Russia preys on Turkmenistan, exacts huge gas concessions

ASHGABAT -- Turkmenistan has been forced by Russia -- its former coloniser -- to accept an insultingly low price for its main export, natural gas.

After more than a three-year-long Russian boycott of Turkmen gas caused by a "dispute over prices and payments", Turkmen deliveries of gas to Russia resumed April 15, Caravanserai learned from an anonymous employee of Gazakdyrysh, a gas delivery firm controlled by the Turkmen gas monopoly Turkmengaz.

The new agreement emerged after three visits in six months by Alexei Miller, CEO of Russian gas giant Gazprom, during which he conferred with Turkmen President Gurbanguly Berdymukhamedov and the directors of several gas industry-related government agencies, according to the employee.

During the visits, Moscow forced Ashgabat to agree to sell gas on Moscow's terms, according to observers in the Turkmen capital.

The terms of the deal remain secret. An anonymous official from Turkmengaz had no details for Caravanserai on the amount or price of gas involved.

"Turkmenistan...had to make serious concessions in price to the Russian monopolist," the official said, adding that only Berdymukhamedov and some top officials know the terms.

In 2008, one year before Turkmen-Russian relations began to deteriorate, Russia paid about $240 (840 TMT) per 1,000 cubic metres for Turkmen gas, media outlets reported earlier.

"We are lucky if now our gas is sold for $150 (525 TMT) per 1,000 cubic metres, but I think the price is even lower," he said.

Other analysts in Ashgabat are even more pessimistic, suggesting that Russia is paying half the old price for Turkmen gas.

The silence of Turkmen news media on the new contract seems to confirm Russia's victory in the negotiations.

"If [the agreement] had contained even the slightest success for the Turkmen negotiators or any significant economic benefits for our country, then all the newspapers and TV channels would have reported it," Ogulbairam Tangryberdyyeva, an economist from Mary, told Caravanserai. "But local media have no information about gas deliveries to Russia."

In the first two and a half months of the contract, Russia will buy 1.16 billion cubic metres of Turkmen gas, say foreign news media quoting Gazprom.

A gas industry worker confirmed the resumption of deliveries to Russia.

The worker, Meretgeldi Atayev of Turkmenbashi District, Dashoguz Province, recently returned to work at a gas pipeline compressor station on the Turkmen-Uzbek border. He had been laid off for months.

He expects "up to 5 billion cubic metres of gas will be pumped to Russia by the end of the year", he told Caravanserai, referring to meter readings he has seen.

A financial bind

Russia is taking advantage of an economic crisis that has befallen Turkmenistan, which has only one significant export -- gas.

Turkmenistan's loss of the Russian market was compounded in 2017 when it also stopped exporting gas to Iran, citing Iranian debts of $1.4 billion to $1.6 billion (4.9 billion TMT to 5.6 billion TMT) for previously purchased gas. Turkmenistan still has not resumed exporting gas to Iran.

Turkmenistan's only other gas customer, Beijing, is believed to be paying little or nothing because Turkmenistan still owes money for the first three legs of the Chinese-built China-Central Asia pipeline. A fourth leg is under construction.

As Turkmenistan's revenues dried up, "the president had to end the free quotas of gasoline, electricity, natural gas, water and salt that residents received and had to raise utility rates", said Tangryberdyyeva, the economist from Mary.

The situation contrasted sharply with past years of high gas prices and economic boom, when Turkmenistan dictated prices to Russia and Iran.

However, trouble had been in the offing for years. Turkmen-Russian relations plummeted in 2009 during a dispute over prices, when a mysterious explosion damaged the Central Asia-Centre pipeline, which carries Turkmen gas to Russia, the anonymous Turkmengaz employee noted to Caravanserai.

At the time, the Turkmen government blamed Gazprom for the explosion, though the accusation was never proven. Turkmen gas exports to Russia resumed in 2010 but at a much smaller volume than before -- 4 billion cubic metres per year rather than 10 billion. In 2016, Russia stopped buying Turkmen gas altogether.

The Turkmen-Russian dispute even went to the Arbitration Institute of the Stockholm Chamber of Commerce, a respected arbiter of international business disagreements.

Turkmenistan had no choice, as the lack of gas revenue forced it to shut down entire ministries and as unemployment, currency devaluation and the loss of economic subsidies ravaged the population, said Akmyrat, a Central Bank of Turkmenistan employee.

Economic strategies pursued by Berdymukhamedov, such as "import substitution and increasing other exports", had little effect, he added.

Gambit, Russian style

Russia does not need Turkmen gas because it can extract its own gas for less than what it pays Turkmenistan, say Ashgabat analysts.

The new contract is "like a gambit in chess, when a player sacrifices a pawn ... to gain a better position", said Tangryberdyyeva, the economist.

Gazprom CEO Miller's visits to Turkmenistan began only after the Caspian Sea littoral states reached agreement on the sea's legal status and when Turkmenistan had a real chance to begin negotiating with the European Union (EU) on a future pipeline that would enable it to export gas to Europe without going through Russia, she said.

The contract with Russia prevents Turkmenistan from becoming overly attached to China's market and from becoming a competitor with Russia in selling gas to Europe, she said.

"Miller's last visit to Ashgabat took place during the days when Turkmenistan and the EU began to actively discuss the prospects for exporting Turkmen gas to Europe," another source told Caravanserai, agreeing with Tangryberdyyeva.

However, Turkmen government officials hold out hope that the deal will enable their country to persevere until it becomes a key gas industry player again and can sell to more countries.

"It's important that we have the gas and realistic prospects for delivering it to all four corners of the world," said Akmyrat of the Central Bank.