May 23 2013

Oil-rich Turkmenistan faces global backlash

Oil-rich Turkmenistan faces global backlash Photo Credit:Reuters/Morteza Nikoubazl
When North Korea, Iran and Kazakhstan start praising your human rights records, it may be time to change tactics.

Turkmenistan came under fire at a recent session of the United Nations Human Rights Council where it was questioned by its peers for its rampant torture programs, systematic suppression of free speech and persecution of human rights defenders.

Most of the 47 nations including the United States and Australia railed at Turkmenistan's representatives at the UN session, but officials from North Korea and a few other nations rose to Turkmen's defense.

The reputation of Turkmenistan among global circles is pretty poor, but that has not stopped foreign investors flocking to the country. Turkmenistan has the fourth largest gas reserves in the world and its proximity to some of the world's largest gas-hungry markets makes it an investment magnet.

While Western powers decry president Kurbanguly Berdymukhamedov's complete control over the country, there are few voices of dissent domestically in an era of double-digit growth.

Non-governmental organizations also blame Western powers for paying lip-service and remaining largely silent on Turkmenistan's human rights record. Its role as a logistic hub for NATO forces in Afghanistan has also resulted in lukewarm criticism of the regime.

'Extreme risk destination'

Still, Western powers have made some efforts lately to maintain pressure on president Berdymukhamedov to initiate some reforms in the country.
Earlier in May, the European Union also discussed human rights issues with Turkmen officials.

"The dialogue focused on judicial reform, prison conditions, national institutions for the protection of human rights, civil society development, freedom of expression and media, freedom of religion, the rights of minorities, women, and children, and cooperation in international fora," said the EU in a statement. "Several individual cases were also raised for discussion."

The problems extend to all facets of society, including oil and gas workers who work for state-owned enterprises or joint ventures with foreign companies.

"Turkmenistan represents an extreme risk destination for foreign businesses to invest or operate in as far as governance-related risk factors are concerned," said Maplecroft, a leading risk analytics, research and strategic forecasting company.

"The unlimited political power of the executive, frequent and arbitrary regulatory and legislative changes, the lack of a functioning and independent judiciary, and corruption levels that are consistently ranked as among the highest in the world represent the main risks for companies in Turkmenistan."

Robust oil sector

For now, impressive natural gas exports have masked regulatory and political weakness in Turkmenistan. Long-term contracts to export natural gas to China have risen steadily, while Russia and Iran remain important buyers of Turkmen natural gas.

"Growth remained robust at 11.1% [in 2012], led by strong gas exports and high public spending on infrastructure, with rising imports limiting the current account surplus to 1.5% of GDP," said the Asian Development Bank in a new report.

"Even higher oil and gas production and exports are expected in 2013 and 2014, providing continued funding for the large public sector. However, growth is forecast to moderate to 9% in 2013 and 8% in 2014."

Investment, mainly in hydrocarbons and various public sector projects, surged by 38% over 2011 levels, said the Asian Development Bank, due to programs guided by the National Program of Socioeconomic Development (NPSED), 2011-2030, "which aims to diversify and modernize the country's industrial base, develop rural areas, and raise living standards."

The government is planning to strengthen the energy sector even further, as it leverages 24.3 trillion cubic meters of natural gas reserves, or 11.7% of the world's total proven reserves.

The Turkmen government intends to raise natural gas output to 230 billion cubic meters per year by 2030, from 45 billion cubic meters. In addition, oil production is expected to rise six-fold, according to official estimates.

A 7,000-kilometer pipeline, built with funds from China with an annual capacity of 30 billion cubic meters is set to increase to 65 billion cubic meters by the end of the decade. Pipeline projects to Afghanistan, Pakistan, India to its east and Europe to the west are also being planned.

However, Maplecroft notes that the country's pipeline infrastructure needs an upgrade and capacity must expand further if Turkmenistan to reach its ambitious energy export goals.

Gas-centric policies

There is little development in the country beyond the energy sector. Last year the government promised privatization of state-owned enterprises, but the process remains opaque and has not taken off yet.

The ADB has urged the country to use the high-growth era to implement reforms, diversify the economy and create institutions and structures in place.

"The authorities would do well to use the current favorable outlook and strong external position to deepen structural reforms and finance productive investment that promote diversification and encourage private sector development," said the ADB.

"They could support these measures by strengthening public financial management, developing the financial sector, and enhancing macroeconomic surveillance."

But with the Turkmen government unencumbered by any opposition, and foreign investors continuing to pour funds into the country despite weak regulations, there are few incentives to take the high road to reforms.

© alifarabia.com 2013

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