US embassy cable - 05DUSHANBE2013

UNCLAS  DUSHANBE 002013 
 
SIPDIS 
 
 
SENSITIVE 
 
STATE FOR EUR/CACEN, SA 
NSC FOR MERKEL 
 
E.O. 12958: N/A 
TAGS: PREL, ECON, ENRG, TI, TDA 
SUBJECT: TAJIKISTAN'S HYDROPOWER: GEOPOLITICAL GAME OR GOOD 
BUSINESS? 
 
 
1.  (SBU)  President Rahmonov hosted a December 11 meeting to 
discuss Tajikistan's hydropower projects.  Tajikistan is one of 
the world's leading countries in hydropower potential, and 
increasingly feasibility studies point to domestic and foreign 
markets that could help Tajikistan realize the economic 
benefits.  The meeting lasted several hours and included enough 
major international players to suggest these projects are now 
serious business.  Tajik Ministers, representatives of the World 
Bank, Islamic Development Bank, Asian Development Bank, European 
Bank for Reconstruction and Development, the German company 
Lahmeyer and the Russian company RusAl all attended.  The 
American firm, AES, was represented by Vice President Dale 
Perry.  Perry briefed EmbOffs after the meeting.  Although 
optimistic about AES's possible role on the Rogun hydropower 
plant, he is nervous about the potential geopolitical intrigue 
behind the scenes.  Perry believes 90 percent of the 
decision-making takes places behind closed doors, with sometimes 
very little consideration for the simple economics of the 
projects. 
 
2.  (SBU)  President Rahmonov spoke eloquently and with detailed 
knowledge of the hydropower projects.  He clearly stated his 
intentions.  Rahmonov does not believe Sangtuda I or II will 
produce enough power to sell to Afghanistan or Pakistan, and 
therefore he has allowed Iran and Russia to finance the projects 
for Tajikistan's domestic consumption.  The World Bank devoted a 
lot of effort into feasibility studies on export power from the 
Sangtuda projects.  Cevdet Denizer, the World Bank Tajikistan 
Country Director, was disappointed at Rahmonov's decision not to 
allow IFIs to participate in those projects. 
 
3.  (SBU)  Rahmonov sees the Rogun hydropower plant as the 
vehicle for export to Afghanistan and Pakistan.  The Tajik 
President met with Presidents Karzai and Musharraf in Mecca 
earlier this month and confirmed their desire to purchase power 
from Tajikistan.  Until Rogun comes on line, Kazakhstan would 
supply power south with lines running through Tajikistan. 
President Rahmonov views AES as the lead on the Rogun project 
with IFIs support and perhaps RusAl cooperation. 
 
4.  (SBU)  The IFIs indicated they would only support Rogun for 
international export, not domestic consumption.  The World Bank 
needs to conduct a feasibility study on Rogun.  They still have 
questions about RusAl's role in Rogun, knowing RusAl's stated 
intention is to use the plant to power Tajikistan's "TadAz" 
aluminum plant.  Denizer awaits the World Bank's senior 
management decision on cooperating with RusAl, a company not 
known for its transparency or acceptance of Western business 
standards.  Thus far, RusAl has not been able to comply with 
International Finance Corporation (IFC) standards and has 
applied for an IFC compliance review.  RusAl has hired the 
German company Lahmeyer to conduct a feasibility study, and 
Denizer worries the Rogun project will eventually be given to 
Russia, just like Sangtuda I.  Perry believes AES is in a 
stronger position right now than RusAl in the eyes of the Tajik 
leadership and he indicated the question is whether RusAl will 
even participate in the Rogun project. 
 
5.  (SBU)  President Rahmonov formed a working group to 
formalize the structure of cooperation.  The working group, 
consisting of the Tajik Deputy Prime Minister, the Chairman of 
the National Bank, AES, RusAl and the international financial 
institutions will meet January 12 in Islamabad to draft a 
Memorandum of Understanding. 
 
6.  (SBU)  Perry will be meeting with the Ambassador December 19 
and plans to return to Dushanbe January 19. 
 
7.  (SBU)  COMMENT:  Perry said AES will base its business 
 
 
decisions on economics.  Geopolitics and ulterior motives could 
potentially derail a long-term contract for AES, however, if the 
feasibility studies confirm the good business sense in going 
ahead with Rogun, AES may find itself in a lead position in the 
project.  There will be other hurdles ahead as well, including 
the environmental impact of the proposed projects and the social 
impact if some irrigation water is diverted from downstream 
farmers.  For now, Tajikistan is a step closer to finding a way 
to integrate more fully into the region, and perhaps to becoming 
the broker that finally brings U.S. and Russian interests into 
alignment so that Russia and the United States actually 
cooperate in Tajikistan, rather than compete on the basis of a 
zero sum game.  END COMMENT. 
HOAGLAND 
 
 
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