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THE RAHMON SECRET — TURNING TAJIK WATER AND ELECTRICITY INTO METAL AND CASH

By John Helmer in Moscow

In Tajikistan, the nexus between water, electricity, and aluminium turns out to be a dark secret — and a presidential treasure

It’s difficult to run a country in the dark.

Politicians who leave voters in the cold, unable to cook or keep warm, become unpopular with the flick of a switch . Swarms of secret police can’t offset the damage that having no electricity causes.

President Emomali Rahmon (Rahmonov), the 55-year old who has run Tajikistan for the past 15 years, understands the problem, and suspects his rivals of manipulating electricity supply to Tajikistan with the aim of toppling him, and those of his extended family with the ambition to keep power for another generation.

The foreign powers with a stake in who rules Tajikistan see the same thing; they include the US, Russia, China, India, and the European Union. They are all bidding the billions of dollars required to build the dams and power stations to replenish Tajikistan’s energy supply, and enable its ruler to turn the tap and the switch in the opposite direction — exporting water and power across the border, thus subjecting their rulers to influence and political pressure. Turning the lights and water on and off isn’t a political problem that is limited to Tajikistan, for it impacts on neighbouring Uzbekistan as well, together with Afghanistan and Pakistan to the south, Iran to the west, Kyrgyzstan to the north, and China to the east.

Just how dark it was in Tajikistan last winter became apparent, before the spring thaw, when the volume in key dams, whose waters generate hydroelectricity, sank too low to turn the turbines, and allow the power plants to operate safely. Without enough water, there wasn’t enough electricity. The Tajik government then applied to neighbouring Uzbekistan to sell the additional power needed for light and heat. The Uzbeks refused to deliver the extra quantities, claiming they did not have the necessary technical infrastructure, and that they needed the surplus for their own winter requirements.

But Tajik sources accuse the Uzbeks of intentionally disrupting the power grids linking the two countries to allow cutoffs. The real reason Uzbekistan is limiting its power sharing with Tajikistan, the Tajiks believe, is that Uzbekistan is afraid that Tajikistan will dam too much of the headwater for hydro power generation, and reduce the water flow on which Uzbekistan depends to irrigate its food production.

No-one should blame the Uzbeks, for this is exactly how Tajik water was designed to flow during Soviet planning days. Hydropower in Tajikistan was operated primarily as an irrigation system, and power generation was secured by other sources, also located regionally, but not inside Tajikistan. The system of energy and water exchange worked relatively well between the Central Asian republics in the Soviet model.

The independence the republics then grabbed with the fall of the union in 1990-91 came with an energy price tag some republics could afford more than others. In Tajikistan’s case, it was least self-sufficient of all; the country also lacked the exportable fossil-fuel sources the others enjoyed to export for cash.

The strategic problems for Tajikistan have been, and remain today, the desperate under-capitalization of its energy resource sector; and dependence on a single, electricity devouring plant for exportable product; that’s the Tajikistan Aluminium Plant (TadAZ, Talco). Since most of the cost of producing aluminium is accounted for by electricity, the only reason a country unable to provide enough power to its people would tolerate a plant consuming power at a discount is that everyone shares share the income and profits of the plant; or else, the president of the country won’t tolerate objections from anyone brave enough to ask for either.

In Tajikistan, the nexus between water, electricity, and aluminium turns out to be a state secret — and a presidential monopoly.

A World Bank study of the regional electricity export potential in Central Asia, dated December 2004, also exposes a significant embarrassment for those western powers intent on pulling Tajikistan out of its former Soviet mould, and beyond Russian influence.

For the next decade at least, the Washington report suggests, talk of Tajikistan’s leap into the power-exporting league is fanciful. The best it can hope for with the means available is the reduction of power losses — about 28% of current power produced in Tajikistan is lost, mostly by technical failures in the distribution system, discounting, and non-payments by the aluminium smelter; and by the increase of power supplies through two Tajik hydropower plants, initially started in the Soviet era, and under construction or planning by Russians today. These are the Rogun and Sangtuda plants.

Even more embarrassing, the small print of the World Bank study pointed a finger at the Tajik ruler, Rahmon. Calculating the marginal generation costs for producing electricity in Afghanistan, Iran, Pakistan and China, with the landed cost of importing Tajik electricity to those countries from Rogun and Sangtuda, the Bank concluded: “while Central Asian supplies should be cost competitive in these markets, the cost advantage is not overwhelming.” Noting that this electricity trade is “more politically sensitive than general trade”, the report warned the construction of new power-exporting plants will depend on “supply security concerns”, and the “perception that the political climate and business environment in the exporting countries are stable.”

In more than one study of Tajikistan that year, the World Bank cast doubt on the country’s stability on account of its endemic corruption, and the place President Rahmon took at the top of the state structure. Fast forward three years, and though Tajikistan remains at the bottom of the global corruption league, the World Bank is now leading a cheer squad of international investors and donors to put cash in the places where Rahmon has emptied it — the aluminium plant Talco, first of all.

While Talco has been busy burning electricity into aluminium for Rahmon to sell, he has been unable to solve the seasonal shortage of electricity for everyone else. Several steps have been taken by the Tajik government to resolve the immediate power shortage, and avoid a similar one this coming winter. One option is to persuade Uzbekistan to reopen the power transmission network connecting the Marry Hydroelectric station in Turkmenistan with Uzbekistan’s Karikul station. Tajikistan was long able to purchase electricity from this grid, but not since 2002. This past March, Uzbekistan denied Tajikistan the provision of transit electricity from Turkmenistan.

A month later, agreement was reached between the two governments to restore the regional power grid that goes across Tajikistan, Turkmenistan and Uzbekistan. According to Barki Tojik, the Tajik state power utility, Uzbekistan and Tajikistan reached an agreement that until September 2007, the energy grids of Uzbekistan would be restored and ready to transport energy. Although Turkmen officials weren’t present for this deal, they had already agreed to export 1 billion kilowatt hours of electricity per year to Tajikistan for the winter season. Whether promises to restore all the necessary relay equipment will be met without delays, in order to ensure that the new winter season will be warm, remains an open question.

It is one of the key questions to be discussed when leaders from the three states, plus President Vladimir Putin and heads of the other CIS governments (minus the Baltic states, and possibly Georgia), will convene in Dushanbe on October 3.

In the spring, at about the same time ordinary Tajiks were feeling the lack of light and heat from their neighbours’ unwillingness to deliver, and their government’s inability to do much about it, Rahmon launched an attack on the Russians, as if they were to blame. His initial target was Oleg Deripaska’s Russian Aluminium (Rusal), Rahmon’s partner in running Tajikistan’s biggest consumer of electricity, and principal source of cash, the plant known as Talco.

Earlier, at the end of 2004, Deripaska had secretly agreed with Rahmon that, if he evicted the management of Talco, and allowed Rusal to operate the smelter and trade the metal, the two would share the profits, and Rahmon would allow Rusal to win a privatization tender for ownership of the plant itself.

There was a catch. Deripaska had to promise to invest the billion dollars required to complete the Rogun hydroelectric power complex to feed the Talco smelter, and relieve the pressure on the rest of the country’s energy supplies. Rogun was first planned in Soviet days, but construction was halted by the end of Soviet power, and the disintegration of Tajikistan into civil war. Because aluminium production is such a greedy consumer of electricity, the Talco takeover pact between Rahmon and Deripaska meant they grew rich, while Tajikistan’s lights grew dim.

Deripaska and Rusal are good at promising to spend large sums of money. Mineweb has reported in detail on the litigations that have challenged Deripaska to honour his promises; court testimony in London, Zurich, Nigeria and elsewhere suggests he is slow to spend. In Tajikistan, he didn’t spend at all. Or at least two years after the Talco takeover, it suited Rahmon to say so.

A new feasibility study for the Rogun hydroelectric complex, on the Amu Darya river, was undertaken by Lahmeyer of Germany. This proposed a dam to be built to a height of 285 metres. The Tajik government then insisted on raising the dam wall by another 50 metres. An argument ensued in which Rusal said the extra work should be paid for by the Tajik government. Rusal also warned that the project should be co-ordinated with Uzbekistan. Both provisos were contract killers.

And so, in April of 2007, it was announced in Dushanbe that Tajikistan had cancelled its arrangement with Rusal to build the Rogun hydroelectric complex. “There is a (government) decision to bar Rusal from working in the country,” said Sharifkhon Samiyev, head of the Tajik energy company, adding that his government intended to create an international consortium to complete the power supply project. Russian companies, except Rusal, would be welcome to join, he also said.

Unified Energy Systems (UES), the Russian state power utility, stepped immediately into the breach, saying it would consider replacing Rusal to build Rogun. UES is already building the Sangtuda-1 plant in Tajikistan, but not quite fast enough for Rahmon’s liking.

On April 26, the Tajik news wires reported that Rahmon had met with Andrei Rappoport of UES. “During a meeting with the president [Rahmon], I was told that the country had prepared papers for an international tender to build the Rogun HPP,” Rappoport said. “As RusAl has no operations in Rogun right now, Tajikistan claims that the joint venture is no longer possible,” he said. UES experts, he said, had met with Rahmon to communicate their own plans for the plant.

UES “is neutral, although we have our own interests there,” said Rappoport, indicating they were waiting “for the political will of the Tajik leadership to appear.”

“Russia must be part of the [Rogun] project to complete Rogun as it is a strategic facility for Tajikistan and an important source of electricity exports to Russia,” Rappoport added.

Rapppoport hastened to assure everyone that Sangtuda-1 would be switched on in time for winter this year. “The president and I discussed the current situation at the Sangtuda-1 station. We, together with the first deputy prime minister of the [Tajik] government, Asadullo Ghulomov, held a meeting at the construction headquarters today. We reported on the results of work at the headquarters and, above all, on the possibility of the implementation of the president’s directive to commission Sangtuda’s first station by December. We think we will commission the first unit in December, in keeping with Emomali Sharifovich’s [Rahmon] request. This is what we discussed in details. We also discussed positioning and prospects for work here. We are closely watching the Iranians, who are supposed to begin the construction of the Sangtuda-2 [hydroelectric power station] soon, so that we would theoretically be ready to participate with our construction capacities deployed here, which will be in lesser demand after two years. We discussed the possibility of our participation in the completion of the construction of the Rogun and Zarafshan hydroelectric power stations, as well as export of electricity, in view of [Russian Prime Minister Mikhail] Fradkov’s recent visit to Pakistan and his recent talks with Emomali Sharifovich. That is to say positioning in our region from the point of view of exporting electricity and participation in new investment projects.”

With the Sangtuda construction running four months behind schedule, Rappaport was trying to reassure Rahmon that the new supply of power would be available before, not after the coming winter. But the president’s problem is that life is too short for him to profit from the long term. In the short term, he and his family live off the aluminium smelter, and must guard that position by supplying enough electricity to the rest of the country, one winter at a time.

In potential, Tajikistan is relatively rich in oil and gas reserves; there is an estimated 12 million barrels of oil reserves, but almost no production. Each day, 29,000 barrels of oil products are consumed by the country; almost all must be imported. There are another 200 billion cubic feet of gas reserves, but again almost no domestic production. 95% of Tajikistan gas requirement must be imported.

For fuel to burn, Tajiks may be thin in terms of petro resource, but they are fat with hydro. Their mountain rivers have a potential hydropower capacity estimated internationally at 527 billion kilowatt hours of electricity a year; this is among the biggest in the world.

The major river system in the country is the Amudarya watershed. The Amudarya River itself only forms a relatively small portion of Tajikistan’s southern border with Afghanistan, as it flows westward then northwest toward the Aral Sea. Its major tributaries within Tajikistan include the Panj River along the southern border of Tajikistan with Afghanistan, the Gunt and Bartango rivers in the eastern part of the country, and the Kafirnigan and Vakhsh rivers in central and western Tajikistan. Of these, the Vakhsh is the most important to the country’s power production potential.

Other river systems in Tajikistan are the Zarafshan, which flows westward into Uzbekistan before eventually merging with the Amudarya, and the Syrdarya, which flows westward through the northern panhandle section of Tajikistan into Uzbekistan, and then into Kazakhstan, before eventually emptying into the Aral Sea.

The experts in Moscow, Washington, and Brussels all agree that there is a greater hydroelectric power capacity in Tajikistan than in any other country in Central Asia. Tajikistan may have the potential to produce more than 500 billion kilowatt hours of electricity per year, but currently its turbines tutn out only 16.5 billion kilowatt hours — that is less than 3% of potential.

For the time being, most of Tajikistan’s hydroelectric energy is produced by the hydroelectric stations on the Vakhsh River, with a total capacity of about 3,800 megawatts (MW), producing 14 billion kilowatt hours annually. The largest of these is the Nurek hydroelectric facility, which is rated at 3,000 MW. The planned complex at Rogun, also on the Vakhsh, would add another 2,400 to 3,600 MW, depending on the height of the containment. Sangtuda-1 and Sangtuda-2, and the associated Khatlon dam, combined would add another 900 MW.

On the medium-term wish list, also inherited from Soviet planning days, are hydroelectric facilities at Shurob (750 MW); Kaphtarguzar, on the Obikhingou River in the Garm Valley; and Dashtijum, on the Panj River on the Afghan border (4,000 MW). Some smaller projects are near completion, but short of cash. They include the Pamir-2 complex, on the Gunt River, which is almost completed with a capacity of 14 MW, to go along with another 14 MW in capacity at the already-existing Pamir-1 complex.

When Rahmon announced in May, after repudiating Deripaska and authorizing a lawsuit in London, charging Rusal with corruption, he said Tajikistan would build up to 80 new hydroelectric power stations. The only part of the promise he was exaggerating was the money to make it possible. According to Rahmon, he is hoping to attract up to $1 billion in foreign investment in an international financial and electric power consortium.

Exactly why foreign investors would trust Rahmon with the cash any more than Deripaska had remains a subtle question; it won’t be on the agenda for discussion when the CIS heads meet this week. Nor when Xavier Solana brings a troupe of European Union officials to Dushanbe shortly afterwards. The issue of Rahmon’s personal control of his country’s cash is, nonetheless, the quiet sticking-point between every promise to invest, and the delivery of the cash.

Norsk Hydro, the Norwegian state controlled aluminium producer, finds itself painfully caught in this fork. On the one hand, executives of the company, professional aluminium makers and traders, have been saying among themselves that they fear a resumption of contract relations with Rahmon and Talco, because of the broken promises that litter the recent past. In 2005, Hydro sued Talco in London for contract violations and default on aluminium delivery obligations; it won an award of $150 million in costs and loss recovery. That award by an arbitration tribunal was then endorsed by appellate rulings of the UK High Court last year, which condemned Talco and its management as fraudsters.

Despite the two years of bitter recriminations, 2005-2006, Norsk Hydro signed a new scheme of arrangement with Talco last December. Details of this deal have not been disclosed to Hydro’s shareholders, and the company management has repeatedly refused to answer questions about the terms from this reporter, and others. Sources inside the company in Oslo have revealed, however, that the $150 million in cash which Talco was ordered to pay, in compensation for the corrupt takeover of the plant by Deripaska, will not be paid at all. Instead, Rahmon has arranged for a family-run trading company, based in the Caribbean, to join with Hydro in supplying alumina to the plant, and to share the aluminium for export trade abroad.

Hydro executives realize that, if the details were better known, they would raise questions in Oslo about the management’s compliance with the company code, and with Norwegian law. The company sources have also revealed that it is the state shareholder, the Norwegian government, which has been pressing them to accept the risks of doing new business with Rahmon.

These risks now include a promise of $90 million in fresh money from Hydro. According to an announcement from Talco on September 28, a recent visit to Dushanbe by Hydro executives resulted in the following commitment. “They will invest $60 million to reconstruct two out of 12 facilities at Talco which will help raise production at least by 10-15 percent,” the company was quoted as saying, adding that a further $30 million will go to other modernisation projects. Not only have Norsk Hydro company reports failed to disclose what happened to the $150 million; they have not admitted the promise to throw new shareholder money after it, making a total of $240 million in Norwegian funds at risk in Tajikistan.

The payoff appears to be a promise of a bigger slice of the offshore aluminium trade proceeds. According to the Talco announcement, “because of these investments Norsk [Hydro] will get priority in supplying Talco with alumina and also in buying a certain share of our aluminium.”

In the hydroelectric business, this is small beer, but the reluctance to spend it in Tajikistan somewhat greater than the Norwegians have been showing. Hydro’s internal misgivings are reverberating among other international companies contemplating exploration and mining in the Tajik resource sector, not to mention the much bigger investments Rahmon is calling for in the hydropower sector. The Russians included.

The Russian government is quietly unwilling to back Deripaska’s tactics in Dushanbe, nor complain about his fate. Rusal, it is acknowledged in Moscow, operated the Tajik smelter undisturbed for two years, producing more than 800,000 tonnes of primary aluminium. At the London Metal Exchange price for the metal, discounted for Talco quality, it has fetched more than $1.5 billion. The plant, and the Tajik treasury, report receiving a great deal less.

In Russian business circles, the assessment of Rahmon is that, his public statements notwithstanding, he dare not go too far towards antagonizing the Kremlin. Pro-Russian sentiment is also reported to be pervasive among the ministers in charge of the economy.

But in recent days, ahead of Putin’s trip to Dushanbe, there are fresh signs in Moscow of growing negative sentiment towards Rahmon; and possibly of warnings to the president not to over-reach himself. A lengthy recital of the year’s water and electricity problems between Tajikistan and Uzbekistan, published in Kommersant’s Vlast magazine last week, focuses on Rahmon’s “obvious aspiration to rapprochement with the West”, and the dangers posed for the region by his “grandiose” hydroelectric generation plans. Rahmon’s hydropower schemes threaten regional war, the article by Vladimir Soloviev and Boris Volkhovsky concludes.

A direct attack on Rahmon is unusual in the Russian media, and it is unclear why Zavtra (“Tomorrow”), a strongly nationalist but minor periodical, produced a stinging report, dated September 27, claiming that the Tajik president is considering stepping down, and handing his powers to his brother-in-law, Hasan Saduloev. “President Emomali Rakhmon’s resignation under some set of circumstances or other remains the talk of the day in Tajikistan,” the article attributed to Valentin Prusakov reports. “Well-informed sources of Zavtra say that Rahmon himself sees his wife’s brother, Hasan Saduloev, as his successor. Saduloev is Orientbank CEO (Orientbank is the largest bank in Tajikistan) and the head of CDH, an offshore company and exclusive trader for the Tajik Aluminium Factory. Off the record, sources say that Saduloev is also the wallet for the presidential family and its closest associates. Needless to say, Saduloyev has the money to challenge any other claimant for the throne.”

Zavtra concedes its sources “refuse to corroborate their claims”. But it goes on to suggest that “the feeling that the wind of changes is about to start blowing gets stronger and stronger, and very many people in Tajikistan will welcome it because the regime that only thinks of its own pockets cannot be stable.”

On that score, Zavtra repeats the World Bank’s view that, without political stability, Tajikistan’s hydropower future is as risky and investment-unfriendly as its aluminium future.