Turkmenistan is a complex and opaque destination for investment. The business climate is characterised by structural economic problems and general economic mismanagement, with the prioritisation of vanity projects over core investment and a near-total absence of checks and balances on presidential decision-making. This facilitates endemic corruption and the influence of opaque but powerful vested interests over all aspects of the economy and business environment.

All talk

Turkmenistan’s economy has undergone few structural reforms since independence from the Soviet Union in the early 1990s. It retains key hallmarks of the post-Soviet economy, remaining overwhelmingly dependent on the oil and gas sector for growth. The Turkmenistan authorities regularly express their desire to drive economic growth and diversification through foreign investment. Since the economic slowdown began in late 2014, President Gurbanguly Berdimuhamedov has courted multiple countries, especially a number of Middle East and Gulf states, with offers of economic co-operation.

However, such statements can mostly and fairly be assessed as hollow platitudes. The vast majority of the economy remains firmly in the hands of either the state, or those of opaque companies that are largely understood to trace their beneficial ownership back to prominent politically connected figures. While there is almost never a paper trail to confirm such links, investigative journalists, and due diligence enquiries into Turkmenistani entities, routinely find indications among human sources close to the relevant sectors of companies’ beneficial ownership tracing back to prominent individuals, often in the president’s family.[1] There is a distinct lack of will at the highest political level to facilitate foreign investment in an indiscriminate manner, given the competition that this is perceived to pose to the carefully controlled division of state assets and economic sectors among a select few people close to the political centre.

This aversion to opening up the economy is evidenced by the fact that the period since the downturn that began in late 2014 has been accompanied by no improvement in the multitude of informal barriers to existing and new investment activity. The major structural impediments to a transparent, fair and competitive business environment remain firmly in place.

Protectionist instincts

There are relatively few formal barriers to foreign investment activity. However, those that exist markedly affect the country’s most prominent and attractive sector for overseas investment activity, oil and gas. Turkmenistan’s long-standing policy of granting only service contracts to foreign companies for major onshore gas projects is the main example of this approach. More commercially attractive production-sharing agreements (PSAs) are almost always granted only for offshore field development. The only company to have secured an onshore PSA for a major gas field (in 2007) is the state-owned Chinese company China National Petroleum Corporation (CNPC). Two European companies have PSAs for onshore oil fields, but these are minor reserves in the country’s west and represent an anomaly in the broader policy of not granting such contracts.

The authorities have made no move whatsoever towards relaxing these restrictions in the past few years, despite the fact that it is probably the most obvious way to drive fresh investment and counter the lost revenue from the economic slowdown and loss of key gas export contracts (with the loss of Russia and Iran as customers) since 2015. Instead, the authorities when facing increasing pressure on budget revenues and macro-economic stability show a tendency towards reinforcing protectionist instincts.

Vested interests and informal requirements create risks for investors

The handful of laws that set out the terms under which foreign companies can enter into joint ventures with the state are relatively clear and well drafted. However, the top-down nature of decision-making means that legislation generally is enacted without consultation or any formal parliamentary oversight. Its enforcement is highly irregular, and a range of informal practices trump legal provisions.

Perhaps the best example of this is the enormous informal power understood to be wielded by an opaque body known as the Union of Industrialists and Entrepreneurs (UIE). Lawyers in the country firmly attest to the absence of any legal requirement for prospective investors to be members of – or to liaise with – the UIE to secure investment in the country, and a review of the law confirms no such requirement.

However, sources on the ground and information from foreign businesses who have approached the Turkmenistan market strongly suggests that membership of the UIE and co-ordination of prospective investment activities with its chair, the influential local businessman Alexander Dadayev, is seen as a de facto requirement in order to gain access to certain contracts or state loans, especially any state tenders. This arrangement allows Dadayev, who is understood to be close to the government and president, to control which foreign entities gain access to the economy, and to exclude them where the authorities wish to reward locally connected companies with contracts or commercial opportunities.

Corruption

Both high-level and low-level corruption are pervasive and endemic. They are likely to touch domestic and foreign business alike. The scale of the perceived extent of bribery and graft is captured in Transparency International’s (TI) Corruption Perceptions Index. Turkmenistan is consistently among the worst performing nations surveyed by TI globally, and the worst performing of all the former Soviet states. It has scored between 18 and 20 points since 2015, where 100 points signifies a ‘very clean’ country and 1 a ‘very corrupt’ one. Ranked against 179 other countries in 2018, Turkmenistan came 161st (where first is the country perceived to be the least corrupt).[2] These consistently poor scores highlight the entrenched nature of both high-level and low-level corruption over many years.

What does this mean for business activity? At the higher level, family ties and political loyalty are the main factors that determine the awarding of contracts. Traditionally privilege and access to commercial opportunities extended to a group of people around the president, appointed to cabinet and other senior state positions, most of whom are not direct relatives of the president. In recent years there are growing indications that Berdimuhamedov’s family are now increasingly in control of many key sectors, and that the elite circle enjoying dividends from the country’s industry is narrowing.[3] In such a climate, foreign businesses without their own nepotistic ties to prominent figures face little chance of securing a contract, regardless of their objective value to the economy or ability to service a requirement.

At a lower level, companies are likely to find that officials – even up to ministerial level – expect bribes or favours (such as employing their relatives) in return for progress with administrative decisions or the issuing of licences.

The government made much of a new anti-corruption campaign in 2017 and 2018. However, this served primarily as a smoke screen for politically motivated prosecutions. Corruption among senior officials is likely to be overlooked; those high-profile corruption-related investigations and dismissals that do take place are likely to target individuals who have fallen out of favour with the president. The president’s dismissal in 2017 of the Prosecutor General on corruption charges, alongside public reprimands of the Minister of Interior and other officials on charges of failing to investigate and punish bribe solicitation, are examples of this. Radio Free Europe/Radio Liberty’s Turkmen service reported that anonymous sources had informed it that those individuals had been targeted because the president was frustrated with their failure to attract funds for the Asian Indoor and Martial Arts Games (AIMAG), being hosted in the capital, Ashgabat, later that year. The same sources reported that a number of local businesses people were also arrested after failing to pay informal contributions to the government towards the games.[4] Lower-level officials are prosecuted largely at random, probably by regional officials eager to please the president.

There is limited prospect of these challenges receding in the next year. Persistent economic difficulties increase the government’s willingness to employ improper tactics to raise budget revenues. Furthermore, endemic corruption is bound up in the highly centralised and authoritarian political system which relies on graft and nepotism. Without some liberalisation of the political environment – of which there is no sign – meaningful efforts to tackle corruption are highly unlikely.

Restrictions on currency flows

The economic slowdown has increased the prevalence of capital controls, as the authorities seek to control the movement of currency – both foreign and domestic – in and out the country amid cash flow shortages. These shortages reflect a combination of a reduction in foreign currency revenue linked to the loss of a number of important gas export contracts, and general mismanagement of the banking sector. The restrictions directly affect investors seeking to repatriate profits or move capital. Progressively more onerous capital controls have been introduced since 2015. There is a limit on the amount of US dollars that can be purchased each month and a waiting list system for foreign-currency transactions. There are ongoing restrictions on obtaining Western Union wire transfers. In 2017 and 2018, there were reports of limits on the volume of foreign currency that businesses could convert. The authorities’ failure to communicate or acknowledge publicly any of these restrictions exacerbates the difficulties they pose to business operations.

Lack of contract sanctity

There is a persistent, high threat of contract repudiation by the government in dealings with foreign companies. For telecoms companies, for example, this has manifested in the government suspending licences, increasing the state’s share of profits, or simply shutting down infrastructure.[5] A number of Turkish companies have also seen their assets shut down or expropriated in recent years, even while in possession of necessary licences, and without any due process or compensation.

An associated risk is non-payment, driven by the same systemic and economic problems. There are numerous reported examples of this risk. For example, a Turkish construction company in October 2018 filed a claim with the International Centre for Settlement of Investment Disputes (ICSID) following the authorities’ failure to pay for residential and school building work that the company had performed, while a German company the same month filed a claim over the lack of payment for the construction of grain elevators.[6] International law firm CIS Debt Recovery Solutions in December 2017 told an independent Turkmenistan news outlet that Turkmenistan’s state-owned oil and gas sector was defaulting on its debt, including on US $8.5 million owed to one client for equipment supplied three years earlier.[7]

Lack of recourse to domestic justice

A lack of recourse to justice within Turkmenistan compounds these problems. The judiciary does not uphold contract sanctity. Judges are subject to pressure and direction from the executive, and are likely to rule in favour of the government rather than a foreign entity in almost all instances. Furthermore, limited understanding of commercial law undermines their ability to properly judge a commercial dispute.

Personnel turnover

Strong personal relationships with influential officials are all but essential in order to engage in business activity in Turkmenistan. However, forming such relationships is significantly complicated by the high degree of turnover in personnel. The president regularly uses government ministries, ministers and agencies as scapegoats for setbacks in the economy or in specific sectors. This tactic typically involves a ministry undergoing a large reshuffle. Rather than improving performance at the ministry in question or driving accountability, personnel changes of this kind serve primarily to deflect attention from the president for the industry’s poor performance. Where ministers are being used as scapegoats, they are typically simply moved into less prominent positions. Only in the rare cases where they have launched a challenge to the president in some form are they likely to be removed entirely from the senior political and public administration scene.

Furthermore, identifying the relevant department or official responsible for an industry or regulatory regime, obtaining information and maintaining regular contact are all labour-intensive tasks. Government officials are unlikely to provide transparent or consistent reasons for decisions. Officials are frequently reshuffled, and there is little sense of continuity of office; a new minister is liable to scrap deals signed by a predecessor, if only to obtain bribes for replacements. Furthermore, many officials do not have the requisite training, and delays are as likely to arise from incompetence and paralysis in the decision-making process as from corruption.

Rising reputational concerns

Pervasive human rights abuses and the lack of any genuine democratic competition create considerable reputational threats that businesses engaging in Turkmenistan should bear in mind.

Berdimuhamedov’s personality cult, state-funded vanity projects and the country’s poor human rights record have gained more international attention since 2015. The US $7.3 billion Asian and Indoor Martial Arts Games hosted in Ashgabat in September 2017, though intended as a positive advert for the country, increased international awareness and scrutiny of the restrictive political environment and the president’s flamboyant, eccentric behaviour.

There are also sector-specific threats linked to child labour. The cotton industry is a particular source of reputational threat. The Cotton Campaign, which brings together business associations, companies and NGO groups, has long contended that all cotton production in Turkmenistan involves forced labour. Specifically, cotton farmers must meet state-dictated production quotas under threat of penalty, while state employees are forced to harvest the crop. The Responsible Sourcing Network NGO in June 2018 launched a campaign to encourage an organised boycott of Turkmenistani cotton, similar to a boycott in place against cotton from neighbouring Uzbekistan.[8] 66 companies had signed up to the boycott as of May 2019. Turkmenistan’s cotton is likely to be in the spotlight increasingly over the next two years as Western governments’ attention to supply chain risk continues to grow.

Conclusion

In sum, Turkmenistan presents a challenging environment for international businesses. Most of these challenges directly stem from the highly controlled political environment and the predominance of informal approaches to regulation and economic decision-making, features of the landscape that show little sign of lessening in the years ahead.

Photo by Kalpak Travel, published under Creative Commons with no changes made.

[1] Freedom House’s 2017 and 2018 Nations in Transit reports on Turkmenistan summarise findings by investigative journalists at the Vienna-based Chronicles of Turkmenistan and Turkmen Yurt TV news outlets that the president’s family controls various sectors of the economy. His nephews, for example, are cited as controlling financial operations, a shopping mall, and Turkmen telecom, the monopoly communications provider, Freedom House, https://freedomhouse.org/report/nations-transit/2018/turkmenistan; https://freedomhouse.org/report/nations-transit/2017/turkmenistan

[2] Transparency International, Corruption Perceptions Index 2018, https://www.transparency.org/cpi2018

[3] Ibid.

[4] Radio Azatlyk, Генпрокурор Халлыев был уволен за невыполнение указа президента собрать деньги на Азиаду (Prosecutor General Khallyev was dismissed for failure to comply with the presidential decree to raise money for the Asian Games), RFE/RL, May 2017, https://rus.azathabar.com/a/prosecutor-fired-for-not-collecting-money-for-Asian-games/28478272.html

[5] Ad hoc notice by MTS telecoms, July 2018, http://ir.mts.ru/default.aspx?SectionId=5cc5ecae-6c48-4521-a1ad-480e593e4835&LanguageId=1&PressReleaseId=fcc76523-67c3-4438-a430-1a28dc390d44

[6] SECE İnşaat ve Ticaret A.Ş. v. Turkmenistan (ICSID Case No. ARB/18/34), International Centre for Settlement of Investment Disputes (ICSID), October 2018, https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB%2f18%2f34; Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v. Turkmenistan (ICSID Case No. ARB/18/35), ICSID, October 2018, https://icsid.worldbank.org/en/Pages/cases/casedetail.aspx?CaseNo=ARB%2f18%2f35

[7] Alternative News of Turkmenistan, “В связи с временными трудностями”. ГК “Туркменнефть” 4 года не выплачивает долг в $8,5 млн (“Due to temporary difficulties.” GC “Turkmenneft” 4 years does not pay the debt of $8.5 million), November 2017, https://habartm.org/archives/8016

[8] Responsible Sourcing Network, The Problem with Turkmen Cotton, May 2019, https://www.sourcingnetwork.org/turkmen-cotton-pledge

On 23^rd February 2018, the leaders of Turkmenistan and Afghanistan, alongside top government representatives from Pakistan and India, gathered in Herat to inaugurate the Afghan sector of the Turkmenistan-Afghanistan-Pakistan-India [TAPI] natural gas pipeline.[1] This large-scale infrastructure project, to be powered exclusively by Turkmenistan’s reserves, pursued the establishment and eventual integration of a substantive natural gas market connecting partners across the Central/South Asia divide.[2] The advancement of construction works in the pipeline’s Turkmen sector, announced with propagandistic pomp by Turkmenistan’s official media, represented the event that led members from the four governments to meet in Herat to celebrate the opening of a new phase for this project.[3]

TAPI offers a very telling microcosm to analyse Turkmenistan’s idiosyncratic external relations and their uneasy relationship with the energy policy pursued by the regime headed by Gurbanguly Berdimuhamedov. To date, there is no confirmation that the works in the pipeline’s Turkmen sector have actually started, and no photographic evidence of their advancement can be found; more widely, there is no definitive information on the consortium’s financial viability and profit structure. TAPI is nevertheless presented as a top foreign policy priority by the Turkmen government, which persistently argues about the project’s centrality vis-à-vis Turkmenistan’s energy policy framework.[4] As the Turkmen economy continues to be dominated by the gas sector—which accounted in 2014 for 35 per cent of Turkmenistan’s GDP, 90 per cent of total exports, and 80 per cent of fiscal revenues—the promotion of Turkmenistan’s energy policy agenda has to be seen as a vital component in the viability of the Turkmen economy at large.[5] The virtual nature of TAPI’s progress, in this sense, points to the crystallisation of a fundamental inconsistency within the mechanisms whereby the Turkmen regime endeavours to translate its statements into actual policy.

This short essay intends to unveil some of the idiosyncrasies that regulate the foreign policy/energy policy nexus in Turkmenistan, arguing that Berdimuhamedov’s perpetuation of rentier economics in Turkmenistan has constrained foreign policy-making to the goal of merely achieving security of energy demand.[6] Turkmen diplomacy became in this sense instrumental to the identification, construction and opening of export routes, with energy infrastructure development emerging as the central international concern of the Turkmen state. The placement of energy policy at the epicentre of the survival agenda of the elites in Ashgabat instigated in turn two destabilising mechanisms, which will be investigated in conjunction here: the enhancement of Turkmenistan’s international isolation on the one hand, and the progressive increase of energy insecurity across the Turkmen territory on the other.

From Gazprom to CNPC: Turkmenistan’s gas trade between two monopolies                                

Protracted infrastructural dependency on the centre of the Union of Soviet Socialist Republics (USSR) represented one of the most draining economic legacies that the Soviet dissolution bequeathed to independent Turkmenistan. Independence transformed intra-Union trade into a matter of international affairs: while it presented on the one hand Turkmenistan with a revenue bonanza through the adjustment of Soviet commodity prices to international standards, it continued on the other to enforce Russia’s transit monopoly over the commercialisation of Turkmen gas.[7] Throughout the long presidency of Saparmurat A. Niyazov, who ruled from independence until his sudden death in December 2006, Turkmen gas trade was predominantly conducted through the Central Asia-Centre pipeline, built in the Soviet era to integrate Central Asian gas reserves into the pipeline network of the Ukraine SSR and, most importantly, the Russian Soviet Federative Socialist Republic (RSFSR). The opening of two short pipelines connecting Turkmen fields with Iran—regulated by a wider gas-swap deal—could dilute only in part Gazprom’s control over the terms of Turkmenistan’s gas trade.[8] As part of policies seeking to establish and maintain a relationship of controlled political and economic disentanglement from Russia, the reduction of this transit monopoly represented a key objective pursued by Turkmen diplomacy after the adoption, in December 1995, of a UN-recognised neutral foreign policy course.[9] At domestic level, however, the Niyazov regime ignored the entrenchment of a further dependency, namely that which predicated Turkmenistan’s economy viability on the availability of natural gas revenues. Throughout the 1990s and until the death of Turkmenistan’s first president, the regime in Ashgabat failed to introduce any meaningful reform to domestic production structures, cementing even further the rentier nature of Turkmenistan’s post-Soviet economy.

The early Berdimuhamedov era saw the operationalisation of a major natural gas pipeline connecting the Bagtyýarlyk contract area in eastern Turkmenistan with the Xinjiang Uygur Autonomous Region in western China, and then onto the Chinese gas pipeline network. There are two immediate features that identify the completion of this pipeline—entered into line in December 2009—as an important watershed in the development of Eurasian gas trade. To begin with, the Central Asia-China pipeline has to be seen as the first large-scale infrastructural project completed in the post-Soviet era that challenged Gazprom’s monopoly over the transit of Eurasian gas.[10] Secondly, its ownership structure, in which China National Petroleum Company (CNPC) acquired upstream stakes in the Bagtyýarlyk contract area, innovated on the Turkmen energy practice inasmuch as it allowed, for the first time since independence, the participation of a foreign energy company in the development of Turkmenistan’s onshore gas reserves.[11]

In the medium-term, however, the entry into line of this pipeline substituted Turkmenistan’s over-reliance on Russian gas purchases with an even more damaging dependency framework, wherein gas trade with China rose to become the single most important entry in the whole Turkmen stage budget. Gazprom’s withdrawal from the Central Asian gas market—underpinned by ongoing price disputes with local partners and, most importantly, the rise of China as a key customer for the Russian company—and the periodic instability that characterised its energy ties with Iran, left China as Turkmenistan’s de facto only gas customer. The consistently monopsonistic nature of Turkmenistan’s natural gas trade is captured graphically by the following figure, which illustrates the transition from nearly total dependency on Russian purchases (87.2 per cent of overall quotas traded in 2009) to reliance on energy commerce with China, which amounted to a staggering 94.6 per cent of total gas traded by Turkmenistan in 2018.[12]

The unsustainability of the commercial outlook evidenced in the figure becomes even more apparent when considering the legislative framework regulating Sino-Turkmen gas trade. As part of the produce-or-pay agreement finalised in the late 2000s, Turkmenistan was committed to direct to China increasingly substantive gas quotas at heavily discounted prices, in order to repay the US$10 billion debt it contracted during the construction works of the Central Asia-China pipeline.[13] The figure suggests that gas trade with China increased ten times in absolute size between 2010 and 2018, while total volumes of gas exported by Turkmenistan decreased rather significantly throughout the same timeframe. In this context, Turkmenistan economic viability became the function of its trade with China.

The logic of debt repayment, as a consequence, pushed the Turkmen economy on the brink of collapse, as confirmed by media reports of periodic eruption of food insecurity across the Turkmen territory, the continuous restructure of the Turkmen public sector and, most importantly, the termination of the generous system of state subsidies in place since the Niyazov era.[14]

A combination of short-term (allow onshore exploration rights to foreign companies) or longer-term (economic diversification away from hydrocarbons) measures is required to alter Turkmenistan’s current economic predicament. However, the Berdimuhamedov regime is refusing to even consider these alternatives: Turkmenistan’s crisis can in this sense be addressed through unimaginative solutions, which all connect to one economic mantra: selling more gas through more export routes.

TCGP and TAPI: The future of Turkmenistan’s gas exports between myth and reality                           

As the Berdimuhamedov regime proved to be impervious to the logic of economic opening intrinsic to globalisation and, most notably, continued to manage in absolutely not transparent fashion its revenues flows—the Turkmen government has not established a sovereign wealth fund to administer the capital derived from energy exports—the rudimentary version of rentier economics crystallised in Turkmenistan proved essential to ensure regime stability at a time of economic crisis.[15]

There is therefore very limited prospect for a concerted abandonment of rentier economic strategies in Turkmenistan; the construction of new pipelines has to be regarded in this sense as an inevitable development to ensure Turkmenistan’s economic survival in the short run. At the time of writing, the Berdimuhamedov regime has reportedly committed to explore two possible routes to expand the export options available to the Turkmen natural gas industry: either connecting Turkmenistan with Western markets through the construction of a trans-Caspian pipeline or, alternatively, reaching out to customers located in the Indian subcontinent through the operationalisation of the TAPI pipeline project.

Despite its size and expected export capacity, TAPI remains a virtual pipeline, the relevance of which seems to be exclusively linked to its discursive importance rather than to the effective contribution it can make to trans-regional energy trade.[16] Notwithstanding its limited financial resources and marginal experience in the management of mega-projects, Türkmengaz—Turkmenistan’s natural gas state concern—emerged in 2015 as the leader of the consortium established to deliver TAPI.[17] Türkmengaz’s limited input into project delivery has so far impeded the identification of financial backers for the very expensive pipeline and, most notably, resulted in a series of logistic blunders associated with the completion of the Turkmen sector of the pipeline project.[18]

The finalisation of the Convention on the Legal Status of the Caspian Sea in August 2018 injected new life in a series of infrastructure projects intending to export natural gas extracted in Turkmenistan to European markets. Robert Cutler correctly remarked that the current iteration of the Trans-Caspian Gas Pipeline (TCGP) project seems to be somewhat more feasible than its predecessor.[19] The current consortium has recognised that this pipeline—the financial suitability of which does however remain elusive to say the least—will not be producer-built due to Turkmenistan’s refusal to offer production-sharing  agreements’ (PSA) rights to onshore developments and that the TCGP demand structure needs to be re-modulated through the identification of two access points for Turkmen gas. The new legislative environment set up by the 2018 Convention reduced some of the obstacles that so far obstructed the advancement of cooperation between Turkmenistan and Azerbaijan vis-à-vis the construction of a trans-Caspian pipeline.[20] At the same time, however, the convention subjected the ultimate advancement of any shared project to any environmental concern expressed by the other Caspian states.[21] The Russian Federation, in this sense, may continue to have a final say over trans-Caspian gas transit.

As the preservation of Turkmen authoritarianism continues to be predicated upon the persistence of rentier economics, the state’s economic foreign policy will continue to be linked, at least in the immediate future, with the identification of new export routes for Turkmen gas. Reconciling the foreign policy priorities of a regime that has so far thrived on isolationism with the economic imperatives of an autarkic state poorly integrated with the global economy has to be in this sense as the most daunting challenge faced by Gurbanguly Berdimuhamedov and his associates.  

Photo by Peretz Partensky, published under Creative Commons with no changes made.

[1] Bruce Pannier, Afghan TAPI Construction Kicks Off, But Pipeline Questions Still Unresolved, Qishloq Ovozi Blog, RFE/RL, February 2018, https://www.rferl.org/a/qishloq-ovozi-tapi-pipeine-afghanistan-launch/29059433.html

[2] For a comprehensive look at size, location, and exportability of Turkmenistan’s gas reserves—currently regarded as the fourth largest in the world—see: Marika Karagianni, Turkmenistan looks to gas expansion, Petroleum Economist, February 2019, https://www.petroleum-economist.com/articles/politics-economics/middle-east/2019/turkmenistan-looks-to-gas-expansion

[3] See, for instance, the report on the TAPI Steering Committee meeting held in Mary (Turkmenistan) in early 2018, in which the participant congratulated Turkmenistan in the advancement of the construction works in its own sector, V Mary sostoyalos’ zasedanie Rukovodyashchego Komiteta po proekty gazoprovoda TAPI, Turkmenistan Segodnya, February 2018, http://tdh.gov.tm/news/articles.aspx&article11441&cat14

[4] See for instance, Turkmenistan uchastok TAPI postroyat za dva goda (Turkmen section TAPI will be built in 2 years), Türkmenistanyň Nebitgaz, November 2015, http://www.oilgas.gov.tm/blog/40/

[5] World Bank, Turkmenistan Partnership Program Snapshot, April 2015, http://documents.worldbank.org/curated/en/904321485161087742/World-Bank-Group-Turkmenistan-partnership-program-snapshot

[6] In Hossein Mahdavy’s classic definition, rentier economies ‘receive on a regular basis substantial amounts of external rents […] paid by foreign governments, concerns or individuals’ (Patterns and Problems of Economic Development in Rentier States: The Case of Iran. In: Cook, M.A. (ed.) Studies in the Economic History of the Middle East. London: Routledge 1970, p. 428). In addition to the externality of the rent, it is the modality of its domestic use that characterises this typology of economic structure. Hazem Beblawi identifies the government and its ancillary institutions of a rentier state as the principal recipient of the external rent (‘The Rentier State in the Arab World’. Arab Studies Quarterly 9 (4) 1987: 385). While no currently existing state presents all the features included in scholarly description of the rentier model, post-Soviet Turkmenistan represents a particularly relevant case of post-Soviet rentierism. Its economic development has been shaped by a visibly rentier logic, heavily dependent on the rent generated by natural gas controlled kleptocratically by the regime in Ashgabat and featuring at the same time an over-inflated public sector and, until a few years ago, an extensive system of subsidies for the larger population.

[7] Tarr, David G. 1994. The terms-of-trade effects of moving to world prices on countries of the Former Soviet Union’. Journal of Comparative Economics 18 (1): 1-24.

[8] Brill Olcott, Martha. 2006. International gas trade in Central Asia: Turkmenistan, Iran, Russia and Afghanistan. In Victor, David G., Jaffe, Amy M. and Hayes, Mark H. (eds.): Natural Gas and Geopolitics from 1970 to 2040. Cambridge: Cambridge University Press, pp. 202-33.

[9] Anceschi, Luca. 2009. Turkmenistan’ Foreign Policy. Positive Neutrality and the Consolidation of the Turkmen Regime. Abingdon: Routledge.

[10] For more on Russia-Turkmen energy relations, see: Øverland, Indra. 2009. Natural Gas and Russia–Turkmenistan Relations. Russian Analytical Digest, 56.

[11] Emirati energy company Dragon Oil has long explored, under PSA conditions, numerous gas fields, part of the Cheleken contract area, in the Turkmen sector of the Caspian Sea.

[12] Data for the 2006-2016 series replicate those illustrated in my 2017 Central Asian Survey article (see footnote 17 below). Data for 2017 and 2018 are taken from the 67^th and 68^th editions of the BP Statistical Review of World Energy, respectively published in 2018 and 2019.

[13] Kuchins, Andrew, Mankoff, Jeffrey and Backes, Oliver, 2015. Central Asia in a Reconnecting Eurasia – Turkmenistan’s Evolving Foreign Economic and Security Interest. Washington, DC: CSIS Report, p. 13.

[14] Ryskeldi Satke, Understanding Turkmenistan’s Food Shortages, The Diplomat, December 2018, https://thediplomat.com/2018/12/understanding-turkmenistans-food-shortages/; Turkmenistan: Economy, Finance Ministries Merged to Save Money, Eurasianet, October 2017,  https://eurasianet.org/turkmenistan-economy-finance-ministries-merged-to-save-money; Turkmenistan combines transport ministries, Railway Gazette, February 2019, https://www.railwaygazette.com/news/news/asia/single-view/view/turkmenistan-combines-transport-ministries.html; Turkmenistan Cuts Last Vestiges of Program for Free Utilities, RFE/RL, September 2018, https://www.rferl.org/a/turkmenistan-cuts-last-vestiges-of-program-for-free-utilities/29511308.html

[15] An interesting discussion of current modalities of rentier economic development is presented in: Gray, Matthew. 2011. A Theory of “Late Rentierism”in the Arab States of the Gulf. Center for International and Regional Studies Occasional Paper 7, Georgetown University School of Foreign Service.

[16] The TAPI pipeline—with an estimated total cost of US$ 10 billion— is expected to carry annually no fewer than 33 billion cubic meters (bcm) of natural gas over a 1078 km route. All of the project’s gas is to be supplied by the Galkynysh field (south-east Turkmenistan), with a distribution of volumes traded determined as follows: Afghanistan will buy 0.5–1.5 bcm per year, while India and Pakistan will each receive annual volumes of 14–16 bcm; Anceschi, Luca. 2017. Turkmenistan and the virtual politics of Eurasian energy: the case of the TAPI pipeline project. Central Asian Survey 36 (4): 409-29.

[17] Micha’el Tanchum, Turkmenistan Pushes Ahead on TAPI Pipeline, The Diplomat, September 2015, https://thediplomat.com/2015/09/turkmenistan-pushes-ahead-on-tapi-pipeline/

[18] Bruce Pannier, Analysis: TAPI and other Turkmen Tales, Qishloq Ovozi Blog, RFE/RL, December 2018, https://www.rferl.org/a/tapi-turkmen-tales-pipeline-qishloq-ovozi-pannier/29632356.html

[19] Robert Cutler, Third time lucky for Trans-Caspian Gas Pipeline?, Petroleum Economist, June 2019, https://www.petroleum-economist.com/articles/politics-economics/europe-eurasia/2019/third-time-lucky-for-trans-caspian-gas-pipeline

[20] For the document’s full text, see: Convention on the Legal Status of the Caspian Sea http://en.kremlin.ru/supplement/5328

[21] Anceschi, Luca. 2019. Caspian Energy in the Aftermath of the 2018 Convention: The View from Kazakhstan and Turkmenistan. Russian Analytical Digest, N° 235.

This report has shown Turkmenistan to be a country teetering on the edge of catastrophe. An obsession with appearance that speaks to a need for public display and regimented control, masking and managing a regime under enormous pressure as years of economic turmoil place unprecedented strain on a rigid but potentially brittle political structure. Hunger and hyper-inflation are being managed by further increasing the scale of human rights abuse and the level of intrusion into people’s lives.

Investors may be initially attracted to Turkmenistan due to its enormous gas wealth but as the EBRD, the UK Department of International Trade and many others have noted it has huge structural challenges. It is to some extent a ‘Potemkin economy’, with marble facades, respectable GDP figures and a tightly regulated state shops, masking a huge and chaotic black market economy. Potential investors face a range of risks including: the political whims of the President, leading to arbitrary behaviour by a sclerotic bureaucracy whose rotating cast of officials live in fear of displeasing the leader; a high risk of non-payment for goods or services rendered; endemic corruption; insecurity of legal title or contracts; the lack of rule of law and independent judiciary; and reputational risks from being associated with severe human rights abuses and the use of forced labour. At the very least this should give investors cause to pause and, even if they are unwilling to rethink their investment, it should be seen as a necessity to carry out thorough due diligence into any local partners in Turkmenistan to reduce exposure to expropriation and corruption risks. While the international community itself has been slow to implement necessary transparency initiatives, such as the EU’s Fourth Anti-Money Laundering Directive or the UK’s Beneficial Ownership Register, if Turkmenistan is serious about wanting to attract international investment it should take steps to create clarity about the ownership of its domestic firms to improve the investment environment. In the absence of effective domestic remedies Turkmenistan will need to demonstrate it is complying with the provisions of the bilateral and international investment treaties it is a signatory to.

Turkmenistan’s relative isolation and economic reliance on China and Russia have led some to despair over the lack of influence and leverage that can be brought to bear with the regime to improve the human rights situation. While this position clearly sets some limits on the scope of international influence it must not be a reason not to try to achieve change, not least given that the current economic turmoil means that Turkmenistan is looking for international sources of revenue more than ever before, creating new opportunities for engagement on a ‘more for more’ and ‘less for less’ basis. As a number of civil society organisations have argued the new European Parliament human rights benchmarks provide a helpful basis on which to measure and test engagement with Turkmenistan.^[1] As this research has set out Turkmenistan’s human rights challenges are multitude but there are clear areas to focus on, including forced labour, ‘disappeared’ activists in the prison system, prison conditions in general and restrictions on independent journalists and human rights activists. Turkmenistan needs to do more to facilitate access by UN Special Rapporteurs and other UN mechanisms, the most recent of which was in 2009, and to enable representatives of international NGOs to obtain visas to visit the country. It needs to do more to show that it is complying with its UN treaty obligations on human rights.[2]

International engagement with Turkmenistan’s carefully curated NGOs, education and health institutions can have a place but it must not be misconstrued or spun as an example of increased openness or progress. It is a transaction that may help provide a tangible benefit to a group of people in Turkmenistan but it is unlikely to be a tool to diffuse democratic values or encourage systemic reform. There remains a case, except in areas that deliver directly to the welfare of the people of Turkmenistan, for reconsidering projects pending (or making them conditional on) improvements in human rights and/or refocusing funding to other countries in the wider region that are making progress. The international community should avoid engagement for engagement’s sake as while contact can make minor differences to individual behaviour around the margins it can seek to normalise authoritarian practice rather than achieving long-term systemic change. To use an analogy, even though glaciers can bring down mountains that doesn’t mean that they are the most efficient means of doing so or that they are the most effective use of water. So without tangible improvements in current behaviour by the government, the international community should re-evaluate its existing interactions with Turkmenistan.

For example the UK needs to consider the appropriateness of its most high profile engagements with one of the most authoritarian regimes on earth being overwhelmingly trade focused. It should look again at the suitability of designating Turkmenistan one of the 56 countries to which it has a formal trade envoy. It could examine whether the Turkmenistan-UK Trade & Industry Council (TUKTIC) should still be a country priority given both the human rights and economic situation in the country, the risks posed to investors and the limits such a business first approach creates for the UK’s ability to push for real reforms alongside European and other international colleagues.

In part, beyond the remit of this publication, there is a strong case that the EBRD should refocus its lending to the countries in the region that are at least trying to abide by the criteria set out in Article 1 of the bank’s founding charter, which calls on it to only work with ‘Central and Eastern European countries committed to and applying the principles of multiparty democracy, pluralism and market economics’.^[3] If this is to mean anything  there has to be a clear demonstration of the difference between how Turkmenistan is treated and those who are at least taking some steps towards democracy. The current revision of the EBRD’s country strategy provides an opportunity to achieve this differentiation. As with other organisations the EBRD should apply the EU Parliament benchmarks to its approach to engagement with Turkmenistan. It should resist plans to expand its lending to certain areas of the public sector, given the state of repression and the ubiquity of forced labour amongst public sector and state enterprise workers.

The forced labour situation in the cotton sector needs sustained pressure and independent monitoring. If a robust mandate can be agreed between the ILO and Turkmenistan then the ILO establishing a presence on the ground in Turkmenistan should be supported in order to map and monitor the scale of forced labour and to take action to prevent it. Establishing a strongly mandated ILO presence should be one of the primary requirements for international community engagement with Turkmenistan.

One area for potential additional engagement with Turkmenistan that should not undermine the objectives set out above would be in the provision of or access to food, in the relatively unlikely scenario that the regime was able to admit that there was a problem. There may be scope for additional support by the UN’s World Food Programme and the Food and Agriculture Organization, as well as other international assistance, to prevent the spread of hunger and malnutrition in the country.

While the range of potential issues to address is vast there are a number of specific recommendations that can be made to assist in urgently improving the situation in Turkmenistan.

Recommendations to the Government of Turkmenistan:

• Notify all families about the condition of their imprisoned loved ones and allow visitor access
• Free political prisoners and jailed journalists
• Improve prison conditions and end the use of torture in the detention system
• End forced labour in the cotton harvest and allow independent monitoring
• Allow visa access by UN Special Rapporteurs and other UN mandate holders, as well as representatives of international NGOs
• Take steps to improve transparency around company ownership
• Enhance judicial independence in the criminal and commercial sector, while honouring its international treaty obligations  

Recommendations to the international community:

• Ensure the EU adopts and applies the European Parliament human rights benchmarks for Turkmenistan
• Require the EBRD’s lending to Turkmenistan to reflect the need to improve human rights and avoid expansion to the public sector in the absence of genuine reforms
• Push for an ILO presence in Turkmenistan with a strong mandate to tackle forced labour
• Reconsider international trade promotion efforts to Turkmenistan, such as the UK’s TUKTIC trade missions
• Support access to asylum and other forms of exile for activists and their families fleeing persecution by Turkmenistan’s regime

Photo by Peretz Partensky, published under Creative Commons with no changes made.

[1] IPHR, The EU adopts important benchmarks, as repression continues in Turkmenistan, May 2019, https://www.iphronline.org/the-eu-adopts-important-benchmarks-as-repression-continues-in-turkmenistan.html. and the European Parliament resolution of 12 March 2019 on the draft Council and Commission decision on the conclusion by the European Union and the European Atomic Energy Community of the Partnership and Cooperation Agreement establishing a Partnership between the European Communities and their Member States, of the one part, and Turkmenistan, of the other part (12183/1/2011 – C8-0059/2015 – 1998/0031R(NLE)), http://www.europarl.europa.eu/doceo/document/TA-8-2019-0146_EN.html?redirect

[2] UN Human Rights, Turkmenistan,  https://www.ohchr.org/EN/Countries/ENACARegion/Pages/TMIndex.aspx; It has ratified 13 UN treaties and optional protocols as set out here at the UN Treaty Database https://tbinternet.ohchr.org/_layouts/15/TreatyBodyExternal/Treaty.aspx?CountryID=180&Lang=EN

[3] EBRD, Political Aspects of the Mandate of the European Bank for Reconstruction and Development,  https://www.ebrd.com/downloads/about/aspects.pdf