Embassy of India Dushanbe * * * * * DUS/202/2/2008 January 9, 2009

Economic and Commercial Report for December 2008

A. Economic & Commercial Developments

Global Financial Crisis

The Ministry of Economic Development and Trade (MoEDT) has set-up special working groups to work out the program for mitigation of effects of the global financial crisis. The group, comprising specialists from the state institutions and researchers from the Academy of Sciences has conducted survey of the present situation and is currently working on proposals to mitigate the global financial crisis effects.

Mr. Jamshed Yusupov, the deputy head of the National Bank of Tajikistan (NBT) at a round table meeting in Dushanbe on 12/12/08 expressed that the first wave of the global financial crisis has not hit Tajikistan’s financial market because it has damaged mainly financial sectors of the developed economies, Tajikistan, however, may seriously suffer from the second wave that is more powerful and it may hit lending.

Free Economic Zone (FEZ)

Mr. Anvar Yoqubov was appointed the head of the management of the Sughd Free Economic Zone (FEZ) being set-up in the south-west of the town of Khujand in an area of 320 ha for 25 years and it will be focused on developing new production capacities and using innovative technologies. Mr. Fayzullo Rasulov has been appointed the head of the management of the Pyanj Free Economic Zone (FEZ) being set-up in Qumsangir District of Khatlon Region in an area of 400 ha and also for 25 years and it is aimed at producing and trading of agricultural products. All enterprises in the area of free economic zones will be exempted from taxes, except for social tax, in line with the Tajik law "On free economic zones".

Cotton:

Ministry of Agriculture (MoA) of Tajikistan has set up a working group for working out the program for bringing the cotton sector out of crisis. The working group is headed by Mr. Shukrullo Rahimnazarov, Deputy Agriculture Minister and consists of 18 specialists from the ministry, Academy of Agricultural Sciences, Tajik Agricultural University, and the Institute of Plant Growing at the Academy of Sciences. Cotton accounts for 60 percent of agricultural output, supports 75 percent of the rural population, and uses 45 percent of irrigated arable land. It is an important source of both export earnings and tax revenue. Tajikistan is the world’s fourth largest exporter of cotton.

Inflation:

In Tajikistan, inflation for January-November 2008 stood at 12.65 percent, which is 0.45 percent lower compared to the January-October 2008 level, when inflations stood at 13.1 percent, according to the Sate Committee for Statistics. The Consumer Price Index (CPI) for 2008 (upto Nov- 08) in Tajikistan rose by 30.7% which is highest in CIS, according to CIS Interstate Committee for Statistics.

Exchange Rate:

A sharp increase in exchange rate of US dollar to somoni has been reported in all currency exchange offices in Dushanbe in the last fortnight of Dec-08. The exchange rate of USD to somoni in Dushanbe currency exchange office has increased from 1:3.43 to 1:3.47. Experts told that this has resulted from decrease in currency aggregates due to less inflow of remittances from labour migrants. Decrease in prices and demand for aluminum and cotton that are the main items of Tajikistan’s exports is also seen as another factor that has contributed to the currency crisis in the country

Electricity prices

Electricity prices for all electricity consumers, except Tajik Aluminum Company (Talco), have been increased by 25 percent starting from 1/1/09. In view of decrease in aluminum price due to financial crisis, the government had decided to leave the electricity price for Talco the same so as to support aluminum production in the country. The public will pay 1.7 cents per kilowatt of electricity instead of 1.39 cents this year and industrial enterprises and many other industries about 4 cents.

Plan of action for next three years

The government has endorsed a plan of actions for the coming three years and set up organizing committee for implementation of this plan. The plan includes some 90 events of the nationwide significance which inter-alia includes implementation of a number of road building and rehabilitation projects such as Dushanbe-Chanak, Kulob-Darvoz, Qurghon Teppa-Dusti-Panji Poyon, Dushanbe-Rasht-Jirgatil-Kyrgyz border, construction of a railway link connecting Vahdat ad Yovon, constructions of the tunnels of Shahriston and Shar-Shar, construction of one medium-sized and 43 small power plants, construction of a 500 kilovolt power grin South-North and power transmission line from Tajikistan to Afghanistan, launch of branches of Moscow State University and Kharkov Technical University in Dushanbe, etc.

B. Trade & Investment-related news

Foreign Trade:

According to figures provided by the State Committee for Statistics, in January-November 2008, the external trade turnover of Tajikistan was $4.3014 billion, which is 17.9 percent more than last year for the same period. Exports of goods in January-November 2008 were $1.3306 billion and Imports of goods into Tajikistan over the same eleven-month period were $2.9708 billion. The overall trade balance remained negative ($1.64 billion).

Over the report period, the CIS states have accounted for 44.1 percent ($1.8948 billion) of Tajikistan’s external trade turnover and the far abroad countries have accounted for 55.9 percent ($2.4066 billion) of the country’s external trade turnover.

Electrical power’s share in the country’s external trade turnover for January-November 2008 has accounted for 3.1 percent. Over the report period, Tajikistan has exported 3.9934 billion kWh of electricity for 55.3 million dollars. Electricity imports over the same eleven months period have amounted to 4.7034 billion kWh for 78.5 million dollars.

In January-November 2008, Tajikistan has imported 453.6 million cubic meters of natural gas for 65.8 million dollars.

Cotton fiber’s share in Tajikistan exports over the report period has accounted for 7.3 percent. In January-November 2008, Tajikistan exported 73,800 tons of cotton fiber for 97.4 million dollars. Compared to January-November 2007 an average price of one ton of cotton fiber has increased 184 dollars, reaching 1,319 dollars.

Roghun Hydroelectric Project:

Regardless of World Bank's appeal to refrain from the implementation of huge projects, MoEDT has announced that it will continue the construction of the Roghun hydroelectric power station, despite the global financial crisis and its adverse impact on the country. The state budget for 2009 envisaged the allocation of about 160m dollars for the construction project and the government has announced it would not refuse the project. The Govt. envisions this would bring not only energy independence to Tajikistan but would also turn Tajikistan into a major exporter of electricity to the regional and Middle Eastern countries.

Small Hydroelectric power plants:

Ministry of Energy and Industries (MoEI) has given go-ahead to constructing five small hydroelectric power plants in Khatlon’s Muminobod district. A small Hydroelectric Power Plant (HPP) of 80 megawatt capacity at Kharangon in Varzob district began to operation on 22/12/08.

Agriculture

Tajikistan produced 249,022 tons of raw cotton in 2008, which is 63.2 percent of the national cotton target (552,200 tons) and 16.8 percent fewer than last year.

Industry

According to the State Committee for Statistics, Tajikistan is the only CIS state, where industrial production declined this year. In January-November 2008, production of Industrial goods in Tajikistan was equivalent to US$1.575 billion which is 95.8% of last year’s volume. This has been caused by decline in production in the energy sector – 14.3 percent, metallurgy – 3.9 percent, chemical and petrochemical sector – by 3.6 percent, industrial and building materials – by 13.6 percent, land light industry – by 2.2 percent.

The Adrasman Ore Refinery and open joint-stock company, Leninabad Rare Metals Plant (LRMP) have suspended their operations because of landslide of prices and sharp decrease in demand for their products.

Tajik Aluminum Company:

The Tajik Aluminum Company (Talco) has reduced aluminum production by 10 percent, with a view to reduce electricity consumption and improve provision of population with electricity and heat during winter months. The move also stems from a decline in world aluminum prices in connection with the ongoing financial crisis.

C. Commercial and Economic relations:

India:

On 9/12/08, Mr. Sharif Said, the Chairman of the Tajik Chamber of Commerce and Industry (CCI) and the Indian ambassador to Tajikistan, Shri. Amar Sinha, discussed issues of developing trade and economic cooperation between the two countries viz. setting up joint ventures, supplying car parts, produced in India, to Tajikistan, developing cooperation in the construction sector, launch of direct flights between the two countries as well as cooperation in preparing specialists in business sector.

Indian companies – KEC International Ltd (KEC) and RPG Transmission – have been granted a contract for construction of a 220 kilovolt double circuit transmission line that will link the hydroelectric power plant (HPP) Sangtuda-1 to Afghan border. The Asian Development Bank (ADB) and the OPEC Fund for International Development provide 19 million dollars for construction of this power transmission line. After introduction of this section into commission, the Indian companies intend to participate in construction of the grid from the Tajik border via Afghan capital to the border of Pakistan’s as well. The order is a turnkey project for the supply and construction of 220 kV double circuit lines associated with the Tajikistan-Afghanistan Interconnection Project for the Tajikistan Portion. The lines are to be constructed from Karadum to Vatz (89.37 km) and from Vatz to Sangtuda (28.29 km). The contract also involves construction of additional 2 X 220 KV Line Bays at the Sangtuda Switchyard. The total length of lines is 118 km and the project is scheduled to be completed in 18 months. China:

A new Tajik-Chinese joint sewing venture was launched in Dushanbe on 13/12/08. The enterprise has been launched by the Dushanbe clothing factory, Yoqout-2000, and China’s Wi Ji (phonetically spelled) which, at first will produce military uniform and next year, it will produce school uniform and children’s garments.

China’s Huaruilin International Trade Company intends to enter Tajikistan. Huaruilin (Tianjin) International Trade Co., Ltd is engaged in manufacturing engineering and building materials and constructing wooden cottages, large production premises, warehouses and sheds.

CIS countries:

Summit of the CIS leaders:

After an informal two-day summit of the CIS leaders held on December 19-20 at the Kazakh resort town of Borovoye has resulted in a decision to set up a joint anti-crisis fund of 10 billion US dollars. The presidents of Armenia, Kazakhstan, Kyrgyzstan, Russia and Tajikistan attended the meeting and discussed a broad range of issues related to strengthening of the collective security system within the framework of the Collective Security Treaty Organization (CSTO), joint efforts to mitigate effects of the global financial crisis and strengthen regional integration.

Eurasian Development Bank (EDB)

Tajikistan has joined the Eurasian Development Bank (EDB) founded by Russia and Kazakhstan.

Ukraine

A ten member delegation from Ukraine’s Kharkov region, visited Kulob on 01-12-08 for a get- to-know visit and held talks with Kulob mayor Homid Abdulloyev to discuss the possibility of establishment of bilateral cooperation. The delegation consists primarily of industrialists and regional officials in charge of the industrial sector.

On December 5, Tajik energy ministry and Ukrainian leading turbine-producing company, open joint-stock company (OJSC) Turboatom, signed a protocol of intention on launching joint venture in Tajikistan for designing and manufacturing turbines for small and medium-sized power plants. The document was signed in Kharkov within the framework of President Emomali Rahmon’s state visit to Ukraine. Besides, Turboatom will resume supply of turbines for the Roghun hydroelectric power station (HPS) under construction and provide the Norak HPS with new turbines.

Kazakhstan

The Presidents of Tajikistan and Kazakhstan held a bilateral meeting on 20/12/08 on sidelines of an informal three-day CIS summit at the Kazakh resort town of Borovoye. They discussed issues related to increase in Kazakhstan’s investments in Tajikistan’s economy and construction of joint ventures and small power plant in Tajikistan with participation of Kazakh capital, and also decided that Kazakhstan would increase wheat and fuel oil shipments to Tajikistan during the winter 2008- 2009.

Kazakhstan intends to expand its bilateral cooperation with Tajikistan in all economic branches, Kazakh Ambassador to Tajikistan, Mr. Abutalip Akhmetov, announced at a press conference in Dushanbe on December 9. He told that the priority will be given to the energy sector, in particular, construction of small and medium-sized hydropower plants in Tajikistan. He also reminded that under an agreement reached between the two countries during Kazakh president’s visit to Tajikistan in September 2007, a joint investment fund had been set up. The joint investment fund of 100 US million dollars has been set to invest in projects in Tajikistan, and the fund would start its work beginning on January 1, 2009.

Uzbekistan

Uzbekistan cut down the natural-gas shipments to Tajikistan by half (from 70,000 cubic meters per hour to 35,000 cubic meters) due to payment delays. Tajikistan frequently runs into debt in paying for Uzbek natural gas, and Uzbekistan often responds by suspending supplies. Tajikistan is not happy with natural-gas price set by Uzbekistan for 2009. Uzbekistan, which is the only supplier of natural gas to Tajikistan has set the price of natural-gas supplies for Tajikistan at $300 per 1,000 cubic meters, a 100 percent increase over the current price. During negotiations in Tashkent in early December, Tajikistan proposed the Uzbek side to keep the current price - $145 per 1,000 cubic meters, but Uztransgaz, the state gas producer in Uzbekistan, refused. Negotiations are still going on for the reduction of prices. Tajikistan intends to purchase 550 million cubic meters of natural gas from Uzbekistan in 2009, according to Tojikgaz.

Pakistan

On 04/12/08, Tajik Prime Minister Oqil Oqilov and Pakistani ambassador to Tajikistan Khalid Usman Qaiser discussed issues of Tajik-Pakistani cooperation in power engineering, agriculture, tourism culture and education during a meeting and stressed the need to boost the activities of the bilateral intergovernmental commission for trade and economic cooperation. They also discussed the issue of organizing fruit and vegetables supplies from Tajikistan to Pakistan.

Turkey:

State and prospects of further expansion of economic cooperation between Tajikistan and Turkey were discussed at a meeting of Chairman of Tajikistan’s Chamber of Commerce and Industry (CCI), Sharif Said, and Turkish Ambassador to Tajikistan, Akif Aykhan, on December 23, according to the CCI press service. In the course of the talks, the two discussed priorities of Tajikistan’s economy and exchanged views on ways to expand bilateral economic cooperation between the two countries. Mr. Aykhan noted that his country was interested in investing in different branches of Tajikistan’s industry and launching joint ventures here. According to him, increase in the number of flights between the two countries would promote further development of business relations between Turkey and Tajikistan. For his part, Mr. Said proposed to hold an exhibition of Turkish goods and a conference of businesspeople of the two countries in Dushanbe in 2009. He added that Turkey had good experience in creating free economic zones (FEZs) and asked to conduct training seminars for Tajik specialists on this subject and organize training of Tajik specialists in Turkey, the press service said.

Polish- Turkish Chamber of Commerce:

Mr. Sharif Said, the chairman of the Trade and Industry Chamber of Tajikistan [TICT] met the deputy chairman of the Polish-Turkish Chamber of Commerce, Grzegorz Kobylecki on 2 December- 08 and signed a MOU between the TICT and the Polish-Turkish Chamber of Commerce. The sides discussed the issues of bilateral cooperation in the fields of trade and economy, in particular, the issues of Polish companies' involvement in agriculture, construction of mini hydroelectric power stations and coal mining in Tajikistan.

Asian Development Bank:

On Dec-26, the Government of Tajikistan and the Asian Development Bank (ADB) signed legal agreements for a project to rehabilitate an ageing facility in Tajikistan’s electricity supply network which is in danger of collapse, according to pres release issued by the ADB Dushanbe Office. ADB is providing a grant of $54.77 million from its Special Funds for the Norak Switchyard Reconstruction Project. Tajik side will provide counterpart fund of $12.1 million for the project. International conference in Doha

President Emomali Rahmon visited Doha, Qatar on November 28 to attend the Follow-up International Conference on Financing for Development to Review the Implementation of the Monterey Consensus scheduled for November 29-Decmeber 2. The Tajik leader attended an informal summit of the United Nations in Doha that was held to discuss issues related to the global financial crisis. On November 29, the follow-up conference opened to assess progress made, reaffirm goals and commitments, share best practices and lessons learned and identify obstacles and constraints encountered, actions and initiatives to overcome them and important measures for further implementation, as well as new challenges and emerging issues.

Speaking at the conference, President Rahmon noted that “despite negative impact of the global financial crisis, the advanced countries should reaffirm their adherence to priorities of the Monterrey Consensus and take efforts to reduce gap between developed and developing countries and to get over their uneven development.”

Outlining enhancement of energy sector, including completing of construction of the Roghun hydroelectric power station (HPS), as one of priorities of Tajikistan’s policy, Rahmon noted that if donor countries and organizations support implementation of the energy projects, Tajikistan would be able to export more than 25 billion kWh of electricity to Pakistan, Afghanistan, Iran, India and other countries in the near future.

Rahmon’s talks with the UN Secretary General Ban Ki-moon focused on issues related to development of water-and-energy resources in Central Asia, coordination of external aid to Tajikistan, prevention of spread of HIV/AIDS, tuberculosis and malaria, as well as strengthening of border control and fight against drug trafficking in Central Asia.

Strengthening and further expansion of cooperation between Tajikistan and the United Nations was the focus of a meeting of President Rahmon with the UN Under-Secretary-General for Economic and Social Affairs Sha Zukang.

President Rahmon also met with his Croatian counterpart, President Stephan Mesic, to discuss issues related to laying legal foundation of a broad cooperation between Tajikistan and Croatia.

Rahmon’s meeting with Bulgarian President Georgy Pyrvanov focused on strengthening and expansion of bilateral mutually beneficial and multi-aspect cooperation between the two countries. Emomali Rahmon invited Georgy Pyrvanov to pay an official visit to Tajikistan.

President Rahmon also met Mr. Pascal Lami, Director General of the World Trade Organization (WTO). The two discussed issues of Tajikistan’s admission to the WTO.

Foreign Aid:

During the period from January-November-08, a total of 40,329 tons of goods worth 96.84 million US dollars were delivered as humanitarian aid to Tajikistan. Among the donor countries the greatest share in value came from the United States – 34.7 percent, followed by Latvia – 5.0 percent, Iran – 3.0 percent, China – 2.6 percent, Denmark – 2.0 percent, the Netherlands – 1.7 percent, Switzerland – 1.6 percent, Afghanistan and Turkey – 1.4 percent each, the United Arab Emirates (UAE) and the Republic of Korea – 1.2 percent each, Great Britain – 1.0 percent, Spain – 0.5 percent, Austria, France, and India – 0.4 percent each, and of the CIS countries: Belarus – 17.8 percent, Kazakhstan – 133 percent, Russia – 7.2 percent, Kyrgyzstan – 1.4 percent, and others.

(L. Ramesh Babu) Second Secretary (C&E) Embassy of India, Dushanbe, Tajikistan.