Did gas company buy luxury yacht for Turkmen dictator?
A confidential cable from an American diplomat alleges that the private gas company Itera bought a €60 million luxury yacht as a gift for the autocratic president of Turkmenistan, Gurbanguly Berdymukhamedov. The revelation has thrown a spotlight on the risks of corruption in Turkmenistan, one of the world’s most oppressive countries, as energy companies compete to gain access to its gas fields.
The cable, sent in October 2008, alleges that Itera, “undoubtedly really wants a gas exploration contract [in Turkmenistan], especially onshore, and the gift of the yacht is a nice enticement to move the process along.” In September 2009, Itera signed an agreement with the Turkmen government to develop a gas block in the Caspian Sea. Global Witness is not aware of any other evidence that indicates that Itera did in fact buy this yacht for Berdymukhamedov, but the cable suggests that an American diplomat believes the information – given by “expatriate sources in Ashgabat [the Turkmen capital]” – to be true. Global Witness wrote to Itera for its response; the company’s press-secretary in Moscow replied: “This information has nothing to do with truth and we do not comment on speculations.”
President Berdymukhamedov of Turkmenistan, as pictured in a book entitled The Grandson Fulfils the Dream of the Grandfather published by the Turkmen state. The cable from the American diplomat implies that the pictured yacht Galkynys (meaning ‘Revival’) is the one allegedly bought by Itera. This photo associates the president with a luxury yacht, though it does not amount to evidence that Itera bought this yacht for him. The company said in response to questions from Global Witness: “This information has nothing to do with truth and we do not comment on speculations.”
Turkmenistan is a repressive dictatorship with a dreadful human rights record, virtually no press freedom and no transparency on how the government manages the money it earns from gas sales, as documented in the 2006 Global Witness report It’s a Gas. The concerns over corruption in Turkmenistan, spotlighted by the allegation against Itera, reinforce the dangers for the European Union as it desperately tries to find gas for such projects as the Nabucco pipeline.
Global Witness campaigner Tom Mayne said: “This allegation highlights the opacity of the bidding process in Turkmenistan, where exploration contracts for offshore blocks are not allocated by open tender, but by the Turkmen president himself. The Turkmen people need to be sure that companies operating in their country win energy and mineral rights in a fair and open manner and that the money the country earns from the sale of its natural resources is being used for the benefit of the people.”
The Global Witness report It’s a Gas documented the disturbing fact that under the country’s previous president none of the money Turkmenistan earned from the sale of its gas went into the national budget. Instead, then-president Saparmurat Niyazov, who died in 2006, kept all of the money out of sight in off-budget funds in Deutsche Bank in Frankfurt over which he had effective control.
Since he came to power Berdymukhamedov has done little to improve the transparency of Turkmenistan’s natural resource revenue flows. In 2010, Turkmenistan was ranked bottom in a survey of 41 countries conducted by the Revenue Watch Institute that assessed the amount of information published by governments about earnings, contract terms and other key data.
Berdymukhamedov has been more open to foreign investment than his predecessor, resulting in fierce competition between companies trying to gain access to Turkmen gas fields. The fact that the country suffers from corruption and exhibits a pervasive lack of transparency is therefore a huge concern. In another cable, this time from October 2009, the same diplomat writes: “It was widely known […] that in order for energy companies to get high-level meetings (including with President Berdimuhamedov), a little ‘something, something’ should be offered to the various gatekeepers.”
This system seems to have been in operation in some form for other companies during Niyazov’s rule. In April 2010, Daimler AG, the German automobile company that manufactures the Mercedes-Benz car, pleaded guilty to corruption charges brought by the US Justice Department (DoJ) under the Foreign Corrupt Practices Act, agreeing to pay a US$185 million fine. A document from the DoJ pertaining to the case alleges that Daimler attempted to enter the Turkmen market in February 2000 by giving an armoured vehicle worth at least €300,000 (approx. US$444,000) to “a high-level executive official” as a birthday gift “with the expectation that they would receive large contracts for the purchase of vehicles by the Turkmenistan government in the coming year.”
The document also alleges that Daimler paid for 10,000 copies of a German translation of “the Turkmen government official's personal manifesto”, which cost US$250,000. It is clear from this that the official was President Niyazov, whose birthday was in February and whose self-professed holy book, the Rukhnama, is still studied in Turkmen schools today.
The company at the centre of the new allegations, Itera, has close ties with Turkmenistan. Its founder and chairman, Igor Makarov, was born in Turkmenistan and the current vice chairman of the board of Itera Oil & Gas Company, a subsidiary, is Valery Otchertsov, who was the vice-president of the Turkmen parliament from 1989 to 1991 and the Turkmen Minister of Economics and Finance from 1991 to 1996. One of Itera’s main businesses in the late 1990s was arranging the sale of Turkmen gas in Ukraine.
Though Itera’s business is based primarily in the former Soviet Union, the company was actually registered in Jacksonville, Florida as Itera International Energy LLC in 1994. Its current main holding company is registered in the Dutch Antilles. Historically its ownership structure was rather opaque: it only made public a list of its shareholders in 2001.
The allegations against Itera raise difficult questions for the European Union, which is currently trying to persuade the Turkmen authorities to sell gas to supply the Nabucco pipeline. Since Berdymukhamedov came to power German energy firm RWE AG is the only European company to be awarded an exploration licence in the Turkmen section of the Caspian Sea.
Despite little progress in Turkmenistan on human rights and on the management of its natural resource revenues, the European Parliament is debating whether to sign a Partnership and Cooperation Agreement with Turkmenistan which would normalise trade relations between the two parties. Global Witness questioned the wisdom of this move without first seeing some improvements on key issues in Turkmenistan in the November 2009 briefing paper All that Gas?
Global Witness will shortly publish a detailed report on the need for an international standard for transparency in the allocation by governments of oil, gas and mining rights to extractive companies. “Citizens would gain from such a standard, because it would show that the deals were honest and fair. Companies would gain too, because the company with the best bid would win," said Tom Mayne, “The European Union should be promoting such a standard as an integrated part of its foreign policies in the region.”
In countries where there is no such openness, such as Turkmenistan, energy companies need to show that they are minimising the risk of corruption by, for example, publishing their contracts with the Turkmen government and voluntarily disclosing all the payments they make to it.
For more information please contact Tom Mayne on +44(0) 7939 460357 or Oliver Courtney, +44 (0)7815 731889.
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