Tajikistan’s Cash Cow: Enough Milk to Go Around?
Early this year, Tajikistan’s largest industrial enterprise sent home about a fifth of its workforce and cut wages by 30 percent for the rest. According to its own figures, the state-owned aluminum plant, Talco, lost over $40 million last year and hasn’t turned a profit since 2010. Nonetheless, in 2011, millions of dollars in revenue generated by the plant went to pay for the world’s tallest flagpole—widely seen as a vanity project to please the impoverished country’s president.
A top Talco executive told EurasiaNet.org his company had proposed the flagpole as a “patriotic project” to promote Tajik national identity. But another Talco source said the real impetus had come from President Emomali Rakhmon, who had been so impressed when Azerbaijan built the world’s then-tallest flagpole in 2010 that he wanted one too.
Long suspected of being a “cash cow” for Rakhmon and his inner circle, and once estimated to account for a third of Tajikistan’s GDP, Talco now appears to be in bad financial shape. The factory’s recent losses have already hurt the national economy and it faces a slew of deep-rooted inefficiencies. But with much of its cash flow cloaked in offshore mystery, the company remains capable of sparking infighting among Tajikistan’s non-transparent elites.
Mounting Money Trouble
As a business, Talco has long had to contend with an array of costly challenges—from dubious tolling schemes and pricy litigation to debilitating obstacles thrown up by neighboring Uzbekistan. In recent years, these have been compounded by a worldwide aluminum glut, which has driven prices to record lows—between $1,700 and $1,800 per metric ton on the London Metal Exchange, down from almost $2,800 in 2011.
“The whole industry is in the fetal position,” said an executive at Rusal, the world’s largest aluminum maker, in Moscow.
Talco’s output plunged 48 percent between 2007 and 2013, according to statistics provided by the company. The Economics Ministry expects it to fall another 30 percent this year. Adding to Talco’s financial strain, last fall courts in Switzerland and the British Virgin Islands hit the company with almost $350 million in damages (now, with interest accruing daily, over $360 million). The charges are part of a protracted standoff with Rusal, detailed in yesterday’s story. The Russian aluminum giant is pursuing the case with fervor, combing through Talco-related transactions, seeking ways to seize assets, and pursuing criminal charges against the company’s commercial director.
Because Talco’s aluminum is Tajikistan’s top export – other than migrant labor – the company’s troubles have a direct negative impact on the economy as a whole.
In April, the Asian Development Bank said the plant’s decreased output cut 2013 industrial growth by 60 percent and generally made the economy more vulnerable. The same month, the World Bank said the decline has widened Tajikistan’s trade imbalance, increased reliance on labor remittances, and created a budget deficit.
The downsizing at Talco – which officially had 10,800 employees before this year’s layoffs – has taken a steep human toll too. Besides the dismissals and pay cuts, Talco is divesting itself of social programs in Tursunzoda, the Soviet-era town built for the plant’s workers and their families, about 60 kilometers west of Tajikistan’s capital, Dushanbe. Until this year, the company funded after-school dance and sewing classes, a workers’ sanatorium, and a school for gifted children. To cut costs, these will be handed over to the town administration, which, Talco says, promises to keep them going. Where local officials will find the funds to do so is unclear.
Cloak of Secrecy
Despite the obvious signs of hardship, the overall financial impact on Talco is hard to quantify, in part because of the secrecy surrounding many of the payments related to the company.
The bulk of the money generated by the plant passes to its tolling partner, Talco Management Ltd (TML). Registered in the British Virgin Islands, TML effectively acts as a financial middleman between Talco and the world, buying raw materials for the factory and selling its finished product. Talco, as a separate legal entity, receives a relatively modest fee for its part in the process.
In many respects, the two companies seem to function as a single entity. In April, Talco gave EurasiaNet.org years of audit reports for both Talco and TML, but without any of the appendices containing crucial financial data for TML. Asked for these, Sherali Kabirov, Talco’s finance and commercial director, said that though TML is a state-controlled company, the appendices constituted “commercial secrets.” Releasing them, he said in a May 2 email, “could result in irreversible damage to TML's activities.”
As in much of the former Soviet Union, non-transparency is the rule rather than the exception in Tajikistan, especially when large sums of money are involved. In Transparency International’s most recent Corruption Perceptions Index, the country ranked 154 out of 177.
Burdens of ‘the Orient’
The opaqueness cloaking Talco’s financial dealings has done little to dispel widespread rumors that the company and its affiliates serve as a private piggy bank for some of the country’s top-level officials, all the way up to the president. The company denies such accusations, and repeated calls for comment to Rakhmon's office went unanswered.
But projects like the record-setting pole flying Tajikistan’s flag over Dushanbe have kept the rumor mill spinning. (At 165 meters, the Tajik flagpole remains the record holder, three meters taller than Azerbaijan’s.)
Kabirov, Talco’s commercial and financial director, told EurasiaNet.org that TML had paid half the flagpole’s construction costs, with the other 50 percent coming from state coffers. The other company source – who requested anonymity because of the topic’s sensitivity – estimated that the project had cost $5 million. The flagpole was part of celebrations marking the 20th anniversary of Tajikistan’s independence. Overall, the official total price tag for the anniversary festivities reached $212 million.
Tajikistan is the poorest country among formerly Soviet states; the average salary is about $110 a month and, according to the UN, a third of the population lives below the poverty line.
Asked how Rakhmon, now in his 22nd year in power, could spend money from a struggling state company on what many call a frivolous project, the source familiar with Talco’s spending said, “this is the Orient”—meaning, apparently, that leaders’ whims go unchallenged and ostentation matters more than transparency.
This perception is common among Western officials.
In 2008, then-US Ambassador Tracey Jacobson articulated her concerns in cables later leaked by the anti-secrecy organization Wikileaks, alleging that Rakhmon keeps Talco running “as a means of generating income for himself, his family members, and his inner circle. […] Talco's revenue does not contribute to development of the country; rather much of it disappears for off-budget activities and projects, such as palaces and lavish state entertainments. The people of Tajikistan effectively subsidize Talco, by living without adequate health services, education, or electricity.”
Jacobson – who described Talco as Rakhmon’s “cash cow” – estimated that hundreds of millions of dollars have “disappeared” from the plant’s books since Tajikistan gained independence.
Talco’s chief information officer, Igor Sattarov, denied claims of financial impropriety, saying US Embassy personnel had been duped by false information published by Talco’s “enemies.”
“We are a leading company in Tajikistan in terms of openness and transparency,” he said.
Where Electricity Meets Geopolitics
The sprawling, grimy Talco plant looks like it could be a set for a James Bond movie—the scene where the bad guy bungles a plot to assassinate 007. But in areas where workers congregate, cheerful placards announce, “Rogun is the national conscience and honor of our country.”
The Rogun dam, on the drawing board since Soviet times, would be the world’s tallest, and is seen as a savior with almost mystical importance in Tajikistan. Yet opposition from a downstream neighbor, regional powerhouse Uzbekistan, threatens not only the Rogun project, but Talco, too.
Aluminum smelting requires vast amounts of electricity and Talco’s one advantage is subsidized electricity. The plant was built in Soviet Tajikistan as part of a system that included Nurek, currently the tallest hydropower dam in the world. The first turbine began to spin at Nurek in 1972; the plant started pouring aluminum ingots in 1975.
Today, Nurek still produces 75 percent of the country’s electricity, according to Davlatbek Salolov, the deputy director. Yet now Tajikistan suffers extensive blackouts, especially in autumn and winter, when Nurek’s reservoir is low. In March this year, some regions of Tajikistan had 30 minutes of electricity a day; others passed days without any at all.
According to a November 2012 electricity audit commissioned by the World Bank, Talco uses 39 percent of Tajikistan’s electricity. (Talco representatives contend the figure in these leaner years is 13-15 percent.) Compared to its peers elsewhere, the study found, Talco uses 20 to 40 percent more electricity. “Its equipment is old and inefficient,” the Bank said, noting that the Soviet-era giant’s gluttonous consumption of electricity is hindering economic development elsewhere in the country.
Speak to any official, or glance at one of the thousands of billboards around the country, and the answer to all Tajikistan’s problems is Rogun. Even taller than Nurek, Rogun promises to lift the country out of poverty and transform it into something like a rich sheikdom.
“Tell the world: When we build Rogun, all of our problems will be solved. With Rogun we can ensure energy not only for ourselves, but also for Afghanistan and Pakistan. Like Arabs sell oil, we will sell electricity,” shouted Salolov, Nurek’s deputy director, over the cascading water, as if straining to be heard beyond Tajikistan’s borders.
Officials in Uzbekistan say Rogun will give Dushanbe unfair control over shared water resources and hurt its thirsty cotton crop. At times, Tashkent has blockaded Tajikistan: cutting off gas supplies, arbitrarily closing borders, and, in 2011, apparently destroying one of the three rail lines into Tajikistan. Partly for this reason – and for the corruption that pervades most aspects of daily life – the World Bank ranked Tajikistan 188 out of 189 in the “trading across borders” category of its most recent Doing Business Report.
Meanwhile, Talco, which imports almost all its raw materials and exports most of the aluminum ingots it produces, has seen its transport costs roughly double over the past five years.
These weren’t problems when Talco was built and Uzbekistan and Tajikistan were part of the Soviet Union. But today, Uzbekistan clearly tops the list of worries for many Tajik officials, who complain bitterly about their neighbor.
Big Dreams, Little Backing
Since 2011, an impressive-looking, $35-million factory in Dushanbe has taken aluminum from the plant and turned it into high-powered electrical cable—10,000 tons of it per year. So far, most of the product is used locally, but Talco Cable Industries’ chief engineer Khushvakht Kenjaev hopes to supply cable for a World Bank-led project to export electricity to Afghanistan and Pakistan, CASA-1000.
Talco Cable is a small part of a big dream. But other than the shiny new factory, Talco executives describe most of their quixotic plans in the future tense. One company handout touts $2.55 billion in projects involving in chemicals, metals and mining – equivalent to about one-third of Tajikistan’s GDP. Other than some vague Chinese interest, most of the ventures have no sources of funding.
That does not inspire hope. Talco is trying to build a chemicals plant south of Dushanbe to provide it with native inputs for aluminum production, but it is struggling to complete work amid a financial dispute with the Chinese investor.
Western investors, meanwhile, tend to stay away. The only way to do business in the country, Western officials complain, is to get close to top officials and make back-room deals. There is little successful Western investment to encourage others; one Western official characterized the investment climate as “in a death spiral.”
Re-Carving the Pie?
In March, Tajikistan’s Finance Ministry said Talco is on the verge of bankruptcy—a charge the company vehemently denies. For observers of Dushanbe’s murky business scene, the controversy offered a possible clue into a power struggle within the ruling family.
Deputy Finance Minister Djamoliddin Nuraliev, said to be the brains behind the ministry, is Rakhmon’s son-in-law. The banker who has had a hand in Talco’s offshore tolling operations and is widely believed to control the plant is Rakhmon’s brother-in-law, Hasan Asadullozoda. Asadullozoda’s wealth and influence, wrote Ambassador Jacobson in a 2008 cable, “have generated jealousy among President Rakhmon's inner circle, particularly his children.” (Nuraliev declined to be interviewed for this story. Requests for comment to Asadullozoda’s Orienbank went unanswered).
If a change in the operational structure at the aluminum plant is in the works, it wouldn’t be the first time. The last major management switch took place in 2004. The former management alleges that members of the Rakhmon family seized the factory and put Asadullozoda in charge. Talco says the former management stole hundreds of millions of dollars. That sparked one of the most expensive lawsuits in the history of the London High Court.
A lot has changed in the past 10 years, and currently Talco is not worth what it once was. But by all accounts in Dushanbe, the president’s nine children, as they grow up, are beginning to compete with each other, and distant relatives, for lucrative economic opportunities.
As one Tajik financial analyst said, paraphrasing a widely read US Embassy cable, “The president and his family would rather have all of a $10 pie than 50 percent of a $100 pie.”
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