November 2006, the 
U.S. Supreme Court denied Turkmenistan's petition for a writ 
of certiorari; the award has not been paid. 
 
Although Turkmenistan has adopted a number of laws designed 
to regulate foreign investment, the laws have not been 
consistently or effectively implemented.  The concentration 
of power in the office of the president has undermined the 
rule of commercial law.  Legislation is regularly made -- or 
overturned -- by presidential decree.  The Law on Foreign 
Investment, as amended in 2008, is the primary legal 
instrument defining the principles of investment.  The law 
also provides for protection of foreign investors.  The 
foreign investor is defined in the law as an entity owning a 
minimum average of 20% of a company's assets during a 
calendar year, unless the Cabinet of Ministers waives the 
requirement. 
 
The following is an ad hoc list of relevant legislation 
regarding foreign investments: 
 
-- All foreign and domestic companies and foreign investments 
must be registered at the Ministry of Economy (MOE). 
--The Petroleum Law (Law on Hydrocarbon Resources) regulates 
offshore and onshore petroleum operations in Turkmenistan, 
including petroleum licensing, taxation, accounting and other 
rights and obligations of state agencies and foreign 
partners.  The Petroleum Law supersedes all other legislation 
pertaining to petroleum activities, including the Tax Code. 
-- According to the Land Code, foreign companies or 
individuals are permitted to lease land for non-agricultural 
purposes, but only the president has the authority to grant 
the lease.  Foreign companies may own real estate property 
other than land. 
-- Turkmenistan adopted a Bankruptcy Law in 1993. 
-- Other laws affecting foreign investors include the Law on 
Investments (last amended in 1993), the Law on Corporations 
of 1999, the Law on Enterprises of 2000, the Law on Business 
Activities (last amended in 1993), the Civil Code enforced 
since 2000, and the Law on Property of 1993. 
 
The commercial law enforcement system includes the 
Arbitration Court of Turkmenistan (Arachy Kazyyet) which 
 
ASHGABAT 00000045  006.2 OF 014 
 
 
tries 13 categories of disputes, both pre-contractual and 
post-contractual, including taxation, legal foundations and 
bankruptcy issues.  The court does not interfere in 
enterprises' economic relations, but considers disputes by 
request from either party involved.  Appeals on decisions of 
the Arbitration Court can be filed at the Arbitration 
Committee of the Supreme Court of Turkmenistan. 
 
Turkmenistan has not become a Party to the Convention on the 
Settlement of Investment Disputes between States and 
Nationals of Other States (also known as the Washington 
Convention) or the New York Convention of 1958 on the 
Recognition and Enforcement of Foreign Arbitral Awards or any 
other internationally recognized arbitration agreement. 
 
PERFORMANCE REQUIREMENTS/INCENTIVES 
 
Foreign investors are more disadvantaged by higher tax rates 
than most local companies.  The Tax Code adopted in 2005 was 
amended three times, in 2006, 2007 and 2008, but most tax 
rates remained unchanged.  The Value Added Tax (VAT) is 15 
percent, an income tax of 8 percent is applied to JVs and an 
income tax of 20 percent is applied to wholly-owned foreign 
companies and state-owned enterprises.  Dividends are taxed 
at 15 percent.  The personal income tax rate is 10 percent. 
In 2005, the government of Turkmenistan amended the tax code, 
giving more concessions to domestic private companies.  The 
Code exempted domestic private companies from the VAT and 
property tax and reduced the income tax from 8 percent to 2 
percent.  In August 2006, Turkmenistan increased its excise 
tax on imported beer (50 percent) and wine (100 percent). 
Similar taxes on domestically produced beer and hard liquor 
remain at previous rates: 10 percent and 15-40 percent 
respectively. 
 
In May 2007, Turkmenistan introduced the Awaza (or Avaza) 
Tourist Zone (ATZ) to promote tourism development on the 
Caspian Sea coast.  Tax and other incentives are provided in 
legislation passed on October 1, 2007, but only to those 
willing to invest in construction of hotels and recreational 
facilities.  The amendments to the Tax Code passed on October 
1, 2007, exempt construction and installation of tourist 
facilities in the ATZ from the VAT.  Various tourist 
facilities services, including catering and accommodation, 
are also VAT-exempt.  Income tax on accommodation and 
catering of tourist facilities will not be levied for the 
first 15 years. 
 
Equipment purchased by the investor as part of the registered 
capital, other assets to be used in production, and personal 
household effects of investors' employees are duty free. 
 
In general, tax and investment incentives can be negotiated 
on a case-by-case basis.  The president has often issued 
special decrees granting taxation exemptions and other 
privileges to specific investors while recouping the initial 
investment.  Assets and property of foreign investors should 
be insured with the State Insurance Company of Turkmenistan 
(Article 53 of the Petroleum Law Article 3 of Insurance Law). 
 National accounting and financial reporting requirements 
also apply to foreign investors.  All contractors operating 
in Turkmenistan for a period of at least 183 days a year must 
register at the Main State Tax Service.  There is a general 
requirement for foreign investors that 70 percent of the 
company's personnel be local.  The government can make 
exceptions for foreign construction companies executing 
large-scale turnkey projects.  Turkmenistan requires that all 
export and import contracts and investment projects be 
 
ASHGABAT 00000045  007.2 OF 014 
 
 
registered at the State Commodity and Raw Materials Exchange 
(SCRME) and the Ministry of Economy.  The procedure applies 
not only to the contracts signed at the SCRME, but also to 
contracts signed between third parties.  The SCRME is 
government-owned and is the only exchange in the country. 
The contract registration procedure includes an assessment of 
"price justification."  All import contracts must be 
registered before goods are delivered to Turkmenistan. 
 
The government mostly favors long-term investment projects 
that do not require regular hard-currency purchases of raw 
materials from foreign markets.  Textile factories operated 
by Turkish companies using domestic resources and labor serve 
as model investment projects supported by the government. 
These companies encounter relatively few currency conversion 
problems and enjoy tax breaks; otherwise, there are no set 
requirements for local sourcing or exporting specific 
percentages of output. 
 
Production Sharing Agreement (PSA) holders are mostly 
regulated by the Petroleum Law.  They are subject to a 20 
percent income tax and royalties ranging from 1 percent to 15 
percent, depending on the level of production.  The social 
welfare tax, 20 percent of the total local staff payroll, is 
also payable by all foreign investors and their 
subcontractors.  PSA holders' employees and their 
subcontractors pay a personal income tax of 10 percent. 
Under the Petroleum Law, PSA concessions have been made to 
eight foreign energy companies:  five offshore and three 
onshore concessions for 20-25 years.  Six of the existing 
concessions are in the oil sector and two in the gas sector. 
 
Subcontractors of PSA holders can bring their equipment into 
the country only for the duration of a valid contract.  There 
is no appropriate legislation that regulates operations of 
oil and gas subcontractors. 
 
Currently, Turkmenistan lists 49 import and 20 export goods 
and materials subject to customs duties.  Goods and materials 
not on the lists are subject to a 0.2 percent customs fee 
payment and a charge of $1.76 to the Customs Official for 
every hour he/she spends inspecting the imported goods.  In 
regard to exports, customs maintains a list of goods subject 
to customs duty payment.   State enterprises often receive 
preferential treatment; for example, wool carpets produced at 
state factories are exempt from customs duties. In contrast, 
private carpet producers have to pay $20 per square meter of 
carpet in customs duties in order to export carpets. 
 
Foreign investors are required to adhere to the sanitary and 
environmental standards of Turkmenistan.  Foreign investors' 
products should be of equal or higher quality than prescribed 
in national standards. 
 
Turkmenistan, while not a member of the World Trade 
Organization (WTO), has enacted a number of laws in key areas 
relevant to the WTO:  investment, banking, intellectual 
property rights, customs, and privatization.  However, the 
legislation is not enforced uniformly.  Turkmenistan is not a 
signatory to and is not in compliance with the Agreement on 
Trade-Related Investment Measures (TRIMS). 
 
The State Migration Service was created in 2003 with the 
specific aim of controlling access to the country and 
movement of foreign citizens within Turkmenistan.  All 
visitors are required to register upon entry, and travel to 
most border areas requires a special permit.  Inviting 
foreigners is often problematic because authorities can and 
 
ASHGABAT 00000045  008.2 OF 014 
 
 
do deny entry visas without explanation.  With these travel 
strictures, foreign investors trying to enter Turkmenistan 
for the first time have difficulty obtaining entry visas 
unless invited by the government.  Even established investors 
continue to complain about bureaucratic procedures and delays 
in this context. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
 
Foreign and domestic private entities in Turkmenistan have 
the right to establish and own business enterprises, though 
this is associated with onerous bureaucratic requirements. 
The 2000 Law on Enterprises establishes state and private 
businesses in various legal forms (state enterprises, sole 
proprietorships, cooperatives, partnerships, corporations and 
enterprises of non-government organizations).  The law allows 
foreign companies to establish subsidiaries, but the 
Government does not currently register subsidiaries.  The 
Civil Code of Turkmenistan and the Law on Enterprises provide 
for representative and branch offices to operate in 
Turkmenistan, and enterprises have to be registered with the 
Registration Chamber at the Ministry of Economy. 
 
The government prohibits engagement in certain areas of 
commercial activity, such as mass media.  The 2008 Law on 
Licensing Certain Types of Activities lists 44 types of 
activities that require government licenses.  Currently, 
state entities do not require licenses.  Often private 
entities need to do more than public enterprises to access 
markets and credit. 
 
The Law on Enterprises and the Law on Corporations provide 
for acquisitions and mergers.  However, Turkmenistan's 
legislation is not clear about acquisitions and mergers 
involving foreign parties, nor does it have specific 
provisions for disposition of interests in business 
enterprises, both local and with foreign participation. 
Governmental approval is necessary for acquisitions and 
mergers of certain enterprises, specifically those with state 
shares. 
 
PROTECTION OF PROPERTY RIGHTS 
 
All land is owned by the government.  The 1993 Law on 
Property defines the following types of property:  private, 
state, non-government organizations, cooperative, 
joint-venture, foreign states, legal entities and citizens, 
international organizations and mixed private and state. 
Most housing is state-owned and may not be resold. 
Turkmenistan adopted a new land code in 2004, addressing 
farmers' land rights.  According to the new land law, 
citizens may have rights up to three hectares of land but 
they cannot sell, exchange, or transfer it, except to their 
children.  Based on the law, foreign citizens and stateless 
persons, foreign states, and companies and international 
organizations may only lease land.  The October 1, 2007 
amendments to the Land Code provide for up to 40-year land 
leases for hotels and recreational facilities in National 
Tourist Zones.  Land and built facilities have to be 
transferred after the expiry of the contract.  According to 
the Law on Foreign Investment, foreign investments in 
Turkmenistan are not subject to nationalization and 
requisition; foreign properties may be confiscated only by a 
court decision. 
 
The government has enacted laws designed to protect 
intellectual property rights (IPR) domestically, but these 
laws are either arbitrarily implemented or not implemented at 
 
ASHGABAT 00000045  009.2 OF 014 
 
 
all.  Among them are the 1993 Law on the Protection of 
Scientific Research, the 1993 Patent Law and the December 
2008 regulation, which includes the Law on Inventions and 
Industrial Designs and the Law on Trade and Service Marks and 
Places of Origin.  The new regulation provides legal 
protection of intellectual property upon its registration 
with the Patent Agency, which was established in 1993. 
However, due to significant deficiencies in Turkmenistan's 
intellectual property protection regime, there is an ongoing 
review of Turkmenistan's status as a beneficiary country 
under the U.S. Generalized System of Preferences (GSP) 
Program.  Turkmenistan has been on the Special 301 Watch List 
since 2000. 
 
The Law on Foreign Investment guarantees the protection of 
intellectual property of foreign investors, including 
literary, artistic and scientific works, software, databases, 
patents and other copyrighted items, but Turkmenistan has yet 
to adopt more explicit and comprehensive administrative and 
civil procedures and criminal penalties for Intellectual 
Property Rights (IPR) violations.  Turkmenistan has not 
adopted a separate Copyright Law and consequently does not 
provide any protection to foreign sound recordings or 
pre-existing works.  The 1993 Most Favored Nation Agreement 
between the United States and Turkmenistan also provides for 
favorable treatment of copyrighted materials.  The agreement 
envisages Turkmenistan's accession to the Berne Convention of 
1971 for the Protection of Literary and Artistic Works and 
Creation of a Working Group on Intellectual Property Matters. 
 To date, Turkmenistan has not joined the Berne Convention or 
the Geneva Phonograms Convention.  It is a challenge to 
purchase legally recorded material in Turkmenistan.  Current 
border enforcement is weak.  As a result, pirated recordings 
freely cross into Turkmenistan for sale.  Additional 
personnel and training courses are needed for more effective 
border enforcement.  Turkmenistan laws do not provide for 
either civil or criminal ex parte search procedures needed 
for effective anti-piracy enforcement. 
 
Turkmenistan signed the World Intellectual Property 
Organization's (WIPO) documents on industrial property rights 
and patent cooperation in 1995.  Turkmenistan has also joined 
the Eurasian Patent Organization that was created as part of 
the WIPO for the CIS countries.  Turkmenistan has not signed 
the 1996 WIPO Copyright Treaty (WCT), WIPO Performances and 
Phonograms Treaty (WPPT), or WIPO Internet Treaties. 
 
The Copyright Law was enacted as part of Turkmenistan's Civil 
Code, in force since 2000.  The Law defines copyrighted 
products and the rights of owners of the copyrighted 
products, and provides their legal protection.  There is a 
Patent Department in the Ministry of Economy and Development 
which issues patents on intellectual property, but it does 
not enforce copyright law.  Turkmenistan has not adopted 
criminal penalties for IPR violations, and currently articles 
such as videos, cassette tapes, and literature are freely 
copied and sold.  In general, products manufactured by 
government-owned entities increasingly dominate local markets 
and are well-protected by law enforcement bodies.  These 
government produced products including, petroleum products 
and textiles exported from Turkmenistan have been assigned 
trademarks to protect them in foreign markets. 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
 
The government does not use transparent policies to foster 
competition and foreign investment.  Laws have frequent 
references to by-laws that are often not publicly available. 
 
ASHGABAT 00000045  010.2 OF 014 
 
 
Since 2007, some progress has been made toward eliminating 
by-laws when President Berdimuhamedov announced legal system 
reforms.  Most by-laws are passed in the form of presidential 
decrees.  Such decrees are not categorized by subject, which 
makes it difficult to find relevant cross references. 
Previously, government officials acted on the president's 
verbal instructions, rather than written orders or governing 
legislation.  Most often, personal relations with government 
officials have played a decisive role in determining how and 
when government regulations are applied. 
 
Bureaucratic procedures are confusing and cumbersome.  There 
is no single body that coordinates registration and 
activities of domestic and foreign private companies.  The 
government does not generally provide information support to 
investors, and officials use the lack of information to their 
personal benefit.  Foreign companies may spend months 
conducting due diligence in Turkmenistan. 
 
A serious impediment to foreign investment is the lack of 
knowledge of internationally-recognized business practices 
and concepts, as well as few English speakers.  Good quality 
English-language material on Turkmenistan legislation is 
scarce, and there are very few business consultants to assist 
investors. 
 
There are no standards-setting consortia or organizations 
besides the Turkmen State Standards (TDS) and the relevant 
licensing government agency. 
 
There is no independent body for filing complaints. 
Financial disclosure requirements are neither transparent nor 
consistent with international norms.  Government enterprises 
are not required to publicize financial statements, even to 
foreign partners.  Financial audits are often conducted by 
local auditors, not internationally recognized firms. 
 
The Law on Petroleum was a partial step toward creating a 
more transparent policy in the oil and gas sector; it 
provides a detailed legal framework for conducting oil and 
gas business.  Under this law, three types of licenses can be 
issued:  exploration, extraction, and a single exploration 
and extraction license.  four types of agreements can be 
signed for hydrocarbon production:  a production sharing 
agreement, a joint operation agreement (also called joint 
venture agreements), risk service agreements, and concession 
agreements with royalties and taxes. 
 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
 
Turkmenistan's financial system significantly hinders the 
free flow of financial resources.  Most numerous and largest 
in size are the following six state banks:  State Bank for 
Foreign Economic Relations (Vnesheconombank), Dayhanbank, 
Turkmenbashy Bank, Turkmenistan Bank, Halk Bank, and 
President Bank.  These state banks have narrow 
specializations-- foreign trade, agriculture, industry, 
social infrastructure, savings and mortgages, respectively. 
There are two smaller state banks: Senagat Bank and Garagun 
Bank which provide general banking services only.  There are 
also four foreign commercial banks in the country: a joint 
Turkmen-Turkish bank (with Ziraat Bank), a branch of the 
National Bank of Pakistan also operate in Turkmenistan, and 
the German Deutsche and Commerz banks.  The two German banks 
provide European bank guarantees for companies and for the 
GOTX; they do not provide general banking services.  Total 
assets of the country's largest bank, Vnesheconombank, are 
estimated at $1 billion (2007) at the then official exchange 
 
ASHGABAT 00000045  011.2 OF 014 
 
 
rate of 5,200 manats per dollar.  Other banks' assets are 
much smaller. 
 
All banks, including commercial banks, are regulated by the 
state.  Commercial banks are prohibited from providing 
services to state enterprises. 
 
The U.S. Export Import (EXIM) Bank announced on January 4, 
2010, that it had extended its available financing to include 
long-term public sector transactions in Turkmenistan. 
Previously, EXIM had only been open for short- to medium-term 
public sector financing.  Short-term financing is available 
for up to two years, medium-term up to seven years, and 
long-term up to 18 years.  State banks mostly serve state 
enterprises and allocate credit on subsidized terms to the 
state enterprises.  Foreign investors are only able to get 
credit on the local market through EBRD equity loans. 
 
There is no capital market in Turkmenistan, although the 1993 
Law on Securities and Stock Exchanges outlines the main 
principles for issuing, selling and circulating securities. 
The Law on Corporations further provides for issuance of 
common and preferred stock, and bonds and convertible 
securities in Turkmenistan, but in the absence of a stock 
exchange or investment company, there is no market for 
securities.  In the mid 1990's, the government turned some 
nearly bankrupt state-run enterprises into corporations. 
Foreign entities may theoretically purchase shares in these 
companies, but have shown no interest in so doing. 
 
POLITICAL VIOLENCE 
 
Since President Berdimuhamedov came to power in February 
2007, the only instance of violence that the Turkmenistan 
Government publicly acknowledged was in September 2008 in 
Ashgabat's Khitrovka neighborhood.  After more than a 
day-long standoff with a small group of well-armed 
individuals, more than 20 government personnel were 
reportedly killed before the group was subdued.  Government 
statements claimed that the group was involved in narcotics 
trafficking, and that all members of the group had been 
arrested or killed.  Although the Turkmenistan Government is 
engaging with foreign governments to train law enforcement 
officials, law enforcement agencies remain small and uneven 
in quality. 
 
Turkmenistan's Government strictly controls all aspects of 
society, limiting any group's ability to organize.  The 
authoritarian political system prohibits political opposition 
by banning opposition parties and requiring registration for 
all organizations.  The government also controls all local 
media and restricts the distribution of foreign publications. 
 
CORRUPTION 
 
Turkmenistan has legislation to combat corruption, but the 
laws are not enforced and corruption is rampant.  Formally, 
the Ministry of Internal Affairs, the Ministry of National 
Security, and the General Prosecutor's Office are responsible 
for combating corruption.  President Berdimuhamedov has 
publicly stated that corruption will not be tolerated. 
Turkmenistan joined the UN Convention against Corruption in 
March 2005, but the non-transparency of the economic system 
provides fertile soil for corruption.  The non-government 
organization, Transparency International, ranked Turkmenistan 
168 among 180 countries in the world in its Corruption 
Perceptions Index for 2009. 
 
 
ASHGABAT 00000045  012.2 OF 014 
 
 
The common assumption is that nearly any decision desired can 
be obtained for a price.  U.S. firms have identified 
widespread government corruption, usually in the form of 
bribe requests, as an obstacle to investment and business 
throughout all economic sectors and regions.  It is most 
pervasive in the areas of government procurement and 
performance requirements.  In contrast to official 
corruption, violent criminal organizations are largely 
non-existent in Turkmenistan. 
 
BILATERAL INVESTMENT AGREEMENTS 
 
The Governments of Turkmenistan and the United States began 
negotiations on a bilateral investment treaty after 1991, but 
talks were suspended in early 1994.  The Government of 
Turkmenistan expressed interest in renewing the talks in 
1998, but negotiations have not recommenced.  The United 
States government considers the Convention with the Union of 
Soviet Socialist Republics on Matters of Taxation, which 
entered into force in 1976, to continue to be in effect and 
applicable between the United States and Turkmenistan. There 
have been no discussions on a new dual taxation treaty. 
 
Turkmenistan has signed bilateral investment agreements with 
Turkey, China, France, Malaysia, Pakistan, Romania, Slovakia, 
the United Kingdom, Northern Ireland, Egypt, India, 
Uzbekistan, Iran, Armenia, Georgia, Germany, Ukraine, and the 
United Arab Emirates. 
 
In July 2009, EU Ministers passed a trade agreement with 
Turkmenistan reasoning that economic and trade engagement 
with the country would stimulate political reforms in 
Turkmenistan. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
 
Turkmenistan signed an Investment Incentive Agreement with 
the U.S. government in 1992, but there has been no investment 
insurance, investment guarantees or financing provided by the 
Overseas Private Investment Corporation (OPIC) for 
Turkmenistan. 
 
LABOR 
 
Labor matters are governed by the Labor Code of Turkmenistan, 
the Law on Leaves of Absence, the Law on Occupational Safety, 
the Law on Pensions and a number of regulations approved by 
presidential resolutions.  Turkmenistan joined the 
International Labor Organization in 1993. 
 
Unemployment and underemployment are major problems.  The 
last official survey, conducted in 1995, implausibly 
estimated unemployment at 3% of the labor force.  Current 
unofficial estimates are above 50 percent, while the Ministry 
of Finance maintains the percentage is between 5 and 10 
percent. 
 
Since 1997, Turkmenistan has introduced "labor exchanges" or 
employment offices, operating as self-sustaining entities 
under local government offices.  Turkmenistan's regulations 
require that all vacancies be posted via such labor offices. 
Although most vacancies in the labor exchanges' databases are 
low-skilled jobs, employment offices have not been an 
effective tool in reducing unemployment.  Finding suitable 
candidates via these offices is also problematic for 
international companies.  Investors recruit directly, though 
candidates still pay a nominal fee to the relevant labor 
exchange.  Although the government requires foreign companies 
 
ASHGABAT 00000045  013.2 OF 014 
 
 
to have 70% of the local workforce be local citizens, it has 
made exceptions for foreign construction companies executing 
large-scale turnkey projects.  Officials are known to request 
investors to employ their relatives and friends. 
 
The Association of Trade Unions of Turkmenistan -- successor 
to the Soviet-era system of government-controlled trade 
unions -- is the only trade union allowed in the country. 
The Association's unions are divided along both sectoral and 
regional lines. 
 
The normal workday in Turkmenistan is eight hours, and the 
standard workweek is 40 hours over five days.  In practice, 
government and many private sector employees are required to 
work 10 hours a day or a sixth day  without compensation. 
The minimum age for employment of children is 16.  In a few 
heavy industries the minimum age is 18.  The labor law 
prohibits 16-18 year-olds from working more than six hours a 
day, and only with parental and trade union permission. 
Health and safety regulations exist, but are commonly not 
enforced.  Foreigners with government permission to reside in 
Turkmenistan may work, but are subject to the same labor 
regulations as citizens unless otherwise specified by law. 
 
FOREIGN TRADE ZONES/FREE PORTS 
 
The Law on Economic Zones for Free Enterprise was enacted in 
¶1993. The law guarantees the rights of businesses -- foreign 
and domestic -- to operate in these zones without profit 
ceilings.  The law forbids nationalization of enterprises 
operating in the zones and discrimination against foreign 
investors.  Other rights guaranteed include: 
 
-- Preferential tax status, including exemption from profit 
tax if profits are reinvested in export-oriented, advanced 
technology enterprises; 
-- Repatriation of after-tax profits; 
-- Exemption from customs duties, except on product of 
foreign origin; 
-- Export of products; 
-- Setting product prices. 
 
There are ten such zones in Turkmenistan:  Mary-Bayramaly, 
Ekerem-Hazar, Turkmenabat-Seydi, Bakharly-Serdar, 
Ashgabat-Anew, Ashgabat-Abadan, Saragt, Guneshli, Ashgabat 
International Airport, and Dashoguz Airport.  The zones have 
not been successful in drawing increased economic activity. 
Despite the legal guarantees, the government continues to 
meddle in business decisions even for firms located in these 
zones.  The zones have not been financially supported by the 
government and lack infrastructure, such as advanced 
telecommunications, to attract businesses.  The 
infrastructure at Ashgabat International Airport is more 
developed and has modern cargo transit facilities. 
 
In July 2007, President Berdimuhamedov announced the creation 
of the Avaza free tourist zone along 16 kilometers of the 
Caspian Sea coast.  The Ministry of Economy and Development 
(MOED) promised exemption from MOED registration fees and 
Value Added Tax (VAT) to contracting and management 
companies, full convertibility of all manat-denominated 
operations earnings into hard currency for amortization of 
foreign loans, payment for construction work or services, 
purchase of raw materials, equipment, and goods.  This zone 
will have a special regime for making cash payments and 
overseas electronic transfers, and equipment and materials 
used in facility construction or management will be exempt 
from calibration fees in the zone.  Amendments to the Land 
 
ASHGABAT 00000045  014.2 OF 014 
 
 
Code passed in October 2007 include a provision for 40-year 
land leases for construction of tourism facilities and 
five-year leases for retail and services points, warehouses 
and car parking lots.  Tourism-related services such as 
catering and hotels -- but not casinos -- are also granted 
VAT exemption.  Construction equipment used in the Zone will 
not be subject to the one percent property tax.  In addition, 
the government will not levy income taxes related to tourist 
accommodations and catering for the first 15 years. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
 
State data on many economic indicators, including Foreign 
Direct Investment (FDI) remain unreliable and mostly 
unavailable.  However, according to various independent 
analysts, most foreign investment is directed toward the 
country's oil and gas sector.  Such investments include three 
onshore Production Sharing Agreements (PSAs):  the Nebitdag 
Contractual Territory operated by Burren Energy UK/ENI, the 
Khazar project operated jointly by the Turkmennebit state oil 
concern and Mitro International of Austria, and the 
Bagtyarlyk Contractual Territory operated by the Chinese 
National Petroleum Corporation (CNPC).  In addition, there 
are five PSAs for offshore operations: the Cheleken 
Contractual Territory operated by Dragon Oil (UAE), Block 1 
operated by Petronas of Malaysia, Blocks 11 and 12 operated 
jointly by Maersk Oil of Denmark and Wintershall of Germany, 
Block 23 operated by RWE of Germany, and Block 21 operated by 
Itera of Russia. 
CURRAN