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Cover off
Tajikistan's missing
millions By John Helmer
MOSCOW - The High Court in London
is considering a trial this year of claims to
money, estimated to be as high as US$500 million
per year, disappearing from the Tajikistan
Aluminium Plant (TadAz, Talco), whose principal
trading partner is Hydro Aluminium, the
state-controlled Norwegian aluminum producer.
The details of the UK court litigation,
initiated by the smelter and its owner, the Tajik
government, are accumulating in confidential
records of preliminary and procedural hearings,
which continue
this
month. A trial later in the year would expose the
evidence publicly, and it is likely that Hydro
will be summonsed to testify, not least of all
because of admissions Hydro has publicly made to
Asia Times Online that it has reassigned contracts
signed a year ago with the smelter to a Caribbean
cutout company with the same name as the smelter,
Talco Management Limited (TML).
"The
arrangements" with the latter, Hydro spokesman
Halvor Molland told Asia Times Online this week,
"are an integral part of our settlement agreement
with the Talco smelter."
Hydro has sued
Talco itself in London, and won two years ago;
this is the "settlement agreement" to which
Molland is referring. But since December 2006,
Hydro has been Talco’s strategic partner, an
association featured prominently on Talco’s
website. Suspicion that the publicly announced
terms of Hydro’s contracts with Talco are not the
full story led the Norwegian government minister
in charge of trade, Dag Terje Andersen, to call
Hydro executives into his office recently to
answer questions. Andersen implied he was less
than satisified.
Pitting the Norwegian
government in conflict with the Tajikistan
government, the UK court proceedings are expected
to expose a pattern of commercial dealings that
Norwegian officials have urged Hydro to stop. The
details are also likely to expose the European
Bank for Reconstruction and Development and the
World Bank to questioning on why bankers in both
institutions continue to support financing for the
man who legally and practically dominates the
smelter’s business dealings, and the litigation -
the Tajikistan President, Emomali Rahmon.
Talco, the most important industrial and
trading enterprise inTajikistan, is wholly owned
by the Tajik government but directly supervised by
President Rahmon. As the World Bank reported in
June 2004, "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."
Pressure
from the World Bank led, just two weeks ago, to a
public announcement in which Talco claimed that "a
supervisory board will also be set up at the will
of the company". Note the indefinite future tense.
Talco’s release addresses the World Bank’s
concerns by claiming the board "will consist of
representatives from public associations,
government bodies and the company administration".
The body appears to be something less than
advisory in function with "powers to participate
in working out strategic plans for the development
of TALCO, enhancing corporate management and
providing full disclosure of management’s
activities."
Excluded from this disclosure
statement are the presidential functions. Through
his daughters, their husbands, his wife’s brother,
and other kin, Rahmon also supervises the National
Bank of Tajikistan, the Finance Ministry, and the
leading commercial banking and trading
institutions of the country. In a long-running
feud with his countryman Avaz Nazarov, whose
companies worked with the aluminum smelter until
December 2004, Rahmon has been driving a campaign
of lawsuits against Nazarov in the UK High Court.
Nazarov has counter-attacked, charging
Talco and a Rahmon-linked company called CDH
Investments, based in the British Virgin Islands,
with unlawful conspiracy and theft. CDH had ousted
Nazarov’s companies from the smelter’s business.
Part of Nazarov’s claims has already been upheld
in several High Court rulings. These not only
found adversely against Talco and those behind it.
They also pressured Oleg Deripaska’s Russian
Aluminium company (Rusal) to settle its claims
against Nazarov. That confidential settlement last
April led Rahmon to order a fresh court filing,
making corruption charges against Rusal. The High
Court in London ruled against taking jurisdiction,
and the case was moved to the British Virgin
Islands.
Justice Morrison of the High
Court’s Queens Bench Division wrote in a judgement
dated May 18, 2006, that Talco/TadAZ "are not the
victims of fraud, they have been the perpetrators
of it in this litigation … [Talco] has been
involved in deliberate attempts to mislead the
[Arbitration] Tribunal and have committed acts
which in this jurisdiction are serious crimes."
Despite this, Talco’s London lawyers,
Herbert Smith, have persisted in claims against
Nazarov. To defend his record, Nazarov is
counter-claiming that he is being victimized by
Talco and its controllers because the latter
allegedly operate corruptly, diverting vast
profits from the production of aluminum out of
Tajikistan to the benefit of a handful of wealthy
individuals in Tajikistan. Rahmon’s persistence in
attacking Nazarov through public accusations in
Tajikistan and litigation in London reinforces
published suspicion that the finger of accusation
relating to the smelter’s business points at him
and his kin. Hints of the credibility of these
charges have also appeared in reports on Talco by
the World Bank in 2004, and in the most recent
country report on Tajikistan by the International
Monetary Fund (IMF), issued in April 2007.
According to the IMF, "Tajikistan does not
mine the raw material for aluminum production, but
rather relies on an export processing agreement
with its foreign suppliers for its processing,
export performance did not fully benefit from
higher aluminum prices in 2006. According to the
authorities, TadAZ receives a fixed pre-negotiated
fee for the processing of alumina. This
arrangement has been in effect since 2005, and in
2006 the fee was $410 per ton of aluminum. The
details of the arrangement are not fully
transparent."
The High Court is being
asked to clarify just who benefits from this
non-transparency; how much of a benefit this
represents; where it goes; and what arrangement
Hydro’s contracts make it party to. Nazarov and
his lawyers are bound by the confidentiality rules
not to reveal or comment on what has been
disclosed in the proceedings to date.
Hydro, however, has admitted in comments
to Asia Times Online that it knows the smelter has
assigned its contracts to front companies
registered in the Caribbean. One of these, known
as CDH, has been identified in earlier High Court
proceedings, and appears to have been used as an
offshore cutout for aluminum sales revenues,
after Rusal and Rahmon agreed to oust Nazarov from
the smelter management. Talco’s website identifies
CDH as a "partnership ... established at the end
of 2004. According to the agreement CDH
Investments Limited supplied alumina, oilcoke,
pitch and other kind of technological raw
materials and goods. Today the Company supplies
auxiliary values according to the concluded
agreement for purchase and sale."
World
Bank criticism CDH appears to have
drawn criticism from the World Bank, which has
publicly criticized the Tajik government and the
Talco management for "very limited" international
accounting standards; inappropriate selection of
auditors; and firing auditors after conflicts over
their reports. In a reference to the cutout
arrangement, the World Bank said "the company is
heavily reliant on a single group of companies as
a supplier of material, purchaser of finished
goods, and provider of credit."
What the
World Bank omitted to mention was that only a
small fraction of the smelter’s revenues is paid
to the plant, and remains in Tajikistan. The IMF
was less tongue-tied. In April of 2007 the IMF
reported that Talco is receiving less than a
quarter of the international benchmark price for
its aluminum. Although neither international bank
has referred to the High Court proceedings, bank
officials have admitted to Asia Times Online that
they are following the proceedings. The IMF
disclosure confirmed testimony already given in
High Court hearings that there has been a
massively profitable diversion of metal revenues
since Nazarov was replaced by Rahmon’s nominees at
the smelter.
There is other evidence.
According to trading data issued by the Tajikistan
National Bank, in 2006, tonnage of primary
aluminum exported from Tajikistan was 408,861.9
tonnes. The export value listed for the year was
$1.050 billion. This suggests a value per tonne of
$2,568 per tonne. But the IMF report indicates
that Talco received just $410 per tonne - just 16%
- with total receipts for the year of $168
million. So what does the export value figure
mean?
Sources in Oslo and London believe
the difference between Talco’s receipts and the
declared value of the exported aluminum - $882
million - wound up with the offshore companies
engaged by Rahmon to handle the trade. Subtracting
what they paid for feedstock to produce the metal,
plus the cost of transportation in and out of
Tajikistan, reveals a windfall profit for the year
of almost half a billion dollars.
As Asia
Times Online has already reported, Hydro signed
its alumina supply and aluminum offtake
agreements with Talco in December 2006 with a
flurry of official publicity in Dushanbe, the
Tajik capital. Thus, the first year of the Hydro
contracts has been 2007, and for this official
Tajik trading figures are lagging. In terms of
volume and price, the National Bank data available
for the first, second, and third quarters of 2007
show that Talco imported 618,592 tonnes. This was
just 2% more alumina by tonnage than the year
before. But the value of the alumina was almost
the same as in 2006 - $280.9 million, compared
$278 million.
On the other hand, the trade
data show that for a slightly larger volume of
metal produced and exported, rising international
pricing for aluminum caused the dollar value to
jump 19% in the first quarter; 3% in the second.
The implication is that aluminum was considerably
more profitable in 2007 than it was in 2006. But
who benefited? Talco refuses to respond to
questions, and the IMF
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