The Private Pocket of the President (Berdymukhamedov).pdf
Oil, Gas and the Law
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The Private Pocket of the President (Berdymukhamedov):
Oil, Gas and the Law
This report was prepared by Crude Accountability through its general support fund.
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Contents
Forward …………………………………………………………………………………………………………………………………….. 4
Introduction ……………………………………………………………………………………………………………………………….. 6
The State Agency for the Management and Use of Hydrocarbon Resources ………………………………………. 9
Background …………………………………………………………………………………………………………………………….. 9
History of the Agency …………………………………………………………………………………………………………….. 15
Commercial Functions of the Agency ……………………………………………………………………………………….. 17
Monitoring Functions of the Agency ………………………………………………………………………………………… 19
“Shadow State Economics” …………………………………………………………………………………………………….. 27
How to Steal an (Oil or Gas) Field …………………………………………………………………………………………….. 31
Findings……………………………………………………………………………………………………………………………………. 33
Conclusion ……………………………………………………………………………………………………………………………….. 35
Recommendations…………………………………………………………………………………………………………………….. 36
For Foreign Governments and International Organizations ………………………………………………………… 36
Specifically for the bodies of the European Union: European Parliament and the European Commission; and for the US Government…………………………………………………………………………………. 37
For the European Bank for Reconstruction and Development …………………………………………………….. 37
For the World Bank and International Finance Corporation ………………………………………………………… 38
For Foreign Private Investors ………………………………………………………………………………………………….. 38
For International Nongovernmental Organizations ……………………………………………………………………. 39
For the Government of Turkmenistan ……………………………………………………………………………………… 39
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Forward
In the 1990s, a popular bumper sticker read, “Silence is Complicity.” Today, nowhere in the world is that more true than in the west’s relationship with the government of Turkmenistan. Turkmenistan is among the most corrupt and opaque regimes in the world, ranking at the bottom of virtually every rating on human rights, transparency, corruption and democracy. However, western governments, corporations and international financial institutions—particularly in Europe—insist that the country’s governance is becoming more democratic, that the country’s economic indicators are improving, and that Turkmenistan is becoming a country in which western institutions can safely invest.
However, the story from inside the country is quite different.
The report you are holding in your hands is the result of unique research done by our colleagues working in Turkmenistan. It tells the story of one of the world’s most corrupt and opaque regimes, and, specifically, how that regime is robbing its own people blind with the acquiescence of western governments, international institutions and corporations.
The report focuses on the State Agency for the Management and Use of Hydrocarbon Resources Under the President of Turkmenistan, a government body whose activity is as difficult to grasp as its name is clumsy to pronounce.
Essentially, during his presidency, through the Agency, President Berdymukhamedov has managed to consolidate all authority, decision-making, management, and, most importantly, oil and gas revenue in the hands of one person—himself. Displaying un-tethered cynicism, he has created special laws endowing the Agency with virtually unlimited license to use these monies however it wants. And, as the Agency is under his direct authority, he has essentially given himself unlimited access to the country’s oil and gas coffers.
Twenty percent of the Agency’s revenues go into the State budget. The other 80 percent disappear into the murky, shadow economy that President Berdymukhamedov has built though a legal, but highly unethical, system of law that he created under the noses of western officials, but which has never been analyzed, until now.
Every oil and gas agreement, every transportation deal, every investment made by foreign investors into the hydrocarbon sector contributes to the strengthening of this shadow economy, which sinks the average Turkmen citizen further into poverty and further away from a democratic society. Not only do foreign investments disappear into this black hole,
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but those investments are then not subject to environmental, administrative, or financial monitoring in compliance with Turkmen national legislation or western standards.
If the west, including the European Union, the United States, major oil and gas corporations and the international financial institutions which finance them, is serious about supporting reform in Turkmenistan, gaining a firm understanding of the role of the Agency, is a critical step in addressing such reform. Some western organizations demand transparency, require accountability, and claim to do business only under circumstances that jibe with western standards. But, unless those institutions understand who and what they are doing business with, their proclamations will remain hollow.
The recommendations at the end of the report serve as a guide to investors, government officials, NGOs and others on how to engage with Turkmenistan. We encourage you to read them carefully, to share them with colleagues, and to insist on transparency on the part of the Turkmenistan government before investing in the country’s oil and gas sector.
President Berdymukhamedov has, in the four years he has been President of Turkmenistan, created a stronger cult of personality, a more active secret police service, and a bolder international persona than that of President Niyazov before him. But, most egregious is the creation of a kleptocracy, which will use western investment to further control and isolate his people. We invite you to join us in condemning this system, and in working to break it down.
Kate Watters
Executive Director, Crude Accountability
October 2011
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Introduction
Setting aside the specific reasons they took place, the revolutionary events in the Near East had one thing in common. The authoritarian and totalitarian regimes of these countries had essentially privatized a part of the state budget as well as revenues from the countries’ basic financial flows.
These corrupt systems, at the head of which stood heads of state and their close circles, including family members, enabled them to put together a fortune worth billions. Furthermore, social politics, the dismal employment situation, and the potential for social and political growth for the majority of the population were not only limited, but nonexistent.
The source of what happened in Tunisia, Egypt and Libya, and which threatens to happen in several other countries, started several decades ago. At that time the authorities, and more precisely the leadership of these countries, did not pass up the temptation to take complete personal control of the finances of the country, completely ignoring the principle of separating power from their own personal control, including in the financial sector. Everything quickly devolved into a situation where the leaders fully merged their own personal pockets with that of the state. As a result, libertarianism and corruption completely destroyed all chances of developing a state and society—they considered any development to be a political failure and a consequence of a payment from the state budget, which they had already thought of as their own personal funds for many years. The authorities, with the help of repression and state ideology, tried to hold on to the status quo, and they were successful for quite a long time. But, as a result, we have that which occurred in Egypt, Tunisia and Libya.
Turkmenistan has come to our attention precisely because President Berdymukhamedov is now creating the foundation for future shocks to the state and society. Right now he is creating mechanisms for sole and uncontrollable access to the country’s finances and to their administration, as well as the mechanisms to keep them from the people of his country. But, he is not factoring in the inevitable consequences of societal development and, like any dictator, thinks that he will be able to avoid overthrow, prison and exile.
Under the previous President Niyazov, the authorities of Turkmenistan were able to organize various corrupt schemes, which enabled them to accumulate large sums in various quasi-state accounts, and which were managed solely by the head of state. Furthermore, we are talking about colossal sums that were based on the sale of the main export commodity—natural gas. Society at large and the bodies of representative power (parliament) were excluded from any means of influence on decision-making about the allocation of this money.
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But, if, during the time of Niyazov, the authorities of Turkmenistan continued to exploit the extractive and transport infrastructure that remained from the Soviet period and they were not required to deal with major investors; now, the situation is changing fundamentally. The main problem under Niyazov was “how and where to sell gas.” For Berdymukhamedov, the basic problem has become “how to extract gas.”
Currently there is not enough capacity in the country. There is a lack of financial and technological expertise and a shortage of qualified specialists to develop new fields; and the era of exploiting Soviet technological reserves is coming to an end. Something new is emerging—an era of attracting investment and determining the conditions of work for investors.
And, if earlier, under Niyazov, gas revenues were simply beyond the control of society and often, with no system, wasted on various mega-projects and on the cult of personality of Niyazov, Berdymukhamedov has now decided to create a unified and, within his system, logical, controllable activity for investors and revenue return from hydrocarbons. He is essentially appropriating this money for exactly the same kind of uncontrolled embezzlement.
The Agency—“The Hydrocarbon God”
On the Internet and in the Turkmen press one can find numerous references to the activity of the State Agency for the Management and Use of Hydrocarbon Resources under the President of Turkmenistan (further—the Agency). But, there is practically no information about it readily available.
Some of the answers to questions about the Agency can be found in the Law of Turkmenistan “On Hydrocarbon Resources,” which is briefly explained in one of the sections of this report. And there, the reader him/herself can evaluate the breadth of the authority that has been given to the Agency and which completely corresponds to its name.
But, neither in this law, nor in other sources, including the Internet, is there information about what the Agency itself represents, what its structure is, who is among its leadership and management bodies. There is no information about which documents and priorities provide the basis for the Agency to expend the largest part of its revenues from the sale of hydrocarbons, and what, precisely, is the authority of the Agency, according to the Law of Turkmenistan “On Hydrocarbon Resources.”
The text of this report presents an analysis of the legislation of Turkmenistan, which provides the basis for regulation and operation of the country’s oil and gas sector, and offers commentary on specific legislative echelons that strengthen the existing corrupt schemes and the direct withholding of revenues from the population. These methods require the authorities to confirm that their activity takes place within “the boundaries of the law,” and it is an absolute truth that the appropriation by the authorities, and more precisely,
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personally by President Berdymukhamedov, of a large portion of the gas revenues has been raised to the level of law.
We aim to demonstrate this, and invite the reader to bear witness to the fact that this situation creates the foundation for a future revolution. For, theft and uncontrolled waste of monies belonging to the entire population, even if raised to the level of law, will continue to be an irritant to society. That theft will serve as the ideological basis and one of the key incentives for social protest in the future. The entire logic of the process of social development, which the authorities of Turkmenistan are ignoring, speaks to the fact that these actions will lead to revolution. This is what happened in Tunisia, Egypt and Libya.
All the documents used are readily available, if they are not mentioned separately. The links in the report are to official documents, which were published in the Turkmen press, on the Internet, and on State or pro-government sites. All of the links were live in August 2011.
If it is necessary to connect directly with the Agency, we provide its coordinates:
State Agency for the Management and Use of Hydrocarbon Resources Under the President of Turkmenistan
Address: 744036, Turkmenistan, Ashgabad, Archabil Shaely, 56 Tel: +993 (12) 40-38-01 Fax: +993 (12) 40-38-31
http://www.oilgas.gov.tm/_gosagenstvo.html
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