bne:Invest in Tajikistan - November 2014

Content: 1 Top Stories 4 Interview 6 Feature 8 Sector12 Economic & finance15 News in brief

November, 2014 www.bne.eu

bne:Invest in Tajikistan

Top story

Tajikistan tries to sell investment story

More than 500 investors, state officials and representatives of leading international financial institutions gathered in the shadow of the Pamir mountains in mid-October to listen to the government of Tajikistan sell the small mountainous republic at the country's first ever international investment conference. And it did a reasonable job, but it was always going to be a hard sell.

Wracked by a nasty civil war between 1992 and 1997, the country's economic recovery has only gotten underway relatively recently. The poorest country in the Commonwealth of Independent States (CIS), Tajikistan still has everything to do – it can’t even offer a reliable power supply. But the

government is well aware of the problems and is grasping the nettle.

"We realise that we are not one of the best countries in the world, or the most attractive for investment. Nor can we offer the best platform [for investments]," Djamoliddin Nuraliev, the ebullient and English-speaking first vice minister of finance, who previously worked for both the International Monetary Fund (IMF) and the World Bank, told the Tajikistan Economic & Investment Forum. "But we are committed to change. We have implemented serious reforms, started to introduce [global standard] IFRS accounts, and do everything possible to facilitate investment."

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The state has already made considerable progress. Over the last decade the size of the economy has expanded ten-fold and the poverty level shrank from 83% of the population in 2003 to 35% today, according to the government. "Reforms only started in 1997 and so have not had a very long history,” Tajik President Emomali Rahmon told delegates in his keynote speech October 15. "The government of Tajikistan, in its long-term development strategy, identified the development of the private sector and investment as one of the top priorities of its economic policy… Over the recent years, a series of reforms in doing business aimed at reducing administrative barriers and state interference in the activities of businesses were implemented in the country."

And these reforms are starting to have an impact. While Tajikistan slid two places in the World Bank's “2014 Doing Business” ranking to 143rd place out of 188 countries, it has made great strides in several of the key subcategories: Tajikistan is ranked at 87th for the ease of starting a business and 78th for registering property, and has extremely high rankings for contract enforcement (39th) and protecting investors (22nd).

"Business registration has been simplified so there is a single window to set up a company… and four special economic zones have been established where our partner investors are released from almost all taxes," Rahmon told the packed room of investors. "Tajikistan is in a sustainable development phase and is strengthening its position every day. But more needs to be done to bring our investment climate into line with the international norms."

The country earned considerable brownie points after it successfully acceded to the World Trade Organization in 2012. "Tajikistan… has been strengthening its position in the global political and economic arena every day. The accession of Tajikistan to the WTO in 2012 as a vivid sign of this policy will definitely open wider horizons for the

integration of our country into the global economy and global trade processes," the president said.

Of course, there is still an enormous amount of work to do, as the country ranks near the bottom of the list in things like getting electricity, issuing construction permits, trade and paying taxes. But the president laid out a comprehensive programme of reforms to deal with all these issues.

The simplification of the bureaucracy surrounding business is also part of the government's general drive to improve transparency and reduce corruption. Recently, the state begin to introduce international accounting standards (IFRS) for the largest companies, which is not obligatory but the standards have been adopted by many of the leading companies.

The main task that the government faces today is mobilising investment into the economy. Foreign direct investment is a modest 2% of GDP, but has recently had a huge fillip after China earmarked several billion dollars to build a gas pipeline across the territory, but more is needed. "Both [domestic] private investment and foreign direct investment have to rise dramatically if the standard of living is to rise for the people," said Richard Jones, the European Bank for Reconstruction and Development's (EBRD) Tajik country manager.

Power to the peopleThe answer to many of the government's problems is to tap into the country's enormous hydroelectric power potential. The biggest problem Tajikistan faces today is the country's power deficit. There is sufficient power in the capital of Dushanbe, but blackouts and even power rationing plague the countryside. But if the government succeeds in its plans to build several hydropower plants, not only will domestic demand be met, but the country could become a major power exporter to the energy-hungry region.

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Hydropower was a constant theme running through out the conference. The cost of power production in water-rich Tajikistan is on the order of 2.5 cents per kilowatt hour (/kWh), but neighbours like Afghanistan and Pakistan with a power deficit are willing to pay 18-23 cents/kWh, making power exports extremely profitable for Tajikistan. "We have 527bn kWh of potential power production, but currently we are only using 6% of this. And realising this potential will not benefit just Tajikistan but all our neighbours too," Rahmon said.

Tajikistan already boasts the world’s highest dam, the 300-metre Nurek, built in the 1970s, but the government would like to add the even taller Roghun hydropower plant that would at a stroke solve all its problems. However, the project has been plagued by political and financial difficulties. Still, several other smaller power stations are in the works.

Business and banksIn the meantime the state is pushing on with other reforms that should help improve the investment climate. The government has set up four Special Economic Zones (SEZ) – in the regions of Sughd, Panj, Dangara, and Ishkashim – which offer substantial tax breaks and investment incentives. It has also established an enterprise fund to support local business projects, which will receive a big increase of funds to TJS1bn ($200m) next year.

Perhaps most progress has been made in the banking sector. Banking penetration is still low with only about one in five Tajiks holding a bank account and total credits as a share of GDP are a modest 30%, according to the EBRD. However, the sector is developing quickly with the use of debit cards on the rise, and consumer lending is also taking off, partly thanks to stiff competition since the leading Kazakh banks entered the market a few years ago. And the country recently launched its first credit bureau to further support consumer credit business. "The sector is starting

to develop more quickly now," Gulanor Atobek, Deloitte's Tajik general director, tells bne. "Just a few years ago plastic cards were rare. In 2007 it was usual to pay workers in cash, but more recently companies have started paying into workers’ bank accounts and people are getting used to using cards in the supermarkets."

As the reforms take hold, the economy is beginning to diversify, led by the growth of small and medium-sized enterprises (SME), which is also bringing more business back into the formal economy. However, the lack of access to financing has slowed the pace of this growth. "The SMEs are developing, but they need access to capital to grow and develop," says Atobek. "Their main problem is the rates are still very high – typically about 25% a year – which means they cannot borrow a lot and have to borrow over the short term."

The low penetration of the banking sector is behind the high rates and the difficulty that small businesses have in raising credit. Without a large deposit base, banks are struggling to fund loans, which in turn reduces their role as financial intermediaries.

But the global financial institutions are committed to helping and the EBRD has already launched its highly successful SME support programme in Tajikistan, where it lends banks money to fund loans and micro-loans to small business.

The president neatly summed up the challenges facing the country in his closing remarks to the forum's delegates: "We definitely need huge investments to fully and effectively use the outlined resources and potential," he said. "Therefore, the local businesses need to avail this opportunity of your visit and establish mutually beneficial cooperation to identify priority areas in the development of production and expansion of export of final products to overseas."



IMF sees non-oil producing Central Asia states suffering badly from Russia slowdown

Economic activity in the Caucasus and Central Asian (CCA) region is declining largely because of sluggish domestic demand and the dramatic slowdown in Russia, which is the region's key trading partner and biggest source of remittances, according to the International Monetary Fund (IMF). Because of this overdependence on Russia, the region's non-oil producers will be hurt most, it believes.

In its “Regional Economic Outlook Update for the Middle East and Central Asia” published in October, the IMF said that weakening domestic demand and spill-over effects from the slowdown in Russia would bring economic growth in the CCA region down to 5.5% in 2014 and 2015, 0.75 percentage points lower than projections made in May.

"Russia's growth is very close to zero for this year and next year and obviously, Russia's growth rate matters a lot to this region, as does China's," Juha Kähkönen, deputy director of the IMF's Middle East and Central Asia Department, told bne at a presentation of the report in Almaty on November 4. China's economy is still growing fast at more

than 7% but it is slowing down, Kähkönen noted.

However, the outlook suggests that the region's oil and gas exporters – Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan – will be able to offset some of the negative effects of Russia's slowdown. Even so, their combined economic growth will still soften to 5.6% in 2014-15 from 6.8% in 2013. "The reduction in oil exporters' growth mainly reflects further delays in the production of the Kashagan oilfield in Kazakhstan and weaker domestic demand growth in Azerbaijan," the IMF concludes.

The larger dependence on remittances of the region's oil importers – Armenia, Georgia, Kyrgyzstan and Tajikistan – coupled with limited initial policy space, will cut growth from 5.6% in 2013 to 4.6% in 2014, despite the expected recovery in Georgia, the IMF said. "Growth is expected to pick up steadily in 2015 and beyond, supported by gradual fiscal consolidation and a reduction of external vulnerabilities," the report explains. "Armenia's favourable new five-year gas supply agreement with Russia and Gazprom, and large infrastructure projects in the Kyrgyz Republic, will also contribute to the recovery in the medium term."

Geopolitical risks surrounding the Russia-Ukraine conflict may lead to a deeper and a more protracted Russian slowdown, which will in turn impact on CCA economies through falling remittances (Armenia, Kyrgyzstan and Tajikistan), trade (Kazakhstan, Kyrgyzstan and Turkmenistan) and direct investment (Armenia, Kyrgyzstan and Tajikistan) channels.

A 1 percentage point decrease in Russia's GDP would cut CCA non-hydrocarbon exports by an estimated 0.75% and remittances by about 1.5%. "If the Russian ruble were to depreciate relative to that of a CCA country, the purchasing power

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of remittances could decrease further," the IMF warned. "This channel is especially important in the CCA oil importers, where remittances comprise a sizable share of national income."

Despite weaker growth and falling food prices, inflation is expected to rise to 6.5% in CCA countries in 2014 and 2015 as a result of the recent devaluations of national currencies, particular in Kazakhstan, the update says. In the CCA oil and gas-exporting countries inflation is expected to increase to 6.5% in 2014 from 6.3% in 2013. The 19% February devaluation of the Kazakh tenge is expected to raise inflation but it will be within the central bank's target range of 6-8%, the IMF said. In the oil and gas-importing countries inflation is expected to accelerate from 3.6% in 2013 to about 5% in 2014. "A weakening of the Russian ruble is putting pressure on the Kyrgyz and Tajik currencies, feeding quickly into inflation."

While the slowdown in the Russian economy is threatening economic growth in the CCA countries, more so in oil and gas-importers,

Kähkönen believes that deeper integration of Armenia and Kyrgyzstan with Russia and the Customs Union it leads will not be significantly detrimental to their economies.

The Customs Union, set up by Russia, Kazakhstan and Belarus in 2010, will be transformed into the Eurasian Economic Union in 2015. In October Armenia signed a treaty to join the free-trade bloc in 2015, and Kyrgyzstan is also expected to sign the treaty and join the organisation next year. "Armenia has negotiated and is still negotiating exemptions for a seven-year transition period that would smooth the entrance to the Customs Union," Kähkönen told bne. "As part of joining the Customs Union and the Eurasian Economic Union it is also getting a good deal on gas from Russia that is lowering gas prices compared to the past."

At the end of October, Russia's Parliamentary Speaker Valentina Matviyenko expressed “hope” to a visiting Tajik parliamentary delegation that Tajikistan will join the union “eventually”, adding that integration is being supported.

Freedom of speech… except on certain websites

Tajik President Emomali Rahmon said at a ceremony to celebrate the Tajik Constitution's 20th anniversary in Dushanbe on November 5 that freedom of speech was alive and well in Tajikistan because there are "hundreds" of private media outlets operating in the country.

At the same time, however, media were reporting that the country’s Communications Service was again blocking about 50 websites, among them social-networking websites Facebook and Vkontakte. Tajik mobile operators also closed access to the websites.

The Communications Service denies having anything to do with website blockings,

leading to Tajik journalistic and human rights associations sending an open petition to the authorities, asking them to stop the practice of extra-judicial arbitrary blocking of certain "inconvenient" internet resources in Tajikistan "since it violates the fundamental right of citizens to search for and spread information."

Facebook, Vkontakte and a host of other websites were blocked in Tajikistan between October 3 and 17, reportedly after calls for an opposition rally to be held in Dushanbe (it was never held).



Chinese money changes balance of power in Central AsiaRelations between Tajikistan and Uzbekistan have been less than congenial since the collapse of the Soviet Union. Rising tensions over water, exacerbated by climate change, have recently shown the potential to degenerate into armed conflict. Transforming the situation is billions of dollars of Chinese investment pouring into both states, which is changing the balance of power in favour of Tajikistan while also creating an incentive for both sides to step down.

At the heart of the diplomatic wrangle is the government of Tajikistan’s desire to build a colossal hydroelectric power dam that would massively reduce water flows to Uzbekistan. This has huge economic consequences, as the downstream country depends on vast amounts of this water for its thirsty cotton crops. If Dushanbe goes ahead with the project – a pillar of the government’s national development strategy – there is potential for an armed response from Uzbekistan. In parallel to this Chinese investment in Tajikistan’s transport infrastructure is slowly but surely undermining Tashkent’s one effective tool of

non-military leverage over the Tajik government: its economic blockade.

Row over RogunAccording to Tajikistan’s Ministry of Energy and Water Resources, the country has approximately 46 cubic kilometres (km3) of water spread over 1,300 lakes. This water wealth is generated by flows from the mountainous terrain of the republic, fed by vast, high altitude glaciers containing some 845km3 of ice. Water originating here contributes over half of the drainage collecting in the Aral Sea in neighbouring Uzbekistan and Kazakhstan. According to the Tajik Ministry of Foreign Affairs of Tajikistan, the country generates 60% of Central Asia’s water.

It is the threat of limiting this flow to Uzbekistan’s numerous cotton fields that has notably contributed to tensions between the two republics. The planned establishment of new dams to meet Tajikistan’s electricity deficit led to a blockade in rail, power and road connections from Uzbekistan beginning in 2009. At the centre of this dispute is the Rogun Dam project, which the World Bank gave the green light to in feasibility studies published in June this year.

Earlier plans to develop Rogun, which would be the tallest dam in the world if completed, led to a rapid decline in relations between Tashkent and Dushanbe. The Soviet-era train, road and energy infrastructure connecting Tajikistan to the rest of the world all runs through the territory of Uzbekistan. With the Uzbek border closed, Tajikistan suddenly found itself not just doubly landlocked, but cut off from the vast majority of its overland transport infrastructure. The subsequent disconnection of gas lines originating in Uzbekistan rendered Dushanbe’s thermal gas plants inert.

Ironically, it seems that this move has

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made Tajikistan’s government even more focused on achieving energy independence and thus pursuing the Rogun Dam project. Already, during the last decade, an increase of 1,000 megawatts (MW) of installed capacity has been achieved to meet the country’s dire energy shortage, primarily through the rehabilitation of existing assets.

Regardless of the additional capacity that this rehabilitation has provided, the Rogun Dam would be a magic bullet capable of not just meeting Tajikistan's domestic power needs during winter, but also providing ¤120m in export revenues from clients in Afghanistan and Pakistan during the summer months, through the CASA-1000 power line. But the subsequent decrease in water flow that Rogun’s construction would create, especially as it fills, would be disastrous for Uzbekistan’s cotton industry.

Water fallsGiven the role that water plays in its relations with its neighbours, it is not surprising the substance sits at the centre of Tajikistan’s foreign policy. Through the UN, the country has led a number of international initiatives aimed at supporting the resolution of water disputes. These platforms have enabled Tajikistan to voice its concerns on the issue and seek international support for a favourable resolution to its dispute with Uzbekistan.

This is especially necessary, because in addition to the construction of dams there is the melting of Tajikistan’s glaciers as a result of climate change, which further threatens to reduce water flow to downstream countries. Tajikistan’s glaciers have reportedly declined by 70% over the last 70 years, and snowfalls have decreased in turn, leading to even less downstream flow. During Tajikistan’s

address to the 69th session of the UN General Assembly in September this year, Tajik Prime Minister Kokhir Rasulzoda used Tajikistan’s timeslot to draw attention to this issue.

However, the disastrous Tashkent-Dushanbe relations and the subsequent Uzbek economic blockade of Tajikistan is slowly being undone by big Chinese investment into the region. In the last three years alone, China has built infrastructure to link Tajikistan to its neighbours. These include the Pamir Highway to Western China, bridges to Afghanistan, and a proposed rail link that would connect Tajikistan to Turkmenistan and the Indian Ocean via Iran. This cutoff country is slowly but surely developing alternate overland trade routes.

Given that the blockade by Uzbekistan has not resulted in preventing upstream dam development, and that Tajikistan’s economy is witnessing 7% annual growth including massive energy infrastructure investment, it seems likely that Tashkent will have to make a bold policy decision soon. A show of force might cause Tajikistan to amend its plans, but rapprochement between the two neighbours is also a possible scenario, though it will leave Tashkent high and dry come harvest time. But does it have a choice? As a senior development official and Central Asia water expert in Dushanbe told bne recently, “the inevitable effect of climate change on water supplies could cause Uzbekistan and Tajikistan to work together.”

The need to find an end to this dispute is further reinforced by the breaking of ground of a new $3.2bn Chinese gas pipeline crossing through Uzbekistan to Tajikistan. This project promises to be a huge money-spinner for both governments, but will require extensive cooperation.



China shows faith in Tajikistan with $3.2bn investmentThe construction of a new $3.2bn Chinese gas pipeline through Tajikistan is the most significant investment in the country to date, offering a clear sign that Beijing believes Tajikistan will remain stable following the withdrawal of US-led forces from Afghanistan, despite a likely upswing in cross-border insurgency and crime.

At the heart of the project lies China’s appetite for Central Asian gas, mostly originating in Turkmenistan, which has grown insatiably over the last five years. This followed the inauguration of the first phase of the Central Asia–China gas pipeline (CACGP) in late 2009, a billion-dollar trans-national network. Today, over half of China’s

natural gas imports come via this expanding array of pipelines, thousands of kilometres in length, that span Turkmenistan, Uzbekistan and Kazakhstan.

On September 13, the day after the Shanghai Cooperation Organization’s summit in Dushanbe, the president of Tajikistan, Emomali Rahmon, and his Chinese counterpart, Xi Jinping, broke ground on the fourth section of this network. This ceremonial start took place in the Rudaki District, south of Dushanbe, an area adjacent to the Uzbek border where the pipeline’s Tajik section begins.

With a length of only 1,000 kilometres, this Line D will be the shortest section of the CACGP network, an important point raised by Rahmon during the ceremony. As the pipeline originates from the Galkynysh gasfield in Eastern Turkmenistan, the second largest in the world, this route makes it around 1,000km shorter than previous pipelines.

From Galkynish it winds briefly through southern Uzbekistan, north across Tajikistan and then eastwards through Kyrgyzstan to China – a far more direct route than other sections of the network crisscrossing the region and its vast deserts. It will be capable of transporting 30bn cubic metres of gas per year (cm/y), approximately equaling the production capacity of phase 1 of the development of Galkynysh, which began last year. Once completed, this will raise CACGP’s gas exports to China to a total of 85bn cm/y.

ChallengesHowever, the mountainous terrain of Tajikistan, where the longest section of Line D (410km) is being built, presents an expensive and difficult undertaking for project planners and engineers. It will not simply mean installing pipeline along relatively flat steppe and desert, as

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was the case with early phases of CACGP, but will instead necessitate costly and sophisticated engineering. These challenges include “the creation of 47 tunnels with a total length of 76km. In 24 of these cases, the tunnels will be underwater”, as President Rahmon himself highlighted, during the ceremony.

Construction time is expected to exceed three years, with project costs amounting to an estimated $3.2bn. This will create approximately 3,000 jobs and provide a ‘‘significant contribution to the national budget,’’ according to Rahmon (an exact figure has not been made public). Tajikistan will not receive any of the gas being transported, but will instead be provided with transit revenues. At the time of writing, Tajikistan has no major exploited gas reserves of its own, however exploration is being undertaken by several multinationals across its territory, including China National Petroleum Corporation (CNPC), the initiator of Line D.

This state-owned energy colossus is the driving force and source of funding for the pipeline. Its management has signed an agreement to work in cooperation with Tojiktransgaz, Tajikistan’s government-owned natural gas distribution company. The latter has been largely without a significant source of gas to transport since the disconnection of major Uzbek gas pipelines feeding into Tajikistan. A specially created subsidiary of CNPC, Trans-Asia Gas Pipeline Company, is overseeing the construction and subsequent operation of the project, together with Tojiktransgaz.

CooperationThis project represents the largest foreign direct investment in Tajikistan since the country received

independence from the USSR. According to the World Bank, Tajikistan’s GDP in 2013 amounted to $8.5bn, which when compared with China’s state-led $3.2bn investment in Line D demonstrates just how significant this project is for the country. Comparatively, the US government has provided around $1bn to the country through aid projects over the 23 years following Tajikistan’s declaration of independence.

Together with the upcoming CASA-1000 project and trans-national rail connections, Line D is a mega-infrastructure project that is creating strong links between Tajikistan and its neighbours, bucking the previously seen trend of lacklustre inter-regional cooperation, and outright economic isolation of the country.

Line D is also a project of shared interest with Uzbekistan, as it crosses its territory and will provide its government with transit fees as well. However Uzbekistan’s economic blockade of Tajikistan still remains in effect – a move which severed Tajikistan’s international road, rail and energy connections. Mutual economic interest in realizing the Line D project certainly provides incentives for Tashkent and Dushanbe to resolve their longstanding diplomatic disagreement.

This investment also flies in the face of those who believe Tajikistan will be destabilized by the withdrawal of ISAF forces from its southern neighbour Afghanistan. A 1,300km border is difficult to guard and an upsurge in insurgent activity from this direction contributed significantly to the Tajik civil war of the 1990s. That China is embarking on a project of this magnitude at such a sensitive time in Central Asian geopolitics is a resounding vote of confidence in the government of Tajikistan to maintain stability during difficult times.



Pipeline puts Tajikistan on energy mapTajikistan is part of the same geological basin as Turkmenistan and Uzbekistan, but has not seen anything like the same kind of oil and gas exploration that its two neighbours have. But that is beginning to change with the building of a gas pipeline to China that runs though this mountainous Central Asian state.

On September 13, a ceremony in Tajikistan was held to launch construction of the longest stretch of a new link that will supplement the existing Central Asia-China (CAC) pipeline running from Turkmenistan to China via Uzbekistan and Kazakhstan. The new section bypassing Kazakhstan and passing through Kyrgyzstan and Tajikistan, known as Line D, will increase the CAC pipeline’s overall annual capacity by 30bn cubic metres (cm), to around 85bn cm/y. Like the other lines, it will also pass through Uzbekistan.

Tajik President Emomali Rahmon said at the launch ceremony that the pipeline project has “immense political, economic and historical significance” for his country. And even coming from an autocrat prone to grandiose statements, that’s not hyperbole. Not only will it offer Tajikistan huge transit fees estimated at about $1bn a year, it is also spurring development of the country’s own undeveloped gas resources.

Rahmon said at the ceremony that he hoped Chinese companies would soon start energy production in Tajikistan. Several foreign firms are already prospecting for oil and gas, and believe there could be lucrative reserves in two prospective areas: the Fergana basin in the north of the country, and in the south the Tajik-Afghan basin, an extension of the prolific Amu Darya basin, which holds giant and supergiant fields in Turkmenistan and Uzbekistan, including the South Yolotan field in Turkmenistan – one of the five largest gasfields in the world.

According to the US Energy Information Administration, Tajikistan’s proved gas reserves stand at only 5.7 billion cm, putting it down at a lowly 82nd place in the world. But in 2012, Tethys Petroleum announced it had received an independent resource report carried out by US-based Gustavson Associates on its Tajikistan assets, which cover an area of around 36,000 square kilometres in the southwest, that indicate "enormous" reserves of hydrocarbons. It estimated gross unrisked mean recoverable resources at 27.5bn barrels of oil equivalent (boe), with over 3.2tn cm of gas and around 8.5bn barrels of oil and gas condensate.

"Tajikistan, from the geological perspective, is a country where there is a lot of potential for oil and gas," says Tethys’ executive chairman, David Robson.

Robson explains that the Soviet-era discoveries in Central Asia were mainly in shallow layers; the Soviets didn't need to look into deeper layers in Tajikistan because they could easily pump oil and gas from fields in Uzbekistan and Turkmenistan. Of course, drilling to deeper layers carries it’s own risks, he says, because reservoirs in the Bokhtar area are at a depth of 7km and under high pressure with gas containing hydrogen sulphide. "We are confident we will find something, but it's gonna be a deep, expensive process," he says.



That has forced Tethys to bring in partners. In June 2013, Tethys announced it had signed a farm-in agreement with China’s CNPC and France’s Total, which gives the global majors a one-third share in the Bokhtar production sharing agreement that Tethys signed with the Tajik government in 2007. They also set up a consortium, the Bokhtar Operating Company, which they jointly own and manage.

“The fact that global energy firms have committed themselves to this project serves as proof that they see Tajikistan as having the potential to become an important gas producer in the region,” says Aleksandra Jarosiewicz of the Centre for Eastern Studies in Poland.

Total and CNPC are "carrying" Tethys' costs of drilling the first well to the tune of $80m, but since the company's contract area is "massive" the parties are now working on obtaining more seismic data to identify the sweet spot for drilling the first well next year. Robson estimates the first well will cost $60 million to drill, although Gazprom, which is exploring in two licensed blocks in the southwest and west of the country, has spent $120mn on drilling a well to that depth.

"I know Total and CNPC share similar optimism now," Robson says. "Three of us – Tethys, Total and CNPC – all share a lot of confidence that there is certainly something there which could be enormous in size."

Finding hydrocarbons is one thing, getting them out another. “The Bokhtar area seems potentially more lucrative than thought: the question is, how do you monetise that potential?” says Andrew Neff, Senior Energy Analyst at IHS Global Insight.

“Location wise we’re not talking great options for exports or for domestic consumption – it’s 95% mountainous territory and surrounded by pseudo-failed states or at least those states that don’t attrcat much foreign investment.”

That’s why the commitment of CNPC to build Line D of the CAC pipeline is so significant for both the Bokhtar project and Tajikistan’s nascent oil and gas industry. “The Chinese are not going to build this [pipeline] on a purely energy supply and diversity basis, it’s a lot of extra cost for that; this is a longer term bet on Tajikistan.”

While some argue the Tajik government is getting a little ahead of itself in its rhetoric, there’s no doubt that it’s getting more serious about attrcating the kind of foreign investment that has been absent for so long.

In October more than 500 investors, state officials and representatives of leading international financial institutions gathered in Dushanbe to listen to the government of Tajikistan sell the small mountainous republic at the country's first ever international investment conference.

"We realise that we are not one of the best countries in the world, or the most attractive for investment. Nor can we offer the best platform [for investments]," Djamoliddin Nuraliev, the fluent English-speaking first vice minister of finance, who previously worked for both the International Monetary Fund (IMF) and the World Bank, told the Tajikistan Economic & Investment Forum. "But we are committed to change. We have implemented serious reforms, started to introduce [global standard] IFRS accounts, and do everything possible to facilitate investment."



World Bank downbeat on Tajik economyRussia remains crucial for the Tajik economy, but that over-reliance also creates its own problems, according to a report at the end of October by the World Bank.

Tajikistan’s economic dependence on Russia means the recent slowdown in Russia as the Western sanctions bite has hit the Central Asia country hard. “The possible spillover effect from the Russian slowdown onto the Tajikistan economy is estimated to be one of the largest in the [Europe and Central Asia] region: a 1 percentage point reduction in the growth of Russia’s GDP would reduce growth in Tajikistan by the same amount,” says the October 27 report entitled, “Tajikistan: Moderated Growth, Heightened Risk.”

Over 1mn Tajiks, or about half of working-age men, work in Russia, usually in menial jobs. Their transfers are worth about half of Tajikistan’s GNP, making it the most remittance-dependent country in the world. As the ruble collapses against the dollar, this hits the level of remittances. Remittances fell in the first half of 2014 by 2% on year, but this fall is expected to pick up steam by the end of the year. “Slowing remittances have been translated into lower domestic demand and slower growth in services and housing construction,” says the report.

At the same time global prices for aluminium and cotton, Tajikistan’s main hard-currency earners, fell 50% and 46%, respectively, on year in the first half of 2014, “pushing total industrial growth below 3 percent from nearly 7 percent a year earlier,” the report says. Agricultural output has also slowed, though growth

in the sector remains a “healthy” 6%. Food exports to Russia have grown significantly this year – by 15.2% on year even before Russia banned Western meat and produce in August – and that number is expected to grow further. But there are limits to how much Tajikistan can export because of its “fragile market links, limited economies of scale, poor access to credit, and barriers” to entering the market, the report points out.

This “remittances-driven growth model” makes the country particularly vulnerable to external shocks and Russian influence. Yet if anything Tajikistan looks set to rely more on Russia due to Moscow’s push to get Tajikistan into its Eurasian Economic Union, which is a means to counter the EU.

The speaker of the Russian parliament’s upper house, Valentina Matviyenko, led a delegation to Dushanbe in November, where she said: “We hope very much that Tajikistan will also join the Eurasian Economic Union eventually.” The Russian government is also wielding a big stick, saying it is considering quotas for migrants. Starting in January, Russia will tighten entry requirements for Tajik visitors, though these will be loosened again if Tajikistan joins the EEU, Prime Minister Dmitry Medvedev said this summer.

Tajik government approves draft budget for 2015A draft law on Tajikistan's state budget for 2015 was discussed at the government meeting at the end of October. In particular, the state budget revenues in 2015 are expected to reach USD 3.5bn, an increase of 1% y/y. The state budget will remain socially oriented. Half of the budget

Economics & finance



will be spent for social sector, which is 17% higher than this year. About USD 80mn is budgeted wages, pensions and student allowances. Tajikistan's GDP is projected to reach over USD 10.5bn, with inflation of 7.5%.

Tajikistan's GDP growth slowed to 6.9% y/y in Jan-Sep from 7.4% seen in the same period of previous year, the State Stat Committee has informed. On the other hand, inflation accelerated to 5.7% ytd from 2.8% ytd in the first nine months of previous year. The main reason behind weaker GDP growth is a cut in migrant remittances to Tajikistan which accounts for nearly half of the country's GDP. The remittances shrank by 4.9% to USD 1.404bn in H1 due to economic slowdown in Russia.

In 2013, remittances amounted to USD 3.6bn which accounted for 42.2% of the country's GDP. Industrial production in Tajikistan increased by 5.6% y/y, up from 4.1% y/y seen in Jan-Sep last year. In September alone, industrial production increased by 2.5% y/y and by 10.5% m/m. The value of Tajikistan's GDP amounted to TJS 31.597bn (USD 6.47bn), industrial production was worth KZT 7.08bn (USD 1.45bn).

Tajik central bank calls for "calm and patience" over exchange rate

Tajikistan's central bank has asked citizens not to lose their nerve over the weakening of the Tajik somoni to avoid building up additional pressures on the exchange rate.

"In order to maintain price stability in the market is especially important to remain calm and patient," the National Bank said in a statement on November 14.

Several press reports warned about growing prices of basic imported food products like flour,

the price of which soared to up to TJS160 for a 50-kg bag from TJS120 to TJS140 in October, the local news agency Asia-Plus reported on November 14. The increase was prompted by the weakening of the somoni in the currency market, the report said. The somoni lost 6.2% against the dollar year-to-date, making food imports increasingly expensive. The country imported 640,206 tonnes of wheat in 2013 against 1,158,100 tonnes produced locally. Flour imports stood at 232,300 tonnes.

The central bank highlighted that the somoni's slump originated in "external economic factors" such as political and economic crisis in some of the country's major trading partners, namely Russia.

Yet the Tajik somoni is still faring well compared to other weakening Central Asian currencies such as the Kazakh tenge, which suffered a 19% devaluation in February, the Kyrgyz som, which lost 14.5% against the dollar year-to-date, and the Mongolian tugrik, down 13% against the greenback year-to-date.

Tajik bank loans grow 22% y/y in Jan-SepTajik banks granted loans worth TJS5.1bn ($1.01bn) in the first nine months of the 2014, which represents a 22% increase over the same period of 2013, Asia-Plus news agency reported on November 5.

The construction industry received 19.1% of total loans; in turn, agriculture and industry received 12% and 10.2%, respectively, Asia-Plus cited the Tajik central bank.

Almost half of total loans were issued by Tojik Sodirot Bank (26%) and Agroinvestbank (20%).



Tajikistan was one of the most improved countries in this year’s “Doing Business” survey by the World Bank, rising 11 spots to 166 out of 189 countries ranked.

However, Central Asia’s poorest country still fares badly when compared to others in the region, ranking far below Kazakhstan’s ranking of 77 and the CIS’ top performer, Belarus at 57.

The table below also shows the ‘distance to frontier score’, which benchmarks economies with respect to the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. Tajikistan has the furthest way to ‘go’ in the region to achieve the best.

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How Tajikistan and comparator economies rank on the ease of doing business

Tajikistan improves in World Bank business ranking



Russia wants to see Tajikistan in Customs UnionRussia wants to see Tajikistan joining the Customs Union, Russia's Parliamentary Speaker Valentina Matviyenko has stated at the meeting with the Tajik delegation led by the Parliamentary Speaker Mahmadsaid Ubaydulloev. Matviyenko expressed 'hope' that Tajikistan will join the union 'eventually'. Tajik parliamentarian noted that the final decision on joining the project will be made after the ongoing negotiations. He added that integration is being 'essentially' supported.

Eurasian Economic Union of Kazakhstan, Belarus and Russia will start functioning on Jan 1, 2015. Kyrgyzstan and Armenia are on their way to join the organization. The union is seen as Russian tool of re-establishing its influence over the post-Soviet region.

Xi Jinping meets with President RahmonChina would like to work more closely with Tajikistan to assist its ambition to become a transport corridor for trade leading to countries in Central Asia and the Gulf region, President Xi Jinping told his Tajik counterpart, Emomali Rahmon, it was reported on November 7.

The two countries should press forward with opportunities for joint initiatives in fields such as energy, transportation and agriculture, Xi said.

Rahmon said Tajikistan's limited transportation infrastructure is the main obstacle to his country's economic development. He said Tajikistan supports the construction of a Trans-Eurasian Silk Road Economic Belt, an initiative put forward

by Xi, and the speeding up of infrastructure construction including cross-border railways.

Rahmon was in Bejing to take part in an Asia-Pacific Economic Community (APEC) summit there on November 10-11.

Chinese province to invest $800mn in TajikistanA Chinese province has agreed to invest $800mn in Tajikistan's agricultural sector, RFE/RL reported.

The agreement was signed in Beijing on November 7 during a meeting between visiting Tajik President Emomali Rahmon and the governor of China's Henan province, Xie Fuzhan.

Tajik cement output tops 1mn tonnes for first time since independence

Cement production in Tajikistan topped 1mn tonnes in the first ten months of the year, which marked a historical high for independent Tajikistan, local press have reported.

Production in 2013 did not exceed 385,000 tonnes. The last time the country achieved a cement production of over 1mn tonnes was in Soviet times in the 80s.

The country's two largest cement plants accounted for over 90% of total output. Huaxin Gayur Cement plant, which came online in September

News in brief



2013, produced 760,000 tonnes of cement, and Tajik Cement added another 178,200 tonnes.

Tajikistan uses up to 2mn tonnes of cement per year. The shortfall is covered through imports from Pakistan, Afghanistan, Iran, Russia, Kazakhstan and Kyrgyzstan.

Tajik external debt decreases to $2.12bn in OctoberTajikistan's external debt decreased to $2.12bn at the beginning of October from $2.18bn, or 25.7% of GDP, at the end of 2013, local news website Asia-Plus reported on November 17 quoting figures from the national agency on statistics.

Repayments on loans provided by the Asian Development Bank and the European Union contributed to reducing the country's overall debt burden in the first half of 2014, the World Bank highlighted in its latest country report published in October.

The Chinese Export-Import Bank remained Tajikistan’s largest creditor; as of July 1, its loans represented about 41.3% of total external public debt, the World Bank added. The other large lenders are the World Bank itself with a 16.4% share and the ADB with a 14.3% share.

Beeline's Ebitda up 5% y/y in Central Asia in Q3Russian telecom operator Beeline saw its Ebitda for Central Asian operations (Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) grow to

$269mn in Q3, up from $255mn in the same period of 2013, parent company VimpelCom said in a statement on November 12. Total revenues for the region were stable at $479mn.

Beeline's Kazakh subsidiary, the largest in the region, posted total revenues of $197mn in the quarter, down from $223mn a year earlier, and its Ebitda decreased to $95mn in Q3 from $98mn in the same period of 2013.

The group's Uzbek subsidiary saw its revenues and Ebitda grow, respectively, by 13.8% y/y to $190mn and 17.6% y/y to $127mn. Turnover and profitability in Kyrgyzstan's and Tajikistan's subsidiaries were largely unchanged from Q3 2013.

The VimpelCom group posted total operating revenues of $5.14bn in Q3, down from $5.68bn in July-September, and the group's Ebitda fell to $2.20bn from $2.42bn a year earlier.

Tajik trade deficit reaches $2.69bn in Jan-OctTajikistan's trade deficit reached $2.69bn in the first ten months of 2014, up from $2.42bn in the same period of 2013, local news website Asia-Plus reported quoting figures from the country's Statistics Agency.

Exports totalled $812mn, a 3.2% increase from the year earlier, whereas imports grew by 9.1% y/y to $3.5bn.

The main trading partners were Russia with more than $1bn , Kazakhstan (over $695mn) and China (over $645mn).


bne:Invest in Tajikistan - November 2014

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