Investors circle Turkmenistan for energy openings


Western energy firms are poised to strike deals in Turkmenistan as the Central Asian state opens up its lucrative oil and gas reserves after years of isolation.

Chevron Corp, Total and TXOil Ltd, a company chaired by a younger brother of former US president George W. Bush, are among those pursuing deals in the desert nation, home to the world’s fourth-largest natural gas reserves.

Few, however, expect an instant bonanza. Competition will be tough and analysts predict the next influx of foreign investors will be restricted to offshore blocks in the Caspian Sea and service contracts at prized onshore gas fields.
“Turkmenistan’s policy is to invite foreign companies for offshore and service contracts. I’m not sure this will change,” said Najia Badykova, who worked in the Turkmenistan government before founding Washington DC-based company Antares Strategy.

Turkmenistan, a former Soviet republic bordering Afghanistan and Iran, plans to triple gas production to 230 billion cubic metres (bcm) over the next two decades and forecasts a more than sixfold increase in oil output, to 67 million tonnes per year.

It traditionally sends its gas north to its Soviet-era master Russia, but is diversifying export routes to meet growing demand in China, Iran and Europe. Turkmen gas will be crucial to the European Union-backed Nabucco pipeline project.

A dispute last year with Moscow over a ruptured pipeline, which cost Turkmenistan $1bn for every month that delivery was disrupted and ultimately led to a sharp fall in Turkmen gas supplies to Russia, has increased its appetite for new markets.

Western executives say Turkmenistan’s ambitious growth plans will not be possible without foreign capital and expertise.

“The desired production growth will take a large amount of capital investment on a sustained basis over a number of years,” said Douglas Uchikura, president of Chevron Nebitgaz B.V.

“The president definitely has an objective to open up for what he would consider mutually beneficial opportunities,” he said. “Their opening will be very measured.”

Opening up?
Turkmenistan forecasts its economy, dependent largely on gas and cotton, will grow by 7.5 percent this year. The outlook of the International Monetary Fund is even rosier, at 9.4 percent.

Privately, officials express frustration that the perception of the country has changed little since the death four years ago of Turkmenistan’s first post-Soviet leader, Saparmurat Niyazov.

The marble palaces and grand fountains of the capital, Ashgabat, are a monument to Niyazov – the self-styled Turkmenbashi, or Leader of the Turkmen — and the formidable personality cult that characterised his often eccentric rule.

Since then, several Internet cafes have opened in Ashgabat. Satellite dishes battle for roof space on three- and four-storey apartment blocks in the older neighbourhoods of the city, where residents say they can tune in to more than 700 channels.

Turkmenistan even ranked 18th of 155 countries in a Gallup World Poll of the world’s happiest places this year.

But it ranks much lower on most other surveys. Only Eritrea and North Korea scored worse in the 2010 press freedom index compiled by media watchdog Reporters Without Borders.

Its few vocal opposition figures have long fled the country and those who remain dare not speak out against the government.

Foreign diplomats in Ashgabat say it is too early to say whether Niyazov’s personality cult will be replaced by that of his successor, qualified dentist Kurbanguly Berdymukhamedov.

A larger-than-life portrait of the current president, pen poised in his right hand, loomed over the foreign executives who spoke at a recent energy conference in the capital, each with an eye on the ultimate prize: his signature on their proposals.

“Things don’t change overnight, otherwise it’s called a revolution,” said one diplomat. “But the government is increasing its level of economic interaction with the world. That simply wasn’t done in the past.”

State partnerships
So what is the secret to doing business in Turkmenistan? Dubai-based Dragon Oil plc has been there for more than a decade and has invested almost $2bn to date.

It has a Production Sharing Agreement to operate the Cheleken contract area and employs nearly 1,000 Turkmen staff.

“You have to be a partner with a state agency, follow all their regulations and help the local economy,” Emad Buhulaigah, Dragon Oil’s general manager for petroleum development, said.

Dealing with the state has been a stumbling block for some Western companies. State-run Chinese firms have the advantage of being able to strike deals quickly with the Turkmen government.

“It can sometimes be difficult to explain that a Western government cannot tell a private company what to do,” said a second foreign diplomat.

Layers of bureaucracy and concern in the West over Turkmenistan’s human rights record have also made it awkward for some private investors to commit to business in the country.

A third diplomat recalled a recent conversation with a high-ranking member of the Turkmen government. “Do you know what he said? ‘It takes the European Union 14 months to draft a memorandum. It takes China 14 months to build a pipeline’.”

A 1,833-km (1,139-mile) pipeline to China, ready to pump 40 billion cubic metres of gas eastward by 2013, opened last year.

China has supplied billions of dollars in loans and state firm CNPC was among four Asian companies to win contracts last December for development of the jewel in Turkmenistan’s energy crown: the South Iolotan gas field.

European and US firms, however, are unlikely to miss out, a fact reinforced by recent Turkmen assurances it would soon have another 40 bcm of gas to send westward under the Caspian.

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