Page 2 of
2 IMF
blows whistle on Tajik
corruption By John
Helmer
between the two parts of this one
project and so on, all the way down.The gross
profit is then 136 million [dollars], of which 99
million is allocated to CDH and 17 to TadAZ. Then
they have some commercial expenses. Net profit
before interest/tax is paid out of profit and
depreciation is 103 million of the project.
"So the EBIT, or the net profit before
interest and tax is paid after profit, is 98
million, of which 3 million is allocated to TadAZ
and income tax is all paid by TadAZ of 3 million.
The other 98 million is in the BVI. That is
enjoyed by whoever owns CDH. Then the net profit
is set out at the bottom. So after all a year's
activity, TadAZ makes a net profit of 1.8 million
on a business which actually generated $96 million
in profits."
Huge diversion of
funds Over time, and with growing tonnages
of aluminum produced at
the Tajik smelter, the diversion
of funds to the Caribbean is huge. Judge Tomlinson
confirmed his interpretation that the plant was
losing $27 for every tonne of alumina (6% of the
average market price for alumina at the time) sold
by Hydro to the smelter, because it paid too much.
The judge also confirms his understanding that
"the distribution [of costs] to the plant is all
debited against TadAZ, not CDH. They do not seem
to contribute to that."
The February 15
hearing goes on to show that in 2007 the same
people substituted Talco Management for CDH, while
the diversion scheme remained the same.
Another revelation in the court testimony
- the BVI company is charging the smelter $12
million per month in legal fees for the court
action in London. Herbert Smith is the firm of
solicitors receiving this money.
When
lawyers for the smelter and the BVI affiliate
claimed they had been unable to find related
documents, spelling out the current accounting of
the Hydro scheme, the judge declared: "There must
have been a scheme document at some stage. It may
be that it cannot be found, but there must have
been a document ... Looking at the reality of
this, looking at the profit and loss account,
there must be a fairly close relationship between
TadAZ and CDH."
When lawyers for Talco
testified in court that the missing scheme
documents were not relevant, Judge Tomlinson
retorted: "The longer the argument about it goes
on, the more interested in it I become."
The judge ordered further disclosures in
court by March 20. Thereafter, Hydro was warned,
company executives may be obliged to give
testimony on oath.
The last Asia Times
Online report of Hydro's involvement in the Tajik
aluminum business Cover off Tajikistan's missing
millions Asia Times Online, January 11,
2008) included charges from members of the
Norwegian Parliament and public governance
organizations in Oslo that Hydro is knowingly
participating in the corrupt diversion of aluminum
profits from Tajikistan to CFH, then Talco
Management.
Answering questions last
November (Global tizz over Tajik aluminum
deal Asia Times Online, November 21,
2007), the company said: "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."
A Hydro spokesman declined to provide
details of the contracts it has with the
Tajikistan aluminum plant, or with its
BVI-registered affiliate, Talco Management. But he
claimed: "Talco Management Ltd has also undertaken
an obligation to be audited by an international
recognized auditor. Such audit reports are to be
displayed to the World Bank, EBRD and Hydro."
Audits at face value Tajikistan
audits are a screen, Khan of the IMF now concedes.
"We were shown the balance sheet of the national
bank and it had unqualified reports from PwC
[PriceWaterhouseCoopers] in Rotterdam. PwC told us
that these accounts were fine so we took them at
face value. For several years we were just going
by the audits."
So much for Article VIII,
section 5. When Ahmed of the IMF was asked to say
whether this means that PwC has been ruled
ineligible for the new audit, he told Asia Times
Online: "The special audit of the National Bank of
Tajikistan will be undertaken by the Tajik
authorities." Literally interpreted, this is
false.
Hydro's defense for its
participation in the Tajik aluminum business is
that it relies on internationally accepted audits
of the $1.2 billion in cash flow that the smelter
now generates annually. But if this is "fraud,
mistakes, or systematic policy", according to
Khan, and in default of Tajikistan's IMF
obligations, Hydro is left with no defense at all.
Now that Hydro's contracts have been
disclosed in London, Hydro was asked to explain
its public claims that its buy-sell agreements for
alumina and aluminum in Tajikistan are "based on
market conditions"; and that the company is not
aware of "details in the tolling contract between
Talco Management Limited and the Talco smelter".
The company refuses to answer.
But Hydro
is not the only one running for cover from
disclosure of what is now known of the
disappearance of Tajikistan's aluminum fortune.
The European Bank for Reconstruction and
Development (EBRD) has been a consistent backer of
Rahmon and has endorsed his agreements to run the
aluminum plant, first with Russian Aluminum
(Rusal), which EBRD also finances, and then for
the past 15 months with Hydro.
But the
EBRD refuses to disclose how much of its loan
money is being repaid by Tajikistan; how much the
accumulated debt now totals; and what the EBRD is
doing to audit for possible diversion. Anthony
Williams, an EBRD spokesman, claims that a recent
cotton loan to Tajikistan, announced the day
before the IMF announcement was published, was
disbursed "without any state involvement".
Consequently, he said, concern for compliance with
loan conditions does "not appear to be pertinent".
The World Bank has also been signing and
handing out substantial loans intended for Tajik
cotton farmers, and these loan agreements contain
explicit auditing and compliance conditions.
But
as the evidence of wholesale cash-stripping mounts
in both London and Washington, World Bank
officials refuse to answer questions about what
they know and what they are doing about it.
Makoto Ojiro is the Asian Development Bank's
director for Tajikistan; he's new at his job,
taking over just three months ago. But in that
time Ojiro has been busy at the cash window
handing out money. The planned ADB allocation of
funds to Tajikistan for 2007 and 2008 is $70.23
million. Three new ADB loans were approved in the
week of the IMF default announcement - on February
29, March 3, and March 7.
Ojiro refused to
say what the ADB investigation of the $500 million
in missing funds has shown to date. Whether Ojiro
intends to throw more good ADB money after lost,
he isn't willing to say.
John
Helmer has been a Moscow-based correspondent
since 1989, specializing in the coverage of
Russian business.
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