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Cablegate: Russia's Role in Tajik Economy -- Big Fish in Small, Murky

VZCZCXRO2738
RR RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #1210/01 3130541
ZNR UUUUU ZZH
R 090541Z NOV 09
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 0885
INFO RUEHDBU/AMEMBASSY DUSHANBE 1821
RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0298
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHDC

UNCLAS SECTION 01 OF 03 DUSHANBE 001210

SENSITIVE
SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: N/A
TAGS: ECON EINV ENRG ELTN PREL RS TI
SUBJECT: RUSSIA'S ROLE IN TAJIK ECONOMY -- BIG FISH IN SMALL, MURKY
POND

DUSHANBE 00001210 001.2 OF 003


1. (SBU) Summary: Russia is Tajikistan's largest trade and
investment partner. Russian foreign direct investment in
Tajikistan amounted to $325 million in 2008, although it has
fallen off because of the financial crisis. Russian firms, many
of them state-owned, are involved in the energy, banking,
communications, hospitality, and other sectors in Tajikistan.
Russia's economic influence is felt most strongly through labor
migration: as many as one million Tajiks work as migrant
laborers in Russia, sending back billions of dollars annually.
Although Russians are a big fish, Tajikistan remains a small
pond. Russian firms are leery of investing in Tajikistan's
inhospitable business environment. End summary.

Trade and Investment

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

2. (U) Russia continues to be the dominant external economic
partner of Tajikistan, although its position is slipping
somewhat. Since 2005, Russia has invested $971 million in
Tajikistan. In 2008 it accounted for 75 percent of total
foreign direct investment (FDI), or $325 million -- 28 percent
more than in 2007. According to the Government of Tajikistan,
in the first half of 2009 Russia invested $39 million -- more
than any other country. Other major investor countries were
Kazakhstan ($25.8 million), the Netherlands ($8.9 million),
China ($5.7 million), the United Kingdom ($5.5 million), Iran
($1.0 million) and other countries ($32.3 million). Russia's
low investment compared to previous years is due to the global
financial crisis.

3. (U) Trade also took a sharp hit from the crisis. In July,
Russian Ambassador Yuri Popov noted that trade between Russia
and Tajikistan for January-June 2009 amounted to $400.5 million,
28 percent less than the same period in 2008. Imports from
Russia totaled $360.6 million, almost 28 percent lower than last
year's figure, while exports from Tajikistan to Russia amounted
to $39.9 million, 19 percent lower than the first six months of
2008. Russia nevertheless remained Tajikistan's largest trading
partner, with 24.7 percent of Tajikistan's overall trade.

Hydropower: Sangtuda-1

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

4. (U) Russia has made major investments in energy,
construction, mining, communication, transportation, and other
sectors. Among the largest projects is the Sangtuda-1
hydropower plant, officially opened by Presidents Medvedev and
Rahmon at the end of July, which is worth around $600 million.
Although it is frequently reported that the Tajiks own 25
percent of the project, according to local newspapers their
ownership was earlier reduced to 16.45 percent. The project has
had its problems. For the first quarter of 2009 the Tajik
electrical grid operator Barqi Tojik did not remit money to its
Russian partner RAO UES. After a riot by construction workers
in March 2009, Russian Vice Prime Minister Igor Sechin stepped
in to help resolve the problem. Asadullo Ghulomov, Tajikistan's
Vice Prime Minister, later stated that Barqi Tojik paid $10
million of its debt to RAO UES in April 2009.

Other Energy Investment

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

5. (U) On December 13, 2006, the Tajik affiliate of Russian gas
giant Gazprom Zarubezhneftegas received four licenses for
prospecting work in Tajikistan, including Sargazon in Dangara
district (38,500 hectares), Rengan in Rudaki district (29,808
ha), Sarikamish in Shahrinav district (21,833 ha), and Western

DUSHANBE 00001210 002.2 OF 003


Shohambari in Hissor district (5,065 ha). Estimated reserves in
the four sites total some 70-80 billion cubic meters of gas. If
successfully exploited, this domestic production will help
relieve Tajikistan's gas dependency on its neighbors,
particularly Uzbekistan, with which it has a strained
relationship. Gazprom Zarubezhneftegas reportedly plans to
invest up to $1 billion within the next three years; its total
investment in 2009 totals only some $30 million, however.

6. (SBU) Gazprom's main competition is Canadian-registered
Tethys Petroleum, which has signed production-sharing agreements
with the Tajik government to develop its own four sites in
Tajikistan. Tethys recently began drilling on the outskirts of
Dushanbe and hopes to begin producing gas there by the beginning
of next year. Tethys representatives have spoken favorably
about the activity of their Russian competitors, saying that the
increased exploration and drilling activity will lower costs for
inputs to both firms. Privately, a Tethys employee told Embassy
Econoff that the firm has had some difficulty bringing in
chemicals due to Russian export restrictions. His hope is that
with Gazprom bringing in similar products, it will be easier for
Tethys to do the same -- even buying directly from Gazprom's
domestic suppliers.

7. (U) Another Russian project involves investing $43.3 million
to expand the Gazpromneft Tajikistan's network of fuel stations,
which already accounts for 60% of gasoline supplies in
Tajikistan. In his last visit on July 30, 2009, Russian
President Medvedev signed an agreement with President Rahmon to
open a joint venture to produce energy-saving light bulbs. The
Tajik President recently signed a law outlawing the use of
incandescent bulbs.

8. (U) Russian companies reportedly have expressed interest in
investing in several prospective hydropower plants. The largest
of these is Roghun, which Russian firm Rusal came close to
investing in in August 2007 before the deal fell through.
Despite the bad blood following that incident, Russian firms are
still considering stakes in Roghun as well as three additional
medium capacity stations -- Urtafin on the Khingob River,
Obburdon on the Zeravshan River, and Yavroz on the Kofarnihon
River.

Other Sectors

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

9. (U) At the end of May an affiliate of the state-owned Russian
bank Rosselkhozbank was established in Dushanbe that may pave
the way for further financial relations between the two
countries. Rosselkhozbank is oriented principally toward the
agriculture sector; its Tajik branch reportedly will be working
to build and maintain a network of Tajik and Russian companies.
Russian mobile telecommunication firms Beeline and Megafon have
been in the Tajik communications market since 2005, providing
services such as GSM-900/1800 and 3G (UMTS). Beeline currently
has 722,000 customers, making it the top communications company
in Tajikistan's diverse market.

Five-Star Hotels in Tajikistan: White Elephants?

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

10. (SBU) Russia has also invested in the construction of
Tajikistan's only 5-star hotel, the Hyatt Regency, built by the
Turkish company ENKA and funded by the investment company
Sozidanie (meaning "creation") through the Rusal-owned "Russkie
Oteli" company. (Note: The local manager of a firm considering
building its own five-star hotel called the Hyatt project,
estimated at $150 million, a "a money laundering project" for

DUSHANBE 00001210 003.2 OF 003


the Russian government that should in fact have cost no more
than $40 million. End note.) Rusal also has invested in the
construction of a large business center in downtown Dushanbe
that still lies untenanted.

Migration Card Game

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

11. (U) Although Russia is Tajikistan's largest investor, its
economic influence in Tajikistan is felt most strongly through
another means altogether: labor migration. As many as one
million of Tajikistan's population of 7 million work as migrant
laborers in Russia, sending back over $2.5 billion in
remittances last year. The world financial crisis has hit the
Russian construction sector, where many Tajiks work, especially
hard, and remittances have fallen off by 35% this year. Many
Tajiks nevertheless remain in Russia in the hope of finding new
work. Although Tajiks working in Russia are officially required
to obtain work permits, the fact that travel between the two
countries is visa-free makes it difficult to enforce this
requirement. Russian politicians have floated the idea of
instating a visa requirement for Tajiks traveling to Russia, but
nothing has yet come of this. Local migration expert Saodat
Olimiva points out that Tajiks working in Russia spend as much
as two-thirds of their income there, indicating that the
guestworker arrangement is in Russia's interest as well.

Comment: The Big Fish Would Rather Be Somewhere Else

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

12. (SBU) Russian investment in Tajikistan remains largely
state-led, with mobile telephone operations the major exception.
The previous Russian Ambassador commented to the press here
that no Russian company would invest in Tajikistan unless
pressured to do so by the Government of Russia. He cited
corruption as the main deterrent. This practice reinforces the
Tajiks' tendency to view Russia-U.S. activity here as a Great
Game, a zero-sum competition for power over Central Asia. They
routinely fail to understand that we can't -- unlike Russia --
command U.S. companies to do business here. That said, recent
initiatives to improve the business climate are a small step in
the right direction, provided they continue to receive
government support. End comment.
GROSS

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