VZCZCXRO8101
PP RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #1434/01 3501811
ZNR UUUUU ZZH
P R 161811Z DEC 09
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC PRIORITY 1045
INFO RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0342
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEHDBU/AMEMBASSY DUSHANBE 2253

UNCLAS SECTION 01 OF 04 DUSHANBE 001434 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PREL ENRG PGOV TI
SUBJECT: TAJIKISTAN'S NORTH GETS BIGGER SLICE OF SMALL PIE 
 
REF: A. DUSHANBE 1364 
     ¶B. DUSHANBE 1348 
     ¶C. DUSHANBE 846 
 
DUSHANBE 00001434  001.2 OF 004 
 
 
¶1. (SBU) Summary:  Separated from the rest of Tajikistan by a 
formidable mountain range, and surrounded on three sides by an 
unfriendly Uzbekistan, Sughd faces a particular set of 
difficulties.  Chief among these is finding enough energy for 
its agricultural, residential, and industrial needs.  The recent 
completion of the South-North line linking most of Sughd with 
Tajikistan's main energy grid provides more energy security, but 
no more energy.  It may give Rahmon some leverage to manipulate 
water supplies to Uzbekistan.  The government sees energy at the 
state level, some say, ignoring or even hindering small-scale 
efforts.  Historically Tajikistan's most developed region, Sughd 
hopes to rejuvenate its decaying industry by launching a free 
economic zone.  Despite some attractive incentives, however, the 
zone is unlikely to bring in heavy foreign investment soon.  For 
the foreseeable future, agriculture will be Sughd's dominant 
sector.  A reduction in cotton harvesting indicates that 
government decrees giving farmers freedom to plant the crop of 
their choice are working.  Other reforms, such as granting 
land-use rights and resolving existing cotton debt, are more 
problematic.  End summary. 
 
ENERGY IN THE NORTH: POWER TO THE PEOPLE? 
 
¶2. (U) Separated from the rest of Tajikistan by a formidable 
mountain range, and surrounded on three sides by an unfriendly 
Uzbekistan, Sughd faces a particular set of difficulties.  Chief 
among these is finding enough energy for its agricultural, 
residential, and industrial needs.  On November 29, 2009, the 
500 kV "South-North" electrical transmission line linking 
Tajikistan's northern and southern energy grids was completed. 
For the first time, Khujand and the rest of Sughd Province could 
get electricity directly from the southern grid without routing 
it through Uzbek power lines.  Uzbekistan officially pulled out 
of the Central Asian Unified Power System on December 1, 
although Tashkent said it would maintain electricity supplies to 
Sughd as long as necessary (ref A).  In the past, Sughd had some 
of the most severe winter energy rationing in the country, with 
some areas officially receiving only two hours a day but in fact 
receiving nothing at all.  Last year embassy staff were unable 
to reach contacts in Isfara, for example, because they had no 
power to charge mobile telephones.  Sughd's only power plant is 
the Qairaqqum hydroelectric station to the northeast of Khujand. 
 Its maximum output is 126 Megawatts (MW), only enough to 
provide power to major strategic resources.  By contrast, the 
Nurek hydroelectric station, which provides nearly 
three-quarters of Tajikistan's power, is rated at 3,000 MW, 
although during winter it averages much less. 
 
¶3. (U) This year the situation is much better.  Power rationing 
began in outlying areas in early November, rather than 
September.  Khujand is receiving power 24 hours a day, although, 
as in most of the country, voltage dips during peak usage 
periods.  While last year only the very center of Khujand was 
initially provided with round-the-clock electricity -- although 
in fact rationing was ultimately imposed even there -- this 
winter the 24-hour energy supplies have been extended outward to 
include areas to the north of the city as well as the airport 
town of Chkalov to the southeast.  Areas outside of Khujand 
appear to receive between six and ten hours a day.  Kurbon 
Turaiev said his home town of Istravshan receives two or three 
hours of electricity in the morning, and five or six hours in 
the evening, usually until 11 p.m. 
 
¶4. (U) While everyone, even those generally critical of the 
government, seems proud and enthusiastic about the South-North 
line, experts acknowledged that this year's improved energy 
situation has more to do with the heavy spring and summer rains 
than with improvements in the grid.  Parviz Akramov, head of the 
UNDP office in Khujand, said hydroelectric reservoirs throughout 
the country were filled to the top this year, unlike last year, 
when drought kept water levels low.  This fall's warmer weather 
in the north has kept power usage for heating down.  The 
South-North line has not played much of a role because the north 
already received energy from the south prior to the completion 
of the line.  Until now, Tajikistan sent energy from its central 
grid to the north via Uzbek transmission lines -- exporting 
energy from Nurek to Uzbekistan, then re-importing the same 
amount into Sughd.  While overall energy deliveries from 
Uzbekistan were erratic and suffered from political 
machinations, this basic exchange tended to operate without 
incident.  (Some we spoke to suggested it was spared because 
rail and natural gas lines linking Tashkent with the Uzbek 
Andijon region continue to cross Tajik territory in Sughd, 
giving the region some leverage.)  Nevertheless, Sughd could 
only import from Uzbekistan the amount being exported from 
 
DUSHANBE 00001434  002.2 OF 004 
 
 
Tajikistan in the south.  So the north has always been reliant 
on flows from the southern grid. 
 
WHAT LEVERAGE DOES TAJIKISTAN HAVE WITH UZBEKISTAN? 
 
¶5. (SBU) There were different views about President Rahmon's 
response to the Uzbek energy pullout by threatening to withhold 
water for energy generation rather than letting it flow 
downstream to irrigate fields (ref B).  Nehmatullo Mirsaidov, 
Deputy Editor-in-Chief of the Varorud newspaper, said Tajikistan 
had very limited capacity to alter water flow in the north.  The 
Qairaqqum reservoir, while large in surface area, had a volume 
of only 3.5 billion cubic meters, and its crumbling banks needed 
massive restoration.  Finally, Tajikistan needed to keep the 
water in the Syr Darya flowing through the Qairaqqum power 
station to generate electricity.  Any real change would depend 
on what Kyrgyzstan did further upstream at the Toktagul 
hydropower station, with its 19 billion cubic meter capacity. 
 
¶6. (SBU) According to independent journalist Tilav Rasulzoda, 
however, even a small disruption in water flow to Uzbekistan 
could have serious effects, since Uzbek agriculture can survive 
without water for only three or four days during the growing 
season.  Both journalists speculated that Tajikistan would 
ultimately wind up employing a model where it sold water to 
Uzbekistan.  Although simply selling water violates 
international conventions, Mirsaidov said a workaround would be 
found where the Uzbeks paid not for water, per se, but for the 
service of maintaining the upstream reservoirs and delivery 
systems.  This issue would grow in importance if the Tajiks 
dusted off a Soviet-era project to divert water from the 
Zeravshan valley, in southern Sughd, through some high mountains 
to help irrigate the north. 
 
GOVERNMENT IGNORES SMALL ENERGY SOLUTIONS 
 
¶7. (SBU) Viktor Lyadskiy of the Association of Enterprises and 
Cooperatives, based in Chkalov, complained that the government, 
in its zeal to promote large, state-led projects, was penalizing 
smaller, more cost-effective energy solutions.  A colleague of 
his, for example, was producing small, 75-kilowatt hour 
hydropower generators made from old Soviet water pumps.  The 
generators cost 50,000 somoni alone, or 350,000 with set-up and 
installation, and could be used to power several households. 
Lyadskiy said, however, that government officials refused to 
license the generators, and sometimes threatened to destroy them 
if they were set up without licensing.  He had no idea why 
authorities were so resistant to the idea, but said it was 
foolish.  A further problem affecting not only small hydro, but 
all other alternative energy production, was a lack of 
financing.  Lyadskiy said there was no effective way to get a 
loan to establish a windmill, solar system, biogas generator, or 
hydroelectricity station.  He was unaware that microfinance 
lenders such as FINCA are willing to lend money for small-scale 
energy solutions. 
 
FREE ECONOMIC ZONE: PEOPLE TO THE POWER? 
 
¶8. (U) Responding to a 2004 law, Tajikistan recently established 
two free economic zones (FEZs), one in Panj, on the southern 
border with Afghanistan, and the other in Khujand.  The Sughd 
FEZ, which officially began operating in June, covers 320 
hectares, a third of which consists of the remnants of a 1970s 
Soviet industrial park and the rest of which is empty land.  The 
head of the Sughd FEZ, Anvar Yaqubov, described incentives 
designed to attract both foreign and domestic investors to the 
zone.  Rent in the FEZ is a simple $1 per square meter of land 
per year; the 32 pre-existing enterprises in the zone were 
offered leases of $0.25 per year.  Manufacturing enterprises are 
required to invest a minimum of $500,000 to enter the zone, but 
other companies -- import/export firms, technology companies, 
financial institutions, etc.  -- are exempted from this minimum 
investment.  All occupants pay no taxes (except social taxes for 
employees) for the first seven years, and their products and 
inputs are exempt from customs duties.  The FEZ has its own 
electrical substation, and Yaqubov said that regional 
authorities would maintain continuous power supplies to the zone 
-- another incentive for potential investors.  Companies pay 
prevailing rates for electrical and other utilities. In 
addition, Sughd contained abundant supplies of raw materials 
such as marble, quartzite for glass-making, and stone for 
cement, to support manufacturing.  Yaqubov said a 7-kilometer 
rail line connecting the FEZ to the existing network was 
included in the terms of reference for the nearby prospective 
Bolshoy Konimansur silver mine. 
 
¶9. (SBU) Yaqubov said a number of foreign delegations had 
visited the Sughd FEZ, and many of them had expressed interest 
 
DUSHANBE 00001434  003.2 OF 004 
 
 
in the zone, although so far none had established themselves 
there.  The Sughd FEZ had an advantage over Panj in that it a 
good deal of pre-existing infrastructure -- warehouses, machine 
shops, utility hookups, equipment -- that a potential investor 
could purchase or rent.  A short walk through the "occupied" 
part of the FEZ, however, might leave a potential foreign 
investor unconvinced.  The area is dominated by the rusting 
hulks of Soviet-era warehouses, most of them abandoned.  Even 
those with some activity had holes in their roofs and floors, 
were strewn with abandoned machinery, and featured enough loose 
wiring to give an OSHA inspector an embolism.  A domestic 
manufacturer of insulated wiring and PVC pipes that located to 
the zone in 2005 (before it achieved its current status) chose 
to build a new workshop rather than occupy an existing structure. 
 
¶10. (U) Yaqubov recognized that improvements were necessary to 
attract foreign investors.  Chief among these was building a 
customs post in the zone to handle imports and exports on site. 
He said the European Bank of Reconstruction and Development 
(EBRD) was considering assisting with the $3.95 million project. 
 Next, the FEZ needed better security, to prevent pilferage and 
to ensure that smugglers did not take advantage of the zone's 
customs-free status.  Securing the FEZ's 9.7-kilometer perimeter 
with a sound wall, adequate lighting, and surveillance equipment 
would cost several million dollars.  Noting that 90% of 
Tajikistan's food processing occured in Sughd, Yaqubov said the 
next step should be to build a refrigerated warehouse.  He also 
wanted to establish a "business incubator" in the FEZ to provide 
education and training.  Finally, Yaqubov said a building on the 
site should be used as a "one-stop shop" for business 
registration, licensing, inspection, and other functions. 
 
AGRICULTURE: ONE STEP FORWARD, A COUPLE STEPS SIDEWAYS 
 
¶11. (U) Although Sughd, despite its long years of decay, is 
still more industrially developed than the south, agriculture is 
its most important sector.  Several experts confirmed that there 
had been a precipitous decline in cotton planting, indicating 
the government's commitment to giving farmers the freedom to 
grow the crops of their choice was effective.  According to 
Akramov at the UNDP, at least 20% less land had been planted 
with cotton this year compared to last; Abdusattor Haidarov, 
head of the independent agricultural services company Sughd 
Agroservice, put the figure even higher.  Akramov said the 
market had a role to play in the declining cotton production, 
since the price of raw cotton on the Liverpool exchange had 
dropped by nearly a factor of two to $1,200 a ton.  Increased 
cotton production in China had been partly responsible for 
driving down the price.  Haidarov, Akramov, and Anvar Khoshimov, 
Director of the agricultural NGO Zar Zamin, said cotton 
traditionally has been a less important crop in Sughd than in 
the south -- due both to climate factors as well as Sughd 
farmers' greater experience with other crops.  This year farmers 
planted more onions, corn, and wheat.  But many farmers had 
planned poorly, Akramov said.  Remembering that onions had 
fetched prices as high as $0.45 a kilogram last year, many 
farmers had overplanted the crop this year, and the resulting 
glut has pushed prices as low as 8 cents a kilo. 
 
¶12. (SBU) Khoshimov confirmed that students have not been sent 
into the fields to harvest cotton this year, although he said 
some government employees had been furloughed to pick cotton. 
He acknowledged an apparent paradox: while it appears that 
freedom to farm is being extensively implemented, news reports 
and government press releases still speak in terms of cotton 
"targets" down to the sub-regional level.  According to the 
Ministry of Agriculture in Dushanbe, the targets were in fact 
merely "projections."  Calling this a disingenuous answer, 
Khoshimov explained that while the national government's 
commitment to freedom to farm appeared real (he emphasized that 
there were financial reasons for this), the change in approach 
had been slow to work down to the local level, where authorities 
still often insisted on cotton production.  Khoshimov's NGO was 
promoting the cultivation of organic cotton, which he said had 
great promise for Tajikistan.  While harvests were somewhat 
lower than traditional cotton cultivation, the crop could be 
sold for prices 20% higher.  Furthermore, production costs were 
lower because farmers did have to buy industrial fertilizers. 
 
¶13. (SBU) All three experts acknowledged that other government 
agricultural reforms would take much more time to implement. 
Akramov said that there was a lot of institutional resistance to 
granting farmers land-use rights.  (In Tajikistan all land is 
owned by the state, but a system is being developed to give 
farmers the right to own, buy, and sell limited-term leases to 
land.)  Most farms, regardless of their official juridical 
status, continue to operate along Soviet lines, and real 
land-use rights would threaten current operators' control and 
 
DUSHANBE 00001434  004.2 OF 004 
 
 
profits.  Khoshimov said, however, that slow movement on the 
land-use question was not necessarily a bad thing.  Tajik 
farmers had a long way to go psychologically before getting used 
to the idea that they were responsible for land in the same way 
they may be responsible for houses or cars.  He feared a hasty 
de facto privatization of land would lead to many uneducated 
farmers making unproductive use of their land. 
 
¶14. (SBU) Haidarov spoke favorably about the government plan to 
resolve $548 million in outstanding agricultural debt owed by 
farmers to the government and private cotton investors (ref C), 
but he had serious worries about its implementation.  While the 
$435 million owed to the government would simply be forgiven, 
the plan is to offer private lending institutions government 
bonds to compensate them for writing off the $113 million in 
debt they are collectively owed.  Sughd Agroservice owns 
$400,000 of this original debt, which Haidarov said had grown to 
$550,000 with interest.  He was concerned that without previous 
experience selling and managing bonds, such government 
commitments ran the risk of becoming worthless scrip.  Such a 
collapse could destroy agricultural financing.  He had concerns 
on the lower level as well.  A farmer who struggled to repay his 
loans -- for instance by selling a car or other property -- was 
effectively penalized for his conscientiousness and hard work 
when his neighbor who did not make the same effort simply had 
his debts forgiven.  Haidarov said that this unfairness would be 
mitigated somewhat, however, when those farmers sought new 
loans: the hard worker would be looked upon much more favorably 
by lending institutions. 
 
COMMENT: INTEGRATION AND STAGNATION 
 
¶15. (SBU) Long separated from the rest of Tajikistan by 
geography and, to some extent, culture, Sughd is being steadily 
integrated with the south.  Until recently Sughd looked more to 
Tashkent (the two were in the same region in the early Soviet 
period) for its power, transportation links, and market access. 
The completion of the South-North power line and the ongoing 
construction of the highway linking Dushanbe and Khujand are 
changing this.  Despite their misgivings about southerners, 
those we spoke to in the north were proud of these developments. 
 But for all the enthusiasm, a fundamental truth has not 
changed: while more of Tajikistan can take a piece of the 
national pie, that pie remains as small as it ever was. 
Government efforts to expand that pie, by increasing overall 
energy production, luring foreign investors, and improving 
agriculture, are still a long way off -- if not a pie in the 
sky.  End comment. 
GROSS