UZBEKS AND AFGHANS SIGN FOLLOW ON ELECTRICTY DEAL;

C O N F I D E N T I A L TASHKENT 001265

SIPDIS

SIPDIS

E.O. 12958: DECL: 07/10/2017
TAGS: ENRG PREL AF UZ
SUBJECT: UZBEKS AND AFGHANS SIGN FOLLOW ON ELECTRICTY DEAL;
TRANSPORTATION AGREEMENT EXPECTED

REF: 06 TASHKENT 2172

Classified By: CDA Brad Hanson for reasons 1.4 (b) and (d).


1. (C) Summary: Uzbekistan reportedly has agreed to supply
150 megawatts of electricity a year to Afghanistan starting
in 2008 and 300 megawatts a year by the end of 2009.
Uzbekistan declined a $25 million loan to help finance the
upgrade of power lines between the Talimarjan Power Plant and
the Uzbek-Afghan, claiming that the funds needed for the
upgrade have been included in the budget for 2008. A major
Afghan delegation is expected in Tashkent in mid-July to
reach agreement on the opening of an Uzbek rail office in
Hayraton, and to discuss the possibility of establishing air
transportation between Kabul and Tashkent. Post suspects
that the Uzbeks will continue to seek international donor
financing to upgrade the power lines. Likewise, while
opening a rail office potentially provides Afghanistan with
increased access to Central Asia's rail system, significant
Uzbek customs and security barriers to Afghan trade remain in
place. End summary.


2. (C) Afghanistan's Minister of Energy Ismael Khan visited
Tashkent June 26 for further discussions with Uzbekenergo on
supplying Kabul with electricity. Afghan Embassy Commercial
Attache Mohammad Kargar told Poloff that during the visit,
Khan and Uzbekenergo Chairman Botir Teshabaev reached
agreement whereby Uzbekenergo will supply Afghanistan with
150 megawatts of electricity a year starting in 2008. This
amount will go up to 300 megawatts annually by the end of

2009. Kargar said that discussions of pricing issues were
deferred to a later date.


3. (C) Kargar said that as part of the deal, Uzbekenergo
agreed to upgrade approximately 80 miles of power lines
between the Talimarjan Power Plant and Surkhan Substation on
the Uzbek-Afghan border at its own expense. Kargar said that
the Afghan Energy Ministry offered Uzbekenergo $25 million in
loans to jump start the work, but Teshabaev declined the
offer, saying that funding for the upgrades had been included
in Uzbekenergo's 2008 budget plans. Kargar said that Khan
also explored the idea of an agreement allowing the Afghans
to send electricity purchased from Kyrgyzstan to Kabul via
Uzbek power lines. He said that the Uzbeks showed little
interest in such an agreement.


4. (C) Kargar said that a major Afghan delegation will visit
Tashkent July 17-19 to discuss various trade issues.
Currently, Afghanistan's annual trade with Uzbekistan totals
approximately $162 million, much less than its $1.5 billion
annual trade turnover with Pakistan. Kargar expected that
the Afghan delegation will reach agreement with the Uzbeks to
open an Uzbek Railway Company office in Hayraton,
Afghanistan, which he said should make it easier for Afghan
goods to enter or transit Uzbekistan via rail. The two sides
also are expected to discuss the possibility of establishing
direct air connections between Tashkent and Kabul.


5. (C) Comment: Financing the upgrades between Talimarjan and
the Uzbek-Afghan border was a major source of contention
during Khan's November 2006 visit to Tashkent (reftel),with
the Uzbeks demanding that one of the international financial
institutions or other international donors foot the bill.
Despite declining Khan's $25 million loan offer, probably out
of pride, according to Kargar, the Uzbeks still have to come
up with the money. It is possible that Uzbekistan will
indeed foot the estimated $150 million bill, as Afghanistan
represents a significant potential market for increased
electricity exports, but we doubt it. The opening of an
Uzbek rail office in Hayraton is a positive step, as it
potentially provides Afghanistan with increased access to
Central Asia's railway systems, reducing the time and costs
of bringing Afghan goods to market in Russia and elsewhere.
Unfortunately, significant Uzbek import, customs, and
security barriers probably will remain in place, ultimately
making this development less positive than it might otherwise
be. As for direct air links between Kabul and Tashkent, we
note direct air links between Dushanbe and Tashkent have been
discussed occasionally for 15 years and still do not exist.
HANSON