Newsletter No. 308
News-Analysis
June 16, 2006

 

BIG TROUBLE IN LITTLE TURKMENISTAN

An extremely interesting report has just been produced by News Central Asia that throws a lot of light on contemporary Japan-Turkmenistan relations. If all of the information contained in this report is true, then we can learn a lot about Japan’s business diplomacy in Central Asia and beyond.

The gist of the report is that Turkmen President-for-Life Saparmurat Niyazov put Japanese business leaders on notice that he would accept no contracts that he did not feel were in the best interests of Turkmenistan (This is very similar to Indonesian Vice-President Jusuf Kalla’s complaints about Japanese policy).

He also ripped into Foreign Minister Taro Aso for discussing a Trans-Afghan Pipeline at the most recent Central Asia Plus Japan meeting without ever mentioning this idea in bilateral discussions with Turkmenistan. He feels that Aso is trying to politicize the pipeline issue and is taking it out of the purely economic sphere. We did note in Shingetsu Newsletter No. 297 that Turkmenistan was conspicuously absent from the Central Asia Plus Japan meeting in Tokyo; now we have some indication as to why -- President Niyazov probably feels that Tokyo wants to use that framework as an anti-China organization, and if so he refuses to play along.

And speaking of China, in his meeting with the Japanese business leaders it would be an understatement to say that he played the China card. It was more like he threw the China card in their faces.

As interesting as Niyazov’s uncompromising stand was the toadyish response of the money-hungry Japanese business leaders to his in-your-face provocations. The best was saved for last when Minoru Murofushi, the Co-Chair of the Turkmenistan-Japan Relations Council, told the Turkmen press that “the principles of the Ruhnama are close to the Japanese people.”

The Ruhnama is Niyazov’s own book of political principles that Turkmen citizens are legally obligated to respect. President Niyazov is even said to have declared in March of this year that, “he had interceded with Allah to ensure that any student who reads the book three times would automatically get into paradise.”

So Mr. Murofushi believes that this spirit is close to that of the Japanese people? Perhaps he is thinking of prewar Emperor worship!

WEDNESDAY MEETING BRINGS FRESH PERSPECTIVE TO TURKMENISTAN-JAPAN RELATIONS

Ashgabat, 15 June 2006 (nCa) --- It was obvious after a meeting of the Japanese businessmen Wednesday with President Niyazov that Turkmenistan has taken a fresh position on its future relations with Japan. The underlying message was that nothing should be taken for granted.

By chiding Japan for recently making unilateral offer to participate in Trans-Afghan Pipeline (TAP), refusing to accept credit lines that involve high rate of interest, and drawing consequential parallels with similar dealings with China, President Niyazov made it very clear that the future dealings must be based on mutually acceptable terms.

Niyazov said that the recent remarks by the Japanese foreign minister about Japan’s readiness to participate in TAP had given political twist to a purely economic project. The remarks came during the Central Asia Plus Japan forum where Turkmenistan was not present.

Recalling similar announcements by some Western countries and Kazakhstan about the possibility of exporting Turkmen gas to Europe via Trans-Caspian pipeline, Niyazov said that no one has contacted Turkmenistan so far about the possibility of any such project. He reminded that Turkmenistan doesn’t believe in politicization of economic projects and natural resources.

It was evident that in regard to the gas pipeline, China would retain top priority while TAP and Trans-Caspian would have to wait for a better climate.

The Turkmen president declined the Japanese offer of a credit line with 6.5% interest rate. He said that Turkmenistan is a young country and cannot afford such expensive credits. He mentioned that China offers credits at 2% interest.

Niyazov said that a modernization unit offered by Japanese companies for the Turkmenbashi refinery was not acceptable under the present circumstances because of its high price. He said Turkmenistan would wait for a year or so for the project price to come down.

Expressing gratitude to the Japanese businessmen for their long-term cooperation with Turkmenistan, Niyazov said that although more orders worth US$30 million would be placed for the construction machinery, the suppliers must hasten with the orders that are already in the pipeline. He said that payments would be made immediately on delivery of the machinery.

The Japanese delegation, led by Minoru Murofushi, was composed of representatives from Itochu, Komatsu and JGC. Minoru Murofushi is the former chairman of Itochu and he co-chairs the Turkmenistan-Japan Relations Council.

Transcript of the Meeting:

Minoru Murofushi: Today in the early morning I arrived in Ashgabat and we visited the [Kupchak] mosque and laid a wreath on the tombs of your mother and brothers. I felt that this mosque, constructed under your supervision, unites you and the nation in general. This is my first impression. Your Excellency, first of all I would like to thank you for close attention paid by you to our projects. This visit coincides with some memorial dates -- Your election anniversary and the 15th anniversary of independence. The implementation of many projects is planned on this significant date -- the 15th anniversary of independence. I would like to wish you their successful realization.

Let my touch upon some projects between Turkmenistan and our country. I wish these mutual projects to yield big fruits to Turkmen people.

I have several topics. Let me start from projects of road-building equipment supply. I’d like to thank you for continual purchases of equipment from Komatsu. I remember that in my last visit in September 2005 we have made a contract on the purchase of construction equipment for the oil and gas industries. In accordance with contract, the work on expansion of after-sales service has continued. Moreover, the opening of service centers in Mary and Balkanabat city is planned in August of this year. Our cooperation is built on mutual profit. And I hope that this year Komatsu will get the same large order for the supply of equipment.

One of the main purposes of our present visit is the signing of additions to the Memorandum on the project of the expansion of capacity for the Turkmenbashi oil refinery, which was concluded three years ago. The text of the additions to the Memorandum was drafted together by our and your specialists. We would like to add the following two clauses:

a) State guarantee from the government of Turkmenistan on financing project
b) 20% prepayment by cash.

Concerning the reconstruction of the Seydi oil refinery, on the basis of our investigations in the plant, conducted in January 2006, we have submitted a report in February. The report says that the project is sticky (difficult to implement). There are technical difficulties in supply of raw materials.

I’d like to tell about the JGC company. It is not just a major company in sphere of oil and gas refining. JGC has also participated in a number of projects on exploitation and processing of gas. It has great experience in this sphere. In particular, it is experienced in the sulphurization of gas and in the exploitation of gas fields. Let me remind you of the work done by JGC in Algeria thirty years ago. The total cost of the projects committed in that country was near US$10 billion. The company was concerned with construction and acted as contractor on the drafting of a feasibility study. It was concerned with working out of plans on the development of the gas industry. The government of Algeria highly evaluated the JGC company. I was engaged for a long time with those projects in Algeria. I was Chairman of the Committee of Economic Cooperation between Japan and Algeria. So, I know the work which was done by that company in Algeria. JGC has also worked in Qatar, Malaysia, Indonesia, Nigeria, and Saudi Arabia. The company also was connected with projects for production of LPG and compressed gas. JGC is number one in the world in gas output and reefing. I wish your ministries would take advantage of great experience of JGC.

The next point is supply of equipment for the sulphurization of gas. We understand that this project is very important for your country. JGC is interested in this project and it is ready to send its experts for further research. I’d like to ask you to present more detailed information from the Turkmen side.

Concerning the purchase of polypropylene, our company made a contract for purchase of polypropylene in 1998. At the beginning of this project we conducted market research for this kind of production. The optimal methods of transportation have also been worked out. On a regular basis we have purchased this product and so we have contributed to the high reputation of Turkmen production. Unfortunately, from December 2005 the sale of polypropylene to our company has been suspended. Now we have seriously studied the reasons for this situation. We are long-term partners and together we gave birth to this product. We would like to renew the polypropylene supplies and to expand our relations in different directions. And even if there will be a market recession, Itochu Corporation will not abandon Turkmenistan. We will buy polypropylene at market prices. We just would like to determine the quantities on regular basis.

President Niyazov: But the market prices have changed… The price in the contract is lower.

Murofushi: We will purchase polypropylene at market prices. We just want to determine the quantity.

President Niyazov: No problem with quantity. We have no obligations to others. I mean, for supplying the product to you, we have no obligations to somebody else. But the price will be the market price. We have an Exchange [State Raw Materials and Commodity Exchange, the national clearinghouse of most products]. There we also sell polypropylene but at a little bit higher price. So competition has occurred there. So -- no problem -- let’s sell at market price. If market price declines, we also will decrease our prices… Any other questions? (laughing)

Translator: Mr. Murofushi is interested in sports -- Judo. The Komatsu company has a strong women’s Judo team. It consists of world champions. Turkmen women also have been trained in the Komatsu team. I have heard that now a women’s judo tournament is being conducted in Ashgabat. And tomorrow the final games will take place. I will offer gift prize to the winner. I also brought judo clothes for Turkmen sportsmen from Komatsu.

Representative of JGC: Now, Mr. Murofushi in general told you about the project of the expansion of the capacity of the Turkmenbashi oil refinery. Within the last three years we have studied the possibility of the introduction of this project to the Turkmenbashi oil refinery. But we have heard that the project for increase of the capacity of the polypropylene unit will be considered for the Seydi oil refinery. It is unexpected.

President Niyazov: There is no question. Somebody led you astray. There is the matter is of polyethylene. Not polypropylene.

Representative of JGC: So… can we sign the addition to the Memorandum on the increase of the capacity of the polypropylene plant at the Turkmenbashi oil refinery?

President Niyazov: No! Not now… After one year we will discuss it again. Your project is a little bit expensive. Japan is a rich country. Turkmenistan is just fifteen years old as independent country.

Without us, without our participation, the Japanese Minister of Foreign Affairs said in the Central Asian meeting that Japan will participate in the TAP project. We didn’t know about that. The Japanese party didn’t conduct negotiations with us. Or in Europe… they talk about supply of Turkmen gas to Europe. We have heard about the intentions of Turkey. They are considering a Trans-Caspian gas pipeline. But nobody speaks about that with Turkmenistan. Seemingly, they consider that Turkmenistan is isolated. It is not so. We consider that we should discuss the matters on a bilateral basis. But collective discussion of such matters without a preliminary analysis of opportunities is a political measure, a political action. We as neutral state do not participate in political action. Many large and small countries say that they are ready to construct pipelines and purchase Turkmen gas. But nobody speaks concretely. Soon, a Russian delegation will arrive in Ashgabat to sign a contract for the next half-year. We have opportunities -- they have a pipeline, and transportation possibilities. We will agree on volumes and prices and will sign the contract. Some Kazakh leader stated that they are ready to transport Turkmen gas through the Caspian and the Trans-Caspian gas pipeline. It is just a political statement.

And I feel (laughing) that in this matter Japan also has made political statement. The Japanese foreign minister stated about that during the meetings of the foreign ministers of Central Asia. Such issues are caught by the mass media and interpreted in different ways. We ourselves choose the partners. We chose China. We have signed a large general agreement with them. China will work on four blocks of gas fields on the right bank of Amudarya. There is reserve of 1.7 trillion [cubic meters]. And we will supply 30 bcm to China annually from 2009. Today, in fact, a Chinese delegation will arrive.

Representative of JGC: Excuse me for the interruption. You said that the project is expensive. But the prices of energy reserves have sharply increased in the world market. So, the cost of materials has also increased.

President Niyazov: We know all about that. So we’ll wait for the prices come down a little bit. The cost of your project also will decrease. The second issue -- we cannot give a state guarantee and a 20% advance payment. Your credits are very expensive. We took credit for the textile industry. You gave us 8% per annum. It is very expensive! Do you want to help, or do you want just to earn money from us? We are a young country. For another factory -- 6.5%. And besides, you request governmental guarantees. But the government doesn’t participate in that. It is a joint-stock company. Your credits are expensive. China gives us credit! They supply cars, drilling equipment, metal. They give credits at 2% per annum. Most of the credits are grants. 2% from China, and yours are 6 to 8%. And you say that you help us. Such credits are one-sided. China now works in all spheres here.

Representative of JGC (interrupting): But in the course of negotiations we are going to offer 4.2%.

President Niyazov: 4.2 %? Before yesterday we were informed of the figure 6.2 %. Anyway we would not take such credit.

Murofushi: I regret about the statement of our foreign minister. I didn’t know the content of the meeting and the statements of the foreign minister. Our ministry should meet before [with the Turkmen side] and discuss such matters in advance.

President Niyazov: We don’t worry. We do not feel hurt. But the mass media started to say that Japan desires with China to participate in the TAP pipeline. It has turned into a political matter. As a neutral state we consider such issues from the economic perspective.

Murofushi: No matter where gas pipeline will go -- to China, India or via Afghanistan or Iran, the Itochu Corporation is always with you.

Representative of JGC: I’d like to return to polypropylene. You said that we will discuss this matter after one year.

President Niyazov: Depending on the market prices. For US$1.6 billion it is expensive.

Representative of JGC: You said about 8%. Only private banks can offer such interest rates.

President Niyazov: 4% is also expensive. It would take long time to repay such credit. The Chinese 2% is suitable.

Representative of JGC: You talk about China… But China has no technology for polypropylene production.

President Niyazov: No… not in this sphere. China has worked for example on well recovery. They worked for a long time. They work here in railroad transport, in the communication sphere, and in mobile communications. You have mobile communications. But no Japanese came to Turkmenistan. We have Turkmen, Russian, American, Chinese mobile communications. Their interest rates are low. They give grants. And you know nothing about giving grant credits.

I thank Komatsu for the equipment that they supply. It is reliable equipment. The Ministry of Water Economy will make a contract with Komatsu for the supply of equipment for a total sum of US$20 million. The Ministry of Energy will make a contract for US$10 million. The previous supplies are running with delays. The Ministry of Oil and Gas didn’t receive part of the equipment. If it is possible, make the supply deliveries faster. The payment will be made right at the moment of supply.

Representative of Komatsu: Now in the world there is a shortage of equipment and technologies. The Komatsu Company has decided to construct two more factories. It is planned that this construction will take two years. But I will take into consideration your request to speed up the supplies to Turkmenistan.

President Niyazov: About the Seydi refinery. After one and a half years I think the oil output will reach three million tons. And for reconstruction it is necessary have two million. So, we will discuss the issue of reconstruction. On the Caspian shelf we have oil sources. A lot of companies work there. There is competition. I think it would be profitable for Japanese companies as well.

Murofushi: I am very thankful for the meeting with you and the sincere conversation. I thank you for listening to me with patience.

President Niyazov: We highly evaluate you for the wonderful reconstruction of Turkmenbashi oil refinery. We are always ready to cooperate with you. We highly evaluate your technologies. Each house here has Japanese equipment -- TV-sets, cameras, furnishings. In Africa, they even have your Toyota cars... I wish you success!

Murofushi: You are for me old friend. I just want that you are happy with us always.

[After the meeting, Murofushi talked briefly to the Turkmen media]

Murofushi: My last visit was in September 2005. This time we met with President along with representatives of Komatsu, JGC and the Itochu Corporation. Today, before meeting with President, we visited a mosque. I learned a lot. I felt that this Mosque is a symbol of the unity of the President with his people. We discussed the increase of the capacity of polypropylene output, the supply of Komatsu equipment, and the purchase of polypropylene. The issue of the exploration of the Caspian shelf fields was also touched upon. The issue of reconstruction of Seydi oil refinery was also discussed. We also exchanged opinions on development of the women’s judo team in Turkmenistan. The President also gave me a gift of the second book of Ruhnama in Japanese. I will read it, and after reading it I think that I will become closer to the Turkmen people. The principles of the Ruhnama are close to the Japanese people.