LawFlash

Turkmenistan Takes Steps to Improve Its Business Climate

May 23, 2022

Turkmenistan, a holder of one of the world’s largest natural gas reserves, has recently taken steps to improve its business climate. In May 2022, Turkmenistan acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the UN Convention on Contracts for the International Sale of Goods, and the Framework Agreement on Cross-Border Paperless Trade in Asia and the Pacific.

New York Convention

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) is one of the most widely recognized international treaties, and a key instrument in international arbitration. Together with Turkmenistan, there are 170 states that are parties to the New York Convention.

It provides for the recognition and enforcement of foreign arbitration awards in Turkmenistan and requires Turkmen courts to give effect to parties’ agreement to arbitrate.

The state court in Turkmenistan will have very limited grounds, specifically listed in the New York Convention, to reject recognition or enforcement of an arbitral award (for example, a violation of due process, violation of public policy, or non-arbitrability of the dispute under Turkmenistan law).

Another important role of the New York Convention is an obligatory referral of disputes by national courts to arbitration, where there is a valid arbitration agreement in place.

The Model PSC of Turkmenistan used in major upstream projects in the country envisages dispute resolution by international arbitration institutions. It is worth remembering, however, that while it allows for international arbitration, the Model PSC requires that Turkmenistan law be the governing law under the PSC.

Further, it is important to note that Turkmen law reserves mandatory jurisdiction for local state courts in certain matters. In respect of oil and gas projects, Turkmenistan allows for the arbitration of disputes related to (1) suspension and/or annulment of a subsoil use license, or (2) the parties’ performance of the underlying host government agreement for the project, e.g., a product sharing agreement (PSC) or a risk-service contract, while the other disputes arising out of the project are reserved to local state courts (Article 59 of the Law on Hydrocarbons of 2008).

Therefore, if an arbitral tribunal issues an arbitral award on the matters that are exclusive jurisdiction of state courts under Turkmen law, the Turkmen court will, most likely, reject enforcement and recognition of such award.

The New York Convention will enter into force for Turkmenistan on August 2, 2022.

UN Convention on Contracts for the International Sale of Goods

The United Nations Convention on Contracts for the International Sale of Goods provides a framework for international trade in goods. Its adoption by Turkmenistan is expected to contribute to certainty in commercial relationships and to reduce transactional costs.

The UN Convention on Contracts for the International Sale of Goods will enter into force for Turkmenistan on June 1, 2023. If need be, parties may still opt to exclude its application by express provision to this effect in a contract between them.

Framework Agreement on Cross-Border Paperless Trade

The Framework Agreement on Facilitation of Cross-Border Paperless Trade in Asia and the Pacific (Framework Agreement on Cross-Border Paperless Trade) is a UN treaty that aims to accelerate the implementation of digital trade facilitation measures developed by the Economic and Social Commission for Asia and the Pacific (ESCAP). It entered into force in February 2021, as five ESCAP member states, including China, acceded to it.

The Framework Agreement on Cross-Border Paperless Trade does not have immediate effect. Rather it encourages states to adopt national legislation and policies in line with its general principles and international standards, thus harmonizing and enabling paperless trade among ESCAP members that acceded to it.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Sabine Konrad
Jennifer Josefson
Alexandra Rotar
Polina Sizikova