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Gold Price Trend Forecast Summer 2019

The Hydropower Solution in Central Asia: Yes But...

Politics / Renewable Energy Apr 01, 2010 - 11:20 AM GMT

By: OilPrice_Com

Politics

Best Financial Markets Analysis ArticleSurfing the wave of the hype for renewable energy such as hydropower and the invitation by the United States to many regional countries to get involved in the efforts to stabilize Afghanistan, Tajikistan is bringing back to the table the Rogun hydropower dam project. Rogun, conceived in Soviet days, was planned to generate 3,600 megawatts but the collapse of the Soviet Union halted the completion of this project. Now an independent country, Tajikistan, one of the poorest in the world, sees Rogun as a central element for its energy independence and a source of severely needed foreign currencies that could be earned through the export of electricity.


That effort comes at a time when clean energy is seen as the panacea to reduce the world's dependency on polluting fossil energy, just like using olive oil was once seen as a solution to reduce cardio-vascular diseases. The push for clean energy is laudable but an expensive undertaking. Its implementation remains sketchy in poor countries where the lack of long-term political, economical and social visibility is a deterrent for foreign governments, companies, multilateral institutions and venture capitalists from making long-term costly investments. The "let's all hold hands and save the environment" speech quickly dies when the practicality of such projects are plugged into the picture.

This is unfortunate as the repeated calls for clean energy from industrialized countries create high expectation from poor countries that hope what they have to offer will be seriously considered. For Tajikistan the situation has been quite desperate. The country is plagued with regular energy shortages, unrealistic expectations and unmet promises. The hydropower potential of Tajikistan, about 300 billion kilowatt-hours, remains mostly untapped with only 5% of its potential being used. Once completed the dam would be one of the tallest in the world at 335 meters and would be 1,500 meters wide. The reservoir would have a total storage volume of 13.5 million cubic meters over 10.3 km3. It is estimated that it would take seven to twelve years for the Vakhesh River to fill the reservoir. The project would force the resettlement of over 30,000 people.

Energy Shortages

Unlike Kazakhstan, Turkmenistan and Uzbekistan, Tajikistan has no known significant oil & gas reserves and as a result energy shortages cripple Tajikistan and regularly bring its manufacturing industry to a halt, not to mention the regular electricity shortages endured by the population, even in the capital city of Dushanbe. The situation is further exacerbated by tensions with neighboring Uzbekistan that cuts the energy supply to retaliate against any efforts by upstream countries to control water flows that might impact Uzbek downstream agricultural activities. The withdrawal in 2009 of Uzbekistan from the Central Asian electricity grid is a further blow as it will also prevent Tajikistan from exporting electricity generated by its hydropower plants. The country is also crippled by legacies of the past, notably the Talco Aluminum Plant (formerly "TadAZ"), which by itself consumes 40% of Tajikistan's electricity production and is said to pay its electricity at heavily discounted prices.

Tired of waiting on foreigners to act and on foreign governments and multilateral institutions that advocate smaller scale hydropower projects, President Emomali Rahmon launched a voluntary-compulsory share purchase program where he asked "every son of the nation, every patriot and our countrymen abroad to support Tajikistan through financial and moral help by acquiring share in the Rogun Hydropower Project. Five million shares and certificates have been issued for a total sum of six billion somonis (about $1.3 billion), which is the Tajik estimated cost to finish the project. Each family was asked (many will argue forced) to buy at least 3,000 somonis (about $690). This is very tolling for a population where the majority lives with less than $2/day, though the poorest families were exempted.

The idea of popular participation is interesting but questionable when not participating in this national effort is considered unpatriotic and the zeal of some led to some doubtful collecting practices. By the end of January about 701 million somonis ($162 million) had been collected, and by March 10 that number painstakingly reached 770 million somonis ($176 million).

Unrealistic Expectations & Unmet Promised

The project cost could range from $1.3 billion to up to $6 billion. Cost overruns can be factored in because of the harsh winters in this 93% mountainous country that could bring construction to a standstill for several months. Furthermore, delivery of construction materials and equipment will be a major challenge because of the poor state of the local infrastructure and of the unpredictable state of future relationships with neighboring countries through which everything will have to transit. Being a landlocked country renders Tajikistan heavily dependent on the good mood of its neighbors, notably Uzbekistan, which is a logical transit route.

Tajikistan has also been relentless at pushing this expensive project through when multilateral development banks like the World Bank, the European Bank for Reconstruction and Development and the Asian Development Bank have regularly suggested less grandiose plans in order to build much smaller hydropower plants for 100 times less money. Many potential locations to place these plants had already been identified in Soviet days. Such plants could be financed more easily, be built and come online much faster, and could allow for multi-stages in the construction process with the installation of one or two turbines at the initial stage with the possibility to install more in facilities conceived to host several turbines.

This said, the World Bank did agree to finance a techno-economic assessment and an environmental impact and social assessment that will help assess the potential impact of the dam across the region. At a time where water is scarce and as a result becoming more valuable than gold (see related article on Oilprice.com: Central Asia's Most Precious Resource - Water, Not Oil), any project than impacts water flows can create an explosive situation thus the importance to conduct such assessments to address concerns and lower tensions.

Tajikistan's decision can be seen as a desperate move but it can be understood. In 2004 the aluminum giant RusAl, owned by Russian oligarch Oleg Deripaska, signed a deal to spend about $2 billion to finish the dam, modernize TadAZ (now Talco) and to even build another aluminum smelter. Time passed and nothing happened. The world financial crisis that severely impacted Russia and the collapse of commodity prices did not help as cash itself became a rare commodity.

Eventually the Tajik government cancelled the deal in 2009 for what President Emomali Rahmon qualified as "the Russian company's failure to honor its commitments." Further disappointment came when President Dmitry Medvedev declared in January 2009 when visiting Uzbekistan's President Karimov in Tashkent that he would support the project if all the countries in the region agreed to it, which was a polite way to say no thank you. Uzbekistan had again grown closer to Russia after the U.S. called for an international investigation following the killing of protesters in Andijan, Uzbekistan. In retaliation, the United States was forced to close the Karshi-Khanabad air base in 2005 that was then playing an important role with Afghanistan operations.

Rogun Step 2

Many questions remain in the air: how much more money will be raised through voluntary/forced contribution? How much money can the government allocate out of its own budget for Rogun? Where will the additional money come from if the money collected from the people and the government is not sufficient? What guarantees are place to prevent the money already collected from being misappropriated? What will happen if feasibility studies turn out to say that the project is not environmentally sound? What can Tajikistan do if its neighbors oppose the project? What future does Tajikistan have if it remains energy dependent on countries that turn off the switch for political reasons?

In an interview granted to AsiaPlus and published on February 12, 2010, to the question "what is the Washington's position on Rogun?" Robert O. Blake, Jr., Assistant Secretary for the Bureau of South and Central Asian Affairs at the State Department, summarized the view shared by many by saying "we understand the importance of energy security for Tajikistan and support the government's efforts to make sure its citizens, enterprises, and institutions have access to adequate and reliable power. We encourage Tajikistan to take into consideration the views of their neighbors when pursuing hydropower development plans - like Rogun. In addition to Rogun, we encourage Tajikistan to consider developing small hydropower stations."

What road for Tajikistan?

In 2009, the International Crisis Group published a report entitled "Tajikistan: on the Road to Failure" that stated "chronic food insecurity, disintegrating energy infrastructure, and endemic corruption are driving the country deeper into crisis." The dramatization of the situation is maybe excessive as the Tajiks are very resilient and President Rahmon remains popular for having brought an end to a debilitating civil war in the 90s and for the lack of credible political opponent. The fact remains that Tajikistan is a country with very little margin to play with.

Tajikistan is eager to play an active role in stabilizing Afghanistan with which it shares over 1,300 km of borders, but assisting NATO and the U.S. is risky as it makes it vulnerable to extremists. It is also risky for a country with over a million of its citizens living abroad as migrant workers, mostly in Russia, and sending back remittances representing 47% of GDP, which is one of the highest percentage in the world so alienating Russia is not an option.

In addition to international challenges, Tajikistan faces domestic challenges: the parliamentary elections that took place at the end of February 2010 were deemed by the OSCE as having "failed on many basic democratic standards." This means that discontent cannot be expressed through democratic means, which in turn could lead to an increased radicalization of those that have nothing, and thus nothing to lose.

Some may argue that Tajikistan is espousing ideas popular in the West to get its support, like Iran saying it would enrich its uranium in France and Russia or like North Korea saying it would not reactivate its nuclear plant against food aid but the major difference is that Tajikistan is a genuine ally. Of course, jumping on the Afghanistan bandwagon with the West serves Tajikistan's interest too but greater interaction with its neighbor would be greatly beneficial for the region and beyond.

At least, Tajikistan has not become the backyard operations field of Al-Qaeda like Pakistan, which still got nonmilitary aid in the amount of $7.5 billion from the U.S. Congress in the fall of 2009. Press reports state that prior U.S. assistance to Pakistan has been misspent in the past. Interestingly, the amount diverted would have been enough to complete the Rogun dam.

If Tajikistan is not assisted today in some ways despite all its flaws, we cannot expect it to stand strong tomorrow should Afghanistan collapse and fall into chaos or if the situation in the region becomes more volatile.

Source: http://www.oilprice.com/article-the-hydropower-solution-in-central-asia-yes-but.html

This article was written by Philip H. de Leon for Oilprice.com who offer detailed analysis on Crude Oil, Geopolitics, Gold and most other commodities. They also provide free political and economic intelligence to help investors gain a greater understanding of world events and the impact they have on certain regions and sectors. Visit: http://www.oilprice.com

© 2010 Copyright OilPrice.com- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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