Cablegate: Turkmenistan: A Tale of Two Businesses: Licorice

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PP RUEHIK
DE RUEHAH #0250/01 0571207
ZNR UUUUU ZZH
P 261207Z FEB 10
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 4301
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 6297
RUEHBJ/AMEMBASSY BEIJING 3967
RUEHKO/AMEMBASSY TOKYO 3826
RUEHIT/AMCONSUL ISTANBUL 4541
RHEHNSC/NSC WASHDC
RHMCSUU/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 4436

UNCLAS SECTION 01 OF 02 ASHGABAT 000250

SENSITIVE
SIPDIS

DEPT FOR SCA/CEN; EEB
COMMERCE FOR DSTARKS/EHOUSE

E.O. 12958: N/A
TAGS: BTIO ECON BEXP PGOV EINV TX
SUBJECT: TURKMENISTAN: A TALE OF TWO BUSINESSES: LICORICE
AND MACHINE PARTS

ASHGABAT 00000250 001.2 OF 002

1. (SBU) SUMMARY: Turkmenabat, Turkmenistan's second largest
city, continues its role as a transport hub and industrial
center, despite diminished regional commerce in the
post-Soviet era. A large complex that processes
locally-harvested licorice root continues to prosper due to
the availability of inputs and a healthy export market. A
machine parts factory has faced greater challenges, having
been forced to find a new product line and relying solely on
the domestic market. Unlike the licorice complex, which
pre-dates the Russian Revolution, the machine parts factory
was a Soviet creation that lacks an obvious market in
Turkmenistan's current economy. Thanks to government
subsidies, however, it does not appear that even a
struggling, Soviet era enterprise is threatened with closure.
Given its success at maintaining its production equipment,
the factory could see better days if it found the right
foreign partner interested in a low-cost metal parts. END
SUMMARY.

LOCAL LICORICE ROOT SUPPORTS AN INDUSTRY

2. (SBU) Poloff recently visited the Buyan Turkmenabat
Agro-Industrial Complex, which specializes in the production
of licorice extract in dry and paste forms. The licorice
processing plant dates back to the Czarist era, when it was
started by the U.S. firm MacAndrews and Forbes in 1906. A
meeting with the director of the complex took place in the
administrative building, adjacent to the processing plant.
The plant was reportedly modernized in 2008 by a Chinese
company, although the original 1906 press is still in use.
The director of the complex declined poloff's request to tour
the plant, saying that the equipment was currently undergoing
maintenance prior to the start-up of the harvesting season in
March. Instead, he offered to describe the process used to
produce licorice extract, which is essentially a combination
of steam and pressure applied to the harvested roots.

3. (SBU) Licorice root grows wild along the banks of the Amu
Darya. Attempts to cultivate it have not been successful.
The licorice root is harvested by the Buyan complex's own
brigades. The harvest takes place between March and October,
terminating after the first frost. During the Soviet period,
the Buyan plant processed licorice root from Uzbekistan,
Tajikistan, Kazakhstan and Azerbaijan. Since the end of the
Soviet Union, the plant only processes licorice root
harvested in Turkmenistan. Buyan has 600 employees, the bulk
of whom work in its harvesting brigades. The company does
not obtain licorice root from individual harvesters.

4. (SBU) The Buyan complex processes and sells unprocessed
licorice root, as well as paste and powder extract. The
powder extract is a new, higher value-added product,
following modernization of the plant by the Chinese and
installation of new equipment. The equipment in the plant is
Chinese, Russian and American, the still operational
U.S.-built press dating back to the plant's founding more
than 100 years ago. Although the plant falls under the
control of the Ministry of Healthcare and Medical Industry,
it does not produce higher value-added consumer products such
as medicine or candy, which are the primarily end uses for
licorice extract. Buyan ships licorice extract to the U.S.,
Japan, former USSR countries, China and Western Europe. The
U.S. company Mafco Worldwide Corp. purchases about 2,000 tons
of extract per annum, all of which is produced on the vintae
U.S. press, according to the director. Thirty percent of the
exports are licorice extract, with the remainder sent as
dried root.

MACHINE PARTS: WE'LL MAKE WHATEVER YOU NEED

5. (SBU) Poloff also visited an industrial machinery factory
in Turkmenabat named "Agromash," which was established in
1973. The plant is part of the state-owned

ASHGABAT 00000250 002.2 OF 002

"Turkmenmashyngurlushyk" (Turkmen Machine Building)
Enterprise, which falls under the Ministry of Energy and
Industry. It is one of eleven such factories operated by the
machine building enterprise at different locations throughout
the country. The factory has mechanical and welding
sections, as well as a section for the reconstruction and
testing of Russian-built YaMZ diesel engines. Greeted by the
company's director, Muratjan Jumakulyiev, poloff was
immediately led to the Soviet-era plant's massive shop floor
in a soaring, hangar-like structure. The better part of the
shop floor was devoid of activity, although a handful of
workers were operating some of the equipment. The plant
remains fully equipped with Soviet-era machine tools such as
metal lathes and drills. An adjacent building houses a
foundry with two rows of furnaces for melting metal.
Although the factory has a capacity to produce 1,800 tons of
iron and steel castings per annum, and 250 tons of
non-ferrous metal castings, during the visit none of the
furnaces were operating.

6. (SBU) While the factory plant had once specialized in the
repair of road grading equipment, it no longer performs that
work and is now clearly scrambling for business for its line
of products. The factory can also fabricate custom-ordered
machine parts based on a client's specifications. Agromash's
product line includes clay mixing machinery for use on
drilling units; trailers that provide temporary housing and
offices on construction sites; circulation systems for the
preparation and storage of drilling solutions for oil and gas
wells; rototillers; and ironwork such as ornamental fences
and manhole covers. There was one massive circulation system
on site ready for shipment, and at least a dozen trailers
featuring various interior configurations. The factory
currently does not export its production, although it does
sell to foreign companies doing business in Turkmenistan.
The factory's director proposed that U.S. firms could order
custom machine parts and Agromash could produce them at a
fraction of the U.S. cost. He also thought the company's
housing/office trailers could find useful applications in
Afghanistan,

7. (SBU) COMMENT: The Buyan licorice complex clearly has a
longstanding market niche dating back to the early 20th
century. Even though the complex lost its regional role
following the break-up of the Soviet Union, its continued
exclusive access to its basic input, licorice root, and
well-developed export demand have provided it with continuity
and favorable prospects. Agromash, on the other hand, had to
find new lines of business in the post-Soviet Turkmen economy
and lacks the wherewithal to develop export markets. While
the factory did not look busy, it has managed to maintain its
equipment intact, thanks to state support, and could present
an opportunity for a foreign partner looking for a low-cost
supplier for machine parts. END COMMENT
CURRAN

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