Ben Aris in Kazan -

Will Turkmenistan finally open its doors to the rest of the world? It remains an unanswered question, but investors at the EBRD annual meeting in Kazan on Sunday were curious and the small room almost under the stairs where Turkmenistan's country presentation was relegated to attracted a bigger audience than usual.

The presentation by Vepa Kurbanov, from the state commercial bank Tukmenbashi, was almost comical as it was full of the Soviet-style rhetoric that has been symptomatic of Turkmen politics for most of the last decade.

Kurbanov stopped short of talking about the "glorious leader," but trotted out a string of incredible economic results like the 122% GDP growth in 2006. This was probably a slip of the tongue and he meant to say the size of the economy in 2006 was 122% of that in 2005. The EBRD representative almost immediately contradicted him by saying the bank estimated growth last year at a robust 9%, which is still pretty impressive.

New man at the helm

But there are changes afoot in the gas-rich desert state that could be a precursor to real change. Last week, the newly elected President Gurbanguly Berdymukhammedov dismissed the head of the presidential securities service, Akmurad Redzhepov. Redzhepov was a key figure under late president Saparmurat Niyazov, who died in December, and controlled a private army that underpinned the former president's power. When Berdymukhammedov was nominated president, many analysts speculated that he was simply a stool pigeon for Redzhepov, so his ousting represents a real changing of the guard among the country's political elite.

"He is for real," says Tony Myron, head of the the EBRD's representation in Turkmenistan. "There is a possibility for real change. The country is now run by committee and consensus amongst the political elite."

The beginning of the end

Even so, Turkmenistan is still at the start of the process. The state remains the dominant force in the economy. Kurbanov repeatedly said the investment climate was "attractive" and welcomed investors from around the globe to invest in the country.

The problem is there is not much to invest into. The EBRD made the bulk of its investments prior to 1996, but has since decided to stop putting money into oil and gas projects and focus instead on small and medium-sized enterprises so its loan book has dwindled rapidly. The bank is basically doing no business in the country, as there is little private business to do deals with.

Among the highlights on Kurbanov's list of sectors was Turkmenistan's impressive clothing production. And it really is impressive. The Gap's Turkmen factory was set up with $114m investment in 1996 together with Turkish firm Calik Holding and it is one of the best fully integrated textile plants in the world, serving customers like Gap, Levi's and Lee Jeans, to name but a few.

However, this successful factory is pretty much the only project the country has to show for the last 11 years. After an initial flirtation with Western investors, Niyazov more or less closed the country to foreign investment from about 1996 onwards.

But things are moving again. The main focus is on oil and gas. Berdymukhammedov participated in a three-way summit with Russian President Vladimir Putin and Kazakh President Nursultan Nazarbayev last week, where a deal was signed to build a major new gas pipeline out of Central Asia and connect it to the Russian pipeline system - a major victory for Putin's geopolitical goals in the region. Also, there is a gas pipeline to China in the works that should be completed in a year or so.

Both projects will significantly add to Turkmenistan's export revenue, which is almost entirely made of oil and gas exports. Total exports in 2006 were $7.2bn, of which $3.4bn came from gas exports and $2.8bn from oil. This year the country expects export revenues to total $8.5bn ($5bn of gas, $2.5bn of oil).

In general, the economy is very good shape. The state has almost no debt, per capita income is $4,000 - one of the highest in Eastern Europe, although most of the wealth is in the hands of the few - and the state continues to plough money into infrastructure like the Turkmenbashi port, which will be a vital development if and when the government chooses to open up the country.

The only foreign investment has been is in the oil and gas sector and here Turkmenistan has a surprisingly good reputation. There are three productions sharing agreements, or PSAs, including those with Dragon Oil and Burren Energy, which recently carried out an IPO in London. All the oil companies are happy with their deals, none of which the government has so far tried to renegotiate.

Michael Calvey, head of the private equity house Baring Vostok Capital, which was an early investor into Burren Energy, says a little incredulously, "It was a great deal and [the government] has never tried to renegotiate terms."

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