GOVERNMENT WORKS TO CRUSH FEW BRIGHT SPOTS IN ECONOMY

UNCLAS SECTION 01 OF 02 DUSHANBE 000230

SENSITIVE
SIPDIS

DEPARTMENT FOR SCA/CEN

E.O. 12958: N/A
TAGS: ECON ECPS PGOV ELTN TI
SUBJECT: GOVERNMENT WORKS TO CRUSH FEW BRIGHT SPOTS IN ECONOMY

DUSHANBE 00000230 001.2 OF 002



1. (SBU) Summary: The poorest of the former Soviet republics,
Tajikistan's development indicators wallow near the bottom of
international rankings. Its agriculture is antediluvian; its
infrastructure is inadequate; its heavy industry is heavily
subsidized. There are nevertheless a few precious sectors of
the economy that have bucked the trend, showing signs of
responsiveness and ingenuity benefitting both businesses and
consumers alike. Among these are mobile telecommunications,
where Tajikistan has been a regional leader, and transport,
where cheap and efficient private minibuses complement
Dushanbe's dilapidated city transport structure. In past weeks,
however, the government has deliberately sought to dismantle the
achievements in both of these sectors, under the patently
ridiculous claim of improving service. The phenomenon is
unfortunately a familiar one here: government officials view
successful businesses as sources of personal enrichment. While
the latest government efforts to colonize successful business
sectors are deeply unpopular, Tajiks appear resigned to the
situation. End summary.


2. (SBU) The Tajik economy is in many ways undeveloped, or even
backward. As much as half of the country's meager domestic
energy production is diverted to a Soviet-built aluminum smelter
which, thousands of mountainous miles away from both inputs and
markets, exists only because it pays next to nothing for the
government-subsidized power it consumes. While the plant's
profits flow offshore to undisclosed accounts reputedly operated
by high-level government officials, the country's population
shivers through the winter with little or no electricity.
Tajikistan's second major export, raw cotton, is produced on the
backs of farmers and students who receive little or nothing for
their labor while cotton financers use dodgy loans from
government accounts to guarantee a profit on "their" investment.
Meanwhile, the country's infrastructure receives scant
attention: the road connecting Tajikistan's two main regions,
still a tortuous mountain track in many places, is only being
rebuilt because the Chinese government is footing the bill.

Mobile Phone System One of Few "Golden Eggs" in Tajik Economy~


3. (SBU) Despite the overall dismal picture, there are a few
areas of Tajikistan's economy that genuinely work. Two of these
are mobile telecommunications and public transport. Unlike many
of its neighbors, Tajikistan's mobile communications sector is
responsive, efficient, and reasonably priced. When other
countries in the region put strict limits on mobile providers,
including extremely expensive operating licenses, the Tajik
government opened its market to a multitude of providers, who
could enter relatively cheaply and without burdensome
regulation. As a result, the country currently has ten
operators, compared to just half that number in the far larger
neighboring countries of Uzbekistan and Kazakhstan. The
competition has generally kept prices low and services
competitive. As a result, this country of 6 to 7 million people
has nearly 3.5 million mobile phones, and vast areas that never
had a reliable link to the outside world now receive wireless
signals.

...So Government Decides to Eat Goose


4. (SBU) Last week a government bill emerged, with no publicity,
calling for the establishment of a government-controlled "single
switching center" through which all international mobile
communications would have to be routed. The bill offers scant
justification for the new center, employing only vague language
about "defending the security of information space" and
"protecting socio-economic activity." According to Gafur
Irkaev, the head of the Association of Mobile Operators of
Tajikistan the bill is in fact little more than a power grab by
state-owned Tajik Telecom, which is looking to become a
communications monopoly. Although he suspected that President
Rahmon himself is not part of this contingent, he said they may
already have the President's ear, judging by a speech he
delivered in January, where he excoriated the country's cellular
operators for getting rich while Tajikistan's energy projects
are desperate for funding.


5. (SBU) According to Irkaev, the government bill is doubly
disingenuous. First, it violates existing legislation
"forbidding unions of legal entities and governments with the
aim of monopolizing the production or sale of goods, giving the
current government authority that may have the effect of
restricting competition..." Second, the government already had
all of the tools it needed to investigate any concerns about

DUSHANBE 00000230 002.2 OF 002


unauthorized use of the mobile phone network, whether for
terrorism or any other purposes. The mobile phone companies
maintain lists of subscribers, including all incoming and
outgoing traffic, which the government has the right to peruse
upon request. Irkaev asserted that a government-run center
would actually worsen the situation, since its records
maintenance was likely to be far worse than that of the existing
private operators.


6. (SBU) According to Irkaev's deputy Ulugbek Zoirov, the fact
that the government does not have a legal or rational leg to
stand on explains why the bill was assembled in secrecy, without
consulting the organizations it would regulate. Nearly three
years ago a similar proposal was mooted, only then the idea was
shopped around to various companies and other experts for their
opinions. The government ultimately sought the advice of the
World Bank, which responded that a single switching center was a
bad idea, and the proposal was dropped. This time the
Association of Mobile Operators of Tajikistan only caught wind
of the bill by accident. This has fueled the theory that the
new legislation is simply a thinly-concealed effort by Tajik
Telecom to monopolize the market.

Transport System Ain't Broke...


7. (U) Dushanbe's city-run transportation system, while it runs
reasonably well in the center of town, is generally inadequate
in outlying areas. City buses operate on only a few major
routes, and the vans that service residential areas are cramped,
doddering, and infrequent. Beginning two years ago the
situation began to improve, however, when Chinese-made minivans
known informally as "Tangems" began plying the city's transport
routes. The Tangems, which are slightly more expensive than the
city-run transport (about 26 U.S. cents vs. 16 U.S. cents),have
markedly improved Dushanbe's transportation situation. Although
somewhat cramped, the 7-passenger Tangems nevertheless provide
fixed seating for their passengers, unlike the city vans, which
will squeeze passengers on top of one another in order to
maximize riders. Most importantly, the Tangems go everywhere in
the city, even altering their routes if passengers request.

...But Government Still Wants to "Fix" It.


8. (SBU) Despite the obvious advantages the Tangems bring to
Dushanbe, the city government has been steadily chipping away at
them. First, Tangems were prohibited along the city's central
street at the end of 2007. Then, earlier this month, Tangems
were also outlawed on Somoni Avenue, the main thoroughfare
linking central Dushanbe with most of the city's residential
districts. The government provided very little explanation for
the new rules, noting only that it sought to "raise the quality
of passenger service on public transport." There are reports,
however, that Dushanbe Mayor Ubaidullaev has contracted with
Russian companies to buy 150 buses for $4 million that will
operate on Somoni and Rudaki Streets. City bus services
reportedly bring in $500,000 a month; it is commonly assumed
that the Mayor's office sees a profit from the operations.


9. (U) As a result of the prohibition, the commute for many city
residents has again become complicated. The city's roughly
5,500 Tangem drivers have been scrambling to put together new
routes that do not take them through the prohibited areas.
Those who do try to challenge the new ordinance are pulled over
and harassed by the city's omnipresent and fabulously corrupt
traffic police. As one driver put it, "Please explain to me the
logic of this decision. We are in the middle of a financial
crisis, and the government's response is to take jobs away from
its citizens by 'fixing' something that isn't broken."


10. (SBU) Comment: Officials looking for quick profits appear
not to understand, or care, that they are destroying stable,
long-term sources of revenue. Tangem operators bring in
hundreds of thousands of dollars in annual revenue in customs
duties and registration fees; mobile phone companies pay even
more in taxes and fees for access to the national telephone
grid. Since it has so far provided very little explanation for
its actions, it is not clear whether the government's recent
moves are deliberately predatory or merely foolish. End comment.
JACOBSON