Publication: Monitor Volume: 6 Issue: 101

Russian President Vladimir Putin returned empty handed from his May 19 visit to Turkmenistan. Putin failed to arm-twist his counterpart, President Saparmurat Niazov, into signing an extortionate sale-purchase deal on natural gas. Nor did Putin make any headway in convincing Turkmenistan that it needs Russian “protection” against the “Taliban danger” from Afghanistan–a proposition which Putin had successfully sold to an already predisposed Uzbek President Islam Karimov in Tashkent two days earlier (see the Monitor, May 22).

Russia, the leading exporter of gas in Eurasia, aims to boost that position even further by purchasing Turkmen gas dirt-cheap, reselling it to Russia’s own customers at substantial profit to Russia, starving potential competitor Turkmenistan of investment funds and thus controlling Turkmen production volumes. Those tactics can conceivably work as long as the sole major gas export pipeline out of Turkmenistan passes through Russia.

Putin, and Gazprom chairman Rem Vyakhirev who accompanied him to Ashgabat, seemed prepared to ruin a CIS member country by exploiting Russia’s near-monopoly on Turkmen gas. While willing to increase gas purchases from the current 20 billion to a whopping 50 billion cubic meters annually, they would not budge from the earlier price offer of US$32 per thousand cubic meters, which according to the Turkmens, falls short even of covering the production costs, let alone guarantee profits. Moscow currently pays US$36 per thousand cubic meters of Turkmen gas; and it sells the gas for as much as US$80 per thousand cubic meters to some of Gazprom’s customers, notably Ukraine. The government in Ashgabat had asked Moscow to pay US$40 per thousand cubic meters as a minimum price for Turkmen gas. The sides continued, moreover, to disagree over the payment mechanism, with Russia seeking to offset part of the value of the Turkmen gas through barter, while Turkmenistan seeks full monetary compensation.

In the event, Putin and Niazov signed a document of intent whereby Russia would increase the purchases of Turkmen gas by a margin of 10 billion cubic meters each year from 2001 onward, until reaching a level of 60 billion cubic meters by 2004. The sides would continue negotiating over the prices and the payment mechanism during the course of this year. The signed document, billed “agreement,” is not only nonbinding, but downright worthless in the absence of an agreement on prices and payments.

Beyond the differences over pricing, at stake here is the long-term control over Turkmenistan’s gas export route and gas reserves. This tug of war in turn arises from Russia’s strategy of inserting itself as an intermediary between Caspian oil and gas producer countries and the consumer countries. With regard to Turkmen gas, Russia wants not only the role of main transit country but also that of preemptive purchaser, hoping to exploit Turkmenistan’s geographic isolation from lucrative markets.

Ashgabat’s hope to overcome that isolation rests on the planned trans-Caspian pipeline (TCP) which will bring Turkmen gas to Turkey and European markets further afield. Niazov seems to regard his bargaining with Russia as a useful tool in the endgame negotiations he is conducting with the Western companies–Shell, Bechtel and General Electric–involved in the TCP project. That pipeline, and the commercial contract with Turkey, promise reliable transit without strings attached as well as hard currency revenue. Niazov is currently holding out for additional guarantees and commercial advantages. But he risks overplaying his hand if he delays the start of that project much longer.

The Putin-Niazov meeting was also notable for what looked like a repudiation of Russian commercial debts to Turkmenistan. Until 1999, Moscow had acknowledged a net debt of US$228 million. Last year, the sides agreed on recalculating the net debt to US$97 million. Russia’s new Prime Minister Mikhail Kasyanov (until recently finance minister), accompanying Putin in Ashgabat, served notice of a recent Russian recalculation which shows Turkmenistan as a net debtor to Russia. Putin and Niazov could only agree to relegate the issue to expert groups for negotiations in Moscow.

The sides continued to disagree on the legal status of the Caspian Sea. Russia conditionally accepts sectoral division of the seabed only, and then only in a bilateral agreement with Kazakhstan, the terms of which are not applicable to other parts of the Caspian. In Ashgabat, the Russian side paid lip service to the 1921 and 1940 Soviet-Iranian agreements, which do not accommodate division into national sectors of the five now existing riparian states. The Turkmen side for its part reaffirmed its support for sectoral division, not only of the seabed but also of the water body and surface and of the airspace.

Niazov would not involve Turkmenistan in any Russian military or security plans for Central Asia. “Turkmenistan is not afraid of extremism in Afghanistan. That country is in a very difficult position,” he stated. “We see no danger.” (Turkmen Television, Ashgabat Radio, Nezavisimaya gazeta, RIA, Itar-Tass, Dow Jones Newswires, May 18-20).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions