Caspian region: Turkmenistan's phenomenon
Maria BEAT

There is no issue more important today for the Caspian region countries than transportation infrastructure, since regardless of how rich you are in oil or gas, your wealth is meaningless if your customer cannot get it

Turkmenistan's current gas deposits are estimated at 12 trillion metric tons -- potentially the fourth largest gas reserve in the world after Russia, the United States and Iran, with the Caspian continental shelf reserves alone standing at 4.5 trillion metric tons

The once powerful ruler of the mighty Soviet Union, Mikhail Gorbachev, never knew how to correctly pronounce the name of Azerbaijan, at that time one out of the 16 constituent republics comprising the Soviet empire. The word coming out of the leader's mouth sounded like Azebradjan, but it hardly made a difference either to Gorbachev or to the world community, since not too many people outside of the U.S.S.R. knew about that part of the world and its presently independent states that we have gotten used to calling "the Caspian region countries."

Today, almost 15 years later, many things have changed. The Soviet Union is gone, flashing away its last leader with his ill-conceived "perestroika," and on the remnants of the once-existing empire the world community has discovered a whole bunch of newly emerged states, with weird-sounding, for a Western ear, names. To simplify the things, the West nicknamed them the "stan countries," which covered six Central Asian states -- Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan, and their close European neighbor, Azerbaijan. The reason for doing so was not the apparent difficulty in the pronunciation of these countries names only, but the universal belief in their looking alike, which was more or less true.

But that was the case years ago, today government and business leaders all over the world do not mix up these countries' names, nor have they problems in recognizing specifics in their national identities. They keep a close watch on the developments in this part of the world for a very particular reason, being the region's geopolitical location and the vast deposits of oil and gas, that makes it a major potential energy supplier of the 21st century.

The region has attracted much attention in recent years, even the high-profile British super-spy James Bond found himself involved in the conflict with pipeline construction there. A James Bond movie -- is a fairy tale, but its message is down-to-earth: There is no issue more important today for the Caspian region countries than transportation infrastructure, since regardless of how rich you are in oil or gas, your wealth is meaningless if your customer cannot get it.

The fact that the Caspian region has huge mineral reserves is old news; for years, the U.S.S.R. generated profits from their extraction. What is new today is different: This wealth has finally become the heritage of sovereign and independent states, which are in a position to decide how to share it with international community to the mutual benefit of all. Separated by the Iron Curtain from the rest of the world for years, the region has finally opened up itself to the world, candidly revealing its assets and soft spots, which is evidence of its gradual integration into the life of the international community.

Turkmenistan

More than eight years have passed since the collapse of the Soviet Union, but certain Soviet dogmas are still alive, such as "Russia is great" and "the Russian Army is unbeatable." And there are also a couple of regional ones, such as "Uzbekistan is cotton" and "Turkmenistan is gas." Surprisingly, these last ones remain true to life and have started to acquire a new and broader meaning.

Turkmenistan emerged as a sovereign and independent state in 1991, but it has a proud and ancient history. In the 19th century alone, it played -- due to its strategic location -- a major role in the Great Game between the Russian and British empires for the spheres for influence in Central Asia. Today, another Great Game is on -- for the energy resources this time -- with the old gamblers, Russia and the West, back on track.

Turkmenistan's current gas deposits are estimated at 12 trillion metric tons -- potentially the fourth largest gas reserve in the world after Russia, the United States and Iran, with the Caspian continental shelf reserves alone standing at 4.5 trillion metric tons. It is also the gas producer fourth largest in the world after Russia, the United States and Canada, with present production capabilities standing at 80 billion cubic meters of gas per year. For comparison, Turkey's growing gas demand is expected to reach around 40 billion cubic meters annually in 2020, which theoretically makes Turkmenistan capable of supplying a market twice larger than Turkey.

During the years under the U.S.S.R. Turkmenistan was molded into the natural gas provider for Russia, Ukraine, Kazakhstan, Uzbekistan and Georgia. When the Soviet Union fell apart, its wealth and property was divided between the former Union republics, and as a gas-producing nation, Turkmenistan inherited its natural reserves, production facilities and a gas transportation system, which turned out to be a Pandora's box for the national economy.

Constructed by the Soviet Union, this gas transportation system was fully integrated into the single pipeline network built in its territory, stretching from Turkmenistan through Kazakhstan, Uzbekistan and Russia, with branches to Georgia and Ukraine, eventually bringing gas to the countries of the "socialist camp" in Eastern Europe.

With the collapse of the Soviet empire and its property distributed, the Russian gas monopolist RAO Gazprom got this under its control, the only high-capacity gas pipeline leading out of Central Asia. In the early days of independence in 1991-1993, it permitted access for Turkmen gas to Western markets through its pipeline system, which positively affected Turkmenistan's economic development. The national income increased by 45 percent during these years; agricultural production remained stable; and industrial production decreased by only 10 percent.

Independent and sovereign, Turkmenistan inherited a lopsided economy from the Soviet Union, totally dependent upon gas production, with every development in the sector bearing an impact on the general economic growth.

In October 1993 RAO Gazprom denied Turkmenistan export access to the well-paying customers in the West and limited Turkmenistan to exporting to the Commonwealth of Independent States (CIS) countries. Following up on this development the main consumers of Turkmen gas became Ukraine, accounting for 80 percent, Armenia accounting for 10 percent and Azerbaijan, accounting for four percent of sales. Newly independent states themselves, these countries have suffered from insolvency and are in no position to secure timely payments for the delivered Turkmen gas. This situation has negatively affected Turkmenistan's export revenues and created a nonpayment crisis in 1997.

Deliveries to Ukraine, the major consumer of Turkmen gas, were stopped in March 1997, and Turkmenistan was forced to sharply reduce its natural gas production. For comparison, in 1996 production stood at 35.5 billion cubic meters, and the bulk of it was exported to Ukraine. And another comparison: At the best of times in 1989, Turkmenistan produced 7.49 billion cubic meters of natural gas per month, while in 1998 its overall six-month production was registered as 7.16 billion cubic meters, being the lowest extraction level in at least 30 years.

As a result, the real gross national product (GDP) declined in 1997 alone by 25.9 percent, while Turkmenistan's close neighbors, Azerbaijan, Georgia and Uzbekistan, registered 5.8 percent, 11.0 percent and 2.4 percent GDP growth accordingly for the same period. Exports in the first half of 1998 decreased to $258.4 million, or 23.5 percent of GDP, down by 48 percent in January-June 1997. As a result Turkmenistan posted a trading deficit of $258.6 million in the first half of 1998, compared to a $19 million surplus the previous year.

Turkmenistan found itself in a real trap: Possessing one of the world's largest gas reserves and impressive production capabilities, the country found itself incapable of exporting it anywhere but to the cash-stricken CIS countries due to the shortage of other exporting opportunities.

This dramatic course of events could not escape the attention of the world community, since in today's globalized world the international and domestic are closely intertwined. The West has recognized that construction of the southern natural gas export route became a priority, not only for Turkmenistan but for the international community. Since 1997, the issue has become a focus of attention of the U.S. energy policy in the region, and transCaspian and transIranian pipelines construction has received an ultimate support from the U.S. government. In line with it U.S. President Bill Clinton declared in November 1999 at the Organization for Security and Cooperation in Europe (OSCE) Conference in Istanbul: "These pipelines will be an insurance policy for the entire world, helping to ensure that our energy resources pass through multiple routes, not a single choke point."

TransCaspian Gas Pipeline construction to bring natural gas and oil from the Caspian region to Turkey and further on to Europe is a fashionable topic today. In recent years the bright minds of the world have generated numerous brilliant ideas and offered courageous solutions to the matter, with the only issue still waiting for an answer: How feasible it is to build these pipelines?

The TransCaspian Gas Pipeline could become the most feasible alternative to deliver Turkmen natural gas to Turkey and further on to Bulgaria and finally Germany. The legal grounds for the project were laid down by a Framework Declaration signed by the presidents of Turkmenistan, Azerbaijan, Georgia and Turkey in November 1999. The Declaration was also signed as a witness by U.S. President Bill Clinton to demonstrate the U.S. commitment to support the pipeline construction.

When constructed, the pipeline will start bringing to Turkey 16 billion cubic meters of natural gas per year, which is projected to happen by the end of 2002. At the later stage of its operation, the capacity would increase up to 35.4 billion cubic meters, which would enable the pipeline to deliver natural gas further to Europe.

TransCaspian would establish the first southern export trunk pipeline for the Central Asian gas, providing Turkmenistan with a stable channel for exporting its natural gas to the West. It would also become a principal link of a multi-channel energy supply system from the Caspian region securing stability in the natural gas deliveries to the countries of the West.

The sun will shine more brightly tomorrow

Besides meeting the regional energy demand and creating new supply sources, TransCaspian would give a long-awaited boost for general economic growth in Turkmenistan. It would provide Turkmenistan with an opportunity to export as much gas as it is capable of producing to the West and to increase the inflow of the export revenues to a secure positive balance of payments. As a result, higher spending could be expected on the economy-reorganization programs, infrastructure development and social needs, which would also improve the living standards of the population, Turkmenistan's international outlook and create a more comforting working environment for international businesses. This course of events has the potential to make Turkmenistan an investment hub, which has been a demanding task for the government of the country from the first days of its independence.

The year 1999 has become a turning point for Turkmenistan, since the general situation in the country has changed for the better. The first evidence was brought by the commissioning of Turkmenistan-Iran gas pipeline at the end of 1997, the first independent from the RAO Gazprom export route, and in 1999 it delivered 2 billion cubic meters of gas worth $50.4 million to Iran. Natural gas production has experienced a considerable growth and rose to 22.8 billion cubic meters, which almost doubled the 1998 volume.

On the positive side, can also be mentioned the resumption of natural gas deliveries to Ukraine, with 8.7 billion cubic meters of gas delivered in the first half of the year. On the other hand, it was less than half the amount contracted for delivery in 1999, which stood at 20 billion cubic meters of natural gas worth $720 million. Nevertheless, exports were to stop mid-year due to Ukraine's falling behind in payments.

An apparent growth in natural gas production resulted in the increase in Turkmenistan's trade turnover by 57.2 percent, reaching $1.22 billion in the first six months of 1999. It also has brought a reduction in trade deficit from $294 million for the first 10 months of 1998 to $98.4 million for the same period in 1999.

Impressive results registered in electric energy production, textiles and agriculture improve the positive change in Turkmenistan's profile.

Certain experts could call these developments modest, and they would be right, since in terms of international economy they are. Nevertheless, they signify an impressive breakthrough for Turkmenistan, and in the context of the local realities these achievements are quite impressive. And one more reservation: The process of emergence of the newly independent CIS countries is a special one, since we are now witnessing a socioeconomic revival of the nations kept "incommunicado" from the rest of the world by the Iron Curtain for 70 years. It is a tough job they have to do. Let's wish them success in their endeavors.

Turkish Daily News, 19 February 2000