A MINOR MIRACLE? TAJIK SETTLEMENT WITH NORSK HYDRO COULD BE

C O N F I D E N T I A L DUSHANBE 002243 SIPDIS SIPDIS E.O. 12958: DECL: 12/22/2016 TAGS: PGOV PREL ECON ENRG EINV ETRD TI NO SUBJECT: A MINOR MIRACLE? TAJIK SETTLEMENT WITH NORSK HYDRO COULD BE MAJOR VICTORY FOR POTENTIAL INVESTORS REF: DUSHANBE 1545 CLASSIFIED BY: Tom Hushek, CdA, U.S. Embassy, Dushanbe, State. REASON: 1.4 (b),(d) ¶1. (C) With the December 20 signing of a cooperation agreement between Norwegian aluminum giant Norsk Hydro and Tajikistan's state-owned aluminum factory TadAZ, Tajikistan resolved one of its stickiest investment cases. Moscow-based Norwegian Ambassador Oyvind Nordsletten called on Ambassador Jacobson and confirmed the Tajik government had accepted a recent London Court of International Arbitration ruling in favor of Norsk Hydro. Under the new commercial agreement, the Norwegian company will provide raw alumina to TadAZ, and receive 200,000 tons of aluminum each year for the next four years, roughly half of TadAZ's annual 425,000 tons current production. Norsk Hydro will also provide technical assistance to improve the plant's efficiency and lessen its environmental impact. Nordsletten said that if initial improvements go well, Norsk Hydro was prepared to increase the plant's capacity to 600,000 tons annually. ¶2. (C) Despite a record $150 million political risk insurance settlement from Chubb, Norsk Hydro has been quietly working to find a settlement that would allow continued trade with Tajikistan after a 2004 dispute. With the blessings of the World Bank and the European Bank for Reconstruction and Development, also present at the signing, TadAZ will begin repaying its debt in January 2007. Nordsletten said he did not know the exact details of how Norsk Hydro would pay back Chubb, or whether Chubb would again start issuing political risk insurance for Tajikistan, but said there was "general satisfaction" among all parties and a great deal of optimism about the future. ¶3. (C) Nordsletten indicated that Norsk Hydro was already considering investing in Tajikistan's hydro-energy sector, and mentioned the 3600 megawatt power station Rogun as a possible project, with potential long term plans for a second aluminum smelter. "In 1905, Norway was one of the poorest countries in Europe. We developed our hydropower and were able to create a thriving economy," Nordsletten said. He saw similarities between the two mountainous countries, and reported he was pushing Oslo to issue an invitation to Tajik President Rahmonov for a state visit. WHAT ABOUT RUSAL? ¶4. (C) During the meeting with Norsk Hydro executives, Nordsletten said President Rahmonov sharply criticized Russian aluminum giant RusAl for its tactics over the Rogun hydropower station and aluminum. Nordsletten acknowledged that Norsk Hydro may present a threat to RusAl, particularly since Norsk Hydro is now the world's third largest aluminum company, but felt confident that Norsk Hydro's transparent dealings would make it a more attractive partner for Tajikistan. ¶5. (C) COMMENT: At the risk of seeming overly optimistic, this could represent a significant shift in Tajikistan's investment climate and geopolitical alliances. Several multimillion dollar cases against TadAZ have marked Tajikistan as a bad investment risk, and this settlement suggests the Tajik government understands a) that it takes more than lip service to attract foreign companies and b) that they must honor their obligations and contracts. Norsk Hydro's approach of a constructive resolution through arbitration appears to have proven more successful that the U.S. company Gerald Metals' tactic of pressuring and threatening the Tajik government. ¶6. (C) Norsk Hydro could give Tajikistan an alternative to RusAl on key infrastructure projects. RusAl's development of Rogun and a second aluminum smelter was one of the key deliverables during Russian President Putin's October 2004 visit to Tajikistan. However, in recent months, the Tajiks and RusAl have engaged in a war of the words over the projects (reftel), and Tajik government officials, including President Rahmonov, have openly stated they will develop the project on their own. Norsk Hydro may present Rahmonov with a new partner, and one who does not assume the domineering big brother role that has so rankled Tajik officials. END COMMENT. HUSHEK