Tajikistan’s Risky Bet: Rogun Dam Project Falters

The future of Tajikistan’s massive Rogun Hydropower Plant (HPP) is once again in jeopardy as key development partners, including the World Bank, have delayed further financing. The suspension is a direct response to longstanding complaints from the environmental community and concerns from populations living downstream along the Amu Darya river, who have warned of severe ecological risks associated with the construction of such a colossal dam.

This ambitious and perilous new phase of the Rogun HPP project presents immense challenges for Tajikistan. Intended to secure the nation’s energy independence and generate significant export revenue, the project is simultaneously threatening its financial stability. While rating agencies like S&P Global Ratings have affirmed Tajikistan’s ‘B/B’ sovereign credit ratings with a ‘stable’ outlook, they also highlight the project’s exorbitant cost and question whether it will ever be profitable. The reality is that the republic is already facing a budget deficit this year, driven by the gigantic construction costs of the plant.

The Rogun HPP project, a revival of an unfinished Soviet endeavor, was restarted in 2016 and has already consumed over $3 billion. Its history dates back to 1976, but construction was frozen after the collapse of the USSR and the subsequent civil war in Tajikistan. An attempt to resurrect the project in 2004 with a Russian company failed due to disagreements over the dam’s specifications and shareholdings, leading to the contract’s termination in 2007. Since then, Tajikistan has struggled to attract investors for the controversial undertaking.

A turning point came in 2016 when, following a positive assessment from the World Bank, Dushanbe awarded a $3.9 billion construction contract to the Italian company Salini Impregilo S.p.A. The Vakhsh River was dammed, and the first and second hydroelectric units were launched in 2018 and 2019, respectively. However, significant progress has since stalled. To complete the project, six more turbines must be installed and the dam’s height must be raised from the current 135 meters to the designed 335 meters, requiring an additional $6.4 billion. This staggering sum, equivalent to about 40% of Tajikistan’s projected 2025 GDP, casts serious doubt on the project’s economic viability and forces the government to cut spending in other critical sectors.

To unlock further financing, the World Bank has stipulated that Tajikistan must meet several conditions. These include developing a macroeconomically sound financing plan that prevents an excessive increase in public debt, establishing a sustainable commercial model for the project, and securing long-term power purchase agreements with both domestic and regional buyers. Furthermore, Dushanbe is required to create a reliable financial and commercial framework for the plant’s operation and significantly enhance the dam’s safety standards.

Alexander Kolotov, director of the public fund ‘Rivers without Borders,’ emphasized the high stakes, noting that S&P’s own rating report explicitly identifies the Rogun HPP as a major risk factor for Tajikistan’s economy. This raises the critical question of why international development banks would consider increasing this risk with new loans. The nation’s financial situation is further exacerbated by its vulnerability to Russia’s tightening migration policies, as any negative impact on remittances from Tajik laborers would strike a blow to both households and the entire state financial system. This is compounded by Tajikistan’s poorly diversified economy, which remains heavily dependent on low-value-added sectors like gold mining, metallurgy, and agriculture.