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Turkmenistan: Niyazov Seals Energy, Security Contracts With Russia

Turkmenistan's long-term gas deal with Russia will yield $200 billion for the country, President Saparmurat Niyazov claimed in Moscow this week. But the real benefit is likely to be far less as Ashgabat seeks a semblance of certainty for its exports and security from Moscow.

Boston, 11 April 2003 (RFE/RL) -- Turkmen President Saparmurat Niyazov appears to have outlasted Russia in nearly three years of bargaining for a long-term gas deal, which was finally signed in Moscow this week.

Yesterday, Niyazov and Russian President Vladimir Putin sealed an intergovernmental agreement to cooperate in the gas sector, while their state gas monopolies signed a supply contract that will tap Turkmenistan's resources for the next 25 years. Niyazov stressed the size of the deal, saying, "This will bring about $200 billion to Turkmenistan. Russia will earn $300 billion."

The huge figures were based on Niyazov's estimates that Turkmenistan could supply Russia with 2 trillion cubic meters of gas over the life of the contract, suggesting that the values refer to gross revenues without accounting for costs.

Interfax quoted Putin as saying, "This decision will create stable conditions for the development of the Russian economy, will make it possible to resolve the problem of the energy balance in the country, and make it possible to develop energy companies within the country and participate with our European partners."

The comments indicate that Turkmen gas would be used within Russia, where rates are kept relatively low, while freeing Russian companies to develop their higher-priced resources for export.

For Niyazov, the deal raises a whole host of questions. Turkmenistan continues to promote a gas pipeline through Afghanistan to Pakistan and India, although the source of the gas would be the same Dauletabad field that would now supply Russia until 2028. Although Turkmen officials were busy preparing a draft agreement for the Afghan line with prospective partners in Manila this week, the Russian contract may raise doubts about whether it will ever be carried out.

For Putin, the pact wraps up a piece of unfinished business that dates back to May 2000, when he visited Ashgabat and announced plans for a massive Turkmen gas deal. At the time, Putin's offer to buy 50 billion cubic meters of gas per year from the landlocked country was enough to convince Western investors that Niyazov would have little gas left for a trans-Caspian pipeline that Moscow opposed. The project folded soon afterward. But the gas deal with Russia turned out to be nothing but talk.

The talks dragged on until this week, when the two sides finally settled on a price after Niyazov repeatedly complained that Russia's Gazprom monopoly was trying to get Turkmen gas on the cheap. In April 2002, Niyazov bitterly accused Russia of "robbery" for buying Turkmen gas at rates as low as $18 per thousand cubic meters while selling gas in Europe at $120. He demanded a rate of $44 to $45, in line with Turkmenistan's price for Ukraine.

On the surface, the ever-changeable Niyazov seems to have gotten what he wanted. Under the agreement outlined by Gazprom chief executive Aleksei Miller, Russia will pay $44 per thousand cubic meters until 2006, but only half in cash, with the rest in goods and services. Ukraine also receives Turkmen gas under a half-barter deal, which allows wide latitude in the actual costs.

But beneath the surface, it is unclear who got the better of the bargain. One reason is the barter factor, because goods are often of shoddy quality while services like construction projects are habitually late.

It was also uncertain how barter became a factor. In January, Russian officials offered to pay a price "somewhat lower" than Ukraine but without any barter discount. Following talks in Ashgabat, Russian Deputy Energy Minister Gennadii Ustyuzhanin told ITAR-TASS, "We are going to pay in cash."

Since then, it appears that Niyazov either accepted a less attractive offer or decided that the $44 price would be better for publicity, although it includes only $22 in cash. Turkmen officials have previously argued that the country's own cost for delivering the gas to the border with Uzbekistan is $37 to $38, but the costs are unlikely to be examined in a system where Niyazov has the only say.

The value of the deal in future years is also open to question. Interfax quoted Miller as saying that in 2007 the tariff "would change over to payment for gas at world prices or using a payment formula that is used in contracts with Western partners, which is tied to the oil product basket."

The statement is highly unlikely to mean that Russia would ever pay Turkmenistan a European price of $120 because of the high cost of transit. It seems more likely that the rate would be adjusted to reflect the market, using $44 as a base. Miller did not say whether barter would still be involved. The official Russian news agency RIA Novosti was even more opaque, saying only, "In the subsequent years, the terms will be agreed on."

The promised volumes of gas may also require major investments in pipelines. Russia would buy only 5 billion to 6 billion cubic meters next year, rising to 10 billion in 2006. But the amount would jump to 60 to 70 billion in 2007 and up to 8 billion from 2009. The volume presumes that the aging Central Asia-Center pipeline network can handle the pressure of all the gas that Russia plans to transport from both Turkmenistan and Kazakhstan.

Gazprom examined the lines and reported this week that they can handle 120 million to 130 million cubic meters per day. The figures were supposed to be reassuring, but they amount to only 44 billion to 47 billion cubic meters per year, far less than Turkmenistan's planned exports.

The numbers may matter less than the context. The gas contract is only the financial part of a larger security picture for Niyazov, whose human rights abuses have drawn rising criticism in the West. Along with the gas pacts, Niyazov signed a security cooperation agreement and a protocol confirming Turkmenistan's friendship treaty with Russia.

The moves seem likely to draw him closer to Moscow at a time of uncertainty, giving him a strong incentive to sign a long-term deal.