Oil-and-Gas Rich Country Swallows Money, Still Needing More

Turkmenistan's petroleum promises wealth - if a pipeline is built to export it.

The view should be beautiful as the blazing summer sun dips slowly into the Caspian Sea. But from the waterfront of Central Asia's single port city, only the wreckage of shattered dreams meets the eye.

Young men fish from a sinking Soviet Navy ship in the harbor, while children swim near a spigot that spouts raw sewage into the sea. "You have to swim somewhere," one girl who emerges from the murky water says cheerfully. "We live here, so what choice do we have? Our hair and teeth haven't fallen out yet."

Despite local authorities' plans to turn this town into a thriving center of trade and tourism, Turkmenbashi appears to be frozen in a permanent state of decay.

Ironically, even a massive government investment to revive the economy here could end up bankrupting the entire country of Turkmenistan. Rich in oil and gas reserves, this newly independent Central Asian republic is so remote that even its strategic position on the Caspian Sea seems unlikely to save it.

Originally built on the promises of empire, the town once went by the name of Krasnovodsk. It was from here that the Russians launched an unsuccessful invasion of Central Asia 280 years ago. In 1881, after the czar's armies finally conquered the current territory of Turkmenistan, it became the first station on the Trans-Caspian railway, which stretched into the interior for 1,000 miles across forbidding desert terrain.

"One of the hottest, most deserted, and miserable places in the world," were the words that writer Stephen Graham chose to describe the town in 1914.

After its forced incorporation into the USSR, Central Asia saw its first wave of industrialization during World War II, when Soviet planners hastily disassembled entire factories and moved them far behind the front lines. In 1943, the oil refinery that once stood at the Black Sea port of Tuapse was relocated to Krasnovodsk.

Drain on resources

Today the sprawling, polluting industrial complex is totally antiquated. The government of Turkmenistan has begun pumping in $1 billion to rejuvenate the plant, once the pride of the city.

"The refinery will encumber all the remaining hard-currency reserves of this country and make it insolvent," says a Western analyst of Turkmenistan's oil and gas industry. "The collateral for the refinery is the country."

Considering that there is already an overcapacity of oil production in the region, the analyst says that the refurbished refinery at Turkmenbashi is superfluous.

Even a confidential study prepared for the Turkmen government concludes that "the condition of the utility and infrastructure facilities in the refinery are very poor and the needs are great ... the needs will prove greater than available resources."

Nevertheless, the first phase of investment has begun at the refinery, and construction workers brought in from Turkey are busy erecting a new petrochemical factory. Incongruous in the desolate location, local workers can be seen pouring concrete flower beds that will line the refinery's roads.

A more serious problem than the region's oil glut is Turkmenistan's geographic isolation and the difficulty in transporting its resources to paying markets. While the refinery's products typically cost $100 to $200 per ton, transportation often costs an additional $50 per ton.

Turkmenistan's promising natural gas industry has also been hurt by geography. During Soviet times, the republic exported its gas through pipelines that crossed Russia. But soon after independence, Moscow shut off Turkmenistan's only access to European markets to protect its own gas industry.

Though Turkmenistan has the world's fourth-largest natural gas reserves, its gas production has plummeted to 10 percent of its capacity 10 years ago and now fulfills little more than its own domestic needs. Desperate for a way out, Turkmenistan completed a 125-mile gas pipeline to Iran last December. Revenues are still paying back the construction loans.

Plans for a pipeline via Afghanistan to Pakistan seem unlikely now, as the American UNOCAL Corp. withdrew from the deal following recent US missile strikes on suspected terrorist camps in Afghanistan. Another proposal, with the involvement of Exxon and Mitsubishi, calls for a 4,000-mile gas pipeline to China that could eventually provide Japan with gas.

The project that the US government most prefers would link Turkmenistan to Azerbaijan by an underwater pipeline beneath the Caspian Sea. The US company ENRON is expected to present its study on a Trans-Caspian pipeline in November.

Unrealized plans

Until any of these projects are realized, however, Turkmenistan's access to the world's markets will remain all but blocked. The little oil that Turkmenbashi's refinery exports leaves the country by rail or barge, two more or less profitless means of transportation out.

Observers say that Turkmenbashi, or "leader of the Turkmens," has received special attention since it was renamed to honor President Saparmurat Niyazov in 1993. Costly refurbishment of the oil refinery and the reconstruction of the defunct port move along, but the town still appears to be more a cul-de-sac than a gateway to the world.

"Theoretically, you could go all the way from here to the Mississippi," says Hudaiberdy Bad- amov, deputy director of the port.

In reality, one ferry line provides sporadic service across the Caspian, and the port's 14 cranes hulk uselessly along the waterfront. The only evidence that the town will ever become a tourist resort is a green-and-blue model hanging in the mayor's office.