TAJIKISTAN'S HYDROPOWER: GEOPOLITICAL GAME OR GOOD

UNCLAS DUSHANBE 002013

SIPDIS


SENSITIVE

STATE FOR EUR/CACEN, SA
NSC FOR MERKEL

E.O. 12958: N/A
TAGS: PREL ECON ENRG TI TDA
SUBJECT: TAJIKISTAN'S HYDROPOWER: GEOPOLITICAL GAME OR GOOD
BUSINESS?



1. (SBU) President Rahmonov hosted a December 11 meeting to
discuss Tajikistan's hydropower projects. Tajikistan is one of
the world's leading countries in hydropower potential, and
increasingly feasibility studies point to domestic and foreign
markets that could help Tajikistan realize the economic
benefits. The meeting lasted several hours and included enough
major international players to suggest these projects are now
serious business. Tajik Ministers, representatives of the World
Bank, Islamic Development Bank, Asian Development Bank, European
Bank for Reconstruction and Development, the German company
Lahmeyer and the Russian company RusAl all attended. The
American firm, AES, was represented by Vice President Dale
Perry. Perry briefed EmbOffs after the meeting. Although
optimistic about AES's possible role on the Rogun hydropower
plant, he is nervous about the potential geopolitical intrigue
behind the scenes. Perry believes 90 percent of the
decision-making takes places behind closed doors, with sometimes
very little consideration for the simple economics of the
projects.


2. (SBU) President Rahmonov spoke eloquently and with detailed
knowledge of the hydropower projects. He clearly stated his
intentions. Rahmonov does not believe Sangtuda I or II will
produce enough power to sell to Afghanistan or Pakistan, and
therefore he has allowed Iran and Russia to finance the projects
for Tajikistan's domestic consumption. The World Bank devoted a
lot of effort into feasibility studies on export power from the
Sangtuda projects. Cevdet Denizer, the World Bank Tajikistan
Country Director, was disappointed at Rahmonov's decision not to
allow IFIs to participate in those projects.


3. (SBU) Rahmonov sees the Rogun hydropower plant as the
vehicle for export to Afghanistan and Pakistan. The Tajik
President met with Presidents Karzai and Musharraf in Mecca
earlier this month and confirmed their desire to purchase power
from Tajikistan. Until Rogun comes on line, Kazakhstan would
supply power south with lines running through Tajikistan.
President Rahmonov views AES as the lead on the Rogun project
with IFIs support and perhaps RusAl cooperation.


4. (SBU) The IFIs indicated they would only support Rogun for
international export, not domestic consumption. The World Bank
needs to conduct a feasibility study on Rogun. They still have
questions about RusAl's role in Rogun, knowing RusAl's stated
intention is to use the plant to power Tajikistan's "TadAz"
aluminum plant. Denizer awaits the World Bank's senior
management decision on cooperating with RusAl, a company not
known for its transparency or acceptance of Western business
standards. Thus far, RusAl has not been able to comply with
International Finance Corporation (IFC) standards and has
applied for an IFC compliance review. RusAl has hired the
German company Lahmeyer to conduct a feasibility study, and
Denizer worries the Rogun project will eventually be given to
Russia, just like Sangtuda I. Perry believes AES is in a
stronger position right now than RusAl in the eyes of the Tajik
leadership and he indicated the question is whether RusAl will
even participate in the Rogun project.


5. (SBU) President Rahmonov formed a working group to
formalize the structure of cooperation. The working group,
consisting of the Tajik Deputy Prime Minister, the Chairman of
the National Bank, AES, RusAl and the international financial
institutions will meet January 12 in Islamabad to draft a
Memorandum of Understanding.


6. (SBU) Perry will be meeting with the Ambassador December 19
and plans to return to Dushanbe January 19.


7. (SBU) COMMENT: Perry said AES will base its business


decisions on economics. Geopolitics and ulterior motives could
potentially derail a long-term contract for AES, however, if the
feasibility studies confirm the good business sense in going
ahead with Rogun, AES may find itself in a lead position in the
project. There will be other hurdles ahead as well, including
the environmental impact of the proposed projects and the social
impact if some irrigation water is diverted from downstream
farmers. For now, Tajikistan is a step closer to finding a way
to integrate more fully into the region, and perhaps to becoming
the broker that finally brings U.S. and Russian interests into
alignment so that Russia and the United States actually
cooperate in Tajikistan, rather than compete on the basis of a
zero sum game. END COMMENT.
HOAGLAND


NNNN