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Turkmenistan: Gas Price Standoff Looms In Central Asia

Turkmenistan's sudden decision to halt gas supplies to Russia could reverse the trend toward improved relations since 1999. As demand for Turkmen gas has risen, President Saparmurat Niyazov has gradually increased the price. But Russia's refusal to pay his latest demands could lead to a standoff, affecting both countries. Correspondent Michael Lelyveld reports.

Boston, 3 January 2001 (RFE/RL) -- In a surprise move, Turkmenistan announced Monday that it has cut its gas supplies to Russia, marking the biggest setback in relations between the two countries in the past year.

The Turkmen government said in a statement that it was forced to take the step because of Russia's failure to sign an agreement for gas deliveries by the start of 2001, the BBC reported. According to the government newspaper Neutralny Turkmenistan, Moscow had rejected demands for higher prices and cash payments to begin with the new year.

Talks on the gas deal have been taking place with the Russia gas trader Itera for several weeks with no sign of progress. Turkmenistan President Saparmurat Niyazov originally said he expected an agreement by mid-November.

The cutoff appears to reflect a hardening of positions on both sides. Two days before the announcement, the Russian Foreign Ministry's spokesman issued a statement stressing the importance of cooperation with Turkmenistan and relations based on "mutual respect." The statement now seems to have had no purpose other than to head off an impending clash.

Unless the situation is reversed soon, it could mean a return to the frosty relations that followed the halt in Turkmen gas shipments through Russian pipelines in March 1997. That dispute over transport tariffs led to a virtual blockade of Turkmenistan's most important export and a steep decline in the country's gross domestic product of over 25 percent.

Gas exports to Ukraine through Russian pipelines resumed in 1999 thanks to a transit agreement, but Ashgabat halted deliveries after five months over Kiev's debts. The country's economic figures showed greater hopes for recovery last year after Russia agreed to buy Turkmen gas for its own use.

At first, Moscow bought 20,000 million cubic meters of gas and then asked for an additional 10,000 million by the end of 2000. During President Vladimir Putin's visit to Ashgabat last May, the two sides discussed a long-term deal for as much as 50,000 million cubic meters annually, but they were unable to agree on the price.

Niyazov has steadily increased his demands during the past year, first convincing Russia to pay $36 per thousand cubic meters when it had offered only $32. Most recent supplies have been sold for $38. This year, Niyazov has insisted on $40 with an increase in the cash share of the price from 40 percent to 50 percent.

Russia has balked at the latest hike, perhaps fearing further increases. While Russia sold gas in Western Europe last year for over $90 per thousand cubic meters, it is also committed to deliveries within the CIS for far less.

Supplies to Azerbaijan, for example, have reportedly been negotiated for $48 per thousand cubic meters. Russia's cost for Turkmen gas, including the transport charges of Kazakhstan and Uzbekistan for their connecting pipelines, would be $58. The terms could mean that Russia would have to sell some Turkmen gas at a loss, although it could make up the difference with cheap barter goods in the non-cash share of the deal.

But perhaps an even greater source of friction may be Turkmenistan's new demand that 10,000 million cubic meters of this year's total should be routed to Western Europe. The terms suggest that Niyazov wants to restore the country's status as a supplier to European markets through Russian pipelines.

In 1994, Moscow ended the trade on the grounds that it needed all the former Soviet pipeline capacity for its own exports. It subsequently channeled Turkmen gas to CIS countries like Ukraine and Georgia that were unable to pay.

In the past year, demand for Turkmen gas has increased, apparently enabling Niyazov to reopen the issue. Turkmenistan has already negotiated an agreement for sales to Ukraine, which has been making advance payments, while Russia is seeking to double its gas exports to the European Union. The effect of losing Turkmen supplies remains to be seen.

The cutoff may also have the potential to aggravate other disagreements. While Russia has been pressing a legal formula for dividing the Caspian Sea, Turkmenistan has sided with Iran in opposing the plan. So far, the issues have been kept separate in the bilateral relationship, but the discord on gas exports could make negotiations on both questions more difficult.

The effect of the stoppage on Ukraine is also uncertain. The Turkmen gas for Russia and Ukraine run through the same pipelines. But it is unclear that Russia will be content to allow Turkmen gas to continue flowing to Ukraine while it is unable to obtain supplies for itself.

If Niyazov is relying on his exports to Ukraine to keep Turkmenistan going, the strategy could lead to disappointment if Moscow decides to retaliate. But under an agreement signed last month, Russia would have to supply more of its own gas to Ukraine if deliveries from Turkmenistan are interrupted.