DUSHANBE ELECTRICITY CONFERENCE PRODUCES MEMORANDUM OF

C O N F I D E N T I A L SECTION 01 OF 04 DUSHANBE 002019

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SCA FOR DEUTSCH; NSC FOR MERKEL; E FOR HENGEL AND DUNCAN; EMBASSY MANILA PLEASE PASS TO ADB AMBASSADOR SPELTZ

E.O. 12958: DECL: 11/3/2016
TAGS: ECIN PGOV PREL ECON ENRG EFIN TI AF KG PK
SUBJECT: DUSHANBE ELECTRICITY CONFERENCE PRODUCES MEMORANDUM OF
UNDERSTANDING


CLASSIFIED BY: Tom Hushek, Deputy Chief of Mission, U.S. Embassy
Dushanbe, STATE.
REASON: 1.4 (b),(d)




1. (SBU) INTRODUCTION: Afghanistan, Kyrgyzstan, Pakistan, and
Tajikistan moved three steps closer to establishing a regional
transmission system and electricity market at the Second Central
and South Asia regional electricity market conference. During
the October 26-28 conference in Dushanbe, the four countries:
1) signed a Memorandum of Understanding on the development of a
Central Asia- South Asia Regional Electricity Market (CASAREM),
2) established an Inter-Ministerial Council and continued the
Multi-Country Working Group as part of the decision-making
framework, and 3) agreed to a roadmap that spelled out the next
steps, including two feasibility studies, a working group
meeting and a June ministerial in Kabul. The steps represent
real progress, but only the studies will show whether the good
will translates into a commercially viable electricity
transmission network. The political and security issues that
went unmentioned during the conference will have to be addressed
to attract investors. END INTRODUCTION.


2. (SBU) The signing of the memorandum of understanding allows
the Asian Development Bank (ADB) and World Bank to launch
tenders for two studies to determine the viability of bringing
1,000 megawatts of electricity from Tajikistan and Kyrgyzstan
through Afghanistan to Pakistan and to recommend structures for
organizing the system, financing and mitigating risks. The ADB
will fund a techno-economic assessment examining the
availability and cost of power year round, Pakistan's power
requirements, and transmission options, routes, and costs. The
World Bank will support a commercial study that looks at the
institutional, financial, risk mitigation and legal frameworks
necessary for the electricity transmission network. The studies
will also present the results of engagement with the private
sector on their interest in the project. The consultants will
have 100 days to complete the first phase of each study,
estimated to conclude in late spring. At the Kabul meeting, the
four ministers will decide whether to go forward with the
project, based on the two studies, and start in-depth
negotiations on the structure, financing, and private sector
participation. If the project is a "go," the fourth meeting
would be held in Bishkek in 2007, with an eye towards
transmitting electricity by 2010.

PRESENTATIONS AND POSTURING


3. (C) The major international financial institutions all
attended, as did a smattering of private companies trying to
stake their claim in the project. Russian electricity giant RAO
UES and the U.S. energy company AES gave presentations on their

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activities in the region. RAO focused on construction of
Sangtuda I and AES presented its view of a transmission project,
including thermal-generated power from Kazakhstan. Coffee break
conversations included the issue of the possibility of an
international financial institution stake in RAO's Sangtuda-I
hydropower station. The European Bank for Reconstruction and
Development and World Bank are discussing a 25% equity share in
Sangtuda, subject to proving an export market for the power.
Pamir Energy presented an overview of its Pamir I project in
southern Tajikistan, but glossed over most of the cost recovery
and political issues they privately admitted to us over lunch.


4. (C) The Chinese firm TBEA gave a video presentation
detailing its general experience in the power sector, but its
representatives told PolOff they did not yet have a firm project
in Tajikistan. (NOTE: Deputy Ministry of Energy Mavjuda

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Keldiyerova confirmed that the Chinese had signed an agreement
to build Yavan power station, a 120 MW project on the Zarafshan
river in northern Tajikistan, but nothing had been made public.
END NOTE.)


5. (C) Despite the four countries initially agreeing to
language in the MOU that clearly acknowledged the U.S. Trade and
Development Agency's support of regional energy markets and its
June meeting in Istanbul, Tajik Deputy Prime Minister Ghulomov
launched a debate, echoed by Afghan Minister for Power and Water
Ismael Khan, on the relative (and bilateral) contributions of
China, Russia, and Iran, and whether they should be mentioned in
the memorandum as well. In the end, the parties agreed to a
vague reference to outside assistance and anticipation of future
support for the project. Minister Yerov later joked to PolOff,
"We had all decided to recognize the U.S. conference, and
Ghulomov went and spoiled it!"


6. (SBU) Debate over the route of the transmission lines, and
Pakistani concern about the security of a line through Kabul,
instead of the Wakhan corridor, also led the parties to include
more general language that promised to explore other routes.
The Pakistani delegation also expressed concern about the
economic study of options for supplying electricity, complaining
that if competitors knew how much Pakistan was willing to pay,
they would not have a competitive advantage. They eventually
agreed this was an important part of the economic viability
question.

AROUND THE TABLE


7. (SBU) In addition to the four principle signatories, other
diplomatic missions sent representatives to the President's
opening remarks: China, India, Iran, France, UK, Kazakhstan,
Turkey, and Uzbekistan (many of whom arrived late when Rahmonov
started his remarks 15 minutes early.) The nine-member U.S.
delegation, led by Senior Advisor Robert Deutsch, was the
largest, and comprised USAID, State and Treasury officials.


8. (C) Conspicuously absent were the Russian Embassy and
RusAl. During President Rahmonov's opening remarks, the only
empty seats at the 100-person table were behind the Russian
flag. (COMMENT: Given the Russian DCM's presence at all
diplomatic and government functions, this seemed deliberate. END
COMMENT.) Rahmonov announced in his speech and to the press
that the Tajik government would develop Rogun hydropower
station, "on its own," signaling his impatience with RusAl and
adding more fuel to the debate surrounding the 3,600 megawatt
project. Energy Minister Yerov later clarified to PolOff that
Tajikistan intended to develop Rogun with a `consortium" and
that RusAl may have ten percent of the project, or more. (NOTE:
Subsequent press reports from RusAl in response to Rahmonov's
remarks have stated the Russian-Tajik joint economic commission
would make the final decision on the development of Rogun. END
NOTE.) In his comments, Rahmonov also blasted those who contend
that generation building takes a back seat to water rights
(clearly Uzbekistan).

PLOV AND MORE PLOV


7. (C) Tajik hospitality overwhelmed the participants, with
multi-course meat feasts at lunch and dinner, always culminating
in a generous serving of the national dish, plov. At the
dinner-concert Friday night, Tajik officials commended
Ambassador Jacobson for the U.S. delegates' enthusiasm on the
dance floor and at the conference, underscoring the noted
absence of any Russian diplomat. "We appreciate your support."

DHASTI-JHUM, ANYONE? (MEANING THE UNITED STATES)

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8. (C) No meeting between U.S. and Tajik energy officials would
be complete without the Tajiks raising the question of the 3,600
megawatt hydropower station Dhasti-Jhum. Although the
conference was focused specifically on developing a 1,000 MW
electricity trade project between Central and South Asia, the
Tajiks raised the issue of power generation repeatedly, at one
point trying to work it into the terms of reference for both
feasibility studies. Several officials hopefully mentioned
Dhasti-jhum to Deutsch, in an effort to gauge U.S. interest and
commitment. Deutsch politely noted that Tajikistan needed to
take many steps in order to create an environment where private
investors would consider such a mammoth project. Nonetheless,
AES reps indicated privately that they are engaged in
discussions on developing the Shurob site (400-500 MW) which may
have been reflected in Minister Yerov's comment that we should
encourage AES to meet its MOU commitment to build 1,000 MW.

TAJIK- AFGHAN BILATERAL ELECTRICITY TRADE


9. (C) On the margins of the conference, the Asian Development
Bank and the Afghan delegation were attempting to obtain
Tajikistan's signature on an MOU underlying bilateral
electricity trade. The MOU would allow the Bank to commit
funding to build the 220 KV interconnection from Tajikistan to
the Afghan North-East Power Systems (NEPS). Although President
Rahmonov, as he was leaving the delegation photo shoot, told his
officials to "get the MOU signed," Barqi Tojik (the Tajik
transmission company) was apparently dragging its heels to
obtain more equipment in the financial package. In the end,
Afghan Minister Khan left the signed MOU in Dushanbe awaiting
Tajik signature. Post will continue to monitor completion of
this MOU.

WHAT NEXT?


10. (C) Under the road map developed by the World Bank, the
ministers will meet in Kabul in June, or possibly July,
depending on when the consultants finished their studies. The
Islamic Development Bank tentatively offered to host the next
working group meeting probably in February, when initial work is
begun. In Kabul, the parties will have to decide whether to go
forward or not, based on the recommendations and findings in the
studies.


11. (C) COMMENT: The conference represented progress in
bringing all four countries together to sign an agreement, but
also underscored that the Tajiks in particular still do not
understand the specific scope of this regional project. The
push for developing generation projects before building
transmission networks and identifying customers demonstrates a
neo-Soviet mindset on big investment projects. The Chinese
plans to develop a hydropower station and, seeming willingness
to spread cheap loans to support infrastructure development,
further distract from the efforts of the IFIs and United States
to emphasize the importance or proper legal and financial
frameworks.


12. (C) Although there will be an official "go or no go"
decision, most parties seemed to feel this project is
inevitable. It will be important for all parties to digest the
consultants work on the real costs, organizational requirements,
security mitigation needs, and real export commitments required
for this project to work. The parties agreed that each country
will need a team of advisors to help them assess the feasibility
work by the consultants. They will all be looking to the donor
communities to finance and help engage such advisors. This may
be an area where the U.S. should consider assisting as part of
our continued support for regional integration. END COMMENT.

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13. (U) This cable has been cleared by Senior Advisor Bob
Deutsch.
JACOBSON