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Cablegate: Afghan-Tajik Electric Power Ppa Negotiations Short

VZCZCXRO2685
PP RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #1581/01 1771050
ZNR UUUUU ZZH
P 251050Z JUN 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 4491
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 02 KABUL 001581

DEPT FOR SCA/RA, SCA/A, EEB, EEB/ESC/IEC (GRIFFIN)
DEPT PASS AID/ANE
DEPT PASS USTR FOR LILIENFELD AND KLEIN
DEPT PASS OPIC FOR ZAHNISER
DEPT PASS TDA FOR STEIN AND GREENIP
CENTCOM FOR CG CSTC-A, CG CJTF-101, POLAD, JICENT
NSC FOR JWOOD
TREASURY FOR ABAUKOL, BDAHL, AND MNUGENT
MANILA PLEASE PASS ADB/USED
PARIS FOR USOECD/ENERGY ATTACHE
OSD FOR SHIVERS, SHINN
USAID FOR WARD
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH

SIPDIS

E.O. 12958 N/A
TAGS: ENRG EFIN ETRD KPWR EAID PGOV AF
SUBJECT: Afghan-Tajik Electric Power PPA Negotiations Short
Circuited.

1. (SBU) Summary: Unexpectedly, when the Afghan Minister of Energy
and Water Ismail Khan arrived in Dushanbe June 20 to sign the
Afghan-Tajik Power Purchase Agreement (PPA), a component part of
Afghanistan's North East Power System (NEPS) project, he insisted on
a lower electricity purchase price than had previously been
discussed. Both sides were unable to agree on a price and
discussions were discontinued. Despite this setback, the Afghans
believe the Tajiks remain committed to the conclusion of a PPA. The
Embassy will urge the Afghans to reschedule a new negotiating
session soon to finalize a price and sign the PPA. End Summary.

2. (SBU) On June 18, an Afghan negotiating team lead by Advisor to
the Minister of Energy and Water (MEW) Ghulam Rabbani, traveled to
Dushanbe, Tajikistan for "final" PPA negotiations. All technical
issues arising from the last negotiating session in April 2008 were
resolved on June 18 and 19. MEW Minister Khan arrived in Dushanbe
on June 20, to finalize the energy import price and sign the PPA
contract with the Tajik Minister of Energy.

3. (SBU) Prior to June 20, the Afghans had seemingly accepted the
Tajiks' electricity price offer of USD 0.035 (3.5 cents) per
kilowatt hour starting from May 2010 (the start of the summer
hydropower season) with an annual two percent increase over the 5
years of the PPA's duration. This price would reflect the current
cost of power generated at the Sangtuda power plant and builds in
the cost of construction of new transmission lines from Tajikistan
to the Afghan border. On June 8, USAID's contractors advising MEW
on this PPA included this 3.5 cent price in a revised English PPA
draft that was submitted to DABM, the Afghan power utility, for
distribution to President Karzai and his Cabinet.

4. (SBU) Upon Minister Khan's arrival in Dushanbe the morning of
June 20, the only outstanding item of discussion was the final
energy price in the PPA. Unexpectedly, Minister Khan insisted that
the price should be reduced from 3.5 cents per kilowatt hour to USD
0.02 (2 cents). Under a long-standing agreement with Afghanistan,
the Tajik utility charges two cents per kilowatt hour for the
minimal amount of electricity it export to the Kunduz region in
northern Afghanistan. (However, this arrangement is rather casual,
as illustrated during the 2007-2008 winter when, due to their own
power shortage, the Tajiks suspended power export to Kunduz on
several occasions.) Despite several hours of negotiations in which
a variety of alternatives were presented, the parties concluded that
the PPA could not be signed as planned and the press conference
called to publicized the signing ceremony was cancelled. Minister
Khan returned to Kabul the next day.

5. (SBU) Comment: The Afghans believe the Tajiks are still
interested in concluding a PPA. Tajikistan has several
energy-related projects requiring international financing and a
20-year PPA with Afghanistan illustrates their commitment to finding
paying clients for their power. Tajikistan's leaders, including its
President, have publicly committed to this deal.

6. (SBU) Of the potential power exporters to Afghanistan,
Tajikistan, Uzbekistan and Turkmenistan, the Tajiks have been the
friendliest and most accommodating of the three. Delaying a
successful conclusion of these talks may weaken Afghanistan's
negotiating position with Uzbekistan and Turkmenistan by implying
that Afghanistan is an unreliable partner. USAID consultants, who
have been an integral part of the negotiations' success prior to
June 20, have begun working on a variety of projections and pricing
alternatives. These will be presented to MEW Minister Khan and his
negotiating team shortly. The Embassy is reaching out to the
Ministry of Energy and Water and the Ministry of Economy to
underscore this reliability point as well as to urge a return to the
negotiating table as soon as possible. End Comment.

KABUL 00001581 002 OF 002

WOOD

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