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 SIPDIS SIPDIS EMBASSY MANILA: PLEASE PASS TO ADB AMBASSADOR SPELTZ TDA FOR SCOTT GREENIP AND DAN STEIN E.O. 12958: DECL: 2/14/2016 TAGS: PGOV ENRG ECON PREL TI AF 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 (U) Tajikistan's energy industry is currently mismanaged and outdated.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 DUSHANBE 00000326 002 OF 004 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 DUSHANBE 00000326 003 OF 004 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 DUSHANBE 00000326 004 OF 004 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