Russia-Uzbekistan row jeopardizes
bilateral ties By Georgiy
Voloshin
In late June 2012, when
Uzbekistan’s Ministry of Foreign Affairs
officially declared Tashkent’s decision to suspend
its membership in the Collective Security Treaty
Organization, the country's National
Communications Inspectorate published a report
concerning the activities of a Russian-owned
company, O'zdunorbita.
Established in
1991, this mobile-service operator was purchased
by Russia's MTS in 2004 and has progressively
ensured the coverage of almost 95% of Uzbekistan's
territory. As of late 2011, the number of its
clients exceeded 9.5 million people in a country
whose total population has recently approached a
symbolic threshold of 30 million.
According to the results of the
Communications Inspectorate's
investigation,
O'zdunorbita continuously violated national
legislation by illicitly operating 48 base
stations in various parts of the country,
including 24 stations based out of Tashkent. On
July 17, Uzbekistan's Communications Agency
suspended the company's operating license for 10
days.
On July 30, the Tashkent city court
further extended this suspension for a period of
three months, judging that O'zdunorbita's attempts
to rectify the situation had not been sufficient.
On the same day, the company sent a formal
complaint to Uzbekistan's President Islam Karimov,
citing harassment by regulatory authorities and an
unjustified disruption of mobile services.
In mid-August, the court decided to annul
all of the company's licenses on the grounds of
their improper use by regional offices. As MTS
said in a formal statement, such accusations
contradict the scope of its umbrella license
previously issued by Uzbekistan's authorities; it
also reported that the total value of legal claims
related to licensing irregularities could amount
to US$210 million.
The Russian company
further criticized the controversial conclusions
of a recent tax audit that had revealed the
existence of a tax evasion scheme potentially
leading to $900 million worth of penalties. On
September 17, the Tashkent court charged MTS
Uzbekistan's top managers with fraud and
pronounced a ruling to seize all of the company's
assets.
Although this latter decision was
overturned by an appeals court in early November,
O'zdunorbita still has to pay over $500 million in
fines within eight months, which may seriously
compromise its further presence on the
telecommunications market of Central Asia's most
populous republic.
On October 18, MTS vice
president Ruslan Ibragimov addressed the Russian
State Duma's property committee, saying that the
protection of Russia's economic interests abroad,
especially in Uzbekistan, should be ensured by all
legislative means. He even went so far as to
suggest the establishment of a special judicial
authority within the Commonwealth of Independent
States in charge of resolving private investment
disputes.
While parliamentarians agreed to
initiate the necessary proceedings with the
involvement of various agencies, such as the
Ministry of Foreign Affairs and the Federal
Migration Service, the creation of a separate
institution seems to be highly improbable.
The CIS framework has been historically
characterized by little activity and scarce
progress with regard to the issue of regional
integration; and its economic component is
considerably weaker as compared to the Eurasian
Economic Community (EurAsEc) or the Customs Union.
While the 2008 Moscow summit of EurAsEc
leaders adopted several crucial agreements, such
as ones concerning the mutual protection of
investments and the formation of a common energy
market, Uzbekistan had already suspended its
membership in this regional organization one month
earlier. Therefore, the formal levers of influence
upon authorities in Uzbekistan are devoid of
practical substance under any existing
multilateral framework in Central Asia.
Although the State Duma had limited itself
to a mere condemnation of Uzbekistan's treatment
of MTS, Russia's judicial authorities reacted more
vigorously. In late October, a Moscow court
ordered the seizure of a luxury apartment owned by
Islam Karimov's flamboyant daughter Gulnara
Karimova, who served as her country's ambassador
to Spain. The seizure of this $10 million property
in the very heart of the Russian capital bears a
clear signature of retaliation for O'zdunorbita's
ongoing troubles. However, this is not the only
recent case in which Karimova's name has appeared.
In July 2012, two Uzbek citizens occupying
high-level managerial positions in Coca-Cola
Uzbekistan were arrested by the Geneva police on
the premises of a Lombard Odier bank and were
later accused of money laundering. Although both
top managers were subsequently released from
custody, the court had already seized $600 million
worth of assets placed in several Swiss banks,
judging them to be "kickbacks" earmarked for
Karimova's personal use.
Further proof of
Uzbekistan's poor investment climate was provided
by a group of Swedish journalists who had found
compromising evidence linked to the
Stockholm-based communications company
TeliaSonera, actively present in the Central Asian
republic's market. According to the conclusions of
their independent investigation, TeliaSonera had
to pay around $320 million to a
Gibraltar-registered offshore entity owned by one
of Karimova's close associates, in order to obtain
access to Uzbekistan's mobile services "playing
field". Russia's VimpelCom, in which Norway's
Telenor has a decisive 36% stake, was forced to
pay a similar "fee".
As Collective
Security Treaty Organization members prepare for a
Moscow summit where the issue of Uzbekistan's
membership will be definitively resolved, the
Russia-Uzbekistan business spat could further
aggravate the two countries' bilateral relations.
It could also create negative implications for
Moscow's interests in Central Asia and
Uzbekistan's economy, which still draws an
important share of its gross domestic product out
of labor migrants' remittances from Russia.
Georgiy Voloshin is an analyst
at The Central Asia-Caucasus Institute & Silk
Road Studies Program of John Hopkins University
and a researcher for Wikistrat, a geopolitical
consultancy. He is also an Executive Advisory
Board Member of Paratus Europe Ltd., a strategic
management and business consulting firm.
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