A Brief Review of Turkmenistan’s Post-Soviet History and its relations with international companies

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2.1.3.3 Turkmenistan’s Oil Reserves

Oil output in Turkmenistan has nearly doubled from 110,000 bbl/day in 1992 to about 202,000 barrels per day (bbl/day) in 2010. Half of its output, over 100,000 bbl/day, is for national use. However, this level of output is predicted to remain unchanged through 2013. ⁵⁴

Now, Seidi (Chardhzou) and Turkmenbashi are the two main refineries in Turkmenistan producing 237,000 bbl/day in total. By 2030, not only will the capacity for the existing refineries be increased but also three more refineries are set to be established, after which the total output is expected to increase to 600,000 bbl/day if this upgrade of facilities is carried out on schedule.

According to Oil and Gas Journal (OGJ) in January 2012, around 600 million barrels of oil reserves, most of which are located in the South Caspian Basin and the Garashyzlyk region, were discovered. Turkmenistan’s Caspian Sea area boasts 80.6 billion barrels of oil, but much more is expected to still be discovered.

Though exploration for oil fields in Turkmenistan has increased since 2007, new investment and technology are the keys to finding new oilfields and a resolution is need for the Caspian Sea maritime border issue. That’s why it still exports only a small amount of its net oil production. ⁵⁵

2.1.3.4 A Brief Review of Turkmenistan’s Post-Soviet History and its relations with international companies

When Turkmenistan became independent in 1991, Saparmurat Niyazov became

Turkmenistan’s president. Niyazov conducted dictatorial oppressive rule and avoided his

54 “Turkmenistan,” U.S. Energy Information Administration (EIA), available at:

http://www.eia.gov/countries/cab.cfm?fips=TX, (accessed: 20101201). 

55 “Turkmenistan,” U.S. Energy Information Administration (EIA), available at:

http://www.eia.gov/countries/cab.cfm?fips=TX, (accessed: 20101201). 

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country’s participation in all regional organizations. Niyazov adopted a conservative policy of isolationism. Saparmurat Niyazov died on the 21st of December, 2006. In 2007 the

succeeding President Gurbanguly Berdymukhammedov said that Turkmenistan would shift to an open door policy and enhance Turkmenistan’s relationship with Western countries. While the Turkmenistan government insists that the country owns the majority of shares thus maintain very strict control on energy projects. Whether Turkmenistan allows foreign

companies to invest is the subject of ever-changing policies. Therefore, Western investors are reluctant to invest in these Turkmenistan government-sponsored joint venture projects. For long, Russia had been using the Central Asia-Center Pipeline to maintain that natural gas monopoly. Russia’s expected goal is to use Turkmenistan’s gas to reach their export targets effectively, and to gain the maximum benefits. However when in 2009 the China - Central Asia gas pipeline’s construction was completed, the Turkmen have a new alternative export route, and the situation has changed finally. For China, imports of natural gas from the Turkmen side, has created one more stable source of natural gas to import via land, and enhanced its energy security. China can also bargain with Russia the reduction in the price of imported Russia's Siberian gas. Turkmenistan Natural Gas Export Routes including Central Asia-Center natural gas pipeline and China-Central Asia natural gas pipeline.

2.1.3.4.1 A Brief Overview of Turkmenistan’s Post-Soviet History

In 1991 Turkmenistan became independent at the dissolution of the Soviet Union, while the leader of the Turkmen S.S.R. during the Communist era, Saparmurat Niyazov became

Turkmenistan’s president, later becoming “President-for-Life” and receiving the honorific title

“Turkmenbashi.” He was widely seen in the West as presiding over a well-developed cult of personality. During his tenure, Niyazov conducted dictatorial oppressive rule with frequent purges of public officials and abolished organizations deemed threatening. Moreover, he steered a course avoiding his country’s participation in all regional organizations such as the SCO. ⁵⁶

56 Szczepanski, Kallie. “Saparmurat Niyazov,” About.com, available at:

http://asianhistory.about.com/od/turkmenistan/p/Saparmurat-Niyazov-Biography.htm, (accessed: 20140513).

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In 2002 an attempted assassination of Niyazov took place and in response a large number of officials were dismissed by Niyazov who put great effort into strengthening restrictions in terms of security issues. During 2002 to 2004, bilateral disputes between Turkmenistan and Uzbekistan existed. Niyazov believed that Uzbekistan had been involved in an attempt to assassinate him in 2002, and hence serious tensions arose. Not until 2004 after a bilateral treaty was signed did this situation abate. ⁵⁷

Saparmurat Niyazov died on the 21st of December, 2006, resulting in a complete vacuum of power until the 11th of February, 2007 when Gurbanguly Berdimuhamedow was elected as the new president. In the 2012 presidential election, Gurbanguly Berdimuhamedow was elected again with 97 percent of the vote. Since Turkmenistan is quite a closed country to the world, China is one of an extremely small number of countries which has been able to establish cooperative initiatives making significant overtures. ⁵⁸

2.1.3.4.2 Turkmenistan’s Relations with Western Companies

The former President of Turkmenistan Saparmurat Niyazov adopted a conservative policy of isolationism. Hence, Western oil companies rarely had the opportunity to make investments or engage in significant progress in energy cooperation in Turkmenistan. Saparmurat Niyazov died in December 2006. On September 26^th, 2007, the succeeding President Gurbanguly Berdymukhammedov said that Turkmenistan would shift to an open door policy and enhance Turkmenistan’s relationship with Western countries. ⁵⁹

Nevertheless, after Gurbanguly Berdymukhammedov came to power despite having encouraged Western interests to invest, the state-control mechanisms and strict

57 Hanks, Reuel R. Global Security Watch Central Asia (California: Greenwood Publishing Group, 2010), p. 28.

58 Nichol, Jim.” Turkmenistan: Recent Developments and U.S. Interests,” Federation of American Scientists, Dec 12, 2013, available at: http://www.fas.org/sgp/crs/row/97-1055.pdf, (accessed: 20140513).

59 Gorst, Isabel, Daniel Dombey, and Harvey Morris. “Turkmenistan opens up its gas and oil fields to west,”

Financial Times, Sep 27, 2007, available at:

http://www.ft.com/cms/s/0/326f8fd0-6c95-11dc-a0cf-0000779fd2ac.html#axzz2vFRS9gjx, (accessed:

20130803).

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currency-exchange system remain in place, creating obstacles for Western companies to invest.

Areas suitable for investment in this country include the oil and gas, agriculture and construction sectors. But due to the lack of prudent investment standards, inconsistent regulatory practices and being not familiar with international business norms, those factors have caused considerable constraints (disincentives) for Western companies. ⁶⁰

Whether Turkmenistan allows foreign companies to invest is the subject of

ever-changing policies. If a company is from a friendly country, they often have a greater chance to get an opportunity to successfully apply for a contract. In such an atmosphere, if a Western company intends to invest in Turkmenistan, it is crucial to maintain good relations with the Turkmenistan government. Turkmenistan officials often take advantage of Western companies when helping them enter the country’s market, by getting an unfair advantage in any subsequent deal.

Some signs suggest that to establish good personal relations with the President of

Turkmenistan is the most direct and only certain way to enter Turkmenistan’s market. On joint ventures in energy projects, the government insists that the country owns the majority of shares and interests. Therefore, Western investors are reluctant to invest in these Turkmenistan government-sponsored joint venture projects. Turkmenistan maintains very strict control on energy projects, although Turkmenistan has no specific laws stating that it’s forbidden to resale on equity, Western companies still cannot be free to sell their stakes unless the government allows it. Outdated technology, poor business structure and investment barriers (governmental obstacles) have caused Western companies to reduce their willingness to invest in this country. ⁶¹

60 Ibpus.com. Turkmenistan-Company Laws and Regulation Handbook (Washington, DC: International Business Publications, 2012), p. 29.

61 Ibpus.com. Turkmenistan-Company Laws and Regulation Handbook (Washington, DC: International Business Publications, 2012), p. 29-30.

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2.1.3.4.3 Turkmenistan’s Relations with Russian Companies ⁶²

In April 2003, the Russian company, Gazexport, and Turkmenneftegaz signed a 25-year energy export contract. The contract specified that the nation will transport natural gas to Russia. Russia can buy and sell Turkmenistan’s natural gas. For Russia’s interests, it is more profitable and efficient for them to buy gas from Turkmenistan at a lower price and sell it at a higher price on the European market than developing a new gas source (such as on the Yamal Peninsula, or on the shelves of the Barents or Kara Seas) since that would require intensive capital investment. Russia’s expected goal is to use Turkmenistan’s gas to reach their export targets effectively, and to gain the maximum benefits. Another reason why Russia and

Turkmenistan signed a contract and established grounds for energy partnership is to reduce or eliminate competition between the two countries on the world’s markets.

If Turkmenistan has other export routes, and sells its resources at lower prices on world markets, Russia’s gas will be less competitively priced. Moreover, from a strategic point of view, as far as Russia’s concerned, they have to prevent this from occurring and through signing a contract regarding Turkmen natural gas, Russia will be able to control the

procurement, processing, transportation and to ensure its export route and marketing, etc. via Russia in order to monopolize and maintain that monopoly on the natural gas resources exported from Central Asia.

For long, Russia had been using the Central Asia-Center Pipeline to maintain that natural gas monopoly. However, in 2009, when the China - Central Asia gas pipeline’s construction was completed, the Turkmen have a new alternative export route, and the situation has changed finally. ⁶³

62 Wenger, Andreas, Robert W. Orttung, and Jeronim Perovic, ed., Russian Business Power: The Role of Russian Business in Foreign and Security Relations (London: Routledge, 2006), p. 99-100.

63 Wenger, Andreas, Robert W. Orttung, and Jeronim Perovic, ed., Russian Business Power: The Role of Russian Business in Foreign and Security Relations (London: Routledge, 2006), p. 99-100.

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2.1.3.4.4 Turkmenistan’s Relations with Chinese Companies ⁶⁴

When the China - Central Asian gas pipeline was completed in 2009, natural gas from Turkmenistan began shipping its supplies in part through that pipeline system, which goes through Uzbekistan and Kazakhstan, and eventually connects to China's West-East Pipeline phase, providing supplies for China’s domestic demand in natural gas. For China, imports of natural gas from Turkmenistan has created one more stable source of natural gas to import via land, and enhanced its energy security. Also since 2004 Russia has been engaged in

discussions with China in regard to Siberian gas for China’s imports. Russia hopes to charge gas supplies to China at European prices which are more expensive.

China, as a country with a high demand for energy, needs to increase alternatives for energy transportation via overland pipeline from Turkmenistan. By doing so, China can also increase the strength of its bargaining position on issues of Russia's Siberian gas, so as to negotiate a reduction in the price of imported Russian gas. In accordance with the economics of supply and demand theory, when supply exceeds demand on the market, prices fall.

In September of 2013, Chinese President Xi Jinping visited five Central Asian countries, meeting with high-level leaders from all of the five Central Asian countries, and participated in the G20 meeting and SCO Summits. In these he signed 83 trade agreements with the five Central Asian countries, which aim to expand economic and trade cooperation, and build a

“New Silk Road.” Xi Jinping stated that relations based on the principles of mutual respect, mutual understanding, and mutual trust, will deepen the friendship and strategic partnership between Turkmenistan and China and strengthen economic and trade cooperation projects, which will also be helpful in stabilizing the region.