[A-List] Russia: Turkmenistan gas deal

["Michael Keaney" <michael.keaney@xxxxxx>]

Russia bends to get Turkmen gas
By Sergei Blagov
Asia Times, January 9 2003

MOSCOW - Following weeks of hesitation, Russia has publicly agreed with
claims by Turkmen President Saparmurat Niyazov that alleged assassination
and coup attempts against him last November were part of international
terrorism. In doing so, Moscow has distanced itself from a point of view
that Niyazov staged the attempts as a pretext to crack down on opponents,
reminiscent of Stalin-era purges in the Soviet Union.

In response to this cooperation with Ashgabat, Russia now seeks increased
gas purchases from Turkmenistan. Moscow thereby also aims to reduce the
threat from a planned trans-Afghan pipeline by getting more Turkmen gas into
its sphere of influence.

Notably, on January 2-3, the head of Russia's Security Council, Vladimir
Rushailo, traveled to Ashgabat to discuss claims by Niyazov that an alleged
attempt on his life was organized and financed in Russia. Rushailo had talks
and signed a security agreement with Redzheban Arazov, the Turkmen vice
premier and defense minister. Rushailo also had a five-hour meeting with
Niyazov, also known as Turkmenbashi, or head of the Turkmens.

In the wake of the alleged coup attempt, Turkmenbashi has repeatedly hinted
that Russia was implicated in the attempt to topple him. Niyazov's motorcade
reportedly came under machine gun fire in downtown Ashgabat on November 25.
No one among Turkmenbashi's entourage was hurt in the attack and there has
been no independent confirmation of the official version of the event.

Following his visit, Rushailo told Russian RTR television that assassination
and coup attempts against Niyazov were part of international terrorism.
Moreover, he promised to help Turkmen authorities to investigate the
incident and apprehend suspected terrorists. Niyazov said that he had asked
Russian President Vladimir Putin's help in locating and extraditing two of
the alleged conspirators - ex-central bank chief Khudaiberdi Orazov and
former ambassador to Turkey, Nurmukhammed Khanamov - who are still at large.

However, in reality it appears that the Russian mission to Ashgabat was
probably more interested in discussing hydrocarbon resources than war on
terror. Turkmenistan's gas is important to Moscow because Russian natural
gas monopoly Gazprom needs gas to make up for the shortages created by its
export commitments to Europe and lack of domestic investment. Gazprom's
annual shortfall in supplying the Russian domestic market is has been
estimated at 30-40 billion cubic meters (bcm).

Turkmenistan has the world's third-largest natural gas reserves, but current
exports are almost exclusively directed at former Soviet states supplied via
pipelines owned by Russia. In 1991, Turkmenistan produced nearly 85 bcm, but
the output plunged to only 13.2 bcm in 1998 and 23 bcm in 1999. On January
5, 2003 Niyazov announced that in 2002 Turkmenistan pumped 53 bcm of gas,
thus achieving 3 percent growth over 2001. Turkmenbashi also said that
exports reached 41 bcm, while the rest was consumed domestically. Now the
bulk of Turkmen gas is being exported to Ukraine and Russia via Russian
pipelines, while some gas exports go to Iran.

In 1997, Turkmenistan suspended deliveries to Russia in a price dispute,
insisting that $32 per thousand cubic meters (tcm) was too low. In December
1999, Russia's Gazprom offered 70 percent of the payment in barter and 30
percent in cash. Turkmenistan insisted on $40-42 per tcm with 50 percent
payment in cash, and a compromise was reached at $36 per tcm with 40 percent
in cash.

According to this agreement, Turkmenistan was supposed to export 20 billion
cubic meters (bcm) in 2000 and increase this figure by 10 bcm per year for
three to four years until import levels reach 50-60 bcm per year. So far,
this deal has failed to be fully implemented. Turkmenistan and Iran have had
price disagreements and Turkmenistan's gas supplies to Iran of around 2 bcm
per year are yet to reach the agreed 5 bcm.

However, in the wake of the recent trans-Afghanistan pipeline deal,
Turkmenistan's dependence on Russian pipelines is due to fall away. On
December 27, Afghan President Hamid Karzai, President Niyazov and Pakistani
Prime Minister Zafarullah Khan Jamali met in Ashgabat and signed an
agreement to build the 1,400-kilometer trans-Afghanistan pipeline that will
carry natural gas from Turkmenistan to Pakistan. The $2.5 billion pipeline,
which will transport gas from the Dauletabad field near the Iranian border,
could also be extended to India.

No big wonder that Russian officials rushed to clinch a gas deal with
Turkmenbashi. Russia's deputy energy minister Guennady Ustyuzhanin, who was
a member of Rushailo's mission, submitted a Russian draft of a bilateral
energy deal to Turkmen officials. Basically, Moscow suggested that
Turkmenistan export 10 bcm of gas to Russia by 2005 and 20 billion by 2008.
In response, Russian offered to export Turkmen crude oil via the
Makhachkala-Novorossisk pipeline. On January 4, Ustyuzhanin was quoted by
RIA as saying that this deal could be signed by the Russian gas monopoly
Gazprom and Turkmenneftegazprom as early as February. He also pledged to pay
for Turkmen gas in cash without any barter dealings.

Against this backdrop, the saga of the coup attempt against Turkmenbashi
became a matter of little importance for Moscow, and it was happy to toe the
Turkmen line.