INTERNATIONAL AFFAIRS

Azhdar KURTOV


Azhdar Kurtov, President, Moscow Public Law Research Center (Moscow, Russia)


On 3 January, President Saparmurat Niyazov and head of Ukraines Naftogaz company Boiko signed another contract on the delivery of Turkmen natural gas to Ukraine for 2005. But two days prior to this, Turkmenistan interrupted its gas export to this country. Official Ashghabad motivated its action by the need to reconsider the price parameters of the previous contract due to the abrupt rise in the cost of fuel production. This, in turn, was caused by an increase in the cost of the equipment supplied to the republic as part of the commodity clearing payment for the gas delivered. Saparmurat Niyazov insisted on the price of 60 dollars for 1,000 cubic meters, but ultimately lowered it to 58 dollars.

A total of 36 billion cubic meters of blue fuel was to be sent to Ukraine. In so doing, the former payment conditions were retained: 50% in hard currency and 50% in commodities, consisting in particular of pipes, equipment, and metal products. Part of the volume (4.5 billion cubic meters) was to be paid for through the investment projects being carried out in Turkmenistan by Ukrainian companies: the construction of several compressor stations, a railroad bridge over the River Amudaria, a communication tunnel in the republics capital, and several other projects. Incidentally, these projects were set forth in the Treaty on Long-Term Trade and Economic Cooperation between Turkmenistan and Ukraine for 2001-2010 and in the Agreement on the Delivery of Natural Gas for 2001-2006 signed in Kiev in 2001 by Saparmurat Niyazov and then Ukrainian President Leonid Kuchma.

On 17 January, talks were held in Ashghabad between Saparmurat Niyazov and an official Japanese delegation headed by Ichiro Aisawa, Senior Vice-Minister for Foreign Affairs. Japanese business plays a very active role in Turkmenistan, in particular, such large companies as Itochu, Mitsubishi, and Nichimen. For example, the Itochu Corporation invests large amounts of money in building gas liquefaction plants, since it acts as investor, builder, and buyer of the finished product. Incidentally, this company is allowed to take 70,000 tons of polypropylene for its own use every year until the end of the payback period as a perk for participating in this production project. Ways to continue cooperation were discussed at the talks, whereby official Tokyo tried to sound out Ashghabads opinion on granting Japan the status of permanent member in the U.N. Security Council. On the same day, a Japanese Embassy was opened in Ashghabad.

At the end of January, a meeting of experts was held in Ashghabad on environmental safety in the Caspian Sea, the Convention on the Legal Status of which the Caspian states have already been discussing for many years now without any tangible success. This is largely due to the stances assumed by Turkmenistan and Iran, which object to dividing the sea into national sectors according to the method proposed by Russia, Kazakhstan, and Azerbaijan. Today, the negative aspects caused by this state of affairs are obvious to the naked eye. The environmental situation in the sea is dramatically deteriorating, and there have already been cases of extremely serious accidents involving oil tankers, salvo emissions of oil from wells, and the mass destruction of seals and other sea inhabitants. The number of sturgeon and size of its catch have dropped by several hundred-fold, particularly the production of black caviar from this species of fish.

In 2003, a Framework Convention for the Protection of the Marine Environment of the Caspian Sea was adopted in Tehran, which envisages in particular the drawing up of corresponding protocols in several priority areas. One of them is the Protocol on Pollution from Land-based Activities, to the preparation of which this meeting of experts was devoted. The document they drew up envisages the creation and approval of national and regional programs in this sphere based on measures to monitor and eliminate sources of pollution, as well as to introduce contemporary environmentally-friendly technologies. The Protocol contains general standards called upon to help the national environmental monitoring services, and there are also plans to reconsider the standards for forest regeneration in the coastal zone and for preventing its desertification.

A few days later, another similar undertaking was carried out in Ashghabad: the 16th meeting of the Special Working Group on preparing the Convention on the Legal Status of the Caspian Sea, in which delegations took part headed by the deputy foreign ministers of all the countries contiguous to the sea.

Let us take a small historical excursion at this point. From the viewpoint of international law, Russia, Azerbaijan, Kazakhstan, and Turkmenistan, as CIS member states, signed the Alma-Ata Declaration of 21 December, 1991 and, in so doing, obligated themselves to recognize and execute all the international treaties and agreements entered at one time by the U.S.S.R. Termination of the 1922 Treaty on the Union of S.S.R. and the appearance in the post-Soviet space of newly independent states, including the same Russia, Azerbaijan, Kazakhstan, and Turkmenistan, in itself will not lead to a change in the legal status of the Caspian Sea. In this case, the common law principle of Pacta sunt servanda is in effecttreaties already entered must be observed. But it was Russia which retreated from a legally advantageous position on the Caspian: on 23 January, 1998, official Moscow made a statement on its intention to agree with the viewpoints of several Caspian CIS member states regarding division of the seabed into national sectors down the median line.

We will remind you that the basic legal document on contemporary maritime international law is the U.N. Convention on the Law of the Sea of 1982, which, in particular, sets forth definitions of open, semi-enclosed, and enclosed seas. The Caspian does not fit any of these definitions and is classified as a lake, an enclosed reservoir without access to the world ocean either directly or via other seas and straits, although from time immemorial it has been called a sea. But in this case it is not so much the reference to the mentioned Convention and the Geneva Convention on the Continental Shelf adopted in 1958 that are important as the appeal to treaties between Russia (the U.S.S.R.) and Iran which at one time defined the status of the Caspian. From the viewpoint of international law, it is these documents which are sources of the Caspians international status, and so it is these acts which should be replaced by a new convention on its legal status. However, the Ashghabad round of talks, like the subsequent ones (last year there were three othersin Baku, Tehran, and Astana), did not lead to any significance progress in this direction either. In particular, Azerbaijan and Turkmenistan could not overcome their differences of opinion regarding drawing of the delimiting line between their national sectors.

On 9 February, a meeting was held between Turkmenistan President Saparmurat Niyazov and Deputy Assistant to U.S. Secretary of State for European and Eurasian Affairs Laura Kennedy, who declared the U.S. willingness to render technical assistance to the talks on the Caspians status. What is more, she mentioned her countrys interest in building a Trans-Afghan gas pipeline.

The next day, the Turkmenistan president met with Director of Russias Gazprom Company Alexei Miller. The talks were about the new price for Turkmen gas to be delivered to Russia in 2005 (7 billion cubic meters). Ashghabad proposed the same alternative to which Ukraine previously agreed, while Gazprom insisted on a price of 44 dollars for 1,000 cubic meters. As a result, the ban on the export of gas to Russia introduced by Turkmenistan on 1 January remained in effect.

At the end of February, talks were held in Ashghabad with a government delegation from the PRC devoted to the prospects for developing bilateral trade and economic cooperation. According to their results, an agreement was signed on giving China a nonrefundable grant of 10 million yuans for training Turkmenistan personnel in the PRC. Moreover, the Chinese company Huawei Technologies entered a contract with the Turkmenistan Ministry of Communication on modernizing the republics telecommunication networks with the aid of digital exchange deliveries for 100 million yuans. A project for building a factory to manufacture panne and silk fabric was also discussed.

On 22 March, Ukrainian President Viktor Iushchenko visited Ashghabad. Ukraine is one of Turkmenistans important trade partners, and not only in the gas sphere; in 2004, it occupied first place in the republics foreign trade turnover with 1,643 billion dollars. Ukrainian companies are participating in 55 investment projects in Turkmenistan amounting to a total of 1,433 billion dollars. As we have already noted, at one time, these countries signed a Treaty and Program on Long-Term Trade and Economic Cooperation for 2001-2010 and an Agreement on the Delivery of Natural Gas for 2001-2006. These gas delivery problems were a priority item on the agenda at the regular talks. The Ukrainian side made a concerted effort to obtain authorization to extend the agreement terms, including after termination of the current contract in 2006. In this respect, Viktor Iushchenko expressed his willingness to participate in implementing the Trans-Afghan Pipeline project, as well as in building a Caspian pipeline with a capacity of up to 60 billion cubic meters of gas a year through Kazakhstan and Russia to the Ukrainian border. What is more, the matter concerned bringing the reciprocal trade turnover up to 2 billion dollars this year. However, in the end, Ashghabad did not assume specific obligations, but once more mentioned its vast supplies of gas which would be enough for everyone. In the next 100 years, the republic will supposedly be able to produce up to 200 billion cubic meters annually. Understanding this and taking into account Saparmurat Niyazovs penchant for outer shows of respect, the Ukrainian president issued a decree at the beginning of May on awarding Atamurat Niyazov, the Turkmenistan presidents father who died during World War II, an Ukrainian order of Prince Yaroslav the Wise, 5th class.

On 29 March, Turkmenistan joined several U.N. documents: two Optional Protocols to the Convention on the Rights of the Child concerning the participation of children in armed conflicts, child trafficking, child prostitution, and child pornography; the Convention against Transnational Organized Crime; three Protocols to this Conventionto Prevent Trafficking in Persons; against the Smuggling of Migrants by Land, Sea and Air; and against the Illicit Manufacturing of and Trafficking in Firearms, Their Parts and Components and Ammunition; and the Convention against Corruption. At the same time, in the format of the U.N. Development Assistance Framework for 2005-2009 (UNDAF), an action plan was signed defining official Ashghabads cooperation with the corresponding U.N. structures.

On 12 April, Turkmenistan President Saparmurat Niyazov and Iranian President Khatami were present at the opening of the Dostluk (Friendship) dam built by these countries, the project of which was conceived as early as 1996, but practical work on which did not begin until 2001. On the border river Tejen (Gerirud), the Turkmenistan Ministry of Water Economy and three Iranian companies, Kulham, Aban Sanat Kara, and Pars Energy, built a reservoir costing 167.5 million dollars with a capacity of 1,250 billion cubic meters and a dam height of 79 meters, which makes it possible to irrigate 25,000 hectares of farmland in each of these countries. The facility was financed in equal portions.1 What is more, the presidents came to terms on joint construction of a reservoir on the border river Etrek and on increasing the export of Turkmen electric power to Iran, including by building new power transmission lines.

Cooperation is also expanding in the oil and gas sphere. The 200-km pipeline from the Turkmen Korpezhe field to the north Iranian city of Kurt-Kui was originally intended for pumping 8 billion cubic meters of gas a year. But in September 2005, a new compressor station was put into operation on this route, which makes it possible to raise the amount pumped by another 4 billion cubic meters a year. Moreover, there are plans to hook up the Turkmen fields contiguous to Korpezhe to the pipeline. But so far the volumes of exported gas have not reached the stipulated amounts. On the whole, however, in 2004, bilateral trade turnover amounted to 750 million dollars, and there were plans to increase it to 1 billion dollars in 2005.

On 15 April, more talks were held in Ashghabad between Saparmurat Niyazov and Head of Gazprom Alexei Miller, at which the price of Turkmen gas delivered to Russia was discussed again. The thing is that on 10 April, 2003, the Russian and Turkmen presidents signed an interstate agreement in the Kremlin on cooperation in the gas industry, and the authorized organizationsGazprom and Turkmenneftegazsigned a contract on the purchase of Turkmen gas.

In correspondence with these documents, official Ashghabad was to deliver blue fuel to Russia for 25 years. Such long-term arrangements are certainly beneficial for the capital-intensive and to a certain extent inert gas industry of both countries. The minimum and maximum delivery volumes, as well as their transportation and payment conditions were determined for specific years (see Table 1).

Table

Contract Deliveries of Turkmen Natural Gas to Gazprom under the Agreement of 10 April, 2003

Volume (Bcm)

Years

 

2004

2005

2006

2007

2008

2009

2010

2011

2012-2027

2028

Minimum

5

6

10

60

63

70

70

70

70

70

Maximum

6

7

10

70

73

80

80

80

80

80

But it should be noted that here, too, the Turkmenistan leadership stuck to its traditional stance, that is, to its desire not to lose and not assume overly stringent obligations. For Russia, on the other hand, it was important that a long-term agreement made it possible to invest funds in the construction of new and the modernization of existing gas pipelines, as well as form an energy balance for the future, since it had long years of guaranteed deliveries. But Ashghabad insisted on including standards in this document which significantly reduce the significance of the above-mentioned obligations. For example, each party to the agreement had the right to terminate its action upon expiry of each five-year period, and after 2007 they are obligated to redefine the future key parameters of the contract. What is more, the price parameters of the gas to be delivered over an extended period were not precisely established. In other words, in 2003, Turkmenistan had every reason to perceive this agreement as a declaration of intention as well, and the more delicate question regarding the price of the gas being delivered in the agreement was resolved essentially in its favor. Frankly, it was this that probably became the deciding factor prompting Ashghabad to sign the agreement. After holding talks for several years on this question, Gazprom refused to pay more than 38 dollars per 1,000 cubic meters, whereas the agreement stipulated 44 dollars. Russia was essentially the first of all the Turkmen gas importing countries to accept this price.

All the same, Gazprom managed to get Ashghabad to consent to pay 50% of the deliveries in hard currency, while the other half was to be paid as before by means of oil and gas equipment, that is, through barter. Due to the fact that the agreement itself was not published, its specific details can only be judged from the mass media reports which noted that these conditions were to be in effect for three years.

As we have already said, such conditions are extremely beneficial to Turkmenistan. For beginning in 2007, when gas deliveries are to dramatically rise, the conditions for setting the price are to change (toward an increase). After this, the contract price is to be determined on the basis of European gas prices, but with the use of reduction factors. However, the method for calculating these prices was not determined at that time. What is more, as could be presumed, such conditions make it possible for Ashghabad to leave the barter system behind for good.

As a result, at the talks held in April of last year, Gazprom was forced to yield to Turkmenbashis pressure. In so doing, it appeared outwardly that the Russian gas monopolist managed to reach a compromise decision, whereby with minimum losses to itself. The sides decided that Gazprom would pay 44 dollars for each 1,000 cubic meters, but in cash. In other words, Gazprom theoretically seemed to stick to its guns by not allowing the price to be raised to 58 dollars per 1,000 cubic meters, while Ukraine was forced to agree with it.

But in fact, it was Saparmurat Niyazov who benefited the most. First, he once again violated a signed agreement, and probably not for the last time. Second, the previous conditions of the agreement harbored a price component advantageous to the Russians: by paying 50% of the deliveries in commodities, Gazprom, as experts believe, saved 7-8 dollars per 1,000 cubic meters of gas. Cancellation of the barter payments, however, will cost this company approximately 100 million dollars in additional expenses in two years alone; that is, for the Russians, the price of Turkmen gas has nevertheless risen. Third, transfer to 100% payment in currency is not advantageous to Russia, since its enterprises, mainly those of the machine-building industry, can no longer send their products to Turkmenistan by way of barter; that is, they are losing a sales market for their commodities. Fourth, the Russian machinery and equipment delivered naturally required servicing, spare parts, and so on. Now there is no guarantee that Ashghabad will continue to purchase these things from Russia.

Finally, the appearance in Ashghabad of significant resources in freely convertible currency is promoting acceleration of the construction of new gas routes from Turkmenistan alternative to the Central Asia-Center pipeline. After all, with respect to the changed contract conditions, in just two years Ashghabad could receive an additional 100 million dollars from Russia, and about 1 billion dollars from Ukraine.

On 20 April, Saparmurat Niyazov met in Ashghabad with OSCE Chairman Dimitrij Rupel. They discussed many aspects of cooperation, but the official mass media reports lead us to believe that Ashghabad did not sign any specific new agreements or other obligations, but only proposed preparing a corresponding bilateral document. It is obvious that the countrys leadership does not wish to take full responsibility for the obligations ensuing from ordinary membership in the OSCE. In turn, Mr. Rupel did not criticize the situation which has developed in the republic.

In the first decade of May, Saparmurat Niyazov came to Moscow to celebrate the 60th Anniversary of Victory in the Great Patriotic War and for the CIS summit. This was a rare case of the Turkmenistan presidents participation in Commonwealth activities. In Moscow, he held talks with the Russian and Ukrainian presidents, the PRC chairman, and head of Russias LUKoil Company.

As for the PRC, the China Petroleum Technology & Development Corporation (CPTDC) is becoming more active in Turkmenistan. It has been delivering boring equipment, drill bits and pipes, hoisting installations, backfill systems, fountain fixings, and other oil and gas equipment made in China to the republic since 1994. In addition, the Chinese opened two service centers in Turkmenistan for repairs, technical servicing, supplying spare parts, and so on to ensure the normal operation of the equipment and other technology delivered from the PRC. A very important and promising sphere of bilateral relations is construction of the Turkmenistan-China-Japan gas pipeline, the length of which, according to the project, amounts to 6,366 km.

At the Turkmen-German economic forum held in May, it was stressed that relations between these two countries are developing successfully, trade turnover during the years of independence has risen nine-fold, in particular, it was more than 0.5 billion dollars in 2004. Approximately 50 enterprises with German capital are registered in Turkmenistan, and German companies are carrying out more than 100 investment projects in the republic amounting to a total cost of 1.5 billion dollars.

At a meeting with a delegation of Ukraines Naftogaz National Joint-Stock Company held in Ashghabad in June, Saparmurat Niyazov was very critical about how the Ukrainians were fulfilling their obligations. There is a bilateral document which envisages the specific cost of natural gas58 dollars for 1,000 cubic meters, whereby the contract envisages that 50% of the payments be made in commodities. What do we actually have? Unprecedented embezzlement, involving this very commodity part. A totally unjustified coefficient has been tagged on to what is delivered unilaterally. As a result, in 2004, Turkmenistan was 61.7 million dollars short with respect to the payments it should have received for the gas delivered to Ukraine, and approximately 500 million dollars out of pocket for the first five months of 2005. Is this what is called honest partnership? asked Saparmurat Niyazov and demanded that Kiev fulfill the obligations it has assumed.

Three days after this meeting, Minister Charyev, chairman of the Turkmenneftegaz state trade corporation, was fired. Investigation by the prosecutors office of the activity of the directors of the concerns relating to the fuel and energy complex showed, among other things, that the Ukrainian representatives were also using openly corrupted cooperation conditions. For example, in 2003, 1.5 billion cubic meters of fuel were exported to this country above the amount that was stipulated by the contract and passed under official documents. With respect to this, on 24 June, a different Ukraines Naftogaz delegation arrived urgently in Ashghabad. Saparmurat Niyazov set new gas payment conditions, exclusively in hard currency. The representatives of official Kiev agreed not only to these conditions, but also to settling debts on the deliveries of goods from Ukraine, whereby at average world prices, without coefficients.

On 19 July, another delegation from China arrived in Turkmenistan, this time made up of government members headed by PRC State Council Vice Premier Wu Yi. It consisted of fifty members, some of whom were also business representatives. It is obvious that the PRC has been making thorough preparations for Saparmurat Niyazovs visit to China scheduled for the beginning of 2006, since Beijing is making targeted advances into the economy of the Central Asian states, primarily into their fuel and energy complexes. Most likely, after Kazakhstan, Turkmenistan could precisely be the second country in the region in which the Chinese will try and implement a large-scale pipeline project. Incidentally, during these talks, Saparmurat Niyazov offered the Chinese to also participate in reconstructing a refinery in Seidi.

On 23 August, the Turkmenistan head met with Commander of the Central U.S. Command, General John Abizaid. They talked about the evaluation of the situation in the region, whereby John Abizaid said he was interested in developing economic cooperation between Ashghabad and Kabul, particularly on the threshold of the parliamentary election in Afghanistan. Independent sources reported that the question of possible redeployment of the American military base from Uzbekistan to Turkmenistan was also discussed, since after the May events in Andijan, relations between official Tashkent and Washington greatly deteriorated. But there was no official confirmation of this information.

At the end of August, another CIS summit meeting was held in Kazan, which Saparmurat Niyazov did not participate in, but to which he sent an official delegation. It read Saparmurat Niyazovs message with his statement about the change in format for Turkmenistans participation in the CIS to associated membership. Referring to the republics constitutional status of permanent neutrality, supported by a resolution of the U.N. General Assembly of 12 December, 1995, Saparmurat Niyazov noted in this statement that in keeping with its international obligations, Turkmenistan does not enter military blocs or alliances, interstate organizations with regulated functions or which presume the collective responsibility of the participants, and does not take part in them, nor does it deploy the military bases of foreign states on its territory. Therefore, under present conditions, Turkmenistans participation in the CIS may be of an associated nature. The other CIS members did not object, although, without going into details, we will note that the arguments presented by Saparmurat Niyazov are far from indisputable. His standpoint was taken into account, and the Commonwealth executive committee was asked to draw up the draft of a corresponding agreement together with Turkmenistan.

In mid-October, another delegation of the Ukrainian fuel and energy complex arrived in Ashghabad. This time, too, the talks were tense. Saparmurat Niyazov again directed the guests attention to the violation of previously agreed-upon terms: Every time you give your word to settle your debts in six months, but you do not do anything about it, all you do is make promises. What is more, the Turkmenistan president noted that of the 484 million dollars commodity payment only 8.7 million has been paid, and the implementation of investment projects with Ukraines participation is being unjustifiably delayed, for example the building of a railroad bridge across the Amudaria. Touching on the problems of long-term cooperation in the gas sphere, Saparmurat Niyazov stressed in particular that it should take into account the interests of the third partnerRussia.

Soon after this, Russian Foreign Minister Sergei Lavrov made a working visit to Turkmenistan. His talks with Saparmurat Niyazov touched upon various aspects of bilateral cooperation, the situation in the region, and problems relating to the Caspian Sea. The Turkmenistan president was in favor of increasing the participation of Russian companies in business in his republic, in particular, he again proposed that they make their contribution to building a Caspian gas pipeline,2 possibly with the participation of Ukraine.

At the beginning of November, Iranian Foreign Minister Mottaki visited Ashghabad. He discussed with Saparmurat Niyazov the prospects for successfully developing bilateral cooperation. For example, reciprocal trade turnover has reached 1 billion dollars, Iranian companies participated in reconstruction the republics highways, and they were also asked to participate in modernizing the Seidi refinery.

At a meeting of the Cabinet of Ministers on 18 November, Saparmurat Niyazov announced another of his initiatives to set the price for all importers of Turkmen gas beginning in 2006 at 60 dollars per 1,000 cubic meters. What is more, he noted that the agreement signed with Russia in 2003 is not final and has not fully come into force, since it contains only the main principles of cooperation, without precise setting of the price for Turkmen natural gas. In December, the leadership of Russias Gazprom and Ukrainian representatives were notified of this position.

In order to draw up documents planned for signing during Saparmurat Niyazovs upcoming visit to China in 2006, a Turkmenistan government delegation headed by Deputy Chairman of the Cabinet of Ministers Berdyev visited the PRC. The most important results of this visit were the statement made at the meeting on 7 December on intentions to deliver Turkmen natural gas to China and Beijings offer to grant Ashghabad a privileged credit of 650 million yuans.

The conflict which became aggravated in December between Russia and Ukraine regarding the price for gas deliveries in 2006 was advantageous to Ashghabad. At that time, in December, representatives of Russias Gazprom and Ukraines Naftogaz met several times with Saparmurat Niyazov, of course separately. In the end, on 29 December, an agreement was reached with the Russians on their purchase in 2006 of 30 billion cubic meters of Turkmen gas at 65 dollars per 1,000 cubic meters. In so doing, Gazprom acquired all the additional non-contract amounts of gas, but at a higher price than Ashghabad previously designated. The cost of this amount is equal to 630 million dollars. Fifteen billion cubic meters are to be delivered in the first six months and then the sides are to adjust the price.


1 It is interesting to note that Iran suggested building a dam here on several occasions as early as Soviet times: in 1926, 1958, 1971, and 1982. Back to text
2 As early as April 2003, an agreement was reached between Turkmenistan and Russia on building a new gas pipeline route from western Turkmenistan to Russia through Kazakhstan, provisionally called the Caspian gas pipeline in the literature. Back to text

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