Identifier
Created
Classification
Origin
06DUSHANBE1545
2006-08-11 06:33:00
CONFIDENTIAL
Embassy Dushanbe
Cable title:  

WIIL ROGUN EVER GET BUILT? TAJIKISTAN AND RUSAL ENGAGE IN

Tags:  PGOV PREL ECON ENRG EFIN TI AF IR 
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RUEHML/AMEMBASSY MANILA 0068
RUEHDBU/AMEMBASSY DUSHANBE 9700
C O N F I D E N T I A L SECTION 01 OF 03 DUSHANBE 001545 

SIPDIS

SIPDIS

STATE FOR SCA/CEN
NSC FOR MERKEL

E.O. 12958: DECL: 8/11/2016
TAGS: PGOV PREL ECON ENRG EFIN TI AF IR
SUBJECT: WIIL ROGUN EVER GET BUILT? TAJIKISTAN AND RUSAL ENGAGE IN
WAR OF WORDS

REF: DUSHANBE 326

CLASSIFIED BY: Tom Hushek, Charge d'Affaires, U.S. Embassy,
Dushanbe, State.
REASON: 1.4 (b),(d)



C O N F I D E N T I A L SECTION 01 OF 03 DUSHANBE 001545

SIPDIS

SIPDIS

STATE FOR SCA/CEN
NSC FOR MERKEL

E.O. 12958: DECL: 8/11/2016
TAGS: PGOV PREL ECON ENRG EFIN TI AF IR
SUBJECT: WIIL ROGUN EVER GET BUILT? TAJIKISTAN AND RUSAL ENGAGE IN
WAR OF WORDS

REF: DUSHANBE 326

CLASSIFIED BY: Tom Hushek, Charge d'Affaires, U.S. Embassy,
Dushanbe, State.
REASON: 1.4 (b),(d)




1. (C) SUMMARY: Is RusAl on the verge of abandoning Rogun, or
merely posturing to hasten its acquisition of Tajik state-owned
aluminum smelter TadAZ? In the past week, Tajik and regional
news agencies have published several articles on Rogun and other
Russian-Tajik investments, questioning the partnership and
trading accusations from both sides. Privately, ministers and
others close to President Rahmonov have hinted about Tajik
displeasure with RusAl and its slow start at the Rogun
construction site, with some suggesting Tajikistan will need to
look elsewhere for partners. Avesta news agency published a
blistering interview in which RusAl's Dushanbe representative
accused Tajik authorities of muddying the waters with the World
Bank, purposefully misinterpreting the words of President Putin,
and begging for financial assistance from the Russian
Government, even though "the times of the State Planning
Committee of the USSR ended long ago." Fighting words, indeed.
The Tajiks pushed Rogun negotiations to the Intergovernmental
Commission on Russian-Tajik Cooperation, scheduled for
September, as Rogun becomes an important part of the bilateral
relationship. END SUMMARY.

ROGUN


2. (U) At the heart of the growing controversy lies Rogun
power station, a 3600 MW hydropower project on the Vakhsh River.
Started in the 1980s, the government abandoned the project when
the Soviet Union collapsed, having already invested over $800
million in construction of several tunnels and support
facilities. Tajikistan estimates another $2.2 billion is needed
to complete the project. If finished, Rogun could produce 13.1
billion kW/hour of electricity, almost doubling Tajikistan's
current 17.1 kW/h billion per year.



3. (U) The Russian aluminum giant RusAl wants to develop Rogun
as a power source for aluminum production in Tajikistan.
TadAZ, the Tajik state-owned smelter, consumes an annual 6.7
billion kW/h, 40% of Tajikistan's total electricity production.
During Russian President Putin's October 2004 visit to Dushanbe,
part of the economic package included RusAl building a second
aluminum smelter in Tajikistan, in exchange for RusAl's getting
controlling interest in Rogun.


4. (C) Uzbekistan has been particularly opposed to the Rogun
project, on the grounds that the reservoir will impede water
supplies necessary for irrigating Uzbekistan's cotton fields.
Tajikistan consistently claims the Rogun dam will better
regulate water to Uzbekistan and Turkmenistan, improve regional
irrigation and even help solve the problems of the Aral Sea. In
the last six months, RusAl head Oleg Deripaska is rumored to be
spending time in Tashkent, trying to woo the Uzbek leadership
into supporting the project.

IRRESPONSIBLE BUREAUCRATS!


5. (U) "Tajik bureaucrats, (I cannot say all of them),hand
out irresponsible interviews during the negotiation process."
In an August 1 interview with Avesta news agency, Konstantine
Zagrebleniy, head of RusAl's Dushanbe office, accused the Tajik
government of bureaucratic delays, of misquoting Putin, and
predetermining the dimensions and scale of the project before
the feasibility study is finished. In an attempt to clarify

DUSHANBE 00001545 002 OF 003


RusAl's position and defend it against Tajik officials'
insinuations that RusAl had delayed construction, Zagrebleniy
suggested that Tajik authorities were to blame for the delays,
and laid down the challenge that Rogun could not be built
without RusAl.

WHY ALL THE FUSS?


6. (C) RusAl and the Tajik government have yet to finalize an
agreement on the structure, financing and ownership of the
project. Several outstanding issues remain:

-- Ownership: RusAl and Tajikistan have not yet finalized the
terms of the partnership. Tajik authorities claim they have
already put at least $800 million into the project, and want 50
percent ownership of a joint venture. RusAl may try to low-ball
the value of existing structures as a way to minimize Tajik
shares in Rogun. A Dushanbe World Bank analyst suggested RusAl
valued the existing infrastructure at only $100 million.
Zagrebleniy told Avesta, "While the Tajik side says they already
have a project~ we consider that there is practically no
project. Half the documentation is simply missing and it does
not exist physically."

-- The feasibility study: Rogun commissioned the German firm
Lahmeyer to conduct the technical survey of the project and
revise Soviet-era plans, including the type and size of the dam.
Although Lahmeyer will not complete its study until later in
August, Tajik officials, including the Energy Minister Yerov and
Presidential Center for Strategic Research Director Suhrob
Sharipov, have told PolOff that "Lahmeyer will conclude whatever
RusAl wants, since RusAl is paying the bill." Fearful that the
Lahmeyer study will disadvantage Tajikistan, the Tajik
authorities have insisted that the World Bank play the role of
independent arbiter.

-- The dam: Perhaps the biggest sticking point in the project
is the dam's dimensions. The original Soviet plans call for a
330-meter rock and earth dam, which would be the world's
tallest, while RusAl has proposed a shorter 285-meter cement
dam. The Tajiks point to the 30-year old rock and earth dam at
Nurek, noting how well it has held up despite hundreds of small
earthquakes, and complain that a cement dam will be too
expensive to build and maintain. If the construction price
rises significantly, their stake in the project will be smaller.
A smaller dam will also provide less power output.

-- Financing: Although RusAl's leadership claims Rogun cannot
be built without them, the $2.2 billion investment is too big
for RusAl alone. The international financial institutions'
current interest in Tajik hydropower is based on production of
electricity for export, while RusAl has clearly stated it
intends to use Rogun's output for domestic aluminum production.
Deputy Foreign Minister Yatimov told PolOff August 1 he thought
the Russian government would step in and help finance the
project, as it had promised to do for the Sangtuda-I hydropower
station, a 670 MW project being built by Russia state utility
RAO UES. However, Zagrebleniy stated that the Tajiks cannot
expect additional financing from the Russian Federation's
Stabilization fund. "The times of Gosplan, the USSR State
Planning Committee, are long past," he was quoted. "President
Putin's words on state participation should not be interpreted
as a promise to finance the project from the Russian budget."
(NOTE: RAO UES is now looking for additional funding for
Sangtuda-I, despite the pledge from the Russian Federation. END
NOTE.)

SO WILL IT BE BUILT?

DUSHANBE 00001545 003 OF 003




7. (C) Tajik officials have quietly suggested other investors
would be welcome in Rogun. Yerov told PolOff July 16 that Rogun
should be built by the "international consortium" of donors,
investors and private companies formed in Dushanbe in January --
not by RusAl alone. (NOTE: RusAl was one of the signatories to
the Consortium Agreement, as were AES, RAO UES, the governments
of Tajikistan and Afghanistan, as well as the World Bank, Asian
Development Bank and the European Bank for Reconstruction and
Development. END NOTE.) Sharipov suggested to PolOff July 28
that although RusAl already invested in some infrastructure
improvements to the site, investments from China, Pakistan and
Kazakhstan could force Russia out of the project. Without such
pressure, Russia and RusAl might drag out the negotiations,
causing "delay after delay." "Russia should have a post-imperial
responsibility to Tajikistan," he opined. Sharipov, Yerov and
his First Deputy Pulat Mukhiddinov have all individually
predicted that RusAl will use the Lahmeyer study as an excuse to
pull out of Rogun, citing the costs as too high to make aluminum
profitably.


8. (C) COMMENT: Regardless of the outcome of the Lahmeyer
study, building Rogun will cost at least $2 billion. Without
guaranteed cost recovery from exports, it is doubtful an
international financial institution will want to make that large
an investment, particularly with a partner so closely tied to
the Kremlin like RusAl. RusAl wants Rogun for aluminum
production, not electricity exports, and without a second
smelter or full control of TadAZ, it may not need or want Rogun
at all.


9. (C) COMMENT CON'T: Our best guess: Unless high voltage
transmission lines can reliably export Tajik electricity to
Pakistan or Kazakhstan, Rogun will be too big a gamble for any
single investor, and with RusAl in the driver's seat, too
complicated for a consortium. END COMMENT.
HUSHEK