IMF grows bold on Tajikistan's missing billions
By John Helmer
MOSCOW - The International Monetary Fund (IMF) has issued a report that is
sharply critical of the Tajikistan Aluminium Company (Talco), the leading
enterprise of the Central Asian republic run by President Emomali Rahmon and
has ordered an independent international auditor to check Talco's accounts for
what the IMF describes as "most worrisome financial operations [which] remain
nontransparent."
For the first time, the IMF report has disclosed how little the country's
economy, the poorest in Central Asia, earns from its principal industry,
biggest electricity consumer, and most valuable exporter - in 2006 and 2007,
just 17% of the value of the aluminum Talco produces and ships to foreign
buyers.
The IMF action is an embarrassing curtain-raiser for Rahmon, who
directly controls Talco and who is behind the hugely expensive UK High Court
case that Talco is waging against Avaz Nazarov and his group of companies,
which were ousted from management of the Tajik smelter in 2004 on Rahmon's
order. The four-year old case, in which Talco is represented by the UK lawfirm
Herbert Smith, has set a world record for legal costs that have now exceeded
$126 million. The judge in the case, Justice Tomlinson, has ordered leading
figures in Tajikistan, including the president's brother-in-law, the leading
commercial banker of Tajikistan, Hassan Saduloev, to appear for testimony on
oath and cross-examination in the trial now scheduled to commence in October.
Saduloev was rumored to have been shot following an argument within the Rahmon
family in May. Although he has subsequently reappeared in public in Tajikistan,
he appears not to be allowed by the authorities to speak publicly. His office
staff at Orienbank in Dushanbe, the Tajik capital, refuse to put calls through
to him. While insisting on his presence there, they also refuse to respond to
questions about the Talco case.
In an implied move to have the Tajik government curtail the expenditure of
aluminum revenues on London legal fees, the IMF has ordered the establishment
of "a special monitoring unit at the ministry of finance", whose mandate will
include identification in Talco's books of "untapped tax revenues and hitherto
hidden contingent liabilities".
In acknowledgment that the disclosures of the Talco court case in London have
seriously undermined Talco's credibility among government donors and
international bank lenders, the IMF report "urges the authorities not only to
cooperate fully with the auditor - and disclose publicly all the results of the
audit - but also to promptly take up the recommendations of the auditor once
the work is concluded. Anything less will fail to restore the authorities'
credibility in the eyes of the international community. In this connection,
unwavering political support for bringing more transparency to the operations
of the largest SOEs is also critical." Talco is the largest of Tajikistan's
state-owned enterprises (SOEs).
In a letter to the IMF accompanying the report, Rahmon refers to a March
announcement by the World Bank and IMF, when serious problems were revealed at
the National Bank of Tajikistan (NBT). "We regret the recent misreporting
incident and assure you that we are determined and ready to address the
institutional weaknesses that led to it," Rahmon wrote.
The NBT affair triggered early loan repayment orders by the IMF, and an
extensive probe into NBT's use of loan guarantees and reserve collateral
operations involving more than $300 million in previously undisclosed state
debts obligations. Another $232 million in "misreported" NBT credits to the
Tajik cotton sector and intermediaries have also been identified. The state
bank is insolvent, the IMF has concluded.
Rahmon does not address the aluminum sector problems, but declares: "In order
to enhance transparency of our economic policies, we find it appropriate that
all the documents related to the SMP [Staff Monitored Program] be published on
the Fund's website."
One of the new points in the IMF's SMP program is the requirement that Talco
spending must be approved by the finance ministry - in place of the
presidential office. According to the IMF report, Rahmon is to issue a decree
to "require the SOEs to provide the Ministry of Finance and Ministry of
Economic Development and Trade draft annual financial plans for review and
approval before the beginning of each financial year and submit their quarterly
financial statements and their external audit reports".
Another IMF demand, which the agency says has been agreed with Rahmon, is aimed
at uncovering who benefits from a group of British Virgin Island-registered
companies that manage Talco financial operations, as well as from NBT loan
guarantee operations. According to the text of the IMF report, Rahmon should
promptly enact a law for "official identification and disclosure of beneficial
owners of registered companies, including financial institutions. Lack of
public disclosure of significant shareholders of financial institutions and of
legal definitions for connected business interests and beneficial ownership are
key obstacles to good governance, the prevention of conflicts of interest, and
implementation of prudential norms (eg limits on connected party lending)."
The new report was issued by the Washington-based IMF on June 10. The details
and recommendations appear to have been coordinated with the World Bank and the
Asian Development Bank. Together with the European Bank for Reconstruction and
Development in London, these are the principal international banks on which
Tajikistan's finances precariously depend. The recommendation for appointment
of an international audit of the flow of aluminum cash followed a public call
for the measure by the US Ambassador to Tajikistan, Tracey Jacobson.
Almost unnoticed in the statistical section of the report is a line detailing
how much revenue is earned from the Tajikistan aluminum smelter. Considered
secret until now, the IMF tabulation indicates that Talco receives an annual
"tolling fee" for converting imported alumina, supplied by external companies,
into primary aluminum, which is then taken by offshore companies and traders,
and sold on their account. Testimony and documents submitted in the London
court case have focused on tolling, and what has been termed the "Hydro scheme"
- after Hydro Aluminum, the Norwegian company currently involved with Talco.
The core allegation of the court case is that tolling allows Talco's profits to
be transferred out of Tajikistan to offshore havens.
The IMF tabulation of Tajikistan's balance of payments for 2005-2008 now
reveals how much money appears to have been involved.
The tolling fee for 2005 is reported as $116 million; for 2006, $173 million;
for 2007, $183 million; and for the first half of 2008, $120 million. Talco was
asked to confirm the accuracy of these figures. It declined to respond.
In parallel, with IMF help, the National Bank of Tajikistan has published
detailed export and import figures for the same years; these show the value of
aluminum exported by Talco, and the cost of alumina imports. From these data it
is possible to calculate that the tolling fee, revenue benefit, or earnings of
Talco's aluminum operations have amounted to a small fraction of the value of
the metal production.
It was just 21% in 2005, when aluminum exports were worth $563 million. But
when aluminum nearly doubled in value in 2006 and 2007 ($1.050 billion and
$1.083 billion, respectively), Talco's share of the gain actually shrank to
17%. This year, for the first half results already in, the international
pressure on Rahmon and Talco appears to have led to an increase in the relative
size of the tolling fee paid as a proportion of expert revenues; it is now up
to 36%.
Experts on the Tajikistan aluminum trade warn that the NBT figures may be
unreliable, understating the value of the exported aluminum. Said one: "you
also have to appreciate that Talco - that is the plant, not to be confused with
Talco Management, the BVI company - is no longer in the business of buying and
importing alumina and other raw materials, and selling aluminum for export. It
is simply a machine that converts the raw materials owned by Talco Management,
into metal whose profits flow to the BVI. It is important to note that the cash
flow is not registered in Tajikistan, and is not contributing to the GDP
figures."
Executives at Hydro in Oslo refuse to discuss the details of their operations
with Talco, and Talco Management, or the disclosures of the Hydro scheme in the
High Court
The non-transparency of the Talco accounts means that the only evidence of how
much profit is exported has leaked out of the High Court proceedings. But the
IMF report, combined with the NBT trade figures, enable a first approximation.
Subtracting the cost of alumina imported to make aluminum, and the tolling fee
for each year, the balance for 2005 was $85.2 million; $490.4 million in 2006;
$523.7 million in 2007; and $46 million so far this year. Altogether, this adds
up to $1.145 billion in apparent profit, generated by Talco inside Tajikistan,
but diverted tax-free abroad into other, private hands.
Talco was asked to comment on the accuracy and interpretation of these
financial results, but there was no answer on the company telephone, and no
reply to emails. Talco was also asked to explain why the company management had
cut the proportion of the tolling fee to export value when international
aluminum prices were booming, but raised it this year, as the commodity price
eased, but the public controversy over Talco's financial practices intensified.
There has been no comment.
The latest economic statistics from Tajikistan indicate that the
near-catastrophic power shortages which occurred through the past winter,
caused a significant slowdown in the country's GDP growth and industrial
production in the first quarter of the year, but NBT figures claim that both
recovered in the second quarter. New figures published last week by Asia-Plus,
a Central Asia news agency, suggested there has been a 3.3% contraction in
Tajikistan's industrial output from January to July of this year. The IMF
report suggests that real GDP will slow this year to 5%, compared with 7.8% in
2007.
The IMF shifts the blame for this from the unusually severe cold weather to the
Rahmon administration for "years of serious mismanagement of the sector,
including under-investment and lack of appropriate maintenance."
The IMF report does not explicitly refer to the diversion of aluminum profits.
But the fund does note that the government has failed to make timely payment of
wages and pensions. This suggests that Rahmon has been penalizing the Talco
workforce at the same time as the offshore profit take has been growing.
International reporting of the financial default in Tajikistan, and the
collapse of the power grid, has revealed notable gaps, motivated by reluctance
to criticize Rahmon while the situation in neighboring Afghanistan deteriorated
in the Taliban's favor.
A lone Norwegian business journalist, Trond Gram, has reported Hydro's
involvement in the burgeoning scandal, along with calls from members of the
Norwegian parliament for a public investigation. However, the main Norwegian
dailies have avoided the story.
Radio Free Europe, based in Vienna, has given extensive coverage to Talco,
Saduloev, and the London court case. But the British Broadcasting Corporation's
English and Persian radio services have remained stonily silent. The head of
the BBC Persian and Pashto service, Andres Ilves, defends the silence by
claiming he and his reporters in London and Dushanbe have been "unable to
gather enough detailed material".
John Helmer has been a Moscow-based correspondent since 1989,
specializing in the coverage of Russian business.
(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
