Turkmen Report: January 7, 2001

January 5, 2001

Iranian President Mohammad Khatami sent Turkmen President Saparmurat Niyazov a letter outlining Khatami�s hopes that his still unscheduled visit to Turkmenistan will focus on bilateral petroleum sector cooperation. In a letter delivered by Iran�s ambassador to Turkmenistan, Sayed Derazgizu, Khatami referred to two major bilateral projects, namely Turkmen gas exports to Iran and Iranian work on the Turkmenbashi refinery, reportedly. Completion of a gasoline production unit at the refinery is to be completed in February, according to sources in the Turkmen Oil and Gas Ministry. (Itar-Tass

January 5, 2001

Demonstrators demanding help for victims of Turkmenistan�s earthquake took place in western Turkmenistan�s Balkan province in December, according to the Moscow-based human rights group Memorial. In Kazandjik, where an estimated 60% of the town was destroyed and 90 people died in the quake, protestors burned portraits of Turkmen President Saparmurat Niyazov and severely beat the town�s mayor, reportedly. In a separate incident at Nebitdag, 200-300 protestors took to the street, again burning Niyazov portraits, before being dispersed by force. The police are said to be taking extra precautions to prevent large groups from congregating throughout Balkan province. Niyazov refuted initial Chinese and Russian media reports of casualties and property destruction in the quake. (RFE/RL Turkmen Service, Memorial/ Gazetasng.ru)

January 5, 2001

A summit meeting of the member states of the Central Asian Economic Union (CAEU) -- Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan�took place in Almaty. The respective heads agreed to audit the Central Asian Development Bank and amend the bank's founding documents. They also agreed to declare the International Year of Mountains in Central Asia in 2002, in line with UNESCO declarations, reportedly. In his opening remarks, Uzbek President Islam Karimov lambasted the grouping, saying it mirrored experience with the CIS, in that it has produced a plethora of unnecessary agreements and little else. Participants agreed to support Karimov�s proposal to change the name of the grouping to Central Asian Economic Forum but leave in place existing agreements, reportedly. The participants also agreed to hold the next summit in Tashkent in April-May 2001. Speaking to reporters after the summit meeting, Tajik President Rahmonov pledged that "Not a single refugee from Afghan territory will be allowed into Tajik territory. There are not only refugees there. There are several hundred people armed to the teeth." The CAEU was formed in 1994 by Kazakhstan and Uzbekistan with Kyrgyzstan joining later the same year. Tajikistan joined in 1999. Turkmenistan has refused to participate in the grouping. (Interfax, RFE/RL Kazakh/Kyrgyz Service, Itar-Tass, Kazakh TV)

January 4, 2001

Russian President Vladimir Putin and Turkmen President Saparmurat Niyazov discussed bilateral issues by telephone. Discussion reportedly focused on Turkmen natural gas deliveries, interrupted in December over a price dispute, Caspian Sea legal status, and debt repayment. Niyazov stressed the need to obtain $40 for 1,000 cubic meters of gas at the Turkmen border. Niyazov also called for payment of debts owed by several Russian banks, reportedly. According to Niyazov�s calculations, Russia�s Vneshekonombank owes $107 million and other Russian banks combined owe Turkmenistan an additional $60 million. (Itar-Tass)

January 4, 2001

The court of the Kopetdag district of the Turkmen capital Ashgabat has ruled that a private house owned by Pastor Viktor Makrousov and used as the city's Pentecostal church be confiscated without compensation. The presiding judge denied foreign diplomats access to the courtroom in the morning session but relented in the afternoon following the intervention of officials from the Turkmen Foreign Ministry. An observer from the OSCE, Bess Brown, noted that "This case seems to be motivated by an intent to stop Pastor Makrousov's religious activities, which certainly is not in accord with Turkmenistan's OSCE commitments and violates its own law on freedom of conscience." Makrousov declared his intention to appeal the ruling. (Keston News Service)

January 3, 2001

In response to reports of the "halting from January 1, 2001 of gas supplies by the Turkmen side," Florida-based gas marketer ITERA, closely allied with Russia�s Gazprom, declared its determination to establish contract terms with Turkmenistan�s state-owned Turkmenneftegaz, according to an ITERA press release. ITERA stressed that "we are not talking about halting supplies" to Russia but about "agreeing technical details of the contract." At issue are payment terms for gas supply in 2001, reportedly including 4 billion cubic meters (bcm) of gas contracted for delivery in August 2000, but to be supplied in 1Q of 2001. According to ITERA, the Turkmen border price under last year�s combined 30 bcm deal (26 bcm of which delivered) was $38 per 1,000 cubic meters with payment made on a 40-60 cash-goods/services basis. Niyazov has continued to press for $40 per 1000 cubic meters with payment made on a 50-50 cash-goods/service basis for all deliveries in 2001. The press release argued that CIS consumers are unable to pay for natural gas under the proposed terms factoring in transit tariffs charged by Uzbekistan, Kazakhstan and Russia. (Interfax)

January 3, 2000

In his New Year address, Turkmen President Saparmurat Niyazov contended that his country experienced a 17% rise in GDP in 2000, among the world�s highest economic growth rates. "In 1995, our per capita production was $1075, in 1999 it reached $ 2,300. Our main task now is to raise it to $12,000 by the year 2010 - then Turkmenistan will be the richest state," according to him. Furthermore, he said that the GDP growth rate this year should exceed last year's level by 14-15%. Oil extraction should increase to 10 million tons, and gas production, to 70-75 billion cubic meters. The republic is to produce 2 million tons of wheat and 1.8-2 million tons of cotton. (Interfax, Itar-Tass)

January 3, 2001

In a television appearance before the New Year, Turkmen President Niyazov expressed dissatisfaction over the way the annual amnesty had been conducted, pointing out that the Interior Ministry, the Prosecutor's Office, and the local legal authorities "dragged out the procedure, extorted bribes, and even concealed prisoners' documents." In view of that, he ordered the state security service, the prosecutor-general's office, and the interior and legal authorities to review all criminal cases on which verdicts have not been passed and which "through someone's fault have not come under the amnesty." (Interfax)

January 3, 2001

In accordance with a Production Sharing Agreement (PSA) signed in 1999, Dragon Oil (United Arab Emirates) has begun drilling the first of three wells planned for 2001 at the offshore Cheleken contract, according to a source in the Turkmenistan�s Oil and Gas Ministry. Drilling has been carried out at the LAM oil and gas block, which along with the Zhdanov bank, is part of the Cheleken zone. Dragon exports its share of existing production through Iran and is looking with Malaysia�s Petronas at the possibilities for utilizing associated gas produced at Cheleken. Recoverable reserves in the contract zone are estimated at 600 million barrels of oil and 2.2 trillion cubic feet of natural gas. Over the life of the PSA, Turkmenistan reportedly plans to earn $4.7 billion. (Interfax)

January 2, 2001

Ukraine has started to receive 80 million cubic meters of gas daily from Tukrmenistan, according to sources at Ukraine�s state-owned Neftegaz Ukrainy. Ashgabat is to export 30 billion cubic meters of gas to Ukraine at a price of $40 for 1,000 cubic meters with payment made half in cash and half in goods and services. (Itar-Tass)

January 1, 2001

Turkmenistan ceased all natural gas deliveries to Russia on December 31 because of a failure to agree on the price for a new supply contract in 2001. According to the official Neutralny Turkmenistan, Turkmenistan showed flexibility in order to reach a deal on the supply of 30 billion cubic meters, but Moscow did not show the "necessary understanding". (RFE/RL, AFP)

December 30, 2000

Fifty-seven citizens of Afghanistan were released from Turkmen prisons following a meeting of officials from Turkmenistan�s Foreign Ministry and Taliban officials from Herat province. (Bakhtar Information Agency)

December 29, 2000 A new petroleum products depot was completed for servicing the Tahtabazar and Serhetabat districts in the Turkmen-Afghan border zone. The facility, capable of receiving, storing and distributing 6,500 cubic meters of oil products, cost 12,500 million manats. (Turkmen TV)

January 3, 2001 By Michael Lelyveld, 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 dollars 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 dollars. 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.

January 6, 2001

Special analysis by Turkmen Service RFE/RL

The first days of the New Year witnessed significant developments and maneuvering on the oil and gas front in and around the Caucasus and Central Asia, as treated in the international petroleum trade press in the week preceding.

Just before he rang in the New Year, Ukraine�s President Leonid Kuchma signed a law ratifying a five-year cooperation agreement with Azerbaijan designed to further cinch their close working relationship.

The agreement was originally signed in March and stipulates that the two countries view each other as "strategic partners," according to a report published late last week in Platt�s.

Ukraine is expected to launch the first part of the Odessa oil terminal and the Odessa-Poland oil pipeline within a year. The new export system, circumventing Russia, has been under construction for over five years and is aimed at supply Azeri and Kazakstani to Europe.

Meanwhile, Turkmenistan moved to suspend deliveries of its natural gas exports to Russia in the New Year in an effort to gain leverage in an unresolved price dispute.

Supplies from Turkmenistan were suspended on January 1 after Ashgabat locked horns with Florida-based gas trader ITERA over prices for 2001. ITERA, which is close to Russian gas giant Gazprom, intended to buy up to 30-40 billion cubic meters (bcm) of Turkmen gas this year, but is resisting Turkmen demands increase the price it paid last year.

At issue are payment terms for gas supply in 2001, including 4 bcm of gas contracted for delivery in 2000 to be carried-over and supplied in the first quarter of 2001, reportedly. According to ITERA, the Turkmen border price under last year�s combined 30 bcm deal was $38 per 1,000 cubic meters with payment made on a 40-60 cash-goods/services basis. Niyazov has continued to press for $40 per 1000 cubic meters with payment made on a 50-50 cash-goods/service basis for all deliveries in 2001, including the 4 bcm contracted for delivery in 2000.

Beyond its supply problems with Turkmenistan, Russia claims to experience continuing trouble with Ukraine, according to Gazprom. Early in the New Year, the Russian gas giant again accused Ukraine of siphoning of Russian export volumes headed for Europe. Gazprom claims Ukrainian thefts of gas have escalated to 50 MMcm/d from 15 million previously, according to a report published in last week�s edition of Nefte Compass.

Not all the news Russia has been receiving is bad, however. Russian natural gas export volumes rose appreciably in 2000 while export earning spiked due to higher oil prices, which gas prices are indexed to.

Russian gas exports rose 3.4% to a total of 118.2 bcm in the first 11 months of 2000, from 114.33 bcm in the comparable period of 1999, according to a report published in Platt�s citing Gazexport, foreign trading arm of the Gazprom monopoly.

Eight countries in West Europe absorbed 82.2 bcm in the first 11 months of 2000, up 2.14-bcm year-on-year, while eleven East European countries imported 36.0 bcm, 1.7-bil cu m more than in the same period of 1999. Among buyers, Turkey and Italy significantly boosted their gas imports from Russia.

Thanks to higher world prices, growth in Gazprom's export earnings last year far outstripped the increase in sales volumes: Gas exports are expected to generate $11 billion in 2000, up from $6.6 billion in 1999.

Other regional developments also warrant note:

In an effort to prevent a worsening energy crisis in Georgia, gas trader ITERA belatedly agreed to supply an extra 2.4 million cubic meters of gas to the Tbilisi power plant following a direct appeal from Georgia to the Russian government, Platt�s reported.

As a consequence of an earthquake in late November, some 20 wells onshore and offshore Azerbaijan that have been out of service for over a decade have started producing natural gas again, according to Azerbaijan�s Socar. The pressure build-up in the wells following the earthquake has allowed more gas to be pumped into the pipeline system, helping meet Azerbaijan�s domestic natural gas requirements in 2001.

Turkmenistan�s exploration and production program continues to move forward with Dragon Oil starting to drill the first of three planned wells in the offshore Lam field in the Cheleken contract. According to a company report, the well is expected to take 60 days to drill and a further 30 days to complete. Dragon, largely owned by Emirates National Oil Company, is targeting oil reserves that were proven but not developed by a previous operator. Dragon said proven and probable reserves in the Cheleken block were around 600-mil bbl of oil and 2.2 Tcf of gas.

Turkey, meanwhile, rang in the New Year with increased anxiety about the prospects for the planned Baku-Ceyhan crude oil pipeline. Widespread local press coverage has identified Bush Administration�s Energy Secretary nominee, Spencer Abraham, an ethnic Arab, as pro-Armenian and anti-Turkish.

Abraham�s presumed opposition to Baku-Ceyhan, a centerpiece in the regional policy of the outgoing Clinton administration, has led Turkey�s Energy Minister Cumhur Ersumer to declare defensively that he is confident Abraham�s will "keep an open mind."

Despite standing concerns over finance for the project and the availability of export volumes, Turkish authorities are pressing ahead with a tender for the detailed engineering works of the Turkish sections of the line.

Turkey is not the only one that is discomfited. Russian pipeline operator Transneft says it wants Azerbaijan to pay for breaking its contract to deliver crude to the Russian Black Sea port of Novorossiysk, according to a report published late last week in Nefte Compass.

Instead of shipping the contracted 2.3 million metric tons (46,000 b/d) of crude in 2000, Azerbaijan managed only 497,000 tons, Transneft says. Baku suspended crude exports in late June due to domestic shortages, and restarted them in July with small through the new Chechen bypass pipeline. At that time, Transneft wanted compensation of $29 million for violating the five-year intergovernmental agreement signed in 1996, but Baku refused to pay up on the grounds that the year was not over.

The issue, which Transneft threatens to take to an international court for arbitration, is expected to be on the agenda when Russian President Vladimir Putin visits Baku on January 8 for talks with Azeri President Haidar Aliev.

Finally, Nefte Compass asks in a feature article if 2001 could be the year Kazakhstan establishes itself as a major oil power. The respected oil industry trade publication noted that with production set for a sharp increase, a long-awaited export pipeline about to come on stream, and more wells to be drilled in the North Caspian, the omens are good. But the developments won't dispel the clouds of intrigue hanging over the country's ruling elite.