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