Cablegate: Ukraine's Interbudmontazh Operations In

VZCZCXRO0217
RR RUEHAST
DE RUEHAH #0532/01 1390340
ZNR UUUUU ZZH
R 190340Z MAY 06
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC 7341
INFO RUEHKV/AMEMBASSY KIEV 0468
RUCNOSC/OSCE POST COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RHMFIUU/HQ USCENTCOM MACDILL AFB FL//CCJ2/HSE/CCJ5//
RUEKJCS/SECDEF WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC//J5/RUE//
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC

UNCLAS SECTION 01 OF 03 ASHGABAT 000532

SIPDIS

SENSITIVE

SIPDIS

STATE FOR SCA/CEN (PERRY)

E.O. 12958: N/A
TAGS: ETRD EPET UP TX
SUBJECT: UKRAINE'S INTERBUDMONTAZH OPERATIONS IN
TURKMENISTAN

REF: A) ASHGABAT 389 B) ASHGABAT 308

ASHGABAT 00000532 001.2 OF 003

SUMMARY
-------

1. (SBU) GENERAL DIRECTOR OF UKRAINIAN COMPANY
INTERBUDMONTAZH VADIM SULIM TOLD POL/ECON OFF ON MAY 11 THAT
THE COMPANY HAD NO PART IN THE TURKMENISTAN-UKRAINE BARTER
FOR GAS AGREEMENTS AND WAS NOT INVOLVED IN THE OIL AND GAS
SECTOR, DESPITE MULTIPLE PRESS REPORTS TO THE CONTRARY.
INTERBUDMONTAZH, THE LARGEST UKRAINIAN COMPANY OPERATING IN
TURKMENISTAN, IS BUILDING A 32 KILOMETER UNDERGROUND
DRAINAGE AND COMMUNICATIONS SYSTEM IN ASHGABAT UNDER
CONTRACT WITH THE ASHGABAT MAYOR'S OFFICE. THE COMPANY HAS
4,000 EMPLOYEES IN TURKMENISTAN, 70% OF WHOM ARE LOCAL.
FEATURING A WELL CONNECTED FOUNDER AND FORMER CHAIRMAN, AND
APPARENT ACCESS TO BOTH PRESIDENTS NIYAZOV AND YUSHCHENKO,
SULIM'S ROSY PICTURE OF INTERBUDMONTAZH'S WORK IN ASHGABAT
PROBABLY IS NOT THE WHOLE PICTURE AND THE COMPANY'S LACK OF
FORTHRIGHTNESS SUGGESTS TURKMENISTAN-UKRAINE BARTER-FOR-GAS
DEBT, DESPITE GOTX AND GOU PRONOUNCEMENTS, IS STILL FAR FROM
TRANSPARENT. END SUMMARY.

COMPANY HISTORY
---------------
2. (SBU) GENERAL DIRECTOR OF THE PRIVATE UKRAINIAN COMPANY
INTERBUDMONTAZH VADIM SULIM DETAILED ON MAY 11 TO
POL/ECONOFF THE SPECIALIZED CONSTRUCTION COMPANY'S
ACTIVITIES IN TURKMENISTAN. THE COMPANY WAS CREATED IN 2000
AS THE INTERNATIONAL ARM OF A HOLDING COMPANY OF THE SAME
NAME EXPRESSLY TO ENGAGE IN CONSTRUCTION PROJECTS IN
TURKMENISTAN. THE HOLDING COMPANY ITSELF GREW OUT OF KIEV-
BASED CONSTRUCTION COMPANY KYIVBUDINVEST, WHICH WAS FOUNDED
IN 1993. IN ADDITION TO KYIVBUDINVEST AND INTERBUDMONTAZH,
THE HOLDING COMPANY CONSISTS OF UKRSPETSTUNNELPROEKT,
INTERTRANSBUD, INTERBUDTUNNEL, AND POLTAVANAFTOGAZBUD.
ACCORDING TO COMPANY PROMOTIONAL MATERIAL RECEIVED FROM
SULIM, 68% OF THE HOLDING COMPANY'S ACTIVITIES OCCUR OUTSIDE
OF UKRAINE.

OPERATIONS IN TURKMENISTAN
--------------------------

3. (SBU) SULIM STATED THAT INTERBUDMONTAZH'S PRIMARY PROJECT
IN TURKMENISTAN WAS THE DRAINAGE AND COMMUNICATIONS TUNNEL
PROJECT, A PLANNED TEN YEAR PROJECT TO CONSTRUCT AN
UNDERGROUND TUNNEL RING AROUND ASHGABAT WITH CONNECTING
BRANCHES TO CARRY CITY DRAINAGE, SEWAGE, AND COMMUNICATIONS.
AWARDED IN 2000, THE PROJECT BEGAN IN 2002 AND IS RUNNING ON
SCHEDULE, ACCORDING TO SULIM. ASHGABAT'S UNIQUE SEISMOLOGY
AND GROUND WATER TABLE MAKES THIS PROJECT UNIQUE, HE ADDED.
ALTHOUGH HE WAS NOT PART OF THE 2000 PROJECT TENDER PROCESS,
SULIM CLAIMED INTERBUDMONTAZH WON HANDILY AGAINST COMPETING
COMPANIES FROM GERMANY AND FRANCE. HE BOASTED THAT IN
ADDITION TO INTERBUDMONTAZH ONLY TWO OTHER COMPANIES IN THE
WORLD - IN CHINA AND INDIA - HAD THE TECHNICAL KNOW-HOW TO
ACCOMPLISH THIS TYPE OF PROJECT. SULIM DECLINED TO COMMENT
ON THE OVERALL COST OF THE PROJECT, THOUGH A JUNE 2005
ARTICLE ON THE PRO-GOVERNMENT WEBSITE TURKMENISTANINFO.RU
VALUED THE PROJECT AT $204 MILLION.

4. (SBU) IN ADDITION TO THE TUNNEL RING PROJECT,
INTERBUDMONTAZH DID ADDITIONAL INFRASTRUCTURE PROJECTS "AT
THE REQUEST OF THE TURKMEN SIDE." THE COMPANY BUILT FOUR
UNDERGROUND PEDESTRIAN CROSSINGS FOR ASHGABAT'S MIND-
NUMBINGLY WIDE EIGHT-LANE AVENUES, AND CONSTRUCTED WATER
RESERVOIRS FOR SURROUNDING VILLAGES AND A PLANNED TURKMEN-
FAIRYTALE WATER THEME PARK. CORPORATE MATERIALS SUPPLIED BY
SULIM ALSO NOTED AS PART OF THE COMPANY'S CONSTRUCTION
PORTFOLIO THIRTY COTTAGES NEAR THE PRESIDENTIAL RESIDENCE
AND A WATER-DIVERSION CANAL FOR THE WATER THEME PARK, WHICH
IS BEING BUILT WITH TWO TURKISH COMPANIES. (NOTE. SULIM
PROVIDED NO INFORMATION ON THESE LATTER TWO PROJECTS DURING
THE MEETING. END NOTE.) SULIM SAID INTERBUDMONTAZH, AS A
CONSTRUCTION COMPANY SPECIALIZED IN TUNNELING AND WATER
TRANSPORT INFRASTRUCTURE, WAS NOT INTERESTED IN BUILDING THE
SCORES OF APARTMENT BUILDINGS GOING UP IN ASHGABAT (REPORTED
REFTEL A).

5. (SBU) INTERBUDMONTAZH ALSO SUBMITTED A PROPOSAL IN 2005

ASHGABAT 00000532 002.2 OF 003

TO PRESIDENT NIZAYOV FOR A MULTI-LINE CITY METRO PROJECT.
THE GOTX IS STILL REVIEWING THE PROPOSAL AND NEGOTIATING THE
PROJECT'S COST, ACCORDING TO SULIM.

LABOR AND MATERIAL SOURCING
---------------------------

6. (SBU) SULIM NOTED THAT 70% OF THE COMPANY'S 4,000
EMPLOYEES WERE LOCAL, WITH THE REMAINDER COMING FROM
UKRAINE. THE RATIO OF LOCAL TO FOREIGN LABOR WAS SET IN THE
COMPANY'S CONTRACT WITH THE MAYOR'S OFFICE, SULIM ADDED.
(NOTE: MINISTER OF FOREIGN AFFAIRS MEREDOV HAS TOLD EMBASSY
THAT BY LAW ALL FOREIGN COMPANIES OPERATING IN TURKMENISTAN
MUST HAVE AT LEAST 70% LOCAL LABOR. END NOTE.)
INTERBUDMONTAZH HIRED LOCAL LABOR AND THEN TAUGHT THEM, AT
COMPANY EXPENSE, THE TRADE SKILLS NEEDED FOR THE PROJECT AT
THE COMPANY'S IN-HOUSE TRADE SCHOOL.

7. (SBU) INTERBUDMONTAZH IMPORTED CEMENT FOR ITS PROJECTS
FROM TEHRAN UNTIL MARCH 2005, BECAUSE LOCAL OFFERINGS DID
NOT MATCH THE TECHNICAL STANDARDS REQUIRED FOR ASHGABAT'S
SEISMIC ZONE (THE DRAINAGE TUNNEL IS ENGINEERED TO WITHSTAND
AN EARTHQUAKE OF 9.0 ON THE RICHTER SCALE). IN MARCH 2005,
TURKMENISTAN OPENED THE STATE-OWNED KELETE TURKMEN CEMENT
FACTORY AND INTERBUDMONTAZH SINCE THEN HAS SOURCED ITS
CEMENT FROM THERE. THE COMPANY'S CONSTRUCTION VEHICLE FLEET
IS COMPRISED OF GERMAN, ITALIAN, AND SWISS-MADE EQUIPMENT.
THE COMPANY IMPORTS PIPE AND METAL PRODUCTS FROM UKRAINE.
INTERPIPE AND MITTAL STEEL (FORMERLY KRYVORIZSTAHL) ARE THE
COMPANY'S TWO LARGEST UKRAINIAN SUPPLIERS, SULIM NOTED, WITH
THE IMPORTS ARRIVING VIA TURKMENBASHY ON THE CASPIAN SEA.
SULIM REPORTED NO PROBLEMS WITH CUSTOMS BEYOND THE
OCCASIONAL HEADACHES, WHICH WERE RESOLVED IN "A NORMAL
WORKING MANNER."

RELATIONS WITH GOTX
-------------------

8. (SBU) SULIM SAID INTERBUDMONTAZH WAS FAR REMOVED FROM ANY
TURKMENISTAN-UKRAINE POLITICAL DISPUTES AND PAINTED A ROSY
PICTURE OF INTERBUDMONTAZH-GOTX RELATIONS. THE COMPANY
OPERATED UNDER A CONTRACT WITH THE ASHGABAT MAYOR'S OFFICE
AND ALSO WORKED WITH THE MINISTRY OF CONSTRUCTION.
INTERBUDMONTAZH DISCUSSED ANY PROBLEMS DIRECTLY WITH MAYOR
ORAZMYRAT ESENOV, WHO HIMSELF WAS A FORMER CONSTRUCTION
MANAGER, WHICH MADE REACHING AGREEMENTS MUCH EASIER (NOTE:
ON MAY 12, ESENOV WAS APPOINTED MINISTER OF CONSTRUCTION,
WHILE RETAINING HIS MAYORAL APPOINTMENT. FOR MORE ON
ORAZMYRAT "THE BULLDOZER" ESENOV, SEE REFTEL B AND SEPTEL.
END NOTE.) THE MAYOR'S OFFICE MADE REGULAR PAYMENTS IN
DOLLARS TO INTERBUDMONTAZH ACCOUNTS AT A LOCAL (UNNAMED)
BANK. SULIM SAID THE COMPANY CONVERTED DOLLARS TO MANATS AT
THE OFFICIAL EXCHANGE RATE OF 5,200 MANAT TO THE DOLLAR.
SULIM EXPRESSED SOME FRUSTRATION AT THIS ARRANGEMENT (NOTE.
THE UNOFFICIAL RATE, FREQUENTLY CALLED THE COMMERCIAL RATE,
IS 23,400 MANAT TO THE DOLLAR. CURRENCY CONVERSATION IS A
SORE POINT WITH MOST FOREIGN COMPANIES DOING BUSINESS IN
TURKMENISTAN. END NOTE.), BUT INNOCENTLY RAISED HIS HANDS
IN AN EXPRESSION OF "WHAT ELSE CAN WE DO?".

NO RELATION TO TURKMENISTAN-UKRAINE GAS BARTER DEALS?
--------------------------------------------- --------

9. (SBU) WHEN PRESSED ON INTERBUDMONTAZH'S RELATION TO THE
ONGOING TURKMENISTAN-UKRAINE 2005 BARTER-FOR-GAS DEBT
DISPUTE, SILUM CATEGORICALLY DENIED INTERBUDMONTAZH'S
INVOLVEMENT IN EITHER THE DEBT DISPUTE OR THE TURKMENISTAN
OIL AND GAS SECTOR IN GENERAL. SILUM SAID THE COMPANY WAS
NOT INVOLVED WITH THE CLEARINGHOUSE FOR GAS BARTER PAYMENTS,
WITH ANY COEFFICIENT CONTRACTS NEGOTIATED BETWEEN THE
GOVERNMENTS, OR WITH ANY PURCHASE-AND-SALE AGREEMENTS.

10. (SBU) DESPITE SULIM'S CLAIMS OF APOLITICAL NON-
INVOLVEMENT, A MAY 4, 2005 ARTICLE IN THE GOVERNMENT-OWNED
NEWSPAPER NEUTRALNYI TURKMENISTAN LISTED INTERBUDMONTAZH
CHAIRMAN O. CHYZHOV AS PART OF A UKRAINIAN DELEGATION TO
TURKMENISTAN THAT ALSO INCLUDED THEN-CHAIRMAN OF UKRAINE'S
STATE OIL AND GAS MONOPOLY NAFTOHAZ OLEKSIY IVCHENKO AND
DEPUTY GENERAL DIRECTOR OF UKRAINE'S STATE DEFENSE INDUSTRY
COMPANY UKROBORONSERVIS. ACCORDING TO THE ARTICLE, THE

ASHGABAT 00000532 003.2 OF 003

GROUP MET WITH PRESIDENT NIYAZOV TO DISCUSS BILATERAL
COOPERATION UNDER THE NEW GAS-FOR-CASH ARRANGEMENTS AGREED
TO BY PRESIDENTS YUSCHENKO AND NIYAZOV IN MARCH 2005. A
JUNE 2005 ARTICLE ON THE PRO-GOVERNMENT WEBSITE
TURKMENISTANINFO.RU ALSO LISTED THE COMMUNICATION AND
DRAINAGE TUNNEL PROJECT AS ONE OF THE TURKMENISTAN-UKRAINE
BARTER-FOR-GAS PROJECTS.

11. (SBU) INTERBUDMONTAZH APPEARS TO ENJOY SOME LEVEL OF
UKRAINIAN POLITICAL PATRONAGE. FEATURED PROMINENTLY IN THE
HOLDING COMPANY'S INFORMATION BROCHURE IS AN UNDATED PHOTO
OF UKRAINIAN PRESIDENT YUSHCHENKO MEETING INTERBUDMONTAZH
WORKERS IN, APPARENTLY, ASHGABAT. IN THE PHOTO NEXT TO
YUSHCHENKO ARE THEN-CHAIRMAN OF NAFTOHAZ OLEKSIY IVCHENKO,
THEN-UKRAINIAN AMBASSADOR TO TURKMENISTAN VADYM CHUPRUN, AND
FORMER CHAIRMAN OF INTERBUDMONTAZH VLADIMIR PETRUK. PETRUK
HAS BEEN NAFTOHAZ DEPUTY CHAIRMAN FOR INTERNATIONAL PROJECTS
SINCE MARCH 2005. (NOTE. NONE OF THE PERSONS LISTED ABOVE
ARE IDENTIFIED IN THE ENGLISH-LANGUAGE BROCHURE. END NOTE.)

COMMENT
-------

12. (SBU) INTERBUDMONTAZH GENERAL DIRECTOR SULIM'S LEVEL OF
SECRECY CONTRASTED GREATLY WITH THAT OF TURKISH CONSTRUCTION
MANAGERS SIMILARLY ENGAGED IN ASHGABAT'S BUILDING BOOM, AND
SEVERAL OF HIS STATEMENTS DIDN'T CORRESPOND WITH WIDELY
PUBLICIZED REPORTS OF INTERBUDMONTAZH'S INVOLVEMENT IN
BARTER-FOR-GAS DEALS. SULIM'S HESITANCY TO COME CLEAN ON
PARTS OF HIS COMPANY'S ACTIVITY IN TURKMENISTAN SUGGESTS
THAT TURKMENISTAN-UKRAINE GAS DEBT ARRANGEMENTS REMAIN FAR
FROM TRANSPARENT. END COMMENT.

BRUSH

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