Page 2 of 2 Tajikistan mired in great power game
By John Helmer
In 1996, Avaz Nazarov, a Tajik, together with a group of his companies, began
large-scale supply of alumina to the smelter, and financed the shipment of
aluminum to ports in Russia or Estonia. Output steadily recovered. From 2000,
the operating balance sheet of the plant moved from red to black, as the
Nazarov group arranged with Hydro, the aluminum unit of the Norwegian oil,
energy and metals conglomerate Norsk Hydro, to become the largest buyer of the
metal.
At the end of 2004, Rahmon arranged for government officials to threaten
criminal proceedings against Nazarov and members of the Talco management loyal
to him, headed by the chief executive, Abdukadyr Ermatov. They fled to London.
Instead of
Nazarov, Ermatov and Hydro, Rahmon arranged for Rusal to take over the export
trade of the plant. Management was transferred to loyalists of Rahmon.
State prosecutors attempted to lure Nazarov to a meeting in Moscow, capture
him, and return him to Dushanbe, the Tajik capital, for trial. He was accused
of conspiring to overthrow Rahmon and his government and foment rebellion. In
February 2005, just weeks after the Rusal takeover of the plant,
arbitration-court proceedings were initiated in London as Hydro charged Talco
with contract default for failing to deliver about 80,000 tonnes of aluminum,
worth an estimated $145 million.
In May 2005, Talco filed a lawsuit in the High Court in London. This alleged
that the Nazarov group of companies bribed the smelter management to look the
other way while it overcharged Talco for its alumina, shortchanging the company
of alleged profits of about $220 million. Nazarov and his companies
counter-claimed, accusing Talco, Rahmon's circle and Rusal of corruption,
racketeering and fraud. The outcome of these London legal proceedings has been
the de facto trial of Rahmon's management of the most important state
enterprise in Tajikistan. Several British judges have ruled, and their
judgments to date provide an unprecedented verdict.
In November 2005, the International Court of Arbitration in London ruled that
Talco had violated its aluminum-delivery contracts with Hydro and should repay
Hydro $145 million, plus charges and costs. Talco appealed, and attempted to
have the High Court keep its ruling secret. Both applications were rejected by
the court.
In April 2006, Justice Morrison of the High Court reaffirmed in a ruling the
earlier findings of fact by the arbitration court, and a ruling by Justice
Blackburn that Talco had conspired with Rusal for the corrupt purpose of
ousting the Nazarov group, and skimming off profits of the smelter operation
"for the benefit of unnamed persons".
In May 2006, Justice Morrison of the High Court ruled on Talco's appeal of the
arbitration order, announcing that Talco was "not the victim of fraud, [it has]
been the perpetrator of it in this litigation ... [Talco] has been involved in
deliberate attempts to mislead the [arbitration] tribunal and [has] committed
acts which in this jurisdiction are serious crimes" (forgery and attempting to
gain a pecuniary advantage by fraud).
In July 2006, the High Court ruled that Rusal should face trial for alleged
fraud and racketeering in its takeover tactics. This decision was the first
ever to oblige the Russian company to submit to the jurisdiction of a reputable
foreign court. It was issued by Justice Cresswell of the High Court.
Last October, Justice Morrison of the High Court ruled against further claims
by Talco and its lawyers, and formally accused Talco of "wrongdoing". The judge
added that Talco's "approach to litigation demonstrates a contempt for the
normal constraints which control parties' conduct in highly charged adversarial
proceedings".
Rahmon changes mind, not pocket
The London court rulings were a stinging blow to Rahmon's plans for Talco; they
forced him to begin reevaluating his alliance with Rusal.
He then summoned Hydro, plus representatives of the Norwegian government, the
EBRD and the World Bank, to a secret round of meetings in Dushanbe. These took
place from June 24-27, 2006. The World Bank claims that officially it didn't
participate; that is denied by a source inside the World Bank, and by the
Norwegians who were present.
The EBRD officials admitted shortly afterward that they had been in Dushanbe
themselves at the same time. The EBRD was an important creditor to Rusal at the
time, as was the IFC of the World Bank group, and both had reason to allay the
suspicion of the Russians that they weren't plotting with Rahmon against Rusal.
In retrospect, that has become obvious. At the time, however, all the EBRD
officials would say was that "the two missions were a coincidence - these
things happen". The EBRD officials in charge of Tajikistan even claimed that
they didn't inquire of their World Bank colleagues what exactly had transpired.
The talks with Rahmon had been super-sensitive. They focused on the Tajik
president's proposal that, in return for not requiring Talco to pay the $150
million by then owed to Hydro, according to the London court orders, Rahmon
would set up an exclusive new trading arrangement between Talco and Hydro, and
that this trade would ensure over time the compensation Hydro had successfully
sued for. He also asked the Norwegians to give him time to arrange everything
until after the presidential election, scheduled for November. Those who
attended, especially the Norwegians, understood that Rahmon was promising to
oust Rusal at the aluminum plant, and replace the Russians with the Norwegians.
They didn't have long to wait.
Rahmon was re-elected last November 6. On December 20, it was publicly
announced by Hydro and Talco that they had resolved the issues in dispute in
the London arbitration and that they had reached new agreements at a fresh
meeting in Dushanbe with Rahmon. According to the official statements from the
companies, "The new agreements between Hydro and TadAZ [Talco] have been
reached with the help and approval of the World Bank and the European Bank for
Reconstruction and Development." A midsummer coincidence had become a Christmas
certainty.
On December 22, Talco launched a tender, and then on January 8 placed the
tender notice in The Financial Times of London. This called for tender bids for
"procurement of supply to TadAZ of raw materials (in required volumes and
types)and electricity during the contract term". The notice also acknowledged
that the winning bidder would arrange tolling contracts, and that "the tollor
will be required to pay tax on the products of processing on the customs
territory of the republic of Tajikistan". The winner of this tender was
subsequently announced as Talco Management Ltd (TML).
According to Talco's website, the tender was an open one, but TML itself is a
closed book. It is registered in the British Virgin Islands (BVI), but no
details of who owns it have been disclosed, nor why it is necessary to the
operations of the plant, after the agreement between Talco and Hydro. Talco's
website reports that Hydro will provide the alumina feedstock to the plant,
take primary aluminum for sale, and "render technical assistance and make
investments". These may be in environmental protection, as well as in
electricity production.
Last month, according to Rahmon's chief prosecutor, Bobojon Bobkhonov, in a
statement reported by a Tajik government newspaper, this agreement between
Talco and Hydro "is in compliance with all international standards, is a
transparent and open document, a sign of increased confidence that the
international business community has in this country". Talco and Hydro have
refused to provide a text of this agreement, or respond to reports that Rahmon
and his family control TML.
Hydro's December deal meant the writing was on the wall for Rusal. It had been
ousted on Rahmon's order, for Hydro's benefit, just as Rahmon had arranged
Nazarov's ouster for Rusal's benefit two years earlier. Rusal had nothing
further to gain (indeed, much to lose) by continuing to attack Nazarov in the
London courts. And so, on April 27, it was announced by the British law firm
Clyde & Co, which had represented Nazarov and his group, that both sides
"have reached a comprehensive settlement of all of their outstanding claims
against one another without any admission of liability by either side. Both
parties are content with the terms of the settlement and pleased that their
disputes have now been resolved."
This ended Russian funding for Talco's court case against Nazarov. But Rahmon
wanted the show to go on. He and chief prosecutor Bobkhonov decided to open a
new court attack in London on Rusal, accusing it of the same wrongdoing Rusal
and Rahmon had already, though unsuccessfully, alleged against Nazarov. Despite
the fact that Talco's claims had already been discredited by High Court judges
Cresswell, Blackburn and Morrison, Talco's London law firm Herbert Smith
applied for an extension of time to prepare for trial of its claims against
Nazarov until October 2008. This delay was granted by Justice Steele in June.
Talco also applied to the High Court for jurisdiction to charge Rusal with
fraud, and join Rusal to the list of defendants in the Nazarov case. However,
Justice Steele rejected this claim.
And so, last month Talco's law firm Herbert Smith went to the BVI and filed a
lawsuit there in which Talco repeated the accusations against Rusal, which had
been thrown out of court in London the month before.
After details of Rusal's secret financing of Talco's London litigation had been
exposed in court, and confirmed by the judges, the source of funds for the new
round of litigation has attracted speculation that it is coming from the
Norwegians. An EBRD source claims the EBRD is not funding the latest round of
Talco court claims. But the source did not rule out that the EBRD may be
considering money for Talco. And spokesman Anthony Williams claimed, "If the
bank had a financial involvement with Talco, that would only follow a period of
intense and thorough due diligence which would of course take into account all
public statements, including court rulings to the extent that they are in the
public domain."
Rahmon refuels anti-Russian campaign
Why it would pay Rahmon and Bobkhonov to risk their reputations once more,
after getting them blackened through Talco in the first round, becomes clearer,
once the role of the EBRD and the World Bank to orchestrate the Norwegian
takeover of Tajikistan's aluminum business is understood as part of a general
strategy to eliminate Russian influence in the country.
When asked a year ago how the EBRD would countenance lending to companies,
against which there have been findings of corruption and business malpractice,
an EBRD banker claimed there is a big difference between allegations and
verdicts. The same banker repeated this distinction in a newspaper remark,
quoted in a London newspaper last month. By continuing the High Court case in
London against the Nazarov group, and opening a new one against Rusal in the
related BVI jurisdiction, Rahmon, his chief prosecutor, Talco and Herbert Smith
are in effect telling the EBRD and the World Bank that nothing can be concluded
from the High Court rulings - until and unless there is a trial and a verdict.
Talco's tactics are thus to keep these cases pending, but make sure there is no
trial, and no verdict, for at least another year.
Until then, government news agencies in Dushanbe will continue broadcasting
lengthy diatribes by officials repeating the old allegations against Nazarov,
and adding the fresh claims against Rusal. In one of these statements, dated
July 13 and published by Asia-Plus, Bobkhonov claimed that "all rulings handed
down at the High Court in London have been in favor of TadAZ".
The fact that this is false, and that the reverse is true, ought to be obvious.
And it is - to everyone but the senior managers in charge of Tajikistan at the
World Bank and the EBRD. To them, it is vital to preserve Rahmon's strategic
move toward the West, and to preserve the legal fiction that none of the
rulings that have been handed down so far is so final that it creates an
obligation on the bankers' part to pay attention.
Three monkeys who see no evil
Quinones of the EBRD was asked what anti-corruption reports and policy
recommendations have been by made by the EBRD? Who has been in charge of the
anti-corruption program, and to whom does that official report? What actions
have been taken to implement the anti-corruption program in Tajikistan, and
with what results to date?
As the EBRD's chief compliance officer, with the mandate that has already been
cited, it is plain that Quinones is responsible. But through a spokesman, she
claims she is not responsible for a "program" at all. The questions, Quinones
said, "suggest that the EBRD has specific [and, by implication,
country-specific] anti-corruption programs. It does not."
Moreover, she intimated through her spokesman that the London court rulings
condemning Talco and associated Tajik government officials for wrongdoing
aren't relevant to the EBRD. "The EBRD's anti-corruption and integrity agenda
is achieved primarily, however, via the projects that it undertakes, the due
diligence that is done before any project is approved, the conditions attached
to projects and the monitoring of projects during the period of the EBRD's
involvement. The EBRD also works on integrity issues via policy dialogue with
the authorities in our countries of operations." Since the EBRD doesn't yet
have a project with Talco, the implication from Quinones is that there is
nothing in the High Court cases for the EBRD to examine; at least, not until
the cases conclude with verdicts; and not until the EBRD approves a financial
relationship with Talco.
Admitting more about the High Court rulings to date would be risky for the
EBRD, if its objective is to stabilize Rahmon's regime in Western hands, and
preserve Hydro's newly negotiated position from counterattack by the Russians.
Admissions would also be potentially risky for Quinones, if she knows more
about corruption in Dushanbe than has been admitted into what her spokesman
coyly refers to as "the public domain".
It is more difficult for Katsu and Dixon at the World Bank to turn the same
blind eye, not only because they have authorized a great deal more spending in
Tajikistan; but also because they cannot deny that their bank has been
investigating the potential for corruption in the way Talco is run by Rahmon.
Also, before and during the Wolfowitz presidency at the World Bank, much ado
was publicly made by the bank about fighting country-specific corruption.
The C-word is a stinging nettle that requires careful handling.
A report by the World Bank, dated June 2004, titled "Case Study - Tajik
Aluminum Plant - TADAZ", noted that "the company is not governed by a board of
directors or any other type of executive committee. Instead, it is under the
sole command of its director, who reports only to the Tajik president at a
monthly meeting." The arrangement is exceptional in Tajikistan, the bank report
noted, and only one other state enterprise, Vostok Redmet, a precious metals
producer, is organized on the same lines. The bank thus confirmed that
throughout the period in which Talco now accuses both the Nazarov group and
Rusal of fraud, Rahmon himself was in direct control of the plant every month.
The World Bank's case study also reported "more than 98% [of the plant's
aluminum] is exported to a limited number of customers incorporated overseas,
under exclusive contractual agreements. The ownership of these companies is
unclear." The litigation record in London has now established what the World
Bank claimed not to know - that before December 2004 the tolling companies
offshore were controlled by Nazarov and Hydro, and that after December 2004
they were controlled by Rusal. The one continuity the bank acknowledged was
that both schemes of offshore tolling were directed by Rahmon.
The bank acknowledged this required a remedy that was nothing short of radical
- removing Rahmon from the line of command. According to the June 2004 report,
the bank recommended that "the [Tajik] government should create a unit to
monitor [TadAZ's] quarterly financial flows, debt and arrears, as well as
financial and other performance targets. In addition, the unit should oversee
governance arrangements, including appointment of directors and the publication
of regular financial information, audited financial statements and company
charters."
Asked to verify what the World Bank has done subsequently, Katsu and Dixon
refuse to answer. Instead, conceding the problem remains, they said through a
spokesman that "the bank is cognizant of the governance and corruption risks in
Tajikistan and we continue to help the government address these risks in all
sectors. We take very seriously any allegations of corruption because it can
deny valuable development assistance from reaching the poor who need it most."
This is clumsily expressed, because the London judges have not issued
allegations of corruption in Tajikistan; they have issued rulings. What action,
Katsu and Dixon were asked, have they taken following the determination by
Justice Morrison that: "In short, Tajik [Talco] and those behind them cannot be
trusted?" They replied: "Please be aware that the bank does not monitor court
cases between private parties beyond the information publicly available. To the
extent that arbitration cases such as the recent one between TadAZ and Hydro
increase the perception of business risk in Tajikistan and may impede FDI
[foreign direct investment] flows, we are pleased to see such cases resolved
through respected judicial processes."
Naturally, Katsu and Dixon aren't forgetting that Talco isn't a private party;
and that Bobkhonov is making a state criminal case of the civil charges that
have been filed in London and BVI, linking them to allegations of sedition and
plots against Rahmon. The blind eye Katsu and Dixon have turned is toward the
High Court cases that have gone against Talco, but not the arbitration Katsu
and Dixon have helped Rahmon rig in Hydro's favor - and in his own.
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
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