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2 Global tizz over Tajik aluminum
deal By John Helmer
MOSCOW - Suddenly this month, Hydro
Aluminum, the state-led metal producer of Norway,
has been called to public account by senior
members of the Norwegian Parliament; by
independent Norwegian experts; and by Norway's
trade and foreign ministers over the terms of
alumina and aluminum contracts the company signed
last December with the Tajikistan Aluminum Plant
(Talco, aka TadAZ).
The Norwegian concern
is focused on allegations of corruption among
Tajik government officials involved in the aluminum
business, and on what Hydro
knows and is doing about it.
At the same
time, Adam Smith International (ASI), a
London-based consultancy specializing in Asian
development, is stumbling silently over the terms
of a contract, recently awarded by the Tajik
government, to promote resistance among foreign
investors to concerns about the risk posed by
stories of corruption in the country.
The
ASI contract was awarded by the Tajik State
Committee on Investment. A US citizen, William
Cleary, is in charge; sources in Dushanbe, the
Tajik capital, have told Asia Times Online that he
has informed foreign executives that his
assignment is to combat the perception among
foreign investors of corruption related to the
administration of President Emomali Rahmon. He has
also quoted Sharif Rahimzoda, Rahmon's hand-picked
chief of the State Committee, as saying that ASI's
task is to "make Tajikistan look like Dubai" to
investors.
Neither Cleary nor his boss,
Roger Usher, ASI's English managing director,
would respond to questions about their assignment,
which is being paid on Rahmon's behalf by the
European Commission in Brussels.
The ASI
website claims the group specializes in
"transparent governance". ASI reports assignments
to "reform" government bureaucracies in Iraq and
Afghanistan; these are funded by the UK
government's Department for International
Development (DFID). ASI's website omits to mention
the Tajikistan assignment. A delegation of DFID
officials was in Dushanbe in September, discussing
what it says are aid programs to reduce poverty
and improve governance.
Usher and Cleary
also refuse to say what they know of Norwegian
government investigations of alleged corruption at
Tajikistan's most important enterprise, Talco. The
investigations led early this year to the refusal
of the Norwegian government to invite President
Rahmon for a state visit to Oslo.
Talco is
currently turning out about 450,000 tonnes of
aluminum a year, worth about US$1.2 billion on the
international market. In December 2004, the Tajik
government initiated a purge of the plant's
management and defaulted on sale and purchase
agreements with the ousted staff and with Hydro.
The Norwegians sued for recovery in London; won a
US$150 million award in compensation for
non-delivery of 80,000 tonnes of aluminum;
collected compensation from a syndicate of
insurers; and concealed the bookkeeping loss and
the payoff in its consolidated accounts. Hydro has
told Asia Times Online this isn't concealment
because "the net exposure was immaterial for
reporting purposes".
Talco never paid but
begged to be forgiven. Between June and December
of last year, the Norwegians trooped in and out of
the office of President Rahmon (Rahmonov) until
they had a new deal. In December, Hydro announced
it had agreed to sell the plant 150,000 tonnes of
the raw material alumina per annum, and buy up to
200,000 tonnes of aluminum metal produced by the
plant. Hydro has confirmed these numbers with Asia
Times Online, adding that the alumina is delivered
at cost, insurance and freight at Poti, a Georgian
port on the Black Sea, and the metal to Hydro at a
Baltic port on a free-on-board basis. According to
the company: "Hydro does not disclose the exact
prices of such contracts but we can say that this
is LME [London Metal Exchange] linked."
At
current LME linked prices, the alumina is worth
about $50 million; the metal is valued at $520
million. For the five years of Hydro's agreement
with Talco, Hydro's turnover will be almost $3
billion. This makes aluminum Tajikistan's biggest
business and Norway one of Tajikistan's most
important trading partners.
Hydro's
business negotiations with Talco have directly
involved the governments of both countries,
including President Rahmon and the Norwegian
Ambassador. Hydro has also told Asia Times Online:
"We have spent a lot of time discussing issues
concerning transparency and corporate governance
with the World Bank and EBRD [European Bank for
Reconstruction and Development] and other NGOs
[non-governmental organizations]." The
Norwegian government is the controlling
shareholder of Hydro, with a stake of 43.8%. The
company is listed on the New York Stock Exchange,
and operates under regulation by the US Securities
and Exchange Commission. Several US banks hold
directly, or as nominees, significant blocs of
Hydro shares: Morgan Guaranty Trust with 5.13%,
State Street Bank & Trust (4.26%), JP Morgan
Chase Bank (2.28%), Mellon Bank (0.55%) and
Goldman Sachs (0.90%). Their involvement triggers
US compliance requirements, for under the US
Foreign Corrupt Practices Act (FCPA) corruption
alleged to involve officials of foreign
governments comes under the long arm of US
prosecutors and regulators.
ASI's Cleary
could be vulnerable if his contract were to be
interpreted as a Tajik government assignment to
conceal FCPA violations or to encourage companies
to make them.
Hydro has told Asia Times
Online that, although it has announced direct
supply, sale and purchase agreements with the
aluminum smelter company Talco, the cash is
flowing through an intermediary company called
Talco Management Ltd (TML). A recent registration
in the British Virgin Islands, this company won a
public tender published in London last January 8.
This called for "procurement of supply to TadAZ of
raw materials (in required volumes and types) and
electricity during the contract term". The notice
also provided that the winning bidder would
arrange tolling contracts and that "the toller
will be required to pay tax on the products of
processing on the customs territory of the
republic of Tajikistan". TML won the award.
Hydro admits it is dealing with TML. In a
statement drafted by Hydro's lawyers last week,
the company told Asia Times Online that "Hydro
purchases aluminum and sells alumina to Talco
Management through commercial agreements that are
an integrated part of the settlement agreement".
Hydro also explained that its relationship with
TML is different from the tolling arrangement TML
has with Talco the smelter.
The latter is,
according to the tender publication, a tolling
arrangement, in which the smelter is paid a
processing fee for converting the alumina to
aluminum, but one in which the toller owns the
inputs and outputs, not the smelter. In a tolling
scheme like this, trading profit goes to the
toller - that is, TML. According to Hydro: "We are
not paying a processing fee as these are straight
purchase and sales agreements. In other words,
this is not a tolling arrangement."
But
what sort of arrangement does Hydro actually have?
When the Norwegian company first announced its
deal with Talco last December, the announcement
said: "Hydro and Tajik Aluminum Plant of
Tajikistan have entered into new commercial
arrangements." The implication was that they were
dealing directly. "We see this as a mutually
beneficial agreement, where Hydro will receive the
primary aluminum needed for our remelting
operations and at the same time give assistance to
TadAZ regarding operational issues. Hydro is
committed to supporting TadAZ to increase their
efficiency and production for the benefit of the
Republic of Tajikistan," Simon Storesund, senior
vice president of Hydro, was quoted as saying at
the time.
Almost a year later, however,
according to a report on October 31 in Oslo by
business magazine NA24, "Hydro admits that it does
not have full control over the money they pay for
aluminum from the smelting plant Talco,
Tajikistan's largest industrial company. Hydro is
making payments to a company called Talco
Management Ltd, which is registered in the British
Virgin Islands. The Tajik government owns 70% of
the company and 30% is owned by wealthy Tajik
individuals."
Hydro has been asked this
month to say whether it has satisfied itself on
the identity, beneficial ownership, role and
financial operations of TML, and believes that
Hydro's transactions with TML are compliant with
international standards?
Hydro replied:
"Hydro has a zero tolerance towards corruption and
we are following Hydro's guidelines in all parts
of the world where we are doing business. We have
spent a lot of time discussing issues concerning
transparency and corporate governance with the
World Bank and EBRD and other NGOs. Our opinion is
that it is better for the people of Tajikistan
that we are involved in doing business in the
country than not. We have also seen a positive
trend where the Tajik government and Talco are
taking steps in the right direction. However, we
are fully aware of these challenges that we see in
many developing countries in the world. However,
we believe that Hydro has a lot to contribute in
regards
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