Caspian Business Journal

Turkmenistan 2010: New Opportunities in the Pipeline

Some of the winners in Turkmenistan’s energy diversification are often overlooked. Michael Druckman takes a look at the unexpected opportunities that have emerged alongside the new gas pipelines for small and medium size businesses.

The recent completion of the Turkmenistan to China natural gas pipeline in December made international news in the last month for a variety of reasons, some economic, but almost all political. Missing from the commentary was any discussion relating to the increased business opportunities and economic benefits on the ground in Turkmenistan.

While the pipeline itself and the consortia of state-run institutions that fund and operate it are operated at a very high level, there are numerous smaller operating companies and ancillary businesses that will benefit from energy diversification in Turkmenistan. Four business groupings should seek to benefit from this development: oil and gas service firms, transportation and logistics firms and finally and perhaps most uniquely suited to the small business environment, translation and food services firms for international clients (particularly from China). Each grouping is well positioned to attempt to grow revenues in the coming year and “piggyback” onto Turkmenistan’s larger economic programs.

Oil and Gas service providers

Energy firms such as Itera, Dragon Oil, and Petronas all have operations in Turkmenistan. While these firms grab the headlines, there are numerous sub-contractor service firms assisting in the implementation of their energy projects. These oil and gas service firms are often small, privately held and extremely specialized in their area of expertise, whether that is in core drilling, sample analysis or various engineering services.

An example of how valuable these service firms can be to larger energy projects is the recent acquisition by U.S. based Weatherford International of 100% of the Russian based Joint-Venture TNK-BP’s entire Oil Field Services (OFS) division in all of the Russian Federation. The greatest challenge Turkmenistan now faces in continuing to develop its carbon resources and maintain solid production is the acquisition of modern technologies and matching expertise. It is in this niche, in the smaller sub-contracted specialized service firms, that outside investors and firms have perhaps the greatest opportunity to engage Turkmen firms and enter the energy services market.

Transportation and Logistics

The Caspian port city of Turkmenbashy (formerly Krasnavodsk) has seen increases not only in shipping turnover in the port, but in requests for crane and heavy lifting equipment to more speedily unload ships.  Over the course of the summer of 2009, demand for “multi-axle trucks, lowbeds and crane equipment [1]” outstripped the available supply, and measures to secure equipment in western Kazakhstan were extremely expensive and time consuming.  According to a representative for Lotus Enerji, a Turkish energy services firm with interests in Turkmenistan, “things have been so busy we don’t even have time for proper sleep.”

One of many firms helping to plug the gap in equipment demand has been Bertling which secured several contracts over the previous year for heavy equipment. Local entrepreneurs are attempting to adapt to the imbalance in supply and demand by creating unique new ventures that pool capital and resources to secure specific pieces of heavy equipment and then lease them to needy firms. The win-win proposition lets the larger local contracting firms secure the necessary equipment to perform jobs while returning a profit to the investors of the lease holding company. Transportation of the equipment into the country and transparency still remain hurdles, but with the right local partnerships can be overcome.

Translation & Food Services

The influx of Chinese companies, many years after their products were introduced in Turkmen bazaars, along with their workers has produced a new industry in Turkmenistan for servicing Chinese company facilities and worker compounds. Most Chinese firms provide their workers (brought from China) with their own designated and segregated housing facilities. This has the benefit of keeping skilled workers at or near work sites, but the drawback of having to provide for each of their day to day needs.

Local Turkmen firms are often contracted to supply and provision these compounds. In many cases however, bridging the language and cultural gap is key and translation and service firms are thriving with the new business. Local Turkmen firms that previously traded goods with neighboring Uzbekistan or Afghanistan are now also securing short-term contracts to provide worker compounds with the basic foodstuffs and amenities right at their door. Whether it is truckloads of sugar, meats or flour, local firms that are able to leverage their local market knowledge and new found contacts are seeing a booming business throughout the country.

The demand for food products and staples in bulk has helped create additional demand for foreign and imported products into Turkmenistan. Whether it is halal chicken or sugar, if you have it and the price is right, the market in Turkmenistan for imported food products is ready.  Likewise Chinese linguists and locally based legal expertise will see greater service as ties continue to strengthen between the two countries. The trickle down effects of new pipelines or the sale of a new block of territory for natural gas test drilling are not events that occur in an economic vacuum, they affect a myriad of interrelated local industries and present unique exploitable opportunities.

For the international investor or owner of an enterprise in an exploitable industry, knowing what is happening on the ground and finding a reliable partner is key to seizing any opportunity. As much of the world relegates the recent unveiling of this latest pipeline project to diversify Turkmenistan’s energy exports to a “new move” in the energy great game, local small businessmen on the ground and their international partners and colleagues will be making their own new moves in 2010, with profits to match.

Over the course of the next few issues the Caspian Business Journal plans to follow up exclusively on business opportunities in the logistics and transportation services sector in Turkmenistan.

Footnotes:

[1] Author discussion with Lotus Enerji representative.