German oil company pulls out of Turkmenistan over bureaucratic delays, corruption

German oil and gas company DEA Deutsche Erdoel AG decided to leave Turkmenistan and put an end to plans to explore the Caspian Sea shelf. The decision to abandon commitments the company had made around Block 23 is explained by the company’s frustration with excess bureaucracy and corruption in Turkmenistan. DEA AG acquired rights to explore at the Caspian in the framework of a production sharing agreement in 2009. This agreement included a promise that Turkmenistan would open its energy resources to external investors and grant access to onshore reserves. But western courtiers have been waiting since. Despite completing all the preparatory work, DEA AG has not managed to get exploration drilling permits for two years. One reason that ANT, Turkmenistan’s State Agency for Management and Use of Hydrocarbon Resources provided for dragging out the process of issuing drilling rights, was that the block is close to the Hazar State Nature Reserve. Preparatory works were also held up at the customs service, holding up required equipment and respectively increasing project costs which eventually amounted to $30 000 a month just to keep the equipment at the storage.

Turkmenistan’s energy program also attracted other international courtiers, such as Malaysia’s Petronas, Dubai-based Dragon Oil, Cyprus-based Baried Hill and Russian Itera and Zarubezhneft with the intention of exploring the Turkmen section of the Caspian Sea. But DEA AG’s entrance in the country’s market as an established Western company was another matter.

The development is expected to induce anxiety among Turkmen authorities as the country’s revenue significantly dropped along with falling energy prices. The company’s pull out is also in opposition to Turkmenistan’s desire for market diversification but perceived failure to effectively do so.

Follow us on Twitter: @SteppeDispatch

News Briefs:

  • Russia states its fears that Central Asia is at risk of IS spillover from Afghanistan. Head of Russia’s Federal Security Service, Alexander Bortnikov, said that militants in Afghanistan now aligning with Islamic State pose a growing threat to the region. The Kremlin sees Central Asia as the closest line for Islamist militants before reaching Russia and fears that the region’s fragile security forces may fail to slow their advance without assistance. Russia justified its involvement in Syria with the same threat. The Kremlin’s increased attention to Central Asia coincides with renewed interest from the US as Secretary of State John Kerry is currently on a trip to visit all five states. On the other hand, TASS news agency claimed Iran is also worried about IS potential penetration in Central Asia and an Iranian adviser to Supreme leader Ayatollah Ali Khamenei stated that Tehran and Moscow cannot be indifferent to the plots entailing insecurity in the region.
  • Belarus rejected the idea of placing a Russian air base in the country. After a visit to Moscow, Belarusian Foreign Minister Vladimir Makei stated that there was no need to discuss the airbase as it would not help to lower tensions in the region, but rather lead to irritation toward both Minsk and Moscow. Russia proposed establishment of the airbase to counter NATO’s eastward advance. Back in September, President Putin instructed the Defense Ministry and Foreign Ministry on starting negotiations with Belarus over the airbase. The agreement presupposed establishing a joint border defense in the airspace and creation of integral regional air defense system.
  • Iran confirmed that it will attend Syria multilateral talks in Vienna along with the U.S., Russia, Saudi Arabia, Turkey, Egypt and Iraq. Iranian Foreign Minister Mohammad Javad Zarif will participate at the summit this week, marking the first time Iran has attended such a meeting with the US. Tehran’s four-point plan is expected to be on the table calling for a ceasefire, followed by forming a national unity government, constitutional reforms and free elections. Iran and Russia insist on Assad being part of any transition government, whereas the U.S. only agrees to its short-term participation. Iran, President’s Assad’s closest ally in the region, has already spent billions of dollars propping up the government and has sent military advisers and subsidized weapon sales.
  • Russia warned over Ukraine’s expected gas shortage crisis this winter. Russian Energy Minister Aleksandr Novak talked about potential shortage and its effect on Europe at the meeting with French colleague in Moscow. The meeting included discussion over Russia-Europe energy relations and the Russian Minister also stated that the French had expressed interest in the Nord Stream 3 project, which will supply Russian gas to Northern Europe. The EU has allocated $500 million to Ukrainian Naftogaz to ensure 2 billion cubic meters of gas from Russia out of which $400 million has already been paid. However, Gazprom claims that this will not be enough for the entire winter. A similar crisis in Ukraine in 2006 left part of Europe without access to heat.
  • Kyrgyzstan and Tajikistan reached a border deal, hoping to end a long-term border dispute. The deal implies a land exchange as Kyrgyzstan will receive plots in the village of Kok-Tash while Tajikistan will receive plots from the southern part of the village in exchange. Kyrgyzstan’s Deputy Prime Minister hailed the deal as a historic turning point as the disputed border areas have caused constant unrest and multiple border clashes during the last several years. Previous negotiations failed due to the insistence by both sides that Soviet-era border delimitations be adhered to. Tajikistan claimed that 1924 documents be followed while Kyrgyzstan insisted on following 1957 border demarcations. However, as houses stand side by side in the village of Kok-Tash, drawing a clear border is only expected to work with substantial relocation.
  • Russia, China and Mongolia agreed on joining efforts to increase economic cooperation among the three countries. The authorities and entrepreneurs signed more than ten agreements on expanding cross-border tourism and trade at the first China-Mongolia Expo in Hohhot, the capital of north China’s Inner Mongolia Autonomous Region. The agreed-upon projects  are worth about $220 million and imply the construction of new hotels, resorts and training of personnel that work in a specialized tourism industry, as well as developing increased connectivity of tourism route linking Hohhot, Ulaan Baatar, Ulan-Ude and Irkutsk. According to statistics, Inner Mongolia hosted 810,000 tourists from Mongolia and 630,000 from Russia in 2014.