Cablegate: Turkmenistan: Ministry of Energy Admits Delays Due To

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UNCLAS SECTION 01 OF 02 ASHGABAT 001481

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STATE FOR SCA/FO, SCA/CEN, SCA/A, EUR/ACE, EEB
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E.O. 12958: N/A
TAGS: PGOV PREL EAID ENRG AF TX
SUBJECT: TURKMENISTAN: MINISTRY OF ENERGY ADMITS DELAYS DUE TO
STRUGGLES WITH CALCULATING INVESTMENT OPTIONS

REF: A. ASHGABAT 1410
B. ASHGABAT 0469
C. ASHGABAT 0957

1. (U) Sensitive but unclassified. Not for public internet.

2. (SBU) SUMMARY: Turkmenistan's Deputy Minister of Energy and
Industry (MOEI) Yarmuhammet Orazgulyev told USAID on November 6 that
the Ministry's specialists are struggling with the financial
calculations to determine repayment times for the proposed
construction of electrical lines to Afghanistan. Only after these
issues have been resolved can the Ministry bring the project
proposal to the attention of higher levels within Turkmenistan's
government for approval. One official wondered since it was unclear
what revenue Turkmenistan could expect from the sales to
Afghanistan, maybe Turkmenistan should instead build a gas pipeline
to Afghanistan so that it could generate its own electricity.
Ministry Investment Department specialist Dortguly Jelilov asked for
USAID's assistance in analyzing the various investment options and
their potential benefits to Turkmenistan. If an inter-ministerial
meeting happens in the near future, as recently proposed by
Afghanistan, the Afghan side should present a draft PPA, including
acceptable price and length of commitment, so that the Turkmen side
can begin to build a clearer picture of the possible returns from
this deal. END SUMMARY.

CANDID ACKNOWLEDGEMENT OF STRUGGLES WITH CALCULATIONS

3. (SBU) On November 6, USAID Country Representative, USAID/CAR
Energy Specialist and USAID/TKO Economic Growth specialist met with
Deputy Minister of Energy and Industry (MOEI) Yarmuhammet Orazgulyev
and MOEI Investment Department specialist Dortguly Jelilov to
discuss Turkmen energy exports to Afghanistan and possible
cooperation through the next phase of USAID's upcoming Regional
Energy Markets Assistance Program (REMAP-II). For the first time,
Orazgulyev indicated that a new 254-megawatt plant would be
necessary to generate the proposed electricity for sale to
Afghanistan, in addition to the expected 420 kilometers of
electrical lines. (NOTE: Turkmenistan has regularly said that it
has a 300 megawatt surplus available for export to Afghanistan. END
NOTE.) Orazgulyev acknowledged that the Ministry is struggling with
the financial investment calculations to determine repayment times
for the proposed infrastructure investments.

4. (SBU) Due to its approximate cost of 300 million euros, the
Ministry is unsure of the project's potential financial benefits to
Turkmenistan. Jelilov suggested that other options, like exporting
gas to Afghanistan instead of electricity, might be more
advantageous to both sides. Furthermore, the Ministry has not
received confirmation from Turkmengas that it would supply gas to
the above-mentioned new plant if it were to be constructed. As a
result, Orazgulyev said "many questions still need to be resolved."
Only once these infrastructure issues have been addressed can the
Ministry bring the project proposal to the attention of higher
levels within Turkmenistan's government for approval.

MINISTRY REQUESTS USAID ASSISTANCE TO RESOLVE

5. (SBU) Jelilov said that the current sales price to Afghanistan
of $0.02/kilowatt hour was not a purely commercial price. (NOTE:
The Government of Turkmenistan considers electricity exports at this
below-cost of generation price to be "humanitarian" assistance to
Afghanistan. END NOTE.) Due to the uncertainty over possible
returns from increased exports to Afghanistan, he suggested that it
might be more beneficial for Turkmenistan to continue exporting at
current quantities and prices rather than construct the proposed
infrastructure that would allow higher export levels. (COMMENT:
This was understood to mean that Turkmenistan might lose less money
under this scenario. END COMMENT.)

6. (SBU) The calculations, Jelilov explained, were connected to the
export price for gas. The new generation facility must be supplied
with gas, and Turkmengas' prices were expected to double beginning
in January 2009, which would raise the cost of electricity
generation. Since it was unclear what revenue Turkmenistan could
expect from the sales to Afghanistan, maybe Turkmenistan should
instead build a gas pipeline to Afghanistan so that it could
generate its own electricity. Jelilov asked for USAID's assistance

ASHGABAT 00001481 002 OF 002

in analyzing the various investment scenarios and their potential
benefits to Turkmenistan.

7. (SBU) Jelilov said that Turkmenistan had two options with
respect to the project. If it was considered to be a
political/humanitarian project, then the President must decide
whether to proceed. On the other hand, if it were treated as a
commercial project, then the MOEI should make financial projections
and communicate the financial benefits to Turkmenistan to the
country's leadership. If the latter, then it must be mutually
beneficial.

TIMING IN AFGHANISTAN NOT THE REASON FOR DELAYS

7. (SBU) In response to a direct question from USAID
Representative, the Deputy Minister categorically denied that the
timing of construction on the Afghan side had anything to do with
current delays on Turkmenistan's part. (Reftel A). He reiterated
that they were still working through the calculations on their side,
and could not get approval from higher level officials before
completing this analysis.

8. (SBU) COMMENT: In spite of apparent progress during joint
working group meetings in April and July meetings (Refs B and C), it
appears Turkmenistan is stuck over the financial calculations
related to the project(s). In order to protect our planned
investments in Afghanistan, we must find a way to help Turkmenistan
analyze its options. USAID rep was told on November 5 by a
knowledgeable local Afghan source that Afghanistan's Minister of
Energy and Water, Ismail Khan, recently invited his Turkmen
counterpart to visit Kabul for meetings -- and offered to go to
Ashgabat as an alternative. In the next meeting, regardless of
location, the Afghan side should clearly articulate whether it
expects this project to be "humanitarian" or strictly commercial.
This meeting would also provide a good chance for Afghanistan to
present a draft power purchase agreement, so that the Turkmen side
can begin to build a clearer picture of the possible benefits from
this deal. END COMMENT.

CURRAN

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