Tajikistan: Suit Settlement Brings No Resolution

The settlement of a $500 million court case in London involving Tajikistan's aluminum has provided no resolution of the central questions involved in the affair. If anything, the matter has raised fresh questions about the conduct of the Tajik government.

Lawyers involved in the case -- involving claims and counter-claims brought by and against Talco, or the Tajik Aluminum Company, operator of one of the world's largest smelting operations -- announced they had settled the suit on November 27. No parties involved in the dispute admitted any liability and terms of the financial settlement were not disclosed.

Two weeks of testimony given before the settlement's announcement had opened a window into the complicated and seemingly unsavory operations of the Tajik government, featuring allegations of corruption at the highest levels of government and in the business community.

The case centered on a claim made by Talco that a former plant manager, Abdukadir Ermatov, working in tandem with an entrepreneur, Avaz Nazarov, defrauded the concern of $500 million via Ansol, an offshore holding company registered in the Guernsey Islands. Nazarov, in turn, sought $130 million in back payment from Talco.

Ansol, according to Tajik prosecutors, formed a partnership with Russian aluminum giant, Rusal, called Hamer. A four-way barter agreement involving Talco, Ansol, Hamer and Norway's Norsk Hydro was then set up. Through this arrangement, Nazarov sold alumina to Talco at grossly inflated prices only later to buy processed aluminum at a bargain rate.

Tajik government officials maintained they were unaware of the barter agreement until late November 2004. A few weeks later, they cancelled the arrangement and reported their findings to the Tajik general prosecutor. Neither Norsk Hydro nor Rusal were directly involved in the London case.

Nazarov, meanwhile, claimed that the arrangements forged with Rusal and Norsk Hydro were pivotal in helping the aluminum smelter to return to profitability. He insisted that Tajik authorities acted to eliminate Ansol's role in the operations when "shady" individuals with ties to the Tajik government realized how lucrative the smelter's operations were, and moved to gain control over them. Nazarov also alleged that the four-way barter agreement was common knowledge in Dushanbe, going on to claim that he personally bribed President Imomali Rahmon to consent to the arrangement.

"The Tajik Government has desperately sought to discredit me personally, and my company, by making a number of ludicrous allegations, which are resolutely denied," Nazarov told the court.

Brian Doctor, Queen's Counsel for Nazarov, told the court: "The president demanded money for special projects and Nazarov was told that if you want to deal with [Talco] you must fund these special projects. He could never have known if the money was used for high-minded reasons or low-minded reasons."

The defense team alleged that associates of Rahmon played a key role in the sudden termination of the barter agreement, engineering the transfer of control of the plant to a firm called CDH Investments, which reputedly is linked to the president's family. Nazarov's lawyers alleged that CDH bilked Talco out of tens of millions of dollars.

A report prepared by the International Monetary Fund in June revealed that despite a near 200 percent increase in aluminum prices between 2005 and 2007, Talco's contribution to state coffers during this period actually decreased. During the same timeframe, Talco did not pay its employees wages and pension benefits in a timely manner.

The Talco settlement was announced just days after a high-level World Bank held talks in Dushanbe with Rahmon, the Khovar news agency reported. International lending institutions in 2008 have repeatedly expressed dissatisfaction with the government's performance. In the highest profile instance of criticism, the IMF assailed the Tajik National Bank for using creative accounting practices to secure international assistance. [For background see the Eurasia Insight archive].

International bankers were dismayed over the government's willingness to spend lavishly on pressing the Talco case in London, while hundreds of thousands of Tajiks faced hardships at home, including severe shortages of heat and electricity during the winter of 2007-08. [For background see the Eurasia Insight archive]. The Talco case is estimated by some legal experts to be one of the most expensive court proceedings ever held in London.

The Talco settlement may put an end to revelations about official misconduct -- for now. But the dispute appears set to continue in another legal setting. Talco is going ahead with a separate action against Rusal, the Russian entity controlled by tycoon Oleg Deripaska, relating to its venture with Ansol.

A statement issued by Rusal described Talco's suit was "meritless," adding that it was mainly designed to "avoid legitimate liabilities," according to a report distributed by the London Times. It added that Tajik officials should "learn their lesson" and abandon the legal action.