Is the Turkmen Window of Opportunity Opening or Closing?

Turkmenistan has been the most popular Central Asian country in the news lately, what with Russia’s continued energy imperialism in the Baltics, Gazprom’s bruising attack on BP at Kovykta, and the Kremlin’s seemingly limitless success in disaggregating EU solidarity – it appeared as though a direct tap to the Turkmen gas reserves could serve as a crucial counterweight to the Moscow’s highly political energy monopoly. And especially with the passing of the Turkmenbashi, everyone embraced the hope that new relations with the EU could be founded to diversify suppliers. So far this hasn’t been successful, and indeed it looks like Moscow is playing a much stronger diplomatic hand, but that doesn’t mean that the think tanks aren’t just now catching up. For example, British academic Michael Denison of the Centre for European Policy Studies (CEPS) just recently published a new policy brief titled “Turmenistan in Transition: a Window for EU Engagement?” The paper contains some excellent intelligence on the meaning of the transition and the political dynamics at play – it should be required reading for any European policy maker. Below is an excerpt.

The death of Niyazov has given rise to considerable speculation that the new government may seek to diversify its natural gas export options by reaching a commercial agreement on gas sales, either with individual EU member states, or with the EU collectively. Turkmen gas would be delivered by way of a subsea Caspian extension to the new Baku- Tbilisi-Erzerum (BTE) South Caucasus pipeline which, in turn, would be connected to the projected Nabucco pipeline servicing the major European gas junction situated at Baumgarten in Austria. President Niyazov rejected such an option, preferring to maintain a core gas relationship with Gazprom, while developing projects to export supplemental volumes south-east, through Afghanistan to Pakistan and India (the now largely defunct TAPI pipeline project) and, pursuant to a preliminary agreement signed in April 2006, east to China. The export of significant onshore gas volumes in a westerly direction is possible but unlikely. Russia, through Gazprom, maintains a tight grip on the existing pipeline infrastructure in Central Asia and has a 25 year supply contract covering almost all of Turkmenistan’s current gas export capacity. Turkmen gas output has stalled since the collapse of the Soviet Union and requires external technology, capital and expertise, which Gazprom will provide, to restore production to Soviet levels. The Russian-Turkmen relationship is symbiotic. Gazprom provides a steady revenue stream and is responsible for pipeline maintenance and upgrading, and attaches no conditionality on human rights and democratisation issues. Russia/Gazprom has (or can adopt) a Soviet modus operandi with which the Turkmen elite feels comfortable. From the other side, Turkmen exports enable Gazprom to service its lucrative European contracts, and provide an important supply bridge before the Yamal peninsula project comes onstream. Thus, Gazprom will not surrender its hegemony in Turkmenistan lightly and, as yet, there is insufficient incentive for the Turkmen leadership to look seriously elsewhere. However, while the principal onshore eastern fields have been effectively ‘booked’ by Russia (and the new Yolotan field by China), there is potential for European international oil companies (IOCs) to look carefully at developing some of the more interesting offshore fields, notably the Livanov-Barinova-Lam (LBL) structures, which are geologically integrated with the large Azeri Chirag-Guneshli (ACG) deepwater oil and gas fields, currently under commercial development by BP. While these prospective fields will not substitute entirely for Russian gas supplies, they will substantially augment existing Caspian basin volumes, and have relatively inexpensive tieback potential to western Caspian infrastructure, without disturbing Gazprom’s existing contracts and provoking a reaction against European IOCs working in Russia. The focus on downstream activities has led European policy-makers to completely neglect very serious governance issues in the domestic energy sector. No part of the state apparatus experienced more upheaval in the final eighteen months of Niyazov’s rule than did the state energy bureaucracy. The frequent dismissal and rotation of state officials and ministers was characteristic of Niyazov’s rule. However, the purging of the sector’s most senior and competent personnel from May 2005 was supplemented by drastic structural reorganisation (see Appendix for structure as at mid-2005, to which the new government may revert). The resultant bottlenecks effectively precluded officials from executing policy, engaging with foreign operators, or monitoring effectively existing commercial operations. The two most powerful and longstanding members of Niyazov’s entourage – Deputy Prime Minister for Oil and Gas Yolly Gurbanmuradov and Head of the Presidential Administration Rejep Saparov – were both dismissed, tried and given long prison sentences for embezzlement in the early summer of 2005. It is believed that each was briefing against the other, and Niyazov took no chances by sequentially removing both.17 They were followed by a procession of other officials: the chairmen of Turkmenneftegaz, Turkmenneft, Turkmengaz and Turkmengeologiya, four of the country’s five state energy agencies, were removed and jailed, along with the head of the Turkmenbashi oil refinery and the chairman of the Central Bank. Nearly all of their replacements were, in turn, removed over the ensuing year, creating a form of ‘permanent revolution’ in the upper reaches of the energy bureaucracy. It is difficult to gauge to what extent the charges laid were real or imagined, although official toleration of some level of corruption in the oil and gas business was believed to exist. It is possible that Rejepov and Gurbanmuradov had overstepped permissible limits or that they were seeking to transform their financial leverage into political muscle. The damaging shortage of experienced personnel was compounded by Niyazov’s decision on 2 September 2005 to abolish the Competent Body (the interface with foreign oil companies) and transfer its responsibilities and operations, along with those of Turkmenneftegaz, to the Ministry of Oil and Gas. Three quarters of the core staff concerned with the negotiation, licensing and control of contracts were sacked, and there were no clear lines of demarcation or authority within the Ministry for the implementation of executive decrees or new legislation. Such was the paralysis that ensued (allied to the fact that the legal signatory of Production Sharing Agreements with foreign companies is the Competent Body), that Niyazov informally reconstituted the Competent Body on 15 December 2005 to act on a strict case-by-case basis under his personal control, reportedly signing off personally LNG sale contracts of only $10,000. One of the most important issues facing President Berdymuhammedov was to reconstitute the state oil and gas bureaucracy and restore the negotiation, licensing and control functions to the Competent Body. This he did on 12 April 2007 with the creation of a new State Agency for management of hydrocarbon resources, which essentially assumed the functions of the disbanded Competent Body and will be an important step in facilitating further foreign investment in the sector. Turkmenistan’s relative diplomatic isolation can be partly explained by the acute shortage of competent personnel working at mid and upper levels of government, and their consequent lack of confidence and vision in dealing with IOCs and international institutions. Not knowing what to do, officials have chosen to do nothing. This has been to the immeasurable benefit of Russia and Gazprom. There is, therefore, an important role for the EU in helping to equip a new generation of civil servants and technical specialists to serve effectively in government.