Turkmenistan - 3-Legal RegimeTurkmenistan - Transparency
Transparency of the Regulatory System
The government does not use transparent policies to foster competition and foreign investment. Laws have frequent references to bylaws that are often not publicly available. Most bylaws are passed in the form of presidential decrees. Such decrees are not categorized by subject, which makes it difficult to find relevant cross references. Personal relations with government officials can play a decisive role in determining how and when government regulations are applied. Conversely, running a successful foreign business can lead to problems with local authorities. There have been consistent reports throughout the year that the government seized profitable local companies run by individuals who might have studied at the former Turkmen-Turkish University and jailed the legal owners of the enterprises. In December 2016, the government expropriated the largest (and only foreign-owned) grocery store, shopping center, and business center in Ashgabat without compensation or other legal remedy ostensibly to build a parking lot. In April 2017, the Turkish Hospital in Ashgabat was closed indefinitely. There have been consistent reports over the last year that officials or their agents seized local companies run by individuals purportedly associated with the Turkish Gulenist movement. In many cases, authorities jailed the legal owners of the enterprises using security-related laws as a legal pretext and reopened the businesses under new ownership.
While American companies, including Coca-Cola and Caterpillar, have been present in the local market for years and have performed successfully, government delays in payment to foreign companies and restrictions on converting earnings into hard currency have begun to complicate the investment picture. French (Bouygues, Vinci), Korean (Hyundai) and Turkish (Polimeks) companies have reportedly faced similar issues during the last year as energy-related revenues dry up.
Bureaucratic procedures are confusing and cumbersome. The government does not generally provide information support to investors, and officials can use this lack of information to their personal benefit. As a result, foreign companies may spend months conducting due diligence in Turkmenistan. A serious impediment to foreign investment is the lack of knowledge of internationally-recognized business practices, as well as the fact that there are few fluent English speakers in Turkmenistan. English-language material on Turkmenistan legislation is scarce, and there are very few business consultants to assist investors. Proposed laws and regulations are not generally published in draft form for public comment. The general public is typically not invited to make contributions during parliamentary deliberations on the proposed bills or amendments to legislation.
There are no standards-setting consortia or organizations besides Turkmen State Standards and the licensing agency. There is no independent body for filing complaints. Financial disclosure requirements are neither transparent nor consistent with international norms. Government enterprises are not required to publicize financial statements, even to foreign partners. Financial audits are often conducted by local auditors, not internationally recognized firms.
The legal framework contained in the Law on Petroleum (2008) was a partial step toward creating a more transparent policy in the energy sector. Turkmenistan’s banks completed transitioning to International Financing Reporting Standards (IFRS). State-owned agencies began the transition to the IFRS in 2012 and fully transitioned to National Financing Reporting Standards (NFRS) in January 2014, which is reportedly in accordance with IFRS. While the IFRS may improve accounting standards by bringing them into compliance with international standards, it has no discernable impact on Turkmenistan’s fiscal transparency since fiscal data remains inaccessible to the public. There is no publicly available information regarding the budget’s conformity with the IFRS. There is no public consultation process on draft bills and there are no informal regulatory processes managed by nongovernmental organizations or private sector associations.
International Regulatory Considerations
Turkmenistan pursues a policy of neutrality (acknowledged by United Nations in 1995) and does not join regional blocs. Turkmenistan is currently a member of the Economic Cooperation Organization (ECO), a ten-member intergovernmental organization created in 1985 to promote trade and economic cooperation among its members. In drafting laws and regulations, the government usually includes a clause that states the international agreements and laws will prevail in case there is a conflict between local and international legislations. Turkmenistan is not a member of WTO.
Legal System and Judicial Independence
Turkmenistan is a civil law country in terms of the nature of the legal system and many laws have been codified in an effort to transition from Soviet laws. The Mejlis, the country’s parliament, adopts nearly 50 laws per year without involving the public and these laws are rarely implemented. Most contracts negotiated with the government have an arbitration clause. The Embassy strongly advises U.S. companies to include an arbitration clause identifying a venue outside Turkmenistan. There have been commercial disputes involving U.S. and other foreign investors or contractors in Turkmenistan, though not all disputes were filed with arbitration courts. Investment and commercial disputes involving Turkmenistan have three common themes: nonpayment of debts, non-delivery of goods or services, and contract renegotiations. The government may claim the provider did not meet the terms of a contract as justification for nonpayment. Several disputes have centered on the government’s unwillingness to pay in freely convertible currency as contractually required. In cases where government entities have not delivered goods or services, the government has often ignored demands for delivery. Finally, a change in leadership in the government agency that signed the original contract routinely triggers the government’s desire to re-evaluate the entire contract, including profit distribution, management responsibilities and payment schedules. The judicial branch is independent of the executive on paper only and is largely influenced the executive branch.
On February 28, 2015, President Berdimuhamedov signed an updated law entitled “On the Chamber of Commerce and Industry of Turkmenistan” (first adopted in 1993). The new law redefined the legal and economic framework for the activities of the Chamber, defined the state support measures, and created a new body for international commercial arbitration under the Chamber’s structures. International commercial arbitration can consider disputes arising from contractual and other civil-legal relations in foreign trade and other forms of international economic relations, if at least one of the parties to the dispute is located outside of Turkmenistan. The enforcement of the decisions of commercial arbitration outside of Turkmenistan may be denied in Turkmenistan under certain conditions listed under Article 47 of the Law of Turkmenistan “On Commercial Arbitration” adopted in 2014 and in force in 2016. International commercial arbitration is governed by the Law of Turkmenistan “On International Commercial Arbitration” and other domestic laws. According to the commercial arbitration law, the parties in dispute can appeal the decision of the arbitration only to the Supreme Court of Turkmenistan and nowhere abroad. The judgments of foreign courts might or might not be recognized by the government of Turkmenistan, depending on a case-by-case review.
According to the 2008 Law on Foreign Investment, all foreign and domestic companies and foreign investments must be registered at the Ministry of Economy.
The Petroleum Law of 2008 (last amended in 2012) regulates offshore and onshore petroleum operations in Turkmenistan, including petroleum licensing, taxation, accounting and other rights and obligations of state agencies and foreign partners. The Petroleum Law supersedes all other legislation pertaining to petroleum activities, including the Tax Code.
According to the Land Code (2004), foreign companies or individuals are permitted to lease land for non-agricultural purposes, but only the president has the authority to grant the lease. Foreign companies may own structures and buildings.
Turkmenistan adopted a Bankruptcy Law in 1993. Other laws affecting foreign investors include the Law on Investments (last amended in 1993), the Law on Joint Stock Societies (1999), the Law on Enterprises (2000), the Law on Business Activities (last amended in 1993), the Civil Code enforced since 2000, and the 1993 Law on Property.
Turkmenistan requires that all export and import contracts and investment projects be registered at the State Commodity and Raw Materials Exchange (SCRME) and at the Ministry of Economy. The procedure applies not only to the contracts signed at the SCRME, but also to contracts signed between third parties. The SCRME is state-owned and is the only exchange in the country. The contract registration procedure includes an assessment of “price justification.” All import contracts must be registered before goods are delivered to Turkmenistan. The government generally favors long-term investment projects that do not require regular hard currency purchases of raw materials from foreign markets.
Laws and Regulations on Foreign Direct Investment
Under Turkmenistan’s law, all local and foreign entities operating in Turkmenistan are required to register with the Registration Department under the Ministry of Economy. Before the registration is granted, however, an inter-ministerial commission that includes the Ministry of Foreign Affairs, the Agency for Protection from Economic Risks, law enforcement agencies, and industry-specific ministries has to approve it.
Foreign companies without approved government contracts that seek to establish a legal entity in Turkmenistan must go through a lengthy and cumbersome registration process involving the inter-ministerial commission mentioned above. The commission evaluates foreign companies based on their financial standing, work experience, reputation, and perceived political and legal risks.
In order to participate in a government tender, the companies are not required to be registered in Turkmenistan. However, a company interested in participating in a tender process must submit all the tender documents to the respective ministry or agency in person. Many foreign companies with no presence in Turkmenistan provide a limited power of attorney to local representatives who then submit tender documents on their behalf. A list of required documents for screening is usually provided by the state agency announcing the tender.
Before the contract can be signed, the State Commodity and Raw Materials Exchange, the Central Bank, the Supreme Control Chamber, and the Cabinet of Ministers must approve the agreement. The approval process is not transparent and is often politically driven. There is no legal guarantee that the information provided by companies to the Government of Turkmenistan will be kept confidential.
Competition and Anti-Trust Laws
There is no publicly available information on which agencies review transactions for competition related concerns. The Government of Turkmenistan does not publish information on any competition cases. While Turkmenistan does not have a specific law that governs competition, Article 17 (Development of Competition and Antimonopoly Activities) of the Law on State Support to Small and Medium Enterprises seeks to promote fair competition in the country.
Expropriation and Compensation
Turkmenistan’s legislation does not provide for private ownership of land. Article 21 of the Investment Law (amended in 1993) allows investors’ property to be confiscated via an official court decision. The government has a history of arbitrarily expropriating the property of local businesses and individuals. Under former President Niyazov, the government frequently refused to compensate those affected when the government exercised its right of eminent domain. However, during a March 2007 Cabinet of Ministers meeting, President Berdimuhamedov stated that residents of affected apartments or houses would be provided alternative housing before their homes were demolished. Despite these assurances, many families evicted from their homes when the government demolished their houses in preparation for the 2017 Asian Indoor and Martial Arts Games are forced to stay with relatives and friends because of the shortage of apartments in Ashgabat. Given the dearth of apartments in Ashgabat, the price of real estate had increased drastically over the last several years before it dropped significantly in 2015 due to a weakening economy.
There have been consistent reports throughout the year that the government seized profitable local companies run by individuals who might have studied at the former Turkmen-Turkish University and jailed the legal owners of the enterprises. In December of 2016, the government expropriated the largest (and only foreign-owned) grocery store, shopping center, and business center in Ashgabat without compensation or other legal remedy, ostensibly to build a parking lot.
There have been consistent reports throughout the year that the government has seized profitable local companies run by individuals associated with the former Turkmen-Turkish University, leading to the jailing of the legal owners of the enterprises.
ICSID Convention and New York Convention
Turkmenistan is a Party to the 1995 Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID), but it has not ratified the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) as of March 2017. The commercial law enforcement system includes the Arbitration Court of Turkmenistan which tries 13 categories of disputes, both pre-contractual and post-contractual, including taxation, legal foundations, and bankruptcy issues. The court does not interfere in an enterprise’s economic relations, but reviews disputes upon the request of either party involved. Appeals to decisions of the Arbitration Court can be filed at the Arbitration Committee of the Supreme Court of Turkmenistan.
Investor-State Dispute Settlement
2017, of Western companies being unable to enforce contracts or prevail in formal procedures in investment disputes. In some instances, the Government of Turkmenistan bluntly refuses to pay awards to the companies despite a court decision that requires it to do so. In others, the government disputes the amount owed, which has made any collection efforts by the companies futile.There are several examples, as recently as
Turkmenistan does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.
Although Turkmenistan has adopted a number of laws designed to regulate foreign investment, the laws have not been consistently or effectively implemented. The Law on Foreign Investment, as amended in 2008, is the primary legal instrument defining the principles of investment. The law also provides for the protection of foreign investors. A foreign investor is defined in the law as an entity owning a minimum of 20 percent of a company’s assets.
No known investment disputes have involved a U.S. person over the course of the past ten years.
Generally, arbitration disputes associated with FDI are handled in Turkmenistan, although the government is willing to codify the right to international arbitration in contracts with foreign companies.
International Commercial Arbitration and Foreign Courts
The commercial law enforcement system includes the Arbitration Court of Turkmenistan which tries 13 categories of disputes, both pre-contractual and post-contractual, including taxation, legal foundations, and bankruptcy issues. The court does not interfere in an enterprise’s economic relations, but reviews disputes upon the request of either party involved. Appeals to decisions of the Arbitration Court can be filed at the Arbitration Committee of the Supreme Court of Turkmenistan.
There are no alternative dispute resolution mechanisms in Turkmenistan as a means for settling disputes between two private parties. The Government of Turkmenistan prefers that international companies use its arbitration mechanism but has in the past accepted the international arbitration of investment disputes.
Duration of Dispute Resolution - Local Courts
The duration of the resolution process depends on the complexity of the dispute. The proceedings of an investment/commercial dispute may last several years with no guarantee that the dispute will ever be resolved.
Turkmenistan adopted a Bankruptcy Law (1993), which protects certain rights of creditors, such as the satisfaction of creditors’ claims in case of the debtor’s inability or unwillingness to make payments. The law allows for criminal liability for intentional actions resulting in bankruptcy. The law does not specify the currency in which the monetary judgments are made. Turkmenistan’s economy is not ranked by the World Bank’s Doing Business Report, including its ranking for ease of “resolving insolvency.”
Turkmenistan Economic Development and Investment Law