CANARGO PROSPECTS FOR GAS IN DUSHANBE

UNCLAS DUSHANBE 000935

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN
COMMERCE FOR ITA/RISD/DSTARKS

E.O. 12958: N/A
TAGS: ENRG EINV EIND TI PGOV
SUBJECT: CANARGO PROSPECTS FOR GAS IN DUSHANBE



1. (SBU) Summary. The heads of U.S. oil and gas prospecting
company CanArgo recently visited Tajikistan in order to push the
Tajik government to sign a contract on development of oil and
gas fields in the southern Kulob region. CanArgo has signed a
protocol with the government on development of these fields, and
is now seeking a production sharing agreement. While the gas
fields have real potential, CanArgo has discovered that the
Tajik tax code prohibits payment of taxes in-kind, precluding
the kind of production sharing agreement they had hoped to sign.
End Summary.


2. (SBU) The president of CanArgo Energy Corporation, Dr. David
Robson, flew EconOffs to Kulob June 21 to check out a gas field
and a gas processing facility. Robson, a geologist, discussed
technical details with local engineers, and seemed satisfied at
the prospects. While the gas contains 15% sulfur, the
Canadian-built 10-year old gas cleaning facility produces clean
gas. As a goodwill gesture, CanArgo plans to bring in a
portable 4MW gas-powered generator that would provide
electricity to the Kulob region this winter. (Kulob typically
demands 40-60MW, but supplies fell to 20MW last winter.) The
mayor of Kulob seemed very pleased at this prospect, and looked
forward to cooperating with CanArgo.


3. (SBU) CanArgo representatives described moving forward on
the legislative fix necessary for the production sharing
agreement as "one step forward, two steps back." They are
working principally with the State Committee on Investments, and
with Minister of Energy and Industry Gulov, but they have the
sense no one is pushing from the Tajik side. We put them in
touch with USAID-funded Pragma which is providing legal advice
to the Investments Committee on making Tajik legislation more
amenable to investment. CanArgo hopes that Deputy Prime
Minister Ghulomov will push the whole project along, but is
afraid Gazprom's influence with the government may prove to be
problematic for CanArgo.


4. (SBU) CanArgo is spinning off its Central Asian company,
Tethys Petroleum Limited, next week. Tethys will be listed on
the Canadian stock exchange, and it is Tethys that would be
working here (they have about 8 million USD to invest if things
work out). We told them they would need to re-qualify with the
Department of Commerce as an American company based on ownership
for us to be able to do direct advocacy. If that happens, we
told them we would be happy to raise specifics with government
officials, both orally and in writing, as needed.


5. (SBU) CanArgo is thinking about whether a government decree
on the production sharing agreement would be enough of a
guarantee to start work, with the legislation to come later. Of
course, the Tajik side would like CanArgo to get to work right
away, and settle the details about production sharing after
production has begun. Who would pay for any gas produced is
also up in the air, as any near-term production would go to the
Tajik market. CanArgo has made several trips to Tajikistan,
however, and have shown that their interest in developing gas in
Tajikistan is genuine.
JACOBSON