By John Helmer in Moscow
Adam Smith hides his talent — making Tajik mining’s sow’s ear into a silk purse.
A European Commission (EC) contract to promote foreign mining investment in Tajikistan collapsed this month into denials and mystification, as the deputy head of the Tajikistan government’s committee on foreign investment claims he has never heard of it. A US project consultant and the London-based Adam Smith international, for which he worked, claim their task was to staunch a growing loss of confidence on the part of international resource investors, not promote fresh investment.
The apparent hitch in the promotional effort comes as Norwegian investigators probe financial relations between the state-controlled Hydro Aluminium company and Tajikistan aluminium Plant (Talco aka TadAZ), the dominant enterprise and principal export earner of the economy, which is personally directed by Tajik President Emomali Rahmon. According to many sources in Dushanbe and in the international mining community, Rahmon is part of the problem. According to the annual Tajikistan country report from the International Monetary Fund, issued on April 27, Rahmon told the IMF that “governance concerns, which continue to plague Tajikistan, are seriously affecting the business climate and private sector growth.”
Notwithstanding claims from Hydro last December that Talco has cleaned up its financial operations, the IMF also warned in the same report that Talco is one of the biggest tax scofflaws in the country. It also hinted at continuing corruption of the aluminium cashflow. “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.” This processing fee was roughly 20% of the international market price of the aluminium Talco exported.
Mineweb has reported already on mineral resource investments or attempts at securing mining licences and reviving metal smelters in Tajikistan by Hydro, Gulf International Minerals (Canada), Kryso Resources(UK), Zijin Mining (China), Saddleback Gold (UK), Rusal and UES (Russia), and Comsap (US). Rusal, Saddleback and Comsap are privately owned companies, which operate in Tajikistan in considerable secrecy; the Tajik government is currently suing Rusal for alleged corruption in its management of Talco between 2004 and 2006.
Tajikistan’s goods trade is almost equally divided between Russia and Uzbekistan on the one hand, Europe and Asia on the other. Trade turnover with Asia has been growing; with Europe, shrinking. A report from the Ministry of Economic Development in Dushanbe, the Tajik capital, identifies Russia, China, Turkey, Iran and the Netherlands as the country’s leading trade partners. Exports of aluminium are the most significant; the most important imports are of alumina, petroleum products, and grain.
The US government and the European Union have both been stepping up their efforts to draw Tajikistan and its president away from traditional economic and political dependency on Russia and China. Remittances from Tajik workers labouring in Russia are the single largest source of income in the country — they amount to more than $1 billion per annum. China is the largest financier of development in the country, with loans committed of about $1 billion to fund road improvement, construction of electricity lines, and generation of hydroelectric power.
The US has built one of the largest embassy establishments operating in Central Asia, and begun military cooperation talks with Rahmon. The European Union undertook almost a year ago to provide Rahmon with help to burnish the image of the country. According to an EC source in Dushanbe, “the EC is not promoting Tajikistan for foreign investment. The EC is trying to assist the government of Tajikistan in improving its investment climate.”
By all international measurements, Tajikistan is one of worst scoring of governments in the world for control of corruption, investor protection, governance and accountability. Reports confirming this have been issued by the World Bank, Transparency International, the European Bank for Reconstruction and Development, and the World Economic Forum. In response, Rahmon has appointed Sharif Rahimzoda to be Chairman of the State Committee for Investments and Management of State-owned Property (GosKomInvest). Deputy chairman of the committee is Maruf Saifiyev, who is also Deputy Minister of Economic Development.
Rahimzoda is frequently reported in the Tajik media. In September, he was one of several Tajik officials to meet the UK Department for International Development (DFID) to discuss UK aid to the country. Ten days ago, he was reported as telling Rahmon at an official meeting that “one of the main tasks is to create favorable conditions for attraction of domestic and foreign investments to provide further development of the country’s economy, introduce the state-of-the-art technologies, create new jobs, etc.” A mining source in Dushanbe told Mineweb that Rahimzoda had told the EC consultant that his job was to “make Tajikistan look like Dubai for foreign investment.”
That was not a task, however, for which Rahimzoda’s committee proposed to pay. Instead, it applied to the EC for funding from Brussels. The consultancy contract awarded by the EC went to a Spanish firm called ACE. This is a curiosity because Tajik trade and investment data reveal no Spanish involvement in the country at all. ACE’s head, Alvaro Diaz-Maurino, refused to respond to questions about ACE’s involvement in the Tajik contract. The involvement appears to have brief, for ACE sub-contracted the task to Adam Smith International (ASI) in London. It then engaged an American PR specialist in Washington, William Cleary, to do the job. The EC contract proposed paying him just Eur129,940 for 100 working days over this year.
The ASI head Roger Usher told Mineweb this wasn’t his project, and referred to the project supervisor in London, Peter Young. he declined to respond to questions.
The EC contract supervisor in Dushanbe, Frederick Coene, told Mineweb that GosKomInvest is the beneficiary of the project, and that Bill Cleary had been hired to “assist GosKomInvest in their communication strategy. They definitely needed capacity building. His task was not to give the impression Tajikistan is a paradise for foreign investors, which he also didn’t do. However, people not understanding his assignment may unfortunately get this wrong impression.
Sources in Dushanbe have told Mineweb what Cleary told them. At the start of the year, he reportedly claimed, he thought the assignment was to develop a strategy for GosKominvest to attract new foreign investment. After interviewing western resource investors, Cleary reportedly said that his task became how to staunch what one source called a “stampede of foreign investors out of the country.”
Cleary was asked how he would characterize the assignment on behalf of the GosKomInvest, and what recommendations he made in his report. He declined to respond to several email requests. He was also asked whether it was relevant to his assignment to understand why the Tajik Government had failed to implement specific anti-corruption and transparency recommendations for the management of the Tajikistan Aluminium Plant, on the ground that if Talco’s foreign partners are not secure, what foreign investment in Tajikistan is. Cleary refused to say. Responding earlier to statements issued by the Tajik government that Hydro has promised to invest up to $90 million in the plant, Hydro has told Mineweb it has committed only to supplying technical expertise, not money.
Asked if Cleary’s report has focused on the widespread perception that corruption in Tajikistan begins at the top, Coeene said: “The report has nothing to do with Rahmon’s links to TadAZ. ” Coene also said that “the report is not yet finalized, so the paper is not issued, but it will be, and it will be made public.”
Transparency is identified as one of the key problems to be addressed by the EC’s consultancy assignment. The text of the project description, provided by Coene, says: “The key element of the privatization strategy of the Government of the Republic of Tajikistan has been to strike the balance between effectiveness, transparency and due diligence and to use each to support the others…. to help the SPC to implement its communications strategy to disseminate financial and other information about privatization offers and auctions in a timely manner to potential investors through mass and selective communications channels in a way that enhances transparency about entities being offered for sale and demonstrates a favorable and fair investment climate that results in higher participation in auction and tenders, and also builds public support for the program.”
Making a silk purse out of a sow’s ear has never been easy work. But among the curiosities of the EC consultancy report that no-one wants to own up to, the deputy chairman of GosKomInvest expressed skepticism that anyone had tried. Saifiyev told Mineweb: “we have never received any report from Adam Smith International or ACE. I know everyone here in the State Committee, and if such a report would be received, I would know about it. I also don’t know the person, Bill Cleary.” Coene responded: “I think the reason why Mr. Saifiyev doesn’t know about this consultancy is that the consultant was talking to Mr. Rahimzoda, and some other person in the agency.”
The atmosphere surrounding mining concessions, competition for new prospects, and investment protection is so sensitive in Dushanbe, most westerners there will not be quoted by name or company. Some, like Comsap, the concessionaire selected for the Anzob antimony mine, refuse to answer questions at all. Rahmon’s brother-in-law, Hasan Saduloev, who controls Orienbank in Dushanbe, and is widely reputed to be the hidden hand behind most presidential dealings in mining, minerals, and metals, also declined to explain how a relatively small metals trader from new Jersey like Comsap can invest the sizeable amounts required to revive the Anzob antimony mine. A Tajik source told Mineweb that the access Comsap executives have enjoyed to Rahmon, and the influence they are reported to have in Dushanbe, come from Saduloev.
But what of official statistics recording the inflow of foreign investment into, or out of Tajikistan? Coene told Mineweb that the EC bureau in Dushanbe “unfortunately does not have capital inflow/outflow numbers.” The IMF country report of April indicated that foreign direct investment in Tajikistan totaled $55 million in 2005, $66 million in 2006, and is projected to rise to $70 million this year.
Saifiyev and the statistics of the National Bank of Tajikistan suggest higher numbers, but also more uncertainty. In a tabulation by the central bank of Tajikistan’s balance of payments for the first two quarters of 2007, there was a surge in the “direct investment” item for the second quarter to $130 million. However, this was offset by a stampede of currency and bank deposits out of the economy, totaling $217 million. The black box of aggregate capital movements, “net errors and omissions”, jumped from a negative $29.8 million in the first quarter to negative $253.2 million in the second quarter.