UZBEKISTAN: USCENTCOM ON THE EVE OF CONSTRUCTION

C O N F I D E N T I A L SECTION 01 OF 04 TASHKENT 001245

SIPDIS
DEPT FOR SCA/CEN
AMEMBASSY ASTANA PASS TO USOFFICE ALMATY
AMEMBASSY HELSINKI PASS TO AMCONSUL ST PETERSBURG
AMEMBASSY MOSCOW PASS TO AMCONSUL VLADIVOSTOK
AMEMBASSY MOSCOW PASS TO AMCONSUL YEKATERINBURG

E.O. 12958: DECL: 2019/05/01
TAGS: ETRD ECON PREL EIND MARR AF UZ
SUBJECT: UZBEKISTAN: USCENTCOM ON THE EVE OF CONSTRUCTION

CLASSIFIED BY: Robert McCutcheon, Econ Officer, State, Pol/Econ
Office; REASON: 1.4(B),(D)


1. (C) SUMMARY. Major General (MG) Kenneth Dowd, CENTCOM's
Director of Logistics, had productive meetings on transit and local
sourcing opportunities during his recent visit to Uzbekistan from
June 22 through 26. In meetings at the Ministry of Defense and the
Ministry of Foreign Economic Relations, Investment, and Trade
(MFERIT),MG Dowd and his delegation pressed the GOU to meet the
30-day deadline for approval of train shipments under the Northern
Distribution Network (NDN) agreement. MOD Berdyev blamed delays at
MFA for occasional lapses in meeting that deadline and said he
would try to help fix this. MG Dowd broached air transit into
Afghanistan, but MFERIT Minister Ganiev reiterated GOU's
opposition. On local procurement, Dowd visited a paint plant, a
steel mill, the largest cement factory in the former Soviet Union,
the Navoi Airport multi-modal transit hub, and the Navoi Free
Industrial Economic Zone. MFERIT went out of its way to impress
upon MG Dowd the capabilities of Uzbek industry and its readiness
to play an active role in providing all possible non-military
supplies for ISAF forces in Afghanistan. MG Dowd consistently
highlighted the expanded NDN business opportunities that are
dependent on the GOU meeting the 30-day train shipment approvals
and the ability to fly commodities to/from Afghanistan using
Uzbekistan as a logistics throughput location. END SUMMARY

MFERIT: AT YOUR SERVICE
--------------


2. (C) MG Dowd began his official travel to Uzbekistan by meeting
with First Deputy Minister Najimov at MFERIT. MG Dowd asked MFERIT
to do all it can for Uzbekistan to meet and then improve the 30-day
deadline for the diplomatic clearance of train shipments under the
NDN agreement, expressed his strong interest in Uzbekistan's
proposal to extend the Afghanistan rail line from Hayraton to
Mazar-i-Sharif, and said he would like to expand local procurement
beyond foodstuffs to include construction materials. He asked for
Najimov's thoughts on allowing fruits and vegetables to be flown
into Afghanistan and said he would like to try one shipment by this
method to demonstrate proof of principle.


3. (C) Najimov replied that problems processing NDN trains into
Afghanistan have more to do with outdated facilities in Hayraton
than they do with diplomatic clearances. It is the
unloading/loading problem in Hayraton that must be solved, and he
asked the U.S. to support and speed up implementation of
Uzbekistan's proposal to extend rail service in Afghanistan from
Hayraton to Mazar-i-Sharif. MG Dowd stated that he had teams visit
Hayraton and that even though the facilities there are old, we had
determined that they could easily handle the extra NDN train
traffic that would only be 2-3 trains a week. Additionally, MG
Dowd highlighted that only a couple of NDN trains have even reached
Hayraton and that those trains that finally reached Haryraton were
cross loaded to trucks in minimal time. Thus, MG Dowd
re-emphasized that there is not a Hayraton bottleneck and
reiterated that the diplomatic clearance process is the delay.
Highlighting one instance of delay, DAT Jeff Hartman said five
trains are still stuck in Latvia despite diplomatic notes sent to
the GOU in May. Najimov promised this will be looked into.

TASHKENT: PAINTING THE TOWN
--------------


4. (SBU) From MFERIT, MG Dowd launched directly into his tour of
Uzbek factories engaged in the production of construction-related
supplies. He began at the Tashkent Paint Factory just a short
distance from the center of Tashkent. Founded in 1945 but since
upgraded many times, the paint factory is now a joint Uzbek-Chinese
venture employing 800 people and producing 69,000 tons of paint,
lacquer, and related products per year. Chairman of the Board
Viktor Rulevskiy told MG Dowd that the plant meets ISO 9000
standards and would be willing to accommodate any separate U.S.
standards that may be required. According to Rulevkiy, the plant
produces oil and water-based paints in 30 colors and is currently
running at only 30 percent capacity. The factory makes its own
paint cans using East German equipment capable of turning out
25,000 cans per shift. (COMMENT: The factory showroom has a
variety of paint products on display, all attractively labeled and
presented in a manner that would not be out of place in a
Washington area Home Depot.)

BEKOBAD: STEEL TOWN UZB

TASHKENT 00001245 002 OF 004


--------------


5. (SBU) From the paint factory MG Dowd and his delegation traveled
two hours by van to Bekabad, home of Uzmetkombinat, Uzbekistan's
only steel mill. Founded in 1947, the Bekabad mill produces
various types of metal products. According to Uzmetkombinat
Director Alik Nurutdinov, these include steel for construction,
nuts and bolts, and metal wire of various types and thicknesses.
Although producing primarily for the domestic market, Uzmetkombinat
exports regionally to Tajikistan, Kyrgyzstan, and Kazakhstan as
well as to Afghanistan, Iran, and Iraq. At present the main steel
product exported to Afghanistan is steel bars ranging in thickness
from 10 to 32 mm. Nurutdinov said the price of steel rebar
produced in Bekabad is currently $450/ton and can be transported to
the Afghan border at a cost of $25/ton.


6. (SBU) The delegation toured several production lines, during the
course of which engineers said the mill can produce 100 tons of
rebar in eight hours. At present the mill has 30 percent reserve
capacity. Barbed wire produced at the mill sells for $1200/ton.
(NOTE: Given that a roll of barbed wire is 400 meters in length
and weighs 45kg, this translates into approximately $135/km, which
a delegation member said compares favorably with the price of
U.S.-produced concertina wire.) In addition to steel, there are
production lines for copper and brass.

NAVOI: A COMPANY TOWN
--------------


7. (SBU) On June 24 MG Dowd's delegation flew to Navoi, a
post-World War II city that was closed to foreigners until after
the fall of the Soviet Union. Uranium, gold, chemicals, and cement
were the engines that made Navoi one of the richest cities in
Uzbekistan, and to this day the city is strikingly clean with
streets and buildings in good repair. It is a company town on the
Soviet model, with the Navoi Metallurgical Kombinat providing the
lion's share of uranium and gold profits that keep the city's
coffers full. More recently, Korean Airlines (KAL) has made the
Navoi Airport its new hub for cargo transit from Asia to Europe,
and just last year President Karimov designated Navoi as the site
of a new Free Industrial Economic Zone (FIEZ). The city still has
a large ethnic Russian population, and we understand that full
flights between Navoi and Moscow are the rule.


8. (SBU) After landing at Navoi Airport, MG Dowd was briefed by KAL
Managing Vice President David Choung, Erkin Ubaidullaev of
Uzbekistan Airways, and David Bryce of the Hanjin Group. Choung
described how KAL's interest in Navoi began with a feasibility
study in 2007 that led to the first KAL cargo planes landing in
Navoi in August 2008. KAL assumed overall control of Navoi Airport
in January 2009. According to Choung, Navoi Airport has many
advantages in that it is a multi-modal hub with links to rail and
truck, is only 300 miles from the Afghan border, and can
accommodate any type of aircraft. After improvements are completed
this fall, up to five Boeing 747 freighters will be able to park
simultaneously on Navoi's apron, and it will be possible to process
up to 300 tons per day through the new cargo terminal. KAL
currently flies twelve cargo flights per week into and out of Navoi
bound to or from Brussels and Inchon.


9. (SBU) David Bryce told MG Dowd that Hanjin Group is investing to
upgrade facilities on the Afghan side of the border in Hayraton,
terminus of the rail line from Navoi into Afghanistan. Bryce said
aging freight terminal equipment in Hayraton can limit the speed
with which cargo can be off-loaded from rail to truck and he
suggested that shipping from Navoi by truck only could be a better
option, with shipping from Navoi to Bagram or Kabul taking three
days and Navoi-Kandahar taking six. Erkin Ubaidullaev interjected
that Uzbekistan Airways very much wants to ship ISAF supplies by
air from Navoi but is prevented from doing so by GOU policy. He
asked for any and all assistance that can be brought to bear to
change GOU policy on this score.




10. (SBU) MG Dowd highlighted that the Navoi intermodal (air to
surface) solution is an option and that USTRANSCOM concurs with his
desire to utilize this transportation hub with at least two flights
of cargo per month to then be forward moved to Afghanistan via

TASHKENT 00001245 003 OF 004


surface trucking. He continued, however, that higher priority
cargo that requires air transport should not then be downloaded for
a long surface movement and instead should be flown as close as
possible to its final destination. MG Dowd reminded all present
that three flights containing a cargo of bunk beds were scheduled
to arrive in Navoi the next day with surface trucking onward
movement to Afghanistan.


11. (SBU) From the airport MG Dowd traveled next to the FIEZ, just
a kilometer or two away on the other side of the main
Bukhara-Samarkand highway. Construction manager Arzamat Avezoz
described how six months ago there had been nothing but open space
where the FIEZ is now rising from the desert in response to
President Karimov's December 2008 decree. Covering an area of 564
hectares, the FIEZ will provide water, electricity, and all other
infrastructure necessary for foreign investors to set up
manufacturing on lots rented at a low $1000 USD per year per
hectare. The FIEZ was created for 30 years with possible further
extensions. A special customs, foreign currency, and tax regime
will be in force within the FIEZ, and those businesses setting up
operations with the FIEZ will be released from taxes and other
payments for different periods up to thirty years depending on the
size of the direct investment. According to Azezov, at present 180
firms have expressed interest in locating within the FIEZ, and of
these a number have already paid the symbolic 1200 Euro
registration fee and are beginning construction. Avezov pointed to
a map highlighting those businesses that have already committed to
the FIEZ. These included businesses ranging from textiles to auto
parts to semiconductors, LCD monitors, and fiber optics. A number
of these appear to be Korean or Uzbek-Korean joint ventures, and
Avezov said both an Uzbek and a Korean bank would operate within
the FIEZ. Avezov added that plans call for the FIEZ to be complete
and fully occupied by 2012, after which work will begin on the
infrastructure for a second FIEZ zone on adjacent territory.


12. (SBU) The next and final stop in Navoi for MG Dowd was the
Navoi Cement Factory. In operation since 1977, the cement plant is
the largest in the former Soviet Union and is the only one to use
the dry cement method. Plant directors told the delegation that
production was 3 million tons last year, of which 2.6 million went
to the internal market. Export markets have at various times and
degrees included Russia, Kazakhstan, Kyrgyzstan, Moldova,
Turkmenistan, Afghanistan, and Tajikistan. Last year approximately
26,000 tons went to Afghanistan, mainly for construction at Kabul
International Airport. MG Dowd asked whether the plant would have
any problem fulfilling an ISAF order for up to a million tons per
year, to which the response was, "No problem!"

MOD: BEWARE RUSSIAN INFLUENCE
--------------


13. (C) Upon returning to Tashkent, MG Dowd sat down with Minister
of Defense Berdyev, who welcomed the general, saying that his was a
"noble mission" and that the MOD would work to solve any problems
with the transit of goods to Afghanistan. MG Dowd described his
factory visits, his hopes for increased local procurement, and his
appreciation for MOD's support on NDN. He then reiterated the
points he had made earlier at MFERIT, in particular concerning the
need to speed up the diplomatic clearance process. He asked that
air shipments be permitted in addition to truck and rail.


14. (C) Berdyev replied that air transit is not in MOD's
competence, but he said the GOU is doing its best to comply with
the 30-day diplomatic clearance guideline. Saying that "ours is a
bureaucratic system," he said the MOD is not responsible for any
delays and suggested that any problems may be in the MFA. He said,
however, that he would do all he can to facilitate the process.


15. (C) Ambassador Norland asked about the regional security
picture, to which Berdyev responded that Coalition pressure in the
Afghanistan / Pakistan region was spurring terrorist activity in
Central Asia, but he added that the GOU had things under control.
He accused the Russians of fomenting instability in order to keep
the Central Asians dependent on Russia. He went so far as to urge
the U.S. and Europe to open their own TV channels to counter
Russian dominance of the airwaves.

MFERIT: COME AGAIN!
--------------

TASHKENT 00001245 004 OF 004



16. (SBU) MG Dowd concluded his visit to Uzbekistan by returning to
MFERIT for a meeting with Minister Elyor Ganiev, who opened by
saying the GOU is ready to do anything it can to create favorable
conditions for U.S. companies to start production in Afghanistan.
He continued that some U.S. companies have expressed interest in
the Navoi FIEZ and added that production in Uzbekistan could help
U.S. companies weather the world financial crisis. On NDN, Ganiev
repeated that the bottleneck is Hayraton and that the rail
extension to Mazar-i-Sharif is a necessity.


17. (C) MG Dowd expressed his satisfaction with his visit and his
appreciation for MFERIT's support on NDN. MG Dowd reiterated the
points he had made earlier concerning the need to speed up the
diplomatic clearance process and the need for air transit. MG Dowd
again highlighted that if needed he would send a team to Hayraton
to relook at capacity throughput concerns but to date he was not
aware of any delays. Rather, all delays were internal to
Uzbekistan. Ganiev replied that fresh fruits and vegetables grow
mainly in Uzbekistan's southern provinces -- not in the nearly
desert plains of Navoi -- and are therefore best shipped to
Afghanistan by truck, not air. Moreover, Ganiev added that air
transit is ten times more expensive than truck. MG Dowd asked
Ganiev to consider the commercial potential for shipping fruits and
vegetables to Afghanistan by all modes -- especially air -- due to
spoilage concerns, but Ganiev closed the conversation by saying
"you understand our position" on air transit. MG Dowd stated that
we would be an advocate for the Hayraton to Mazar-i-Sharif rail
extension project.


COMMENT
--------------


18. (SBU) MG Dowd had a very productive set of meetings on local
transit, and he has set the stage for possible expansion of local
procurement from foodstuffs to construction materials. As during
previous visits by Generals Petraeus and McNabb and by
representatives of the Defense Logistics Agency, MFERIT and MOD
went out of their way to highlight the capabilities of Uzbek
industry. The GOU still worries about the outcome in Afghanistan
-- a fact made clear by its refusal to allow air transit -- but it
also wants NATO forces to succeed in making Afghanistan a stable
neighbor on its southern border. And if Uzbekistan can profit
economically from this enterprise, it will be all that much more an
active partner in making that success possible.




19. (C) On note, since MG Dowd's departure the GOU ability to meet
the 30-day deadline for approval of train shipments under the NDN
agreements is getting worse. There are six trains that have
exceeded the 30-day approval process. They range from 3 to 17 days
overdue.


20. (SBU) USCENTCOM has cleared on this cable.
BUTCHER