Tajikistan - Economic Development

AKFED is making investments in Tajikistan that address essential needs in tourism, energy, and mobile services.The Aga Khan Fund for Economic Development (AKFED) is an international development agency dedicated to promoting private initiative and building economically sound enterprises in the developing world.

The Fund is making long term investments in Tajikistan as part of an effort to catalyze foreign investment and strengthen the role of the private sector in the country while building essential infrastructure. Its approach emphasises the development of local human resources over time, including managerial, technical, marketing and financial skills.

AKFED’s current investments in Tajikistan are in the sectors of energy, telecommunications and tourism; they include the PamirEnergy company, Indigo Tajikistan and Serena Hotels.

PamirEnergy
Since 2002, PamirEnergy has doubled the installed capacity at the Pamir I power plant, its main generator. Overview
Following the collapse of the Soviet Union in 1991 and a five-year civil war, Tajikistan’s electrical infrastructure was in need of significant investment. Among the most affected areas was the Gorno Badakhshan Autonomous Oblast (GBAO), where economic and human development was stifled during the cold winter months as a result of a lack of electricity for heating and the consequent closure of schools, health centres and businesses.

Many of the region’s 200,000 residents resorted to wood fuel for their heating and cooking needs during the winter, resulting in the decimation of 70 percent of the region’s forests within a decade and a sharp increase in respiratory disorders due to smoke inhalation.

The Aga Khan Fund for Economic Development (AKFED), in partnership with the International Finance Corporation, formed the PamirEnergy Company in 2002 to address the situation. Some US $26.8 million dollars has since been invested by the company to repair the electrical infrastructure of GBAO and expand hydroelectric capacity.

In the wake of these efforts, over 86 percent of the region’s inhabitants now have access to electricity while tariff subsidies have ensured that even the poorest households are able to access power.

AKFED’s Approach
Despite the dire need for electrical infrastructure in GBAO prior to PamirEnergy’s founding, attracting private investment to the region was difficult, especially following the civil war. The legacy of Soviet subsidies meant that those fortunate to have electricity paid at less than one tenth of the production cost, while measuring consumption for billing purposes was nearly impossible in view of the dated electrical metering system.

In this fragile context, AKFED took bold but calculated steps to bring partners and resources to address the issue. Under a public-private partnership agreement signed with Government of Tajikistan in 2002, the company is managing the operation of all power generation, transmission and distribution facilities of GBAO for a 25-year concession period.

To address cost issues, AKFED has developed a pioneering subsidy scheme to make the electricity both affordable to residents and financially viable for PamirEnergy.

One subsidy ensures that a minimum “lifeline” monthly supply of power is provided to all households served by the company at a rate of US 0.25 cents / kilowatt-hour, one of the lowest in the world amongst privately-owned utilities.

Subsidies are generously funded by two grants, one provided by the Government of the Swiss Confederation (SECO) and the other by the Tajikistan government through financing by the International Development Association, a member of The World Bank Group.

Rehabilitation Efforts
Since taking over electrical utility operations in GBAO, PamirEnergy has installed an additional two turbines and generators at Pamir I, the company’s main generating plant and retrofitted them with new equipment and systems, increasing the plant’s installed capacity from 14 to 28 Megawatts (MW). Renovations have also occurred at the company’s nine mini hydropower plants, which provide power to villages and small settlements in more remote areas.

At Lake Yashilkul, the water source for Pamir I, the company has created a retention structure increasing water flow of the Gunt River by as much as 40 percent during the winter months, when electricity is crucial but power generation is restricted due to low river flows.

To ensure that power billing is fair and accurate, the company has procured a meter standard, re-calibrated 9,200 old electricity meters and installed 7,609 new individual meters. In total, 81 percent of all power sold is now individually metered.

Impact
As a result of PamirEnergy’s efforts, most residents of the city of Khorog, GBAO are now enjoying 24 hours of power a day for the first time since the end of the Soviet era. The renewable energy produced by the company’s plants has displaced the need to burn trees or to use high-polluting diesel generators. Due to its limited greenhouse emissions, PamirEnergy has been able to generate revenue by selling carbon credits abroad, in line with the terms of the Kyoto Protocol.

The company continues to be a source of livelihood and skill development for populations in the region, providing employment opportunities to over 600 local residents.

Looking Forward
PamirEnergy plans to continue to expand its power generation capacity and to install 6,000 additional electric meters in 2008 in its endeavour to provide each customer with individual meters. Steps are also being taken to address the challenge of increasing cost recovery in a manner consistent with household’s ability to pay.

PamirEnergy is also planning to establish a customer service centre in Khorog that will be connected to the company’s grid and database, enabling representatives to more efficiently and effectively respond to customer inquiries and difficulties.

A cross-border transmission line between Tajikistan and Afghanistan will be completed in the spring of 2008, enabling PamirEnergy to share its surplus power in the summer months with the Shugnan district of Afghanistan. If successful, the company expects to replicate this pilot project in other villages along border.

Indigo
Overview
Indigo is known as a customer service leader amongst Tajik mobile service providers, with five walk-in facilities in Dushanbe.In the late 1990’s, telephone service in Tajikistan was in a poor state: it was delivered using a single, out-of-date, radio system; headsets were heavy, expensive and short on battery life, and coverage outside urban areas was almost non-existent, forcing residents in rural districts to line up for hours at scattered land-line stations in order to communicate with others.

In such cases of pressing infrastructure need, the Aga Khan Fund for Economic Development (AKFED) looks to make bold but calculated steps to make investments towards a solution.

In 2001, AKFED partnered with MCT to launch the Indigo mobile telephony company in Tajikistan as part of an effort to improve service and spur competition in the country’s mobile services industry. The company is now the second largest of the eight Tajik mobile providers by subscriber base, with revenues of nearly US $50 million in 2007, and it has become an exemplar in the country for its corporate practices and customer service.

AKFED’s Approach
In situations where attracting investment can be challenging, AKFED often provides essential support and seed capital to launch much-needed private sector projects. AKFED takes a long-term view in building viable, self-sustaining companies, whose profits in due course can be reinvested in similar future endeavours.

The Fund’s approach emphasizes the development of local economies and human resources in the countries in which it invests. Its companies also seek to operate with the highest ethical standards and best practices, including setting examples for other companies in integrity and social corporate responsibility in their countries of operation.

Putting this philosophy into practice, Indigo’s work force of 700 is entirely made up of local citizens as part of AKFED’s aim to create more employment opportunities in higher-skilled segments of Tajikistan’s economy and to build local management ability. Indigo also seeks to welcome rather than discourage mobile service competitors in the country and to expand telecommunications coverage into Tajikistan’s rural areas even if these regions are not profitable in the short term.

To launch Indigo in Tajikistan, AKFED partnered with MCT, a company with holdings in 25 major mobile operators in Central Asia including Russia’s Indigo and Tajikistan’s Somoncom - the only provider in the northern reaches of Tajikistan. The joint venture leveraged AKFED’s resources and approach to economic development with MCT’s expertise in telecommunications.

MCT’s stake in Indigo has since been acquired by TeliaSonera, one of the largest mobile operators in Central Asia, giving Indigo further resources and global expertise to draw upon in promoting further development in Tajikistan.

Results
Today, Indigo is the largest mobile operator in Tajikistan by revenue, with annual figures of close to US $50 million, and the second largest by subscriber base, with a 28 percent market share in 2007. It became the first 3rd generation (3G) mobile operator in Central Asia, making Tajikistan the first 3G-enabled country amongst the five Central Asian republics. Indigo offers international roaming service in 90 countries and a wide range of GSM services including Video telephony and Multimedia Messaging Service.

Indigo is the first mobile provider in Tajikistan to offer coverage in the remote mountainous regions of the country, including the cities of Khorog, Ishkashim and Darvaz. It is also one of the few Tajik companies to conduct an internationally-accredited annual audit, performed by PricewaterhouseCoopers, thereby promoting transparency and international corporate practices amongst other companies operating in the country.

Impact
Indigo’s successful entrance into mobile services has spurred competition in the market, with eight companies now operating in Tajikistan. Stiff competition has benefited consumers as tariff prices continue to fall while the number of services offered continues to increase.

The company now provides coverage to over 90 percent of Tajikistan’s population, which has given the country an economic and social boost, especially in rural areas. Among Tajik telecom companies, Indigo is widely recognized as the leading provider of customer service, with a 24-hour service hotline, five walk-in customer service facilities in Dushanbe as well as regional offices to serve the rural areas of the country.

Looking Forward
As part of its drive to constantly improve the service it provides to its customers, Indigo plans to continue expanding its coverage area until it reaches the entire Tajik population while enhancing the services it offers. It also is looking to increase capacity in the mountainous Badakhshan region, where in many remote communities it is the only carrier.

Tourism Promotion Services
High quality tourism infrastructure is largely underdeveloped in Tajikistan. Due in part to instability and insecurity in the 1990’s, investors have been reluctant to make the large investments and long term commitment necessary to build hotels at international standards of quality in the country.

Tourism Promotion Services (TPS), an affiliate of AKFED, seeks to develop tourism potential in underserved areas such as Tajikistan. Operating under the “Serena” brand name, TPS hotels enjoy a long-established reputation for the highest standards of comfort and service, with over 30 properties in nine countries in East Africa and Asia. Each Serena property is carefully built to harmonize with local culture and heritage and to reflect the architectural styles of the region so that it promotes awareness of these elements amongst travellers.

The state of the art Dushanbe Serena hotel will support Tajikistan's efforts to become a more viable and friendly destination for visitors.The Dushanbe Serena Hotel, a five-star hotel with an estimated project cost of US $40 million, is currently under construction and expected to be completed in 2009. The nine-story, state of the art hotel will have 95 rooms - including suites and apartments - along with a banquet hall, meetings rooms, restaurants, a bar and lounges, a business centre, a gym and a health club. It will also have office space to meet the growing demands from organizations based in the city.

Around 200 people will be employed during the Dushanbe Serena’s construction and about 200 will be employed for the hotel’s operation, with a focus on hiring from the local population at all levels of the organization. In an effort to develop local management ability, employees will be provided extensive training in hotel management and will be exposed to other Serena hotels globally for on the job training.

Overlooking the Pynaj River separating Tajikistan and Afghanistan, the Khorog Serena Inn provides quality accommodations and food services to travelers in the region. Overlooking the Pynaj
River separating Tajikistan and Afghanistan, the Khorog Serena Inn provides quality accommodations and food services to travelers
in the region.Operational since 2002, the six-room Khorog Serena Inn was Tajikistan’s first hotel built at international standards of quality. The roof of the Inn and pillars inside the lobby are inspired by the design of a Pamiri house, while the interior also reflects local culture.

The Inn caters to the needs of Government dignitaries, diplomats, NGOs and tourists in the GBAO region, providing a fully equipped business centre and a restaurant, offering local and international cuisine. An expansion of the Inn is currently being planned to meet the rising demand for quality accommodations in Khorog.

In line with AKFED’s objectives, the Inn is fully staffed by local residents. In order to promote cultural awareness of the surrounding regions, it sells handicrafts manufactured by the local community and also organizes performances of traditional music.

TPS projects have and will continue to contribute to Tajikistan’s economic growth in an environmentally and culturally sensitive manner. With the opening of the Dushanbe Serena Hotel, TPS will further enhance its support to Tajikistan by increasing tax and foreign exchange revenues, improving the availability of trained manpower, providing employment to local residents and promoting the products of local vendors.

More broadly, by offering high quality accommodations for tourists and business travellers, Serena projects will support Tajikistan’s efforts to become a more viable, friendly and comfortable destination for visitors, which ultimately will translate into improved economic activities in the country.

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