10/02/2015, 00.00
TURKMENISTAN
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Government cuts subsidies for its largely impoverished citizens

by Alexander Kim
Since 1993 in Turkmenistan has provided its citizens with free access to water, electricity and natural gas. In 2007, the new president introduced limitations. Overall subsidies represent 22% of GDP. The global economic crisis is reducing the government's finances. The country consumes 36.7% of the natural gas it produces. “The time has come to move to market relations. Now we must all learn to pay,” a government official said.

Ashgabat (AsiaNews) – The Central Asian republic of Turkmenistan is considering abandoning the socio-economic system, in place since independence over 20 years ago, that the government has used to placate the population. At a meeting of the Council of Elders, on September 10, several members of this government advisory body voiced the idea that the time has come for consumers in Turkmenistan to pay a market price for their electricity, natural gas and water (Rosbalt, September 14). To date, these utilities have been generously subsidized.

Since 1993, people in Turkmenistan have enjoyed free access to natural gas (which is the most abundant resource of the country), water and electricity. The free supply of these resources is mostly associated with modern Turkmenistan’s first president Saparmurat Niyazov (a.k.a. Turkmenbashi) who introduced them first for ten years and then extended them until 2030. After his inauguration in 2007, Niyazov’s successor, President Gurbanguly Berdimuhamedov, maintained the subsidies but set maximum caps on free usage: 120 liters of free gasoline a month for passenger cars, 35 free kilowatt hours (kWh) of electricity per person per month, and 600 cubic meters of natural gas per person per year (Inozpress.kg, September 25). Turkmenistanis now had to pay for the consumption of water, gas, electricity and gasoline beyond the allowed amounts. In addition, Turkmenistan’s population of 5.2 million has enjoyed extremely low rates for general utilities, public transportation, low-priced bread and subsidized housing loans.

Gradually, under Berdimuhamedov, the government started attempts to curb the subsidies. Over the past eight years, the price of gasoline has increased ten times, subsidies for flour and meat were reduced as early as 2012, monthly allocations of free electricity per person were reduced from 35 kWh to 25 kWh in 2013, free gasoline rations were removed entirely in 2014, while the price for natural gas increased to 20 manats () per 1,000 cubic meters on consumption above the maximum allocated free amount of 50 cubic meters per person (Maplecroft.com, September 24). The government started ordering the installation of gas and water meters—something that Turkmenistanis have never used before—across the country’s entire territory.

With current global decline in natural gas prices and consequent sharp reductions in government export revenues, Ashgabat is most likely to end the subsidies completely—“responding” to the people’s will, as voiced by the Council of Elders. Under some estimates, the subsidies consume more than 22 percent of GDP in Turkmenistan. A representative of the Regional Directorate of the Ministry of Economic Development was cited saying that “The time has come to move to market relations. Now we must all learn to pay” (Inozpress.kg, September 25).

Natural gas remains the country’s biggest resource, and household subsidies have led to domestic overconsumption, with households virtually never switching off their homes’ gas flows. Currently, Turkmenistan consumes around 36.7 percent of the natural gas produced, which is probably high for a population of 5.2 million, even considering emerging local gas processing capacities. Kazakhstan, for example, consumes 24 percent of its gas production, or 4.6 billion cubic meters (bcm) against 22.9 bcm in Turkmenistan (Bp.com, June 2015). Thus, the reduction of domestic gas consumption may help to increase gas exports.

This will be particularly advantageous as Turkmenistan is facing a drastic reduction in gas export options. With Russia’s decision to decrease gas purchases from Turkmenistan to 4 billion cubic meters per year in 2015, Turkmenistan has been relying overwhelmingly on China as its main customer. Out of a total of 48 bcm expected to be extracted this year, Turkmenistan is planning to deliver 40 bcm to China (Natural Gas Europe, February 10). At the same time, trade with China remains unprofitable: traded gas volumes are used by the government in Ashgabat to repay the debt it contracted with the China National Petroleum Corporation (CNPC) for the construction of the China–Central Asia gas pipeline and the development of the Galkynysh gas field (Central Asia Policy Brief, June 2015).

The rising dependence on China as well as shrinking gas export earnings are prompting Turkmenistan to search for new export routes. The planned Turkmenistan–Afghanistan–Pakistan–India (TAPI) pipeline is probably the only insurance against a prolonged economic slowdown in China. President Berdimuhamedov has recently announced that all practical issues for TAPI’s implementation had been resolved (Trend.az, September 18). It is therefore expected that the construction of the pipeline will begin in December this year. Yet, many experts continue to raise doubts over the project’s feasibility because of inflexible investment conditions and an unstable transit route through Afghanistan (see EDM, December 14, 2010July 28, 2015Christian Science Monitor, September 25).

Aside from Turkmenistan’s gas diversification goal, an economic program, recently announced by the president, prioritizes support for industrial development, a large-scale investment program, and a mix of import substitution and export promotion measures, particularly for agriculture and food production (Gundogar-news.com, September 10). These efforts to diversify the economy—which resemble the policy packages from other energy-dependent countries of the region such as Kazakhstan and Uzbekistan (see EDMOctober 1, 2012November 19, 2013July 6, 2015September 18, 2015)—are unlikely to be effective. Political constraints continue to limit the development of these countries’ private sectors (Maplecroft.com, September 24). Like in Kazakhstan, Turkmenistan’s government based its social contract with the population on promises of economic well-being. And subsidies were a major part of state ideology, professing Turkmenistan to be different from other “capitalistic” countries of the region. Unlike Uzbekistan, however, Turkmenistan lacks the efficient state apparatus to fully control domestic affairs, despite constant purges in the government and the president’s personal engagement on many issues.

In addition, prices in the country are likely to increase following the devaluation of Turkmenistan’s currency, the manat, on January 1, 2015. Although price controls have, so far, successfully restrained inflation, the pass-through effects of the manat’s devaluation and lower state subsidies for electricity, fuel and public transportation will likely bring about marginally higher prices for food, construction materials, services and public utilities (ADB Outlook, September 2015). And with broadly low wages as well as the low quality of education and health care, it remains to be seen what the authorities can offer the population to compensate for breaking the previous social contract.

Courtesy of the Jamestown Foundation

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