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Cablegate: Tajikistan Must Comply with International Norms to Succeed

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PP RUEHLN RUEHVK RUEHYG
DE RUEHDBU #0783/01 1520531
ZNR UUUUU ZZH
P R 010531Z JUN 07
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC PRIORITY 0335
INFO RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 2099
RUEHNE/AMEMBASSY NEW DELHI 2104
RUEHIL/AMEMBASSY ISLAMABAD 2132
RUEHPW/AMCONSUL PESHAWAR 0011
RUEHLH/AMCONSUL LAHORE 0006
RUEHKP/AMCONSUL KARACHI 0009
RUEAIIA/CIA WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUEHDBU/AMEMBASSY DUSHANBE 2039

UNCLAS SECTION 01 OF 02 DUSHANBE 000783

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL PGOV ECON ENRG EAID TI AF
SUBJECT: TAJIKISTAN MUST COMPLY WITH INTERNATIONAL NORMS TO SUCCEED
IN ENERGY TRADE

DUSHANBE 00000783 001.2 OF 002


1. (SBU) Summary. Tajikistan needs to take steps to sign and
abide by international standard agreements if it wants to
develop its electricity sector through exports to Afghanistan
and beyond. In a series of meetings with top energy and
economic officials May 28, Senior Advisor for Regional Economic
Integration Robert Deutsch and Senior Advisor for Afghan Private
Investment Ed Smith delivered a clear message to the Tajik
government: Tajikistan cannot do business as usual, with
bureaucratic hurdles and fuzzy legal agreements, if it wants to
attract private investment or international financing.

2. (SBU) Deutsch reiterated U.S. support for Tajikistan's
energy sector and interest in the development of Tajikistan's
coal sector in order to provide year-round electricity for
domestic use and export. He noted that U.S. Trade and
Development Agency grant money already given to Tajikistan for a
regional project could be transferred to study coal development,
if the Tajik government presented a clear and sensible plan. At
a May 29 meeting for investors and donors on coal (septel), the
message had clearly sunk in, when Tajikistan's Energy Czar,
Deputy Prime Minister Asadullo Ghulomov, repeatedly pledged
Tajikistan would meet all international standards in the energy
sector. End Summary.

3. (SBU) In meetings with Presidential Advisor for Economic
Policy Matlubkhon Davlatov, Minister of Energy and Industry
Sherali Gulov, Deputy Prime Minister Asadullo Ghulomov, and
Minister of Transportation and Communications Abdurahim Ashurov,
Deutsch briefed the Tajik officials on the May 22-23
Multi-Country Working Group meeting in Jeddah concerning
regional energy trade. The Jeddah meeting set out key issues to
ensure that the working group made progress towards trading 1000
megawatts of electricity from Kyrgyzstan and Tajikistan to
Afghanistan and Pakistan -- a project know as "Central Asia
South Asia (CASA) 1000." One critical step will be
demonstrating commitment to a higher standard of transparency
and contracting by signing a solid power purchase agreement
between Tajikistan and Afghanistan for their bilateral
electricity trade to enable ABD financing for the
interconnection. (Note: The Afghans have proposed a standard
power purchase agreement, to which the Tajiks had responded that
they preferred to continue previous month-to-month arrangements
that were governed by memoranda of understanding and Tajik law.
End Note.) Deutsch's message to the Tajik officials centered on
the following points:

-- A USTDA grant from June 2006, intended to study transmission
networks to Afghanistan, could be used instead to study the
feasibility of coal, provided the Tajiks had a comprehensive
plan of action.

-- The United States could support Tajikistan's energy sector in
several other ways: Overseas Private Investment Corporation
(OPIC) would be available for insurance and financing if U.S.
companies participated in the project. Export-Import Bank of
the United States (EXIM) is closed to Tajikistan but could
potentially support a third party purchaser, like Pakistan.

-- Although Tajikistan had successfully sold power to
Afghanistan on a monthly basis under the framework of a simple
memorandum of understanding, international financiers and
investors require a more definitive agreement on supply and
export prices that includes a mechanism for neutral dispute
resolution. Tajikistan must be prepared to sign specific,
binding agreements that go beyond Tajik law and adhere to
international standards.

-- Providing electricity to Afghanistan is a U.S. policy
priority, but the United States will not invest in mega-projects
like the proposed 4000 megawatt hydropower station at
Dhasti-Jhum. The Tajik government will need to take many
smaller steps to establish a market and build investor
confidence in such projects over the coming years.

4. (SBU) Presidential Advisor Matlubkhon Davlatov called
energy a development priority and noted it was a regional, not
just a national issue. In response to Deutsch and Smith's
nine-hour journey on bad roads (at times, off-road) to a coal
field in northern Tajikistan the day before, Davlatov observed
that Tajikistan would still need to develop its road and rail
infrastructure to use coal efficiently. He promised to follow

DUSHANBE 00000783 002.2 OF 002


through on a draft power purchase agreement that Afghanistan had
sent to Tajikistan, and ensure that the Tajik side accepted the
standard international terms for selling electricity.

5. (SBU) Deutsch also raised Canargo, a U.S. firm trying to
sign an agreement with the Tajik government for gas exploration.
When Davlatov suggested that the Tajik government would sign
the production sharing agreement after Canargo had done its
exploration, Deutsch reminded him that Western investors want
the terms in advance of the risks and investment. Davlatov
said that Tajikistan would adhere to international business
norms, and when Tajik law did not match international standards,
they would change their laws.

Minister of Energy and Industry
------------------------------------------

6. (SBU) Minister of Energy and Industry Gulov thanked Deutsch
for his support for Tajikistan's coal sector and noted that a
U.S.-funded feasibility study would go a long way to ensure a
year-round supply of electricity for domestic use and export.
Like Davlatov, he also asked for U.S. assistance in developing
more generation capacity, particularly a hydropower station at
Dhasti-Jhum. Gulov also pledged to clear up a
"misunderstanding" on the draft power purchase agreement with
Afghanistan, and ensure that it included international dispute
resolution and a long term-commitment to supply power at
established rates.

Deputy Prime Minister Ghulomov
---------------------------------------------

7. (SBU) As Tajikistan's key official for energy and
industrial policy, Ghulomov assured Deutsch that Tajikistan
would meet all international standards to ensure the regional
electricity project was successful. Because the electricity
supply situation could change in 2008, when Sangtuda-I comes on
line, Ghulomov said he was reluctant to commit Tajikistan now to
an agreement with Afghanistan, but understood that for
international financing, they would fulfill the expected legal
obligations. He observed that even if Tajikistan had the 1000
megawatts to export now, Afghanistan did not yet have a
distribution network to take the power. "The Afghans have
colossal work ahead of them."

8. (SBU) Moving beyond the CASA 1000 project, Ghulomov pitched
key points in Tajikistan's energy dreams, including the need for
a second high voltage line to Pakistan that would carry
electricity produced at new generation projects, like
Dhasti-Jhum. He noted that the May 29 coal conference would be
an important step in developing year-round electricity and that
Tajikistan needed more help in the coal sector.

Minister of Transportation and Communication
--------------------------------------------- -------------------

9. (SBU) Minister Ashurov repeated comments from the other
three officials thanking the United States for the bridge at
Nizhniy Pyanj. Calling it a significant step in linking Central
and South Asia, he looked forward to the proposed August
opening. He welcomed the opportunity for Tajikistan to
participate in a fiber optic project to link the Central Asian
republics directly to global fiber optic networks, and he
promised that his telecommunications experts would provide full
information on Tajikistan's infrastructure and plans for further
discussion of regional fiber optic interconnections.

10. (SBU) COMMENT: Deutsch's visit was a timely reminder to
Tajik officials that although the United States strongly
supports Tajikistan's energy sector development, Soviet-style
business practices will not help them build regional electricity
networks or attract financing and investment. Whether his
message sticks will only become clear if Tajikistan actually
signs the mountain of paperwork necessary for a successful power
purchase agreement. The pleas for U.S. development of power
stations, specifically Dhasti-Jhum, were expected, and also
demonstrate that our emphasis on attracting private investment
through a more attractive business climate hasn't yet hit its
target. The August bridge opening will be another opportunity
to reinforce that message. END COMMENT.
JACOBSON

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