VZCZCXRO1158
PP RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHDBU #0171/01 0421027
ZNR UUUUU ZZH
P R 111027Z FEB 10
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC PRIORITY 1243
INFO RUCPDOC/USDOC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0440
RUEHIL/AMEMBASSY ISLAMABAD 0243
RUEHNE/AMEMBASSY NEW DELHI 0175
RUEHBJ/AMEMBASSY BEIJING 0164
RUEHDBU/AMEMBASSY DUSHANBE 2695

UNCLAS SECTION 01 OF 03 DUSHANBE 000171 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAID EFIN ECON SOCI PHUM TI
SUBJECT: IMPACT OF ROGHUN CAMPAIGN ON U.S. ASSISTANCE GOALS 
 
REF: A. A: 09 DUSHANBE 1364  B: 09 DUSHANBE 1443 C: DUSHANBE 52 
     ¶B. D: 09 DUSHANBE 1113  E: DUSHANBE 67 F: DUSHANBE 103 
 
DUSHANBE 00000171  001.2 OF 003 
 
 
SENSITIVE 
 
SIPDIS 
 
 
 
E.O 12958: N/A 
 
TAGS: EAID EFIN ECON SOCI PHUM TI
 
REFS: 
 
 
 
¶1. (SBU) Summary:  The Tajik government stresses electricity 
shortfalls as a serious threat to living standards and economic 
growth, and rightly so, but refuses to confront key causes of 
the shortfall, or to pursue to the most effective solutions. 
Instead, it insists that building mega-hydro-project Roghun dam 
is the top priority.  The Tajik government's campaign to force 
people to contribute to building the dam is undermining U.S. 
assistance goals.  It is increasing and legitimizing corruption. 
 It violates citizens' rights and further weakens the rule of 
law.  It is exacerbating poverty and household vulnerability and 
diverting resources from health and education.  It is making a 
bad business climate worse and reducing confidence in the banks. 
 Government revenues and expenditures are even less transparent. 
 This negative impact on U.S. goals across the board raises 
serious concerns, and we may need to re-examine some of our 
assistance in light of these effects.  End Summary. 
 
 
 
Power Shortages, For Some 
 
 
 
¶2. (SBU) It is no secret the Soviet-designed power and water 
systems in Central Asia put Tajikistan in a difficult position, 
with power surpluses in summer and power shortages in winter. 
Prickly relations with neighboring Uzbekistan limit seasonal 
power-sharing, and the Tajiks ration power each winter, making 
most modern business and industry impossible in most of the 
country (ref A).  This lowers living standards and limits 
economic growth.  Much of the problem would be ameliorated if 
the large quasi-state-owned Talco aluminum plant, which consumes 
at least 40% of Tajikistan's power, were shut down or at least 
if its energy fees and revenue structure were revaluated.  Not 
only does the plant consume power that could be used by homes, 
schools, business and industry, it pays a below-cost price for 
power, keeping the state power company Barqi Tojik broke and 
unable to maintain the system or to reinvest in new production. 
Despite its low tariffs, Talco still owes several million 
dollars in back fees.  The government emphasizes that Talco is 
an importance to the country's GDP and the national budget as 
aluminum is Tajikistan's biggest export.  However, the profits 
Talco earns off subsidized power go mainly offshore to a small 
elite.  Talco's official revenues are not a major contributor to 
the budget. The government also could look to other projects 
that are on the table or under development, most with foreign 
financing, that could provide energy fairly quickly, but all of 
these require an economic price be paid for the power produced. 
Instead, the government has staked everything on the wholly 
Tajik-owned, government-controlled Roghun hydroelectric project, 
which even in the best case would take many years to complete. 
 
 
 
Dams Before People 
 
 
 
¶3. (SBU) Despite some of the lowest spending as a percentage of 
GDP for health and education in the world, the government each 
year has increased budget funds to build Roghun.  In the current 
IMF program, the government undertook to maintain social 
spending despite shortfalls, and to hold Roghun spending below 
$140 million.  In November, with tensions high as Uzbekistan 
announced plans to pull out of the Central Asian grid, President 
Rahmon enlisted the nation to build Roghun, calling on all 
citizens "with the means to do so" to buy Roghun shares to 
finance construction.  The campaign struck a chord, and many 
people expressed a genuine desire to contribute.  In January, 
when shares went on sale, however, it quickly became clear the 
 
DUSHANBE 00000171  002.2 OF 003 
 
 
campaign was voluntary in only the loosest sense.  Many people, 
especially government employees, soon found that contributions 
were mandatory and a failure to contribute carried severe 
consequences (Refs B and C).  As the campaign continues, it is 
undermining many goals of U.S. assistance. 
 
 
 
Feeding, Legitimizing Corruption at the Expense of Rule of Law 
 
 
 
¶4. (SBU) Government employees have been at the sharp end of the 
campaign, expected to contribute several months' salary or even 
the equivalent of their annual salaries.  More disturbingly, 
judging by the targets given some employees in corruption-prone 
sectors, the government clearly expects them to exploit their 
positions.  Government employees are tasked with "encouraging" 
citizen to contribute.  To pay for their Roghun contributions, 
employees are increasing their demands for bribes, demanding 
funds from those down the supervisory chain, and refusing to 
provide government services to those who do not contribute to 
the campaign.  People report being unable to buy plane tickets, 
register cars, enter or leave the country, keep a market stall 
or even stay open as a business without making a contribution. 
According to one unverified but credible rumor, Customs officers 
have been given a daily quota.  Corruption is not just accepted 
or expected, but demanded.  The average person now doesn't just 
pay a bribe to get services, he must buy a share of Roghun or 
lose a job, have a business closed, or be denied crucial 
government services.  A Roghun tax is added to the price of 
goods and services explicitly or implicitly, but the amounts 
paid by whom and for what are fuzzy.  Already weak due process 
is becoming weaker.  Few dare object to Roghun extortion for 
fear of being tarred as unpatriotic or other consequences. 
 
 
 
Blood from Stones 
 
 
 
¶5. (SBU) The nearly $200 million raised so far is about 3% of 
GDP.  Much of it can't be spent right away and will finance 
imports, which means the money has been withdrawn from the 
economy.  It is reducing household income and domestic demand 
and increasing household debt.  In an economy under pressure 
from the global financial crisis, with remittances down a third, 
the government's pro-cyclical action exacerbates the slowdown in 
economic growth and increases poverty -- exactly opposite the 
intent of U.S. and international assistance.  After two tough 
years, the Tajik population is vulnerable to even small income 
shocks.  The fall in remittances affected many households, and 
the government last year pleaded with donors to fill the gap to 
prevent a devastating decline into poverty.  On the whole donors 
complied, but the size of the Roghun campaign almost exactly 
wipes out the donor contributions meant to support the social 
sector and the poorest.  Some households reportedly are taking 
on debt to buy Roghun shares, making households more vulnerable 
and reducing funds for consumption and productive activity. 
With teachers, doctors, and other medical staff among those 
having salaries withheld for Roghun, de facto social sector 
spending has been affected.  Further, Health Ministry staff has 
appealed to USAID and other donors for more assistance because 
Roghun contributions are reducing peoples' ability to pay for 
healthcare.  Students must pay to sit exams, get grades, and 
other education documents. 
 
 
 
The Business Climate Gets Worse 
 
 
 
¶6. (SBU) Though the government took steps to improve its "Doing 
Business" ranking last year (ref D), the Roghun campaign 
reversed the progress.  Businesses of all kinds have faced the 
hard sell.  Foreign companies, barred by law from buying shares, 
have been told their licenses and other necessary documents 
depend on local employees contributing generously.  Many 
companies say Roghun contributions will wipe out their 
investable funds and limit current operations.  Small shops and 
marketers have been threatened with closure and in some cases 
closed for failure to contribute enough.  People are seeking 
loans from microcredit organizations to buy Roghun shares. 
Rumors are rampant that a cut ranging from 3-25% is being 
 
DUSHANBE 00000171  003.2 OF 003 
 
 
deducted from remittances and electronic fund transfers (EFTs). 
While the government has denied it, Embassy vendors are becoming 
increasingly reluctant to accept EFTs.  True or not, people 
believe it, undermining already shaky confidence in the banks. 
 
 
 
Murkier Still 
 
 
 
¶7. (SBU) The Roghun campaign is making opaque government 
finances even murkier.  While the government now is reporting 
the amount raised through the Roghun campaign, it is not clear 
from where or whom most of the money is coming.  The funds go to 
an off-budget account at a bank controlled by a presidential 
brother-in-law with some transferred to the Ministry of Finance 
and the National Bank, but details are scant.  Some unknown 
portion of the money raised has come from government funds -- 
withheld from government salaries, appropriated by government 
employees to cover their contributions, or diverted from 
government revenue.  Roghun joins Talco and Barqi Tojik as 
another government entity that lots of government money will 
flow to, from, and through without real accountability. 
Meanwhile, the value of the Roghun shares and rights of the 
shareholders are utterly undefined. 
 
 
 
Taking Steps 
 
 
 
¶8. (SBU) Donors have raised some of these concerns to the 
government in a letter from the Donors Coordinating Committee to 
the Prime Minister.  The IMF knows our concerns and the current 
Mission is looking at how the campaign is impacting poverty and 
growth (Refs E and F).  One of the IMF questions to us was 
whether bilateral donors are concerned enough about the impact 
of the Roghun campaign to reevaluate any bilateral assistance. 
Donors have trodden carefully on the Roghun issue, not wanting 
to provoke an unproductive, nationalism-fueled accusation that 
they are obstructing Tajikistan's interests. 
 
 
 
How We Should Respond 
 
 
 
¶9. (SBU) Comment:  It is already difficult in Tajikistan to make 
progress toward many of our goals. A government campaign that 
directly undermines key goals raises serious issues for some of 
our programs.  Our steps to improve the business climate or 
strengthen the banking sector are being overwhelmed by negative 
government action.  In health and education, we are perilously 
close to a situation where the government sees these as 
responsibilities that it can foist on to donors while it diverts 
government money to projects in which officials have a financial 
interest.  Our insistence that the government improve financial 
transparency as a condition of assistance is becoming ever more 
hollow as increased opacity bears no consequences.  We should 
raise our concerns about the impact of the Roghun campaign on 
U.S. assistance goals directly with the government; seek an end 
to the current campaign, and concrete steps to ameliorate some 
of damage, including steps to improve transparency. We should 
push the government to commit to restructure Barqi Tojik to be 
transparent, commercial, and recover costs. This is essential to 
the energy sector and we can provide concrete assistance if they 
agree. If the government does not respond reasonably to our 
concerns, we should consider visibly halting some program as a 
direct response to specific concerns we have about the impact of 
Roghun on our goals.  We need to demonstrate to the government, 
and to the public, that there are limits to what we will accept. 
 While we face the potential accusation of undermining 
Tajikistan by lack of genuflection to Roghun as the savior of 
national sovereignty, if we allow Roghun to become a sacred crow 
that justifies any and all government behavior, we head down a 
much more dangerous path.  We should not neglect the role of 
Talco in Tajikistan's electricity issues, as it lays at the 
heart of the problem, the solutions, and the motivations for 
government action.  End comment. 
QUAST