Europe's Energy Worries Currying Favor with the Turkmenbashi

Recent Russian threats about possible cuts in natural gas deliveries has the European Union concerned. But new light being shed on Western overtures to the despotic ruler of energy-rich Turkmenistan won't lessen the unease.

By in Ashgabat


Russia's Gazprom controls most of the natural gas heading towards Western Europe.
REUTERS

Russia's Gazprom controls most of the natural gas heading towards Western Europe.

With officials from Russia's Gazprom recently implying it could throttle natural gas supplies to Europe should it be blocked from expanding its clout in the region, many across the continent are becoming worried about just how reliable a partner the state-backed energy behemoth is. But the European Union's search for alternative gas suppliers in the former Soviet Union certainly doesn't offer much solace. Energy, it would seem, costs much more than just money -- although there is plenty of that involved too.

One stark example of just how much is contract no. 14/404, dated May 14, 2001. The nine-page document defines the terms of Turkmen gas deliveries to Ukraine over a five-year period. The treaty was expected to generate revenues of $1.68 billion for 2002 alone, a princely sum for Turkmenistan, a country where about half the population lives in poverty. But the deal contains one important detail of which the Turkmen people are probably unaware -- information about the transaction bank account. This little nugget of critical information can be found at the bottom of the last page: "Central Bank of Turkmenistan, Acc. No. 949 924 500 DEUTSCHE BANK AG, Frankfurt am Main, Germany, Taunusanlage 12-21…Swift: DEUTDEFF."

Regime opponents in exile have long criticized the fact that the self-proclaimed Turkmenbashi (father of all Turkmen), President Saparmurat Niyazov, is able to park his energy-rich country's export revenues in foreign banks undeclared on the government's books. Indeed, the practice is so objectionable that the World Bank and the European Bank for Reconstruction and Development (EBRD) have minimized their involvement in the vast country on the Caspian Sea. Few know where exactly all the money goes. Most of those that do either remain silent or are silenced. Jolly Gurbanmuradov, for example, was still the country's deputy premier when he signed the natural gas agreement with Ukraine five years ago, his fancy signature appearing just below the Deutsche Bank account number. Now Gurbanmuradov is serving a 25-year sentence in a Turkmen prison for allegedly misappropriating more than $100 million.

Deutsche Bank was also identified in the unofficial announcement of the May 31, 2005 verdict against Gurbanmuradov, a high-ranking official with years of service and the Turkmenbashi's potential successor. Robert Schöpf, the manager of the Frankfurt-based bank's office in the Turkmen capital, Ashgabat, was in the room when the Turkmen president and the country's chief public prosecutor announced to the people, before the assembled council of ministers and live cameras, why the government's number two man and the head of the Turkmen Central Bank had to be let go.

Eager bankers

The Turkmenbashi neglected to address the question of how he -- the man in charge in a one-party state -- could have failed to notice embezzlement of this magnitude. But he did mention -- warmly -- Deutsche Bank manager Schöpf's help in clearing up the case.

Ever since Deutsche Bank began lending a hand to the Niyazov regime back in 1996, the German bank has served as a sort of ersatz central bank for Turkmenistan -- effectively the silent and willing helper of a horde of kleptocrats on the Caspian Sea. This, at least, is the way former Central Bank director Khudaiberdy Orasov -- who has since fled the country -- sees it. According to Orasov, $1.8 billion had already been posted to the Turkmen government's main account with Deutsche Bank by 2003. More importantly, the funds have been deposited into a foreign exchange fund that, according to Orasov, President Niyazov sees as his own "personal spending money."

Deutsche Bank has refused to comment on the existence of account no. 949924500, as well as on any other accounts held by the Turkmen government. "As a matter of principle," said an official at the bank's Frankfurt headquarters, "we cannot comment on existing or nonexistent accounts."

The first few years of the mutually beneficial relationship between the Turkmen government and Deutsche Bank were later backed up by a major lending agreement that was important enough to the bank that it dispatched a member of its board of directors, Tessen von Heydebreck, to Ashgabat to sign the document.

A study with a section titled "The Dictator and Deutsche Bank" being released this week by the independent London-based watchdog group Global Witness details corruption in the natural gas business. "It is hard to see how Germany’s vital interest in the security of energy supply can be reconciled with a preparedness by Germany’s biggest and most prestigious bank to act as banker to an unhinged tyrant," a willingness that apparently even includes accepting "potentially injurious consequences for the future peace of Central Asia."

Bolstering an autocrat?

A 12-meter (39-foot) gilded statue of the  Turkmenbashi  in downtown Ashgabat.
Lutz Kleveman

A 12-meter (39-foot) gilded statue of the Turkmenbashi in downtown Ashgabat.

Germany's banks have essentially bolstered the autocrat of Ashgabat with loans amounting to three quarters of a billion dollars, Global Witness writes, and asks: "How can German banks morally justify such enthusiastic support for a regime that has so little regard for its own citizens?"

The presence of the Turkmenbashi, declared president for life in 1999, is overwhelming in the area where both Deutsche Bank and the German embassy are located in Ashgabat. Images of the leader grace newspaper headlines, vodka bottles and teabags. A 12-meter (39-foot) gilded statue of the Turkmenbashi in downtown Ashgabat is even designed to rotate so that the sun shines on it from morning to night.

Judging by its natural gas reserves, Turkmenistan, a country wedged between the Caspian Sea and the Karakum Desert and home to just under five million people, is one of the world's richest countries. The country derives about 70 percent of its revenues from oil and gas exports. And fossil fuels were responsible for 85 percent of Turkmenistan's export earnings in the first half of 2005. German industrial company MAN Ferrostaal was one of many foreign firms that benefited from the country's wealth last September when it sold the Turkmenistan a compressor system to the tune of €114 million.

But because the country's foreign currency earnings from its export business, kept safely deposited in overseas bank accounts, are not subject to public scrutiny and -- according to the International Monetary Fund -- are at best used to pay for the construction of enormous prestige projects in the capital, an ordinary citizen in the natural resource paradise of Turkmenistan is even worse off today than in Soviet days.

According to figures compiled by international experts and untainted by official propaganda, the "Golden Age" proclaimed by the Turkmenbashi has led to 50 percent unemployment in cities and up to 70 percent in rural areas. Pensions and maternity benefits were recently cut and most rural hospitals shut down. According to local sources, inpatient treatment will soon be unavailable anywhere but in the capital Ashgabat and drugs will only be available in return for hard cash.

A massive monument to Ruhnama, the "Book of the Soul" written by Turkmen President Niyazov that is required reading in all the country's schools.
AP

A massive monument to Ruhnama, the "Book of the Soul" written by Turkmen President Niyazov that is required reading in all the country's schools.

Cult of personality

Any Turkmenian citizen who fails to spend sufficient time studying the president's spiritual guide for his people, the "Ruhnama," is barred from obtaining a driver's license, getting a job or graduating from school. In February 2003, the DaimlerChrysler Group complied with the government's request to foreign companies to have the book translated into their native languages. Erich Jonscher, head of DaimlerChrysler Overseas, expressed his employer's appreciation for a seven-year contract for the delivery of Daimler commercial vehicles to the country at a ceremony marking the official publication of the book's German-language edition.

In November 2005, Klaus Mangold, Executive Advisor to the Chairman at DaimlerChrysler, a seasoned veteran in the battle for Asian markets and the head of a delegation of German companies representing €270 billion in annual sales, received a personal message from the Turkmenbashi. Western Europe, wrote the ruler of Ashgabat, could purchase 30 billion cubic meters of natural gas from Turkmenistan in the future, if needed.

The offer, though tempting, is worthless without Russian consent, because Turkmenistan's natural gas must pass through Russian and Ukrainian territory before reaching the West. For a moment, it seemed almost as if energy-hungry Europe was about to see its dreams come true -- and without even having to ask the Russians first. That was last spring, when the Ukrainians, still intoxicated by their Orange Revolution, attempted to cut a deal directly with the Turkmenbashi -- in an effort to reduce years of expensive dependency on middlemen with ties to Moscow who have managed to siphon off billions.

Turkmenistan President Saparmurat Niyazov.
AP

Turkmenistan President Saparmurat Niyazov.

Deutsche Bank, once again eager to be of assistance, granted a €2 billion line of credit to the national Ukrainian gas conglomerate in an agreement signed on March 8, 2005, in the presence of Ukrainian President Viktor Yushchenko. Deutsche Bank has refused to comment on just how much of that credit line has ended up in Kiev so far. But ever since early 2006, when Moscow tried shutting off the flow of gas to the Ukrainians and putting the rest of Europe on edge in the process, it's been abundantly clear who controls the supply and price of natural gas in the countries of the former Soviet Union.

Russia itself, under the umbrella of its state-controlled energy conglomerate Gazprom, commands the world's biggest -- though largely unexplored -- reserves. It also controls the network of pipelines used to pump gas from Central Asia to the West. Russia signed an agreement three years ago that secures Turkmenistan's important natural gas reserves for Gazprom for the next 25 years. In addition, Gazprom is investing heavily in natural gas exploration in Uzbekistan and Kazakhstan, a move the Russians expect will increase the flow of gas from those countries to Russia in the future.

Confident of being in control of the lion's share of the enormous gas reserves in the region bordered by the Caspian Sea, the Ural Mountains and eastern Siberia, Moscow's geo-strategists have recently dispensed with some of the diplomatic niceties to which Western negotiating partners had been accustomed -- as evidenced by last week's threats by Gazprom management. CEO Alexey Miller told 25 European Union ambassadors -- later followed up in writing -- that Gazprom was certainly "in a position to reliably fulfill Europe's growing demand for gas." But no one should forget that Gazprom was "actively developing new markets, such as North America and China, and that the competition for energy is intensifying."

Moscow throws its weight around

Moscow's heavy-handed message to Western Europe was preceded by the British government's announcement that it intended to amend its laws to block Gazprom's planned acquisition of Britain's leading national gas supplier. Gazprom's pro-Kremlin executives instinctively interpreted the British statement as a declaration of war against their current market strategy, which is to de-emphasize its role as a supplier of raw materials and focus increasingly on the more lucrative consumer business.

Gazprom is already making inroads as a distributor in Germany, although this move by no means guarantees security when it comes to future natural gas deliveries. The long-term commitments Russia has made under the auspices of the Northern European Pipeline Project are also apparently worthless, considering the Ukrainians suddenly found their gas shut off on New Year's Day 2006, even though they still had a contract that was supposedly valid until 2009.

As the host of the G8 summit in St. Petersburg on July 15, Russian President Vladimir Putin will discuss his ideas on the future competition rules in the global energy sector. For their part, Putin's guests at the summit will have to come up with their own positions on the extent to which international standards on the transparency of financial transactions should apply to the race for resources. Last Friday, the Germans took tentative steps to show their irritation over the natural gas issue as Berlin said that Gazprom's threat to withdraw potential gas deliveries was "not helpful" -- a clear shift in tone vis-à-vis Moscow.

The EU Parliament in Strasbourg will soon conduct its own acid test at the European level when it addresses the situation in Turkmenistan and votes on a proposal submitted by the body's Committee on International Trade, which has recommended concluding an interim treaty with the energy-rich country. If a majority of EU parliamentarians approve the proposal, the realm of the Turkmenbashi will enjoy most favored nation status in the future.

Translated from the German by Christopher Sultan

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