TAJIKISTAN'S TRANSPORTATION SECTOR: BY PLANE, TRAIN, OR

UNCLAS SECTION 01 OF 03 DUSHANBE 000698

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SENSITIVE
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STATE FOR SCA/CEN, EUR, EB, S/P
NSC FOR MILLARD, MERKEL

E.O. 12958: N/A
TAGS: PGOV ECON EINV EAID ELTN ETRD AF PK TI
SUBJECT: TAJIKISTAN'S TRANSPORTATION SECTOR: BY PLANE, TRAIN, OR
AUTOMOBILE

REF: A) DUSHANBE 0626 B) KABUL 1629

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(U) Sensitive but unclassified. Please handle accordingly. Not
for public Internet.


1. (U) SUMMARY: Improving Tajikistan's air, rail, and road
transportation network supports Secretary Rice's Infrastructure
Integration Initiative for Greater Central Asia. Creating a
cohesive transportation network passable throughout the year
decreases transportation costs and promotes trade through the
road (and partial rail) corridor from Kazakhstan to Pakistan.
The completion of the American-funded bridge in 2007 connecting
Tajikistan to Afghanistan will add additional trade momentum.
However, Tajikistan's state-run air sector needs to be
de-monopolized, the state-run railway urgently needs management
reform and infrastructure upgrades, and maintenance and
rehabilitation needs to be increased on roadways to maximize
trade opportunities. Ensuring official and non-official trade
barriers (such as customs and bribes) do not rise along with
increased trade is important. END SUMMARY.

STATE-RUN AIR SECTOR MONOPOLY INCHING AHEAD


2. (SBU) Tajikistan's air sector is dominated by inefficient
state-run Tajikistan State Airlines (TSA),and international
connectivity is limited. The vertically-integrated company runs
all air traffic control, the four major airports, and has all
domestic flights. Service is abysmal, the aircraft fleet
consists of dilapidated Soviet-built Tupolevs and Yaks, and
flight delays and cancellations are the norm (REFTEL A). Tajik
Air does not have a transparent ticketing, pricing or
reservation structure and bribes are often paid to ensure a seat
on a flight. Air cargo transport is in its infancy. The first
non-Russian carrier, Turkish Airlines, entered the market in
February with a weekly flight to Istanbul. (Tajik Air also
flies internationally to Munich and Istanbul.) International
Finance Corporation economist Mathew Scanlon told PolOff on
April 6 that he had just heard that Lufthansa and Thai Airways
are interested in starting weekly flights. (COMMENT: If true,
hallelujah! END COMMENT.)


3. (SBU) TSA is a cash cow for company and government officials,
and one of the country's top taxpayers. With close to one
million passengers a year, cash flow is significant and the debt
load is a "reasonable" $19 million, according to European Bank
for Reconstruction and Development (EBRD) head Fernand Pillonel.
However, thanks to poor accounting and opaque business
practices, much of the cash flow cannot be accounted for. For
example, as much as a third of the cash value of each air ticket
simply disappears. The new limited-use VVIP hall TSA built at
Dushanbe International Airport is on the books at a construction
cost of $9 million, but experts estimate the hall cost at most
$2-3 million. Use of the hall is limited to international
delegations. Reported cost per passenger for private use is
$235. Much of TSA's profit is carried on the backs of
Tajikistan's estimated one million migrant workers who are
forced to use TSA for most of their travel. The new Tajik Air
Director, General Khokimsho Tilloyev, confirmed to PolOff on 20
March that 90 percent of the airline's passenger load is to
Russia.


4. (SBU) Progress in modernizing TSA is slowly coming at the
urging of the international community. The EBRD is at the
forefront of advocating a change, using over $10 million in
loans since 1995 for runway rehabilitations, air navigation
improvements, and fleet modernization as leverage. The entry of
Turkish Airlines into Tajikistan is a major step forward in
introducing competition, as are the now daily flights from
Russia's Domodedova Airlines.


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5. (SBU) EBRD has offered TSA a $5 million commercial loan for
fleet modernization to include the lease of two new aircraft and
training for up to 20 flight crews. However, factions within
TSA oppose the loan, perhaps in part due to the international

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accounting standard requirements, and the government has been
slow to implement the proposed fleet modernization. The
controversial loan may not produce the intended results, noted
Pillonel, but "not doing anything is not an option." Pillonel
stressed that moving too fast and collapsing TSA is not in the
best interest of the country, and advocated steady pressure to
reform and spin off the major components (air control, airline,
and airports) prior to any privatization plans. He observed
that technical assistance from USTDA could go towards helping
TSA create a sensible plan for separating its three enterprises.

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RAILWAY REFORM CRITICAL FOR TRADE


6. (U) Tajik railways are a vital component of Tajikistan's
trade. The World Bank estimates 95 percent of total external
tonnage and about 50 percent of seasonal workers travel to
Russia by rail. Aluminum is carried by train to ports in
Georgia and Estonia, and cotton mainly goes to the Port of Riga
in Latvia. Annual tonnage is approximately 12 million,
according to the Railway Department chief specialist Ishon Hujai
Rustam. In addition, until the Anzob pass is completed next
year, rail provides the primary means for northern Tajikistan to
trade with the southern region during winter. There is a total
of 950 kilometers (km) of railroad in Tajikistan. The main
components are the northern route connecting with Uzbekistan,
the central route that loops from Uzbekistan back into
Tajikistan up to Dushanbe, and a domestic southern route that
goes from Dushanbe to Kulob. Rail transit tariff disputes
between Uzbekistan and Tajikistan often add to the cost of
transport, and a World Bank study indicates state-run Tajik Rail
charges transit fees favoring large businesses over smaller
entrepreneurs. As Tajikistan's links with Afghanistan and
Pakistan grow, a rail link south would make sense, especially
with respect to cotton shipments, since the textile factories in
Pakistan are much closer than the port of Riga.


7. (U) Tajik Rail is in urgent need of reform and requires
substantial investment for rehabilitation and modernization.
The World Bank notes Tajik Rail has seen almost no reform since
the country's independence, and there is little transparency in
its operations. International financial institutions have not
funded much for railroad rehabilitation, although the Asian
Development Bank (ADB) did assist in electrifying part of the
railway in the northern region. During a March 16 meeting with
PolOff, Rustam described the poor state of the railroad system
in which most of the railway cars are reaching their expiration
date and at least 20 percent of the railway infrastructure needs
rehabilitation. The Ministry of Transport is pushing to get the
railway from Dushanbe to Qhurgon-Teppa rebuilt, because it is
unusable due to lack of maintenance, and is looking for donors
to extend the railroad from Kolkhozobod to the border with
Afghanistan at Nizhniy Pyanzh. There is no railroad between
Dushanbe and the northern capital Khujand.

BOOM IN ROAD, TUNNEL, BRIDGE BUILDING


8. (U) The Ministry of Transportation's goal of providing
year-round transportation routes throughout the country by
building roads, tunnels and bridges is close to becoming
reality. Financed by a surge in donor grants and credits, the
country could be connected year round by the end of the decade
between to all of its neighboring countries:

-- The Chinese reportedly agreed this month to finance the $269
million rehabilitation of the Dushanbe-Khujand-Buston motorway

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to the Uzbek border using some of a economic credit in the
Shanghai Cooperation Organization. This project also includes
building a tunnel through the Sharistan mountain pass and links
with the $40 million Anzob tunnel, making this road year-round
when complete. The tunnel is 75 percent financed by Iran.

--In 2004 the Murghab-Kalma road connecting to the Chinese
border in remote eastern Tajikistan was completed with Chinese
funding.

--The Chinese-funded $18 million Shar-Shar tunnel on the road
east, and on the way to President Rahmaon's hometown, is
expected to be complete in 2008.

--The ADB approved at the end of 2005 additional funding to
rehabilitate a 90 km section of the main road from Dushanbe to
the Kyrgyz border, which is part of the Central Asian Highway
connecting Kazakhstan, Tajikistan, Uzbekistan, Afghanistan, and
China.

-- The ADB also has funded road rehabilitation in Tajikistan's
southern Khatlon region.

--The U.S.-funded $30 million bridge at Nizhniy Pyanzh is
scheduled to open summer 2007. This will be an extremely
important step toward promoting trade between Tajikistan and
Afghanistan (REFTEL B),especially if the Japanese-financed
upgrade to the final road segment between Kolkhozobod and
Nizhniy Pyanzh is completed in 2007, although current
information suggests the Japanese are falling behind on this
project.


9. (U) COMMENT: If they build it will trade come? The surge in
much-needed infrastructure upgrades is a strong incentive to
increase trading, but this depends on what the official and
unofficial transport costs become. Tajikistan's biggest trade
barrier is itself, because bribes are a substantial addition to
moving goods, and corruption hampers competitive
export-orientated business development. Road, bridge, and
tunnel maintenance also will be important to truck transport.
Transport by air cargo likely will not be developed without
air-sector reform. All of these projects are critical for
Tajikistan to have a viable economy that can support its surging
population of young people. In the end, trade becomes a
security issue, because having hundreds of thousands of youths
unemployed in Central Asia is a sure way to breed discontent and
instability. END COMMENT.



HOAGLAND