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Tajikistan: Dushanbe Scraps Contract With Russia's RusAl

Tajikistan has immense untapped hydropower potential (file photo) (OSCE) August 30, 2007 (RFE/RL) -- Tajikistan has canceled a contract with Russian aluminum giant RusAl for the construction of a hydroelectric power station.

Tajik President Emomali Rakhmon's office said in a statement on August 29 that "the agreement on long-term cooperation between the government of Tajikistan and Russian Aluminum has been annulled."

RusAl's office in the Tajik capital has declined to comment on reports that the $1 billion deal is off.

The reason appears to be disagreement about the height of the Rogun dam and the materials that should be used to construct it.

Agreement 'Fell Apart'

Construction of the dam, some 110 kilometers east of Dushanbe, started when Tajikistan was a Soviet republic in the mid-1970s. Work was halted shortly after the 1991 breakup of the Soviet Union, and only during Russian President Vladimir Putin's visit to Tajikistan in 2004 was the plan revived. Putin then pledged Russian companies would invest some $2 billion in Tajik projects.

A spokesman for Tajikistan's Trade and Economy Ministry, Ghaffurjan Rasuli, told RFE/RL's Tajik Service that most of those agreements have been fulfilled and that the RusAl project is an exception.

"Of those agreements that were signed when Putin visited Dushanbe, many of them were realized -- especially the agreement on construction of the Sangtuda-1 hydroelectric power station, and other objects," Rasuli said.

"But the agreements that were signed between the Tajik government and RusAl were not realized for various reasons, and therefore -- it seems to me -- the agreements were unilaterally canceled after they fell apart," he added.

Dispute Over Height, Materials

The plan was for the dam to supply electricity to a new aluminum plant that RusAl would build as well as an existing Tajik aluminum plant in the western city of Tursunzade in which RusAl hoped to acquire a stake. Earlier this year, the Tajik government announced it would not privatize that aluminum plant, making RusAl's acquisition impossible. RusAl has not begun any work to build the second plant mentioned in the deal.

Neither has RusAl started work on the Rogun dam -- mainly because of a disagreement over the height and the construction materials to be used.

RusAl wants to build a concrete dam some 285 meters high, which would allow the facility to produce about 2,400 megawatts of electricity annually. The Tajik government says the dam should be built of earth and rock -- which would be safer in this seismically active area -- and reach a height of 355 meters.

The added height would allow it to generate an extra 1,200 megawatts of electricity, for a total of 3,600 megawatts per year.

But Tajik political analyst Qosim Begmuhammad says the Russian government viewed the agreement as a political agreement from the start -- and that RusAl had purely its own interests in mind when it signed the deals with the Tajik government.

"Unfortunately, the Russian government used this agreement as a lever to extend its regional policies in Central Asia," Begmuhammad says. "The company RusAl only pursued its own economic interests. They [RusAl] wanted to privatize one aluminum plant and build another plant and use the electricity from the hydroelectric station for that [to power the two plants]."

Concern For RusAl?

President Rahmon warned in June that Tajikistan was prepared and capable of taking on the Rogun project without RusAl's help. The government in Dushanbe said on August 29 it would create a joint-stock company to take over and complete the dam.

RusAl's initial statement said the company was unaware of the Tajik government's cancellation of the contract. The company added that RusAl was prepared to honor all its commitments to projects in Tajikistan.

The Russian daily "Vedomosti" quoted economic analyst Denis Nushtaev as saying the breaking of the Rogun contract was no major loss for RusAl, as the project was not so much in the interests of the company.

Vladimir Zhukov, a senior analyst with Alfa-Bank in Moscow who follows RusAl and its metals and mining competitors, agrees. He says RusAl has many other strategic projects closer to home, in Russia, that make the Rogun project largely irrelevant.

Zhukov says he didn't expect a Tajik cancellation to affect RusAl, even with the metals giant preparing to issue shares on capital markets through an initial public offering (IPO).

"Well, from my perspective I don't think this deal is essentially material for the forthcoming RusAl IPO," he says. "The company is quite a solid player anyhow, and so far it's retained the position of the largest aluminum producer in the world. Obviously, the cancellation of that deal in Tajikistan doesn't really affect in any form or fashion current RusAl positioning."

The many rivers of mountainous Tajikistan could conceivably make it one of the biggest producers of hydroelectricity in the world. Little has been done so far to develop that potential, and indeed Tajikistan is currently unable to supply even its own relatively low energy requirements.

A project like Rogun could allow it to meet all its own energy needs and export electricity to neighboring countries like China, Afghanistan, and Pakistan.

(Tohir Safarov of RFE/RL's Tajik Service contributed to this report.)

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