Page 1 of 2 Tajikistan mired in great power game
By John Helmer
MOSCOW - Harry Lime was the character invented by novelist and onetime
intelligence officer Graham Greene (1904-91) who understood how an investment
banker should operate when the breakdown of government makes the black market
the only source of supply, trade and profit. In The Third Man (1949),
Lime's racket in postwar Vienna, then occupied by the Allied armies, was to
steal penicillin from military hospitals; adulterate it by half; then sell it
back at double the official price.
In the famous Ferris wheel conversation, high above the Vienna fairground, Lime
is asked by his journalist friend about the
morality of making a profit this way. Pointing to people on the ground, he
responds: "If I offered you 20,000 pounds for every dot that stopped, would you
really, old man, tell me to keep my money, or would you calculate how many dots
you could afford to spare?"
These days, in Russia where it isn't needed, the European Bank for
Reconstruction and Development (EBRD) is just a bank with a pretentious name,
and relatively little credit to offer. In such places as Tajikistan, the EBRD
issues the seal of creditworthiness without which commercial lenders would be
reluctant to lend at all.
Its brief history started with the collapse of the Soviet Union's economic
bloc, Comecon; the Soviet military alliance known as the Warsaw Pact; and then
the Soviet Union itself in 1991. More Harry Lime than George C Marshall, the
EBRD wasn't a postwar aid plan so much as a scheme for making sure the dots who
were the communists in Russia, and its neighbors, stopped; and for converting
the black markets that had been underground and illegal, before the dots
stopped, into legalized, privatized enterprises supportive of Western
investment and imports. At the time, the medicine the EBRD said it was trading
was called reform.
In fact, the EBRD was capitalized by North Atlantic Treaty Organization
treasuries to finance replacements for the state-owned assets of their Soviet
enemies, and buy equity in selected local entrepreneurs and syndicates. The
EBRD has done well at its racket, as millions of dots have, in Lime's words,
stopped. The EBRD also reports a substantial profit each year. But for all its
preaching transparency to its clients, the EBRD has not acquired Lime's
frankness. Once in a while, however, there is a slip.
Tajikistan, the basket case of the Soviet Union, and since then the most
desperately impoverished of the former communist states, is where, between June
of 2006 and June of this year, the EBRD decided that the creation of a private
aluminum fortune, controlled by the president of the country - the largest
concentration of wealth in Tajikistan - is a policy goal of such sensitivity,
the evidence that it has been corruptly acquired, and is corruptly maintained,
should be suppressed.
A twist in the corruption tale
Unique in the case of Tajikistan is that detailed evidence of corruption comes
from testimony given in hearings of the High Court in London, and also in
rulings issued by several English judges, in the first instance and in
appellate proceedings.
Also unique is the fact that the cases that have produced these English
judgments on corruption in Tajikistan were initiated on the orders of Tajik
President Imomali Rahmon and his chief prosecutor. Their litigation - which is
currently pending also in an affiliated British jurisdiction, the British
Virgin Islands - is the costliest boomerang ever to strike back at its thrower.
Legal fees running into several millions of pounds, compounded by a court award
and appeal judgment of US$150 million in indemnification, have already been
recorded against Tajikistan's most important state enterprise, the Tajikistan
Aluminum Plant (Talco). Several judges of the High Court in London, and the
International Court of Arbitration in London, have concluded alike that Talco
is a corrupt organization, a forger, a fraud and a dishonest wrongdoer. These
terms are taken from the judgments, which are public records and readily
accessible.
The EBRD has been joined in the Tajikistan corruption program by the World
Bank. First created in 1944, in the first flush of the military victories over
Germany and Japan, it has a global mandate similar to the EBRD's. To make sure
it doesn't go astray, the US government insists that the World Bank's chief
executive should always be an American national. That had embarrassing
consequences when the White House first foisted Paul Wolfowitz on the bank, and
then had to let him go, after embarrassing evidence was disclosed and confirmed
against him.
A US citizen supervises the EBRD's programs in Tajikistan; she is Enery
Quinones, the chief compliance officer of the EBRD in London. According to the
biography posted on the EBRD's website, Quinones is a career specialist in
dealing with official bribery and corruption. Her mandate at the EBRD "as head
of the compliance office is [to be] responsible for ensuring that the highest
standards of integrity are applied throughout all activities of the EBRD. The
compliance office, which is also the anti-money-laundering office of the bank,
provides a range of advice and assistance to all bank departments in assessing
and evaluating integrity and reputational risks relating to proposed, as well
as ongoing, bank transactions."
Nationality is important, because the US Foreign Corrupt Practices Act applies
to US citizens, wherever they are, and for whomever they work, making them
individually liable to the US prohibition on knowing involvement in, or
covering up for, the corruption of foreign government officials.
To date, over the past decade the EBRD has committed a relatively small amount
of money to Tajikistan - 56.2 million euros ($76 million). It hasn't made a
loan to Talco, not yet; however, over the past year EBRD bankers have visited
the plant, discussed its future with government officials, and supported a
series of transactions between the plant and its partners, worth more than $1
billion a year. The story of these dealings is one the EBRD is doing its best
to keep under wraps.
The World Bank has committed much more to Tajikistan than the EBRD has. In the
decade since 1996, the bank says, it has obligated $440 million, of which $337
million has been paid out; $86 million of that in the form of non-repayable
grants, and the rest in loans. The commercial lending affiliate of the World
Bank, the International Finance Corp (IFC), has invested another $36 million in
Tajikistan in the same period. Supervising whose pockets this money goes into
are a Japanese and a New Zealander - Shigeo Katsu is the vice president of the
World Bank for Europe and Central Asia; Annette Dixon, the regional director
for Central Asia.
Until English judges started issuing their findings on corruption in
Tajikistan, it was possible for the two banks, and these three individuals, to
claim to know nothing material about governmental corruption in Tajikistan. The
court rulings have changed that. And so each of the banks, and these
individuals, were recently sent a detailed questionnaire by this correspondent
to determine what impact the UK court rulings have had. That is when the
cover-up began. Why the EBRD and the World Bank should be turning a calculated
blind eye to English court documents of corruption in Tajikistan is at first
difficult to appreciate. But the strategic justification - that is to say, the
campaign against Russia - doesn't take long to uncover.
Troubled Tajikistan
Tajikistan is the poorest country in Central Asia, and the poorest of the
countries that became independent of the Soviet Union in 1991. It then plunged
into six years of civil war, which further eroded employment in both
agriculture and industry, which had been left to fend for themselves after
Moscow cut off traditional Soviet-era subsidies, and also access to trade.
According to the latest statistical estimates, Tajikistan's gross domestic
product (GDP) in 2006 was $2.8 billion, ranking 145th in the world. The value
of gross national product, measured in real terms, has not recovered to the
level of 1992; but because of population growth, per capita GDP has been
lagging even further behind its pre-independence level.
There are just over 7 million Tajiks. Poverty and malnutrition are pervasive;
and so is corruption. In the latest country ranking available from Transparency
International, in 2006 Tajikistan ranked 142nd on the global Corruption
Perception Index; that is one of the world's worst.
Cotton and aluminum are the two industries on which Tajikistan's economy
depends. But the cotton crop has suffered from periodic drought, poor yields
and volatility of global prices, which have been falling for the past decade
and which are expected to continue falling.
The single largest income-earning enterprise is the Talco - the Tajikistan
Aluminum Plant. Its export earnings in 2006 were recorded by the International
Monetary Fund as amounting to $184 million out of a total export revenue for
the year of $383 million. That is one dollar in every two. Without remittances
from its workers in Russia, Chinese project finance and aluminum exports,
Tajikistan would die.
My name is Rakhmonov - er, make that Rahmon
In March, Emomali Rakhmonov, president since 1993, adopted what he called the
Tajik version of his name (the Tajik language is a variant of Persian),
re-spelled in English as Imomali Rahmon. He wasn't the only one - all newborns
in the country were to be given traditional names, Rahmon said, instead of
their Russianized versions.
The president also ordered a number of other de-Russification measures. They
followed swiftly after Rahmon won his most recent re-election last November.
Until then, he had depended on the support of the Russian aluminum company
Rusal, which he had encouraged to take control of Talco in December 2004, and
from which he secured promises of investment of up to $2 billion in the plant,
and in the construction of new hydro-electricity sources. Rahmon also depended
on Russian border troops to secure his frontier with Afghanistan, and provide
regime backup in case of a fresh outbreak of internal fighting, or an attempt
at military overthrow.
In return for pledges of US political and financial support, and the same from
the European Union, Rahmon has offered to remove the Russian forces and replace
Russian promises of investment with Western ones. He has succeeded in getting
personal endorsement by the US. There is also an EU-funded border-management
project, which assigns the mid-section of the frontier with Afghanistan to an
EU contingent, and the western sector to the US. The eastern sector has not
been assigned, in part because there are few passable roads, and in part
because Rahmon hesitates to offend China, which is the bordering country.
The Russian government recently dispatched a high-level delegation, headed by
Deputy Prime Minister Sergei Naryshkin, to regain some of the investment
initiative and credibility that was lost by Rusal. But the Russian view of
Rahmon is guarded. There is reluctance to get involved in bidding matches for
cash the president demands from abroad, or in internal opposition plotting
against him. At the same time, Moscow is concerned that Rahmon's greed and
folly will eventually lead to his downfall. Ensuring that other foreign powers
do not benefit from this process is the Russian strategy. Making money from all
sides is Rahmon's policy.
Government regulations establish that Talco is one of just two enterprises in
the country that must report directly to Rahmon's office; the other is a
precious-metals-mining company. In a country where three of every four Tajiks
work on the land, but earn barely enough to eat, and where cows are precious,
Rahmon has taken control of the only two cash cows in the land.
The aluminum fortune
Tajikistan's most important industrial plant and the country's leading
exporter, TadAZ, changed its Russian acronym to the more Westernized version,
Talco, in line with Rahmon's name change, at the start of this year.
It currently produces almost 400,000 tonnes of aluminum per annum. At the
current international market price, that is worth about $1.1 billion. But the
plant's recorded value of exports is less than $200 million. Even so, it is the
dominant industrial enterprise of the country, the largest employer in the
economy, accounting for 35% of Tajikistan's electricity consumption, 48% of its
export revenues and a large part of the Tajik Treasury's tax collection.
Tajikistan has a great many mineral resources potentially available to be
mined, but bauxite isn't one of them. It thus cannot supply alumina, the
product refined from bauxite, which is the feedstock for Talco's
aluminum-smelting line. This didn't matter when central planners in Moscow
arranged to rail the alumina in from neighboring Kazakh and other Soviet
refineries. When the Soviet Union stopped, Talco had no cash or working capital
to buy its feedstock. At first, it wrote barter contracts, exchanging
raw-material inputs for output of metal. Rahmon then introduced what are called
tolling contracts.
Tolling explains the difference between what the plant receives for its
production and what the product fetches on the international market. The
practice of tolling is well known in the aluminum trade. It is a lawful
contractual arrangement, unless the price differential conceals transfer
pricing that violates local legislation, or a scheme to defraud the plant, or
the local tax authority.
Lawful tolling usually requires that the tollor, or trader, is legally separate
from the tollee, or smelter; and that the two are not connected to the same
holding company. Tolling is used when lack of cash prevents smelter companies
from paying for the raw materials (principally alumina) they require for the
pot lines. Tolling contracts allow suppliers of the raw materials to deliver to
the plant what is required, and fix the input price, while taking as payment
the metal the smelter produces. This is exported by the tollor, who leaves the
tollee with a fee for production and processing. When the metal crosses the
border, its declared value is what the smelter received for turning it out.
Thus it has happened that the difference between what Talco's production is
sold for outside Tajikistan and the value of production paid inside the country
is the source of the largest privately controlled fortune in the country.
According to the charges laid by Tajik government prosecutors, and by the
British lawyers acting for Talco, that fortune has been fraudulently and
corruptly spirited out of the country by the tolling contractors, in league
with Talco's management.
How this was done when Talco's management was directly under Rahmon's
supervision and control hasn't been explained. According to the counter-claims,
the Talco fortune belongs to Rahmon, and he accumulates it by requiring the
offshore traders and tollors to pay him a concession percentage of the
international metal price. When the plant's managers and traders have resisted
Rahmon's demand for his cut of the proceeds, he has accused them of unlawfully
exploiting the tolling contracts from which he himself had sought to benefit.
Details of this story - Rahmon's claims and the counter-claims - can be found
in the British court records.
Built in the mid-1980s, when Talco was one of the most technically advanced
smelters in the Soviet Union, the breakup of the Soviet Union and subsequent
civil war inside Tajikistan curtailed the plant's ability to operate. Supplies
of the alumina required for the production line were cut off, along with
operating capital and credit for trade, as well as the rail system on which the
land-locked republic had depended during Soviet times.
By the mid-1990s, production at Talco had fallen from design capacity of
517,000 tonnes per year to less than 200,000 tonnes. Because costs to supply
and operate the plant were larger than sales revenues, Talco was losing about
$40 million per year.
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