HYDROPOWER 101: A GUIDE TO TAJIKISTAN'S PROSPECTS, PROJECTS,

C O N F I D E N T I A L SECTION 01 OF 04 DUSHANBE 000326

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SUBJECT: HYDROPOWER 101: A GUIDE TO TAJIKISTAN'S PROSPECTS, PROJECTS,
AND PLAYERS

REF: A) DUSHANBE 63; B) DUSHANBE 90; C) 05 DUSHANBE 2094; D) 05 DUSHANBE 2013

CLASSIFIED BY: Richard Hoagland, Ambassador, US Embassy
Dushanbe, State.
REASON: 1.4 (b)

The Prospects:


1. (U) Tajikistan's mountains and rivers provide it an
estimated four percent of the world's hydropower resources. The
Tajik government has no shortage of promises and offers to help
develop this natural resource, and is currently balancing
competing interests and priorities to maximize the financial
benefits hydropower will bring to Tajikistan (and its elites).


2. (U) Tajikistan's energy industry is currently mismanaged and
outdated. Power outages are the norm; urban areas in winter
frequently only have limited hours of electricity a day and
rural areas can be completely without power, despite the
existence of Soviet-era lines. Meanwhile, consumption and
demand continue to rise.


3. (U) In addition to meeting domestic energy needs, the Tajik
government sees the potential to export electricity south to
Afghanistan and Pakistan, connecting to the new Afghan grid
slated for construction. An excess of electricity already
exists in the summer months that could be exported with the
right transmission lines bypassing the Uzbek grid. The Tajik
electric company's chief engineer reported that in 2005
Tajikistan wasted 1.2 billion kW hours because Uzbekistan would
not agree to allow transit through its transmission lines.


4. (C) Tajikistan does not see itself immediately exporting
electricity to Russian or China, despite recent investment from
both countries in its hydroenergy sector.

The Projects:


5. (C) Potential Hydropower Stations (HPS)

-- Sangtuda I: A 670 MW/2.7 billion kilowatt per hour (kWh)
project to be built by RAO UES, Russia's electricity monopoly
with significant funding from the Russian state budget. RAO UES
wants the International Financial Institutions (IFIs) to have
partial equity, but the IFIs want the electricity to be
exported. President Rahmonov has said Sangtuda must be used to
meet domestic energy needs, but allowed that electricity might
be exported in the summer. Price: $550 million. Time:
Construction started in 2005, slated to come on line by 2008.

-- Sangtuda II: A 220 MW/0.9 billion kWh project constructed
and financed by the Iranians, who will own the plant for 12.5
years, after which it will revert to Tajikistan. Also to be
used for domestic energy needs. Price: $200 million. Time: The
groundbreaking was February 20, scheduled to come on line by

2010.

-- Rogun: A 3600 MW/13.1 billion kWh HPS on the Vash river and
the big fish in Tajikistan's hydro pond. The Tajik government
has pushed Rogun as the crown jewel in its hydropower scheme,
and Russian Aluminum (RusAl) has already committed to at least
two of the six turbines. RusAl has stated that Rogun energy
should be directed towards aluminum production. Uzbek President
Karimov has come out strongly against the Rogun project, citing
environmental concerns, and RusAl has been in close consultation
with the Uzbek government over Rogun. Tajikistan has said it
wants an international consortium to build Rogun because it is
unsure of RusAl's commitment to the project.

The German consulting firm Lahmeyer is currently conducting a

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feasibility study of Rogun, to be completed in Summer 2006. A
key issue is the type of dam: RusAl may be pushing for a
concrete dam for Rogun because a Russian research and
development institute has readily-available technical
specifications for such a dam. According to Deputy Energy
Minister Souliemanov, the Tajik government would prefer to build
a rock-filled dam; the expense of a concrete dam will cost
Tajikistan much of its equity in the project.

AES, a U.S. company eager to enter the market, has also
expressed a willingness to partner with RusAl or RAO UES on
Rogun, but the Tajik government has frequently tried to steer
AES towards constructing the transmission lines, not the
generation plant. Price: $1.2 billion. Time: Around 4-5 years
to build, estimated to come on line June 2010.

-- Shurob: 600 MW/3.0 billion kWh. This project was not on
any international radar screens until a January announcement
that the Chinese Development Bank intended to finance this
plant, 12 km south of the existing Nurek station. The Chinese
Trade Attachi indicated only Chinese firms will be eligible to
bid on the tender. Price: unknown, although the Chinese
Development Bank gave a $90 million line of credit. A
feasibility study is underway now, no set construction date.

-- Varzob Cascade: The United States Trade and Development
Agency (USTDA) has funded Eurasia link to conduct a $400,000
feasibility study for the rehabilitation of these three separate
power plants. However, Ministry of Energy (MoE) sources
indicated the Chinese and other unnamed firms may also have
conducted feasibility studies on the same project.

-- Kairrakum Hydroelectric Rehabilitation Project: Part of the
USTDA-financed feasibility study, along with the Varzob Cascade.
Likely also a project of interest to the Chinese.

-- Golva HPS rehabilitation: a 240 MW HPS in need of
rehabilitation, according to the MoE. Price and time frame
unknown.

-- Dost-i-Zhum: 4000 MW HPS on the Tajik-Afghan border.
Conceived as a project purely for export to Afghanistan and
beyond, this would be Tajikistan's biggest HPS. President
Rahmonov touts it as a way to develop north Afghanistan and
eventually cut poppy cultivation. Price: Estimated $3-4
billion. No projected start date or financing.


6. (C) Transmission Lines:

-- "Phase I": 30 km of 220 kV transmission lines from
Dusti/Geran to the Afghan border at Sher Khan Bandar. AES has
expressed a willingness to build as a way to enter the market.
Could export existing excess energy in the summer. Estimated
price: $12-$30 million.

-- South-North (Regar-Kuljent) 500 kV transmission lines: The
Chinese are already conducting a feasibility study for
high-voltage lines to connect power production in the south to
Northern Tajikistan, which currently depends on Uzbekistan for
much of its energy. Estimated commitment from China through the
Shanghai Cooperation Organization: $90 million.

-- Lolazor-Hovaling transmission lines and Lolazor substation:
70 km of 220 kV transmission lines in Kulyab region plus
rehabilitation of the substation. Cost: $10 million.


7. (C) The Players:

-- Deputy Prime Minister Ghulomov: Very involved with

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hydropower and a key player at a January 16 meeting in Dushanbe
in which interested parties signed a protocol to establish the
International Hydropower Consortium.

-- Minister of Energy Jurabek Nurmamatov: Rumored to be close
friends with RAO UES chairman Chubais and seems favorably
disposed to U.S. involvement in hydro sector. Told Embassy,
"Without the United States, Rogun will not be built" (Reftel C).


-- Deputy Minister of Energy Aleksey Silantev: Head of
Hydropower. Has told Embassy the United States waits too long
on projects, while other companies and countries move faster.
"You only talk, but nothing concrete," he said to PolOff
February 20.

-- Deputy Minister of Energy Akhram Suleimanov: Appointed by
Nurmamatov to oversee the USTDA feasibility study on Varzob and
Kairrakum. Suleimanov has cautioned about the politics
surrounding the Rogun project and shared his off-the-record
concern with PolOff January 27 that RusAl was playing a game
with Tajikistan and may quietly pull out in the end.

-- RusAl: Russian Aluminum, headed by oligarch Oleg Deripaska,
has been pushing to develop Tajikistan's hydro sector, but found
itself shut out of Sangtuda I and II. RusAl signed the Jan 16
protocol committing itself as a "co-investor" in Rogun and to
carry out a feasibility study. RusAl is actively looking for
investment partners for Rogun. MoE sources say RusAl has
committed to two of Rogun's six turbines

RusAl needs electricity to power and expand aluminum production
at the Tajik Aluminum Plant (Tawas),and has hinted at building
a second aluminum smelter near the President's hometown of
Dungara. RusAl objects to exporting Tajik electricity unless
the electricity needed for aluminum production is met. RusAl
has recently been in close touch with Uzbek President Karimov
and especially First Daughter Gulnora. It is rumored Deripaska
promised Karimov he would be consulted before RusAl committed to
Rogun.

-- RAO UES: Russian conglomerate developing Sangtuda I. At
one point indicated interest in partnering with AES, but has
since declined. In the January 16 protocol, only agreed it was
"ready to consider attraction of credit resources from IFIs" but
has secured financial backing from Russian government for
Sangtuda I.

-- China: China has moved quietly into the hydropower game,
conducting a feasibility study on the Shurob HPS, and possibly
on the Varzob Cascade and the South-North (Regar) Transmission
lines. Chinese representatives attended the January 16
Consortium meeting, but declined to sign the protocol.

-- AES: U.S. firm with significant experience in Kazakhstan
and Pakistan. The Tajik government repeatedly assures AES
leadership there is a role for them in developing hydropower,
but has pushed for AES to build transmission lines. AES is
willing to build the lines, particularly Phase I, but also
insists it must have equity in a generation facility for those
lines. After being shut out of Sangtuda I and II, AES hopes
Rogun could be its primary project. It has indicated interest
in partnering with RAO UES or RusAl on Rogun, or the Chinese on
a smaller HPS project.

-- Asian Development Bank (ADB): Active in Tajikistan's energy
and infrastructure sector since 1998, ADB approved a $21 million
loan to the Tajik government for reforms in the energy sector.
In late 2000, ADB approved a $34 million loan to improve

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electricity supply to poor and war-damaged Khatlon region and
the city of Dushanbe.

-- Central Asian Regional Economic Cooperation (CAREC): An ADB
initiative to encourage economic cooperation and coordination,
it focuses on transport, energy and trade. CAREC's energy
initiatives in Tajikistan are starting to gain speed, as way to
link the region.

-- European Bank for Reconstruction and Development (EBRD)
currently does not have projects in the energy sector but is
considering financing for rehabilitation of the Varzob Cascade
HPS, according to Eurasialink.

-- World Bank: The World Bank's Washington representatives
drive its hydropower policy for Tajikistan. The World Bank
wants Tajikistan to develop its hydropower for export to
Afghanistan and Pakistan, putting it at odds with President
Rahmonov, who has publicly said he has must help meet domestic
needs. The World Bank may help the Iranians finance Sangtuda
II, or Rogun.
ARMBRUSTER