By 15 January, 2018 0 Comments Read More →

The enduring saga of Tajikistan’s TALCO dispute

Tajikistan 1The Tajik Aluminium Company (or TALCO, also referred as TadAZ) has become the symbol of Central Asian corruption and non-transparency. Tajikistan’s most scandalous industrial asset has undergone through an array of legal challenges – from unresolved offshore mysteries to rapid management switches, from dubious tolling schemes to one of the most expensive litigations in the history of the London High Court.

The true ownership of the officially state-owned aluminum plant has been a subject of speculations for years. The suspicion is that Tajikistan’s President Emomali Rahmon and his family have pocketed on TALCO’s profits through the offshore companies for years. The irony is that neither TALCO’s Russian partners (the aluminum giant RusAl controlled by billionaire oligarch Oleg Deripaska), nor TALCO’s Western Partners (Norwegian aluminum company Norsk Hydro with more than 43 % controlled by the Norwegian government) managed to establish long-term beneficial relations with the notorious giant.

The Former “Cash Cow” of Tajikistan

Tajikistan, the former Tajik Soviet Socialist Republic, is a landlocked mountainous state in Central Asia. In the Soviet times, the economic development of Tajikistan was regulated by the center and fully adjusted to the All-Union industrial needs. Tajikistan’s economy was primarily agricultural, with a specialization in cotton monoculture. After the Second World War, Tajikistan experienced a substantial growth in the industrial sector. In the 1980s, processing of non-ferrous metals and hydroelectric energy production developed rapidly. When the Soviet Union dissolved, Tajikistan’s economy immensely suffered as a result of the break-up of economic ties between the Soviet republics and the civil war in 1992 – 1997. At present, Tajikistan’s economy is particularly dependent on the exports of aluminum and cotton, which makes it exposed to external shocks. Apart from that, Tajikistan strongly relies on remittances and international aid.

The Tajik Aluminum Company is the largest aluminum manufacturing plant in Central Asia. TALCO does not mine aluminum on its own but imports raw materials through tolling arrangements. TALCO has been Tajikistan’s chief industrial asset since independence. According to the leaked U.S. Embassy’s diplomatic cable dated 2008, TALCO generated up to 1/3 of Tajikistan’s GDP, up to 1/2 of its export revenues, and up to 3/4 of its foreign currency reserves in the first decade of the 21st century. Since then, however, TALCO has experienced several output slumps. The plant has never managed to reach the 2007 level of primary aluminum production.

The Sensation at the London High Court

The four-year case of TALCO v. Abdukadir Ganievich Ermatov has made headlines across the world for several reasons. First, the case has been estimated as one of the most expensive court proceedings at the London High Court, with legal fees exceeding 150 million USD. Such a lavish spending of the Tajik government on court proceedings was strongly criticized, as thousands of Tajik families had experienced electricity shortages during the cold winter of 2007-2008. Second, the case provided incredible revelations about the shady schemes, which involved such influential parties as Russia’s aluminum giant RusAl, Norwegian aluminum company Norsk Hydro, and several offshore companies, registered in the British Virgin Islands. Third, after four years of court battles and scandalous revelations, the lawsuit was rapidly settled within a few days. No parties involved admitted any liability. The financial terms of the settlement have never been disclosed.

The central claim of this remarkable case was made by TALCO against its former manager, Abdukadir Ermatov, and an entrepreneur, Avaz Nazarov. TALCO claimed that Ermatov and Nazarov defrauded the concern of 500 million USD through an offshore company Ansol, registered in the Guernsey Islands. According to Tajik prosecutors, Ansol partnered with RusAl’s subsidiary Hamer Investment Ltd. A four-way barter agreement was subsequently set up, involving Ansol, RusAl, Hamer Investment Ltd. and Norsk Hydro. Through this barter agreement, Nazarov sold alumina to TALCO at highly inflated prices and later bought processed aluminum at a bargain rate.

Nazarov, in his turn, claimed that this barter agreement helped TALCO to return to profitability and insisted that President Rahmon personally endorsed it. Nazarov’s defense team maintained that the associates of President Rahmon terminated the barter agreement in order to drag Ansol out of the scheme and transfer the control over TALCO to CDH Investments Corp., a company linked to the Rahmon’s family. After the four years of court proceedings, the TALCO case was suddenly settled in November 2008, just days after the World Bank talks with President Rahmon. Apparently, international lending institutions pressured the President of Tajikistan to resolve the scandalous case as soon as possible.

The Frugal Battle with RusAl’s Subsidiaries

While TALCO reached a settlement agreement with Ermatov and Nazarov, the battle with RusAl and its subsidiaries continued. In October 2013, RusAl’s subsidiary Hamer Investment Ltd. won 275 million USD in damages from TALCO in the Swiss arbitral tribunal. The tribunal ruled out that TALCO breached two barter agreements, concluded in 2003. Under those agreements, Hamer Investment Ltd. supplied TALCO with raw materials for which TALCO failed to pay. Apart from that, the tribunal rejected TALCO’s counterclaim worth 400 million USD. TALCO’s counterclaim demanded Hamer’s original supply contracts be deemed invalid as they had been obtained by corrupt practices. 

CDH Investments Corp., registered in the British Virgin Islands, also failed to avoid arbitral proceedings with RusAl. On 28 October 2013, RusAl’s subsidiary Alumina & Bauxite Co. Ltd. (Albaco) filed an application with the Eastern Caribbean Supreme Court to appoint a liquidator for CDH Investments Corp.  Prior to the application, Albaco won the arbitration award against CDH Investment Corp. worth 70 million USD at the High Court of Justice of the British Virgin Islands. Subsequently, Matthew Richardson was appointed as a liquidator by the Eastern Caribbean Supreme Court.

Nevertheless, TALCO did not surrender. In order to enter into force, the decision of the Swiss arbitral tribunal on Hamer Investment Ltd. had to be confirmed by Tajikistan’s Supreme Economic Court. Since Tajikistan’s courts are de-facto a part of the executive branch, Hamer Investment Ltd. never stood a chance to enforce the Swiss award. Moreover, Tajikistan’s prosecutors threatened to file criminal charges against Hamer with damages worth 400 million USD – the exact amount, which TALCO unsuccessfully demanded in its counterclaim.

Apart from that, Tajikistan’s tax inspectors revealed that OOO “Sozidanie”, another RusAl’s Tajikistan-based subsidiary, owed approximately 40 million USD in unpaid taxes. After several years of disputes, the final agreement between TALCO and RusAl was reached in February 2017. RusAl handed its last remaining Tajik assets, namely OOO “Sozidanie” and the Hyatt Regency Hotel, to TALCO in exchange for the payment of 150 million USD within a 10-year period. Since then, RusAl washed its hands of dealing with Tajikistan.

Corruption Allegations Against Norsk Hydro

Norwegian aluminum company Norsk Hydro, previously involved in the scandalous barter deal, has experienced a significant reputation damage since then. Norway’s parliament is currently conducting an investigation on Norsk Hydro’s dealings with Talko Management Ltd. (TML), a company based in the British Virgin Islands. Norwegian parliamentarians are particularly concerned with the lack of openness exercised by Norsk Hydro. Norwegian newspaper Dagens Naringsliv suggested that Norsk Hydro had carried out payments to TALCO’ affiliated companies in tax havens, without disclosing the names of their owners.

Norsk Hydro, in its turn, maintained that the company is bound by contract to keep the owners unnamed. Apart from allegations of corruption, Norwegian parliamentarians have raised ethical concerns on Norsk Hydro’s dealings with Tajikistan. The disciplinary committee sought to determine whether President Rahmon’s family became wealthy due to its dealings with Norsk Hydro. The parliamentarians found particularly disturbing the fact that a Norwegian partly state-owned company could have enriched one of the most corrupt families in Central Asia. The investigation is still going on.

To conclude, the enduring saga of TALCO not only damaged the business reputation of TALCO’s partners but also of TALCO itself. A range of high-profile arbitration proceedings drew close attention to corruption and non-transparency issues in Tajikistan. Moreover, the TALCO’s saga once again highlighted the difficult relations between the national courts and international arbitration in the CIS region. The alliances between national courts and executive powers make it difficult to enforce international arbitral awards.

About the Author:

Olga Hryniuk, born in Minsk (Belarus). Education: European Humanities University (Vilnius, Lithuania) — LLB (International and European Law), Coventry University (UK) — International Relations. Currently works as a legal consultant for several logistics companies in Minsk.

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