TURKMENISTAN - Refining, Chemical & Industrial Base.

The oil refining industry in Turkmenistan is being modernised. Under a set of projects costing over $2.5 bn and launched several years ago, the country's two refineries are being upgraded. Since mid-2002, President Saparmurat Niyazov has been considering a new 100,000 b/d refinery to be built under another project.

The refining and industrial sectors of Turkmenistan, unlike those of other members of the Commonwealth of Independent States (CIS), avoided a serious deterioration after the collapse of the Soviet Union. The two refineries dating from the Soviet era continued to function with some hiccups, while the small-scale chemical industries and the agricultural sector did not face the problems suffered in neighbouring Central Asian countries.

In the first half of 2006, the oil refineries in Turkmenbashi and Seidi processed 3,297m tons of crude oil. The highest growth rate was reported in the output of lubricants - 38% reaching 31,100 tons. Production of LPG increased 4% to 196,000 tons. Production of diesel and polypropylene rose 1% to 968,000 tons and 41,700 tons respectively. In the first half of 2006, Turkmenistan's power generating stations produced 6.739,1 bn kWh, up 8% year-on-year.

The economic situation in Turkmenistan between 1991 and 1993 was regarded as a "model" for Central Asia. But things changed rapidly for the worse from 1993 onwards. A combination of problems, worsened by the regime's dictatorial style and lack of transparency, caused a downturn in the economy. Things began to improve from 2000 thanks to high oil prices and increased production of natural gas, crude oil and condensates (see OMT & Gas Market Trends of this week).

The government now is embarked on an integrated programme to develop the petroleum and petrochemical industries. The objective is to meet the needs of the economy in various fuels and exports to the world markets. The programme includes re-equipment of the Turkmenbashi oil refining complex, switching to modern energy saving technologies with minimum pollution and boosting the output of high-quality fuels. As a result, a modern industrial giant has been built on the Caspian Sea coast since 2000. New fuel and petrochemical units installed include catalytic reforming and catalytic cracking systems producing high-octane gasoline, diesel, polypropylene and a variety of specialty oils. With contractors being highly qualified firms from Japan, Germany, the US, France, Turkey, China, Israel and Iran.

The fuels in the current stream include unleaded gasoline, aviation and technical kerosines, hydro-fined diesel, LPG, petroleum coke, and various other products. The programme is to stabilise fuels production at the rate of 7.5m tons/year. Reconstruction now is concentrating on the Seidi refinery, which will be producing high-quality fuels.

Petrochemicals include polypropylene, polyethylenes and a variety of other items. The next phase of reconstruction and modernisation will also feature new plants to produce a range of chemicals which the country now is importing, and there will be a surplus for export.

Turkmen President Saparmurat Niyazov, who is personally involved in decisions for all the branches of petroleum-based industries, in August 2006 approved a tender for expansion of the Turkmenbashi Oil Refining Complex (TKNPZ) and its capacity to store fuels and petrochemicals. Stroitransgas of Russia is among companies involved in the supply of equipment and spare parts.

On June 14, President Niyazov received a delegation of Japanese businessmen led by the co-chairman of the Turkmen-Japanese Economic Co-operation Committee, top ranking representative of Itochu Corp., Minoru Murofusi. The delegation included leaders and senior officials from Komatsu and JGC Corp. These are involved in the above-mentioned development and modernisation programme. A Japanese consortium including JGC and Itochu took part in construction of the big polypropylene plant at Turkmenbashi and will be in the lead of its further expansion. During the talks, Niyazov focused on soft credits being provided by China which, he said, were better than those offered by Japan. Niyazov told the delegation: "China offers credits with 2% interest and Japan [is demanding] 8%", this being in addition to a big difference in project costs between Japanese and Chinese contractors.

Compared to other CIS states like Ukraine, Belarus, Kazakhstan or Uzbekistan, the industrial base of Turkmenistan is small. The country's major non-energy exports are cotton, textiles and carpets - mainly to markets in the former Soviet Union and to Turkey and Iran. Private business has not been able to reach its potential due to constant changes in the legal environment as well as restrictive rules from the Soviet era which remain in force.