Business and Economics
You’ve got to hand it to Nursultan Nazarbayev, the “democratically” elected president of Kazakhstan. The revolution he feared would come to his country, as in so many other former Soviet republics recently, has come and gone. Nazarbayev didn’t need guns for the battle. He won it by letting a Gucci clothing store open in what was once the land of Genghis Khan.
Read the rest of this very good IHT editorial here.
Apparently Tajikistan’s state-owned airlines has become so woefully bad that foreign diplomats decided to take action.
The ambassadors of the United States, Britain, France, Japan, Turkey, and Switzerland wrote an open letter to President Imomali Rakhmonov on Friday asking him to address Tajik Air’s most glaring service problems.
They complained about difficulties buying tickets, getting onward connections, the lack of compensation for delays and cancelled flights, decrepit airport facilities, and the need to increase “respect for passengers”.
Amusingly, the one aspect of airline travel universally loathed was reported to be quite good on Tajikistan Airlines: the food.
And it just goes from the sublime to the ridiculous in Turkmenistan’s cold war with Ukraine over gas. Once again, Ukrainian First Deputy Fuel and Energy Minister and Naftohaz Ukrayiny CEO
Oleksiy Ivchenko has accused Turkmenistan of failing to live up to their gas supply obligations. As he told journalists in Paris on 16 November:
“Yesterday, for example, instead of 125m cubic metres a day they provided 112m cubic metres. This is their problem with Uzbekistan. We are protesting to them about it. We are pressing them and saying: friends, you are not fulfilling your obligations.”
In an apparently unrelated move Turkmenistan has definitively decided to raise the price for its natural gas exports by 35 percent, to $60 per thousand cubic metres. The announcement was made by President Saparmurat Niyazov during a Cabinet meeting in which he justified the hike by citing the increase the cost of gas and oil processing equipment. Further to an earlier post on this subject, an Associated Press story gives an additional and interesting piece of detail:
The price hike is likely to be felt strongly in Ukraine, which relies on Turkmenistan for about 45 percent of its natural gas, buying about 36 billion cubic metres per year. Russia buys about 5 billion cubic metres of gas per year from Turkmenistan and Iran another 7 billion.
Niyazov went to some effort to stress that the price hike would not only be affecting Russia. This is crucial as Russia has Turkmenistan over a barrel in light of the fact that they have a stranglehold over gas transit from Central Asia. Rico’s post about the Turkmen’s huffy denial of gas deals with Gazprom is directly linked with an evidently growing sense of helplessness in Ashgabat. That said the move has been on the cards for some time now.
At ITAR-TASS reported:
Niyazov first mentioned the possibility of a hike of gas prices in 2006 during his meeting with Russian Foreign Minister Sergei Lavrov in Ashgabat on October 26.
President Niyazov repeated his intention to raise gas prices for Ukraine on October 27 during a visit by Ukrainian Prime Minister Yuri Yekhanurov to Turkmenistan.
One thing is for sure, Turkmenistan have been fortunate in timing their announcement with a global surge in gas prices, a consequence of a harsh winter in Western Europe, which the UK has suffered of in particular.
Another couple of strands need to mentioned to give the story some context. First is the opening of the Blue Stream gas pipeline at a ceremony in Turkey attended by President Vladimir Putin and the prime ministers of Turkey and Italy, Recep Tayyip Erdogan and Silvio Berlusconi. The pipeline is important insofar as it is a massive boost for Russia’s export capabilities, which are in turn made possible by Turkmen supplies. An article from The Moscow Times (password required) from 10 February offer this enlightening detail:
While current volumes from Turkmenistan are almost insignificant for Gazprom operations, the contract [for the Turkmen national gas company Turkmengaz to supply Gazprom with up to 80 billion cubic meters annually by 2009] was seen as giving the company time to develop the remote but vast Yamal fields in western Siberia.
Another matter is Gaz de France’s intention to utilise underground natural gas tanks in Ukraine from next year to store gas imported from Russia, according to comments made by Ivchenko at a recent press conference. And then there is the agreement between Russia and Ukraine, to proceed with a natural gas pipeline project to increase capacity of the gas transit system shipping gas to the European Union. This all goes to illustrate the intricate web of interests that developments in gas politics represent.
UPDATE: Interesting related feature article at IWPR.
The Turkmen Government has refuted reports from media outlets that Russian Gazprom had bought the rights to all Turkmen gas. A press release from the Ministry of Foreign Affairs stated:
Lately, media outlets of some countries have been disseminating reports to the effect that Russian Gazprom company is purchasing all natural gas Turkmenistan extracts. Such reports do not correspond to reality at all. As is known, the 25-year Turkmen-Russian accord on cooperation in the gas field signed in 2003 is not final and has not come into force in full because it contains only basic principles without indication of prices for Turkmen natural gas. Therefore, for its implementation, it is necessary to draw up and sign additional bilateral documents which contain exact volumes of gas and, above all, purchase prices for Turkmen natural gas.
In about a month’s time, a 1000km Kazakh-Chinese pipeline will be put in operation. It will carry around 20m tons of oil annually. On the Chinese side of the border, the crude will be further transported west.
CNPC, the Chinese state-owned oil company responsible for the pipeline’s construction, has recently acquired PetroKazakhstan (though it proved to be a rather long process) and received green light to produce at full steam.
The heat during the takeover was partly due to a rival bid by Lukoil that was eventually dismissed. Also, the Indian government tried to acquire a stake via its national oil company.
In late October, the Kazakh government passed legislation giving it more leverage over foreign-held asset sales. Also, Kazakhstan is to buy a 33% stake in PetroKazakhstan (initially, demands were 50%).
It seems that the battlefield for influence in Central Asia has reached a more sophisticated arena – the stock exchange.
If data released about the Turkmen foreign trade balance is anywhere near accurate it will no longer be possible to dismiss the country as the hermit of the international community. Unfortunately, there appears to be no English version of this news anywhere, so what follows is a hasty translation of what readers of Russian may view here:
According to data from the first nine months of 2005 Turkmenistan’s positive balance of foreign trade has come to $1.188 billion, against $501 million for the same period last year.
In total the foreign trade turnover for that period was $6.2 billion, marking an increase of 16.9% on the previous year. Of this, export constituted $3.694 billion, and import $2.506 billion, according to information issued by the to National Institute of the State Statistics and Information (“???????????????????”, or Turkmenmillihasabat). In the period under examination, Turkmenistan conducted trade with 82 countries. The largest positive balance was observed in trade relations with Ukraine, Iran and Italy.
In comparison with the same period in 2004, foreign trade turnover with CIS countries rose by 17.1%. Export deliveries increased by 38.5%, while imports decreased by 13.3%. The positive trade balance with CIS countries was $943.1 million, resulting in a $582.9 million increase on the same period last year.
Commodity exchanges with countries outside of the CIS increased by 16.8%, with export deliveries increasing by 19.1%, and import by 14.2%. The trade balance with these countries amounted to $244.8 million, a rise of $104 million over last year.
From January to September 2005, Turkmen exports equalled $3.694 billion, exceeding last year’s level by 27.3%. In the commodity sector particular growth was noted in the export of crude petroleum – from 7% up to 9.7% of exports, and in petroleum products – from 26% up to 27.2% of exports.
The relative proportion of natural gas deliveries also increased by 8.1%, and by 26% in monetary terms, a fact that is explained by the increase of the average export price by 16.6%.
The primary buyers of Turkmen LPG [I am not sure if this is the correct translation for «???????? ???????»] are Ukraine (74.8%), Iran (10%) and Russia (6.6%). Crude petroleum was exported mainly to Iran (43.1%) and Italy (20.5%). The same countries were also the primary purchasers of petroluem products.
Export deliveries were carried out to 52 countries. The main importer was Ukraine, second was Iran, and Italy was in third place.
Turkmen imports over this period amounted to $2.506 billion, an increase of 4.4% on the same period last months. In the commodities sector the most significant share was in industrial and technological products (78%). Consumer goods constituted 22%. Of these 23.9% were food and 76.1% were non-food products (sic!).
Turkmenistan imported goods from 82 countries. Of these more than half of the imported goods came from Russia, USA, Ukraine, Turkey and France.
The two gaps relate to passages about the modalities of payment, which I had some trouble in understanding. I will duly update this as linguistic assistance is forthcoming.
Well, the data has the obvious domestic political function of illustrating the Turkmen state’s integration with the world economy. Relations with the outside world have become a bit of a leitmotif in articles appearing on the government’s web site, some of which were written by President Saparmurat Niyazov himself. A particular example of this has been the constant trickle of messages from world statesmen congratulating Turkmenistan on its Independence festivities and on an assortment of Ramadan-related holidays. The last time I checked it was Turkish President Ahmet Necdet Sezer, Turkish PM Recep Tayyip Erdogan, Amadu Tumani Toure, President of Mali, General Lansa Conte, President of the Guineau Republic (Eid-ul Fitr), and President of Singapore Sellapan Ramanthan (Independence).
The importance of international co-operation as a factor of progress in Turkmenistan’s “power potential” constituted the topic for the weekly commentary slot in the official government web site. This is no novelty of course, but the question is of how the international community chooses to concede to this rhetoric. The information above illustrates that the West is not completely bereft of leverage. If Turkmenistan is keen to build on trade between itself and the West, and that includes Turkey, we should work in that direction and exploit that lever to push for basic democratic values.
It seems somebody has been telling porkpies to President Turkmenbashi. Despite an official announcement during the 16th Session of the Khalk Maslahaty from Muratberdy Sopiev, the chairman of the Farmers’ Union, that bread shortage would never be a problem again in Turkmenistan, due to the record grain harvest, reports on the ground by a RFE/RL correspondent are suggesting otherwise. Sopiev stated that:
“The celebration table is covered withbread. Most importantly, bread is available at affordable prices and various products from flour are offered to the public in a wide variety. Shortages of bread are a thing of the past.”
However, according to RFE/RL, despite the official figure of a 3-million ton harvest in grain, there is a significant shortage of flour which as a consequence is pushing its price up. According to RFE/RL:
“In the cities and villages the situation is getting more complicated daily,” Aman Dauletov, an RFE/RL correspondent in Turkmenistan, said about the flour situation in south-eastern Mary and Lebap, the top two grain-producing provinces. “The rise in the price of flour is worrying the people and worse, one can’t get flour for money and this is frightening the people. In cities and villages people can’t find anyone selling flour.”
One of the problems, it seems, is one consistent with state led economies, that of false reporting. Officials are hiking up the reports of grain collection to boost figures and curry favour with the president. This has led to the discrepancy between official figures and the reality on the ground. Also, to try and further boost the harvest, even poor quality grain is being counted. This type of grain is normally used only for animal feed and therefore has a direct consequence of not making consumable grain available for the population and hence, the shortage of flour.
One reform commitment made during the recent Khalk Maslakhaty session was a cut of two percent in the rate of gross income for small businesses and commodity producers. As it is hard to know how this kind of thing can realistically affect the growth of the Turkmen economy, I will yield to two letters written to the state-owned Neitralny Turkmenistan on 7 November (or Sandzhar, as it should be). The first is from Rosa Gafurova, a businesswoman from Ashgabat:
It was with great interest that I watched the progress of the 16th Khalk Maslakhaty. It was also reassuring to see that in result of various discussions, a series of valuable documents have been drafted. These will undoubtedly invigorate future reform in the economic, social and spiritual spheres of this country. It wa in exactly this way that the basis needed to be laid for the successful development of our country’s goals.
I was especially interested in the debates relating to entrepreneurial activity. It is worth mentioning that this is an issue to which the respected Saparmurat Turkmenbashi devotes significant attention, which is probably why there is no other country in the world with taxes for small and medium enterprises that compare to ours. And so we have witnessed yet another step on this path – the decision taken by the National Council to cut the tax on turnover for private enterprises and producers by two percent. At the same time they (businesses) are being freed from paying a number of other taxes. This decision will be a great help in our work, and is witness to the fact that our government is always labouring in the interests of it is people.
This is complemented by the following letter, which might well have been written with the help of the Siemens CEO for all its craven gratitude. Notably, the author of the letter, a businessman from Turkmenabat, is called Khamurad Bazarov. With the word ‘Bazar’ meaning ‘market’ in Russian, one wonders if the authors of these blatantly fictive letters are relishing in some Chekhovian wordplay:
I speak to those people who wish to set themselves up as self-employed workers. I was one of the first people in Turkmenabat to get into private business and radically change the direction of my life. I opened a photo-developing laboratory. I can’t complain of a lack of orders, seeing that having a camera in the family has become quite a common occurrence, and people eagerly come to me to have photos of memorable moments in their life developed.
As all Turkmens, I attentively watched the work of the 16th Khalk Maslakhaty. I was especially drawn to statements made at the national forum on the Turkmen Tax Code, which included a discussion on the reduction of the tax on turnover for private enterprises and producers by two percent. At the same time we are being freed from paying a number of other varieties of taxes. This is an enormous stimulus for development for small and medium-sized businesses.
We thank the honourable President Saparmurat Turkmenbashi for his unceasing labour. The tax cut has been so substantial that there can be no doubt that it will result in the growth of the local private sector, give the chance to provide for the internal market with competitive products and provide the population with a vast choice of quality and affordable goods.
Finally, I would like to add that my children have followed in my footsteps (in business), which is convincing proof that small and medium-sized enterprises are growing thanks to the government’s assistance.
Obviously, the tone of these letters will not come as any surprise to anyone remotely familiar with the mechanism of totalitarian regimes. However, it is interesting to note the specificity of a strategy whereby the recipients of legislation are obliged to venture into hopeful prophesy; instead of having the President himself do it that is.
What the reforms can and will do, on the other hand, is frankly impossible to answer. Though it is a safe guess that the inflexible vertical bureaucracy in place in Turkmenistan is likely thwart any kind of tentative attempts at oiling economic progress.
In case anybody was wondering what it was the Oil and Gas Minister Guychnazar Tachnazarov did to make Niyazov so cross, it turns out that he appropriated government property to the tune of $290 million. At least that was what announced at a Cabinet meeting earlier this week. In a televised speech Niyazov decried the abuse of office perpetrated by employees of the Oil Ministry:
“This exposure of the indecent role played by the management of the oil industry is witness to how this depraved practice of abuse has taken place over a number of years.”
Having been removed from all official positions Tachnazarov has been charged with embezzlement of state property on a massive scale and of abuse of office.
“Tachnazarov, who has occupied key positions in the Turkmen energy industry since 1996, has in all appropriated $266.7 million and more than 1 billion manat” announced General Prosecutor Kurbanbibi Atajanov.
In light of the “ingrained system of abuse and because of shortcomings within the structure of the Turkmen energy industry,” said Niyazov, “it is necessary in the near future to revise the structure of the oil and gas industry, with special consideration for government priorities.”
Niyazov also forbade all energy industries to engage in trading operations.
“From now on only the state commodity stock exchange will be permitted to carry out these functions,” Niyazov said.
Since Turkmenistan gained independence, 80 deputy Cabinet chairmen, 130 ministers, and almost 50 regional and city leaders have been dismissed. Many of them have been arrested, sentenced to prison terms, jailed, or been forced into emigration.
Earlier this month, Naftohaz Ukrayiny CEO Oleksiy Ivchenko visited Ashgabat to negotiate the future of gas supplies from Turkmenistan to Ukraine. In a now-notorious televised encounter President Niyazov harangued Ivchenko over Ukraine’s alleged failure to meet the conditions of the original agreement, having failed to supply around $480 million worth of equipment.
Initially, Ukrainian Fuel and Energy Minister Ivan Plachkov admitted to the shortcoming, only for that to be later refuted by Ivchenko. The story in full is here.
Ivchenko’s remarks were further worsened by his allegation that his reply to Niyazov’s rant had been edited out of the final footage. In an article (in Russian) published yesterday in Ukrainian daily financial newspaper Ekonomika, it is also related that Ivchenko said that he had in fact spoken for a full 25 minutes, while his aides waited just outside the door in the lobby, listening in on the proceedings. Among other things, Ivchenko charged Niyazov’s entourage with misleading him about the exact nature of financial transactions relating to the gas deal. This is where the plot begins to get thicker. Again, Eurasianet gives a concise picture of all the twists and turns:
One important factor, which was not mentioned in the media reports of the Ukrainian-Turkmen meeting in October, was the future role of RosUkrEnergo, the controversial Swiss-based company contracted by both Gazprom and Naftohaz to act as the middleman for transporting Turkmen gas to Ukraine. In June, the Ukrainian Security Service (SBU) began a criminal investigation into RosUkrEnergo. This investigation was stopped, according to Oleksander Turchinov, then head of the SBU, on Ukrainian President Viktor Yushchenko’s orders.
One of the purported reasons the investigation ended was that there were grave suspicions by the SBU that former Ukrainian President Leonid Kuchma, Niyazov, and Russian President Vladimir Putin were all involved in substantial kickback schemes through RosUkrEnergo. Had these schemes been exposed, Ukraine stood to lose gas deliveries from both Russia and Turkmenistan. The other reason provided by Turchinov as to why the investigation was stopped was that some of Yushchenko’s closest advisors were themselves now linked to RosUkrEnergo.
As the investigation gathered steam, Niyazov ordered that the heads of Turkmenistan’s energy companies be arrested. They were all reportedly sentenced to long prison terms.
And then of course there was the sacking in May of Turkmen deputy Prime Minister for oil and gas Yolly Kurbanmuradov. This raises the distinct possibility that the recently publicised purges among the Turkmen political elite may be all about money, and who has or has not been stealing it.
The epilogue to the story, for now, is that Ivchenko has been denied a Turkmen visa, which means that he will be unable to conduct any further dialogue with Turkmenbashi in person. Niyazov is evidently not used to having anybody talk back to him, and if he has anything to do with it, it won’t be happening again.