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Turkmenistan: Oil Output Numbers Fall Short Of Targets

Turkmenistan has reported big gains in its oil and gas sector for 2001. But production remains far below pre-independence levels, while a tough business environment and new export rules seem likely to slow growth this year.

Boston, 16 January 2002 (RFE/RL) -- A decade after Turkmenistan's independence, the country's petroleum output remains a fraction of what it was in Soviet times.

Turkmenistan's government in January reported impressive growth in its energy sector during 2001, with a 9 percent increase in gas output and a 12 percent gain in oil production over the previous year.

But the numbers fall far short of targets set by President Saparmurat Niyazov. In December 2000, Niyazov told his cabinet that the country would produce 70-75 billion cubic meters of gas in the coming year. The final figure of 51.3 billion was 27 percent below the government's plan.

Similarly, Niyazov predicted that Turkmenistan's oil production would reach 10 million tons in 2001. The Interfax news agency reported that output totaled 8.02 million tons, or 20 percent less.

Niyazov has a history of setting unattainable targets, which are often forgotten when results are announced. The president has repeatedly promised that Turkmenistan will regain its place as the second-largest gas producer in the CIS after Russia and become a strategic supplier for countries from Asia to Europe. But over the past decade, progress has been slow.

In 1993, the government forecast that gas production would total 130 billion cubic meters by the year 2000. In 1996, Niyazov scaled back the projection to 100 billion by 2001, according to a 1997 study entitled "Energy Choices in the Near Abroad" by Robert Ebel of the Center for Strategic and International Studies in Washington.

Last year's production was little more than half of the more modest goal. It was also about 40 percent below Turkmenistan's production in 1991, when the country served as a major source of Soviet gas.

The country's meager oil production has now risen above the 1991 level, but it is still at only half its 1975 peak level.

Turkmenistan's gross domestic product has shown strong double-digit gains on paper for the past three years, culminating in a 20.5 percent growth rate reported in 2001. But much of the increase has been hollow, since it represents growth in gas production for Ukraine, which pays for only half of the exports in cash.

Despite its recent progress, Turkmenistan is still struggling to recapture lost ground. The country's economy suffered losses in every year from 1991 through 1997, according to the International Monetary Fund.

Turkmenistan's troubles in its vital gas sector seem to be due to two problems. The first is lack of access and continued reliance on the Central Asia-Center pipeline. That former Soviet network runs north through Russia, making it subject to Moscow's control, as in Soviet days.

The creaking system has limited capacity, while Russia has made sure that Turkmen gas reaches only as far as Ukraine, where it cannot compete with Russian gas exports to Europe.

Niyazov has spent much of the past decade in failed plans for a pipeline across Afghanistan to Pakistan and India. His plans for a trans-Caspian line to Turkey have come to nothing because of a dispute with Azerbaijan. The country's only new export route since independence, a pipeline from the western Korpedje fields to Iran, has been a disappointment.

Since its opening in late 1997, Turkmen gas exports to Iran have repeatedly fallen short of predictions. Wrangling over prices and the payback for construction costs hurt the trade for several years.

Niyazov in January said Iran had requested an increase in Turkmen exports to 8 billion cubic meters this year, but he indicated that the country would provide only 5-6 billion, according to the official Iranian news agency IRNA. In the first 10 months of 2001, only 3.5 billion cubic meters were reportedly sent to Iran.

In March 2000, the two countries started negotiating a bigger deal for annual sales of 13 billion cubic meters, but the talks soon faded away. A similar fate befell negotiations with Russia after President Vladimir Putin announced two months later that Moscow would buy up to 50 billion cubic meters of Turkmen gas annually. The yearly volume of sales to Russia has been no more than 10 billion cubic meters since then.

The failures seem to be linked to Turkmenistan's second great problem in the energy sector: the sheer difficulty of dealing with Niyazov. While he has repeatedly sought better terms and higher prices, countries like Iran and Russia have responded by keeping their imports low.

Most recently, Niyazov has announced new rules for energy exports that seem likely to drive potential buyers away. The rules, which took effect on 1 January, call for weekly auctions of gas, oil, and electricity, which are to be supervised by an "observer council." The council includes officials from the government, as well as tax and law-enforcement agencies, the Russian news agency ITAR-TASS said.

Under the system, which is apparently aimed at fighting some undisclosed fraud, potential buyers "must file an application and make a monetary deposit to demonstrate the seriousness of their intentions."

The regulations state, "If the customer defaults on the purchase contract and the deal is stalled, the seller retains the collateral." In other words, buyers will have to put up a non-refundable deposit if they want to do business with Turkmenistan. The government would keep the money if the deal falls through, assuming the rules are enforced.

It is unlikely that foreign countries and companies will rush to Turkmenistan to trade on such terms. But Niyazov seems determined that investors will do business his way, or not at all.