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By John Helmer in Moscow

In the good old days, when intrepid Englishmen competed with Russians for commercial and military footholds in Central Asia, the object of their Great Game was to fill the local bazaars with English manufactured goods, and extract in exchange as much treasure as the locals could be gulled into giving up.

Never in two centuries, however, was there ever an Englishmen (or Russian), who played this game, a practising lawyer. So, who could have imagined that what moves today along the old Silk Road to Dushanbe are invoices for legal services, performed in the London courts; for the price of which the great despot of the Pamirs is prepared to let his country’s people freeze for lack of money to generate electricity and pay for heat.

Mineweb reported on April 28 that Herbert Smith, one of the largest billing of the UK law firms, has been setting an English, and probably a world record, for charging the Tajikistan government more than $100 million for a 3-year court claim ordered by the Tajik President, Imomali Rakhmonov (Rahmon): here

Just before this disclosure in Dushanbe, Rahmon called on Tajik civil servants to voluntarily forego part of their salaries in order to help fund the cost of building a new hydroelectric generating station at Rogun, on the Amu Darya river.Their contributions are dwarfed by Herbert Smith’s bill.

In the fortnight that has followed, the Financial Times has reported the Tajikistan Aluminium Plant (Talco, aka TadAZ) as saying: “The legal and related costs involved reflect the central importance of the issues and have been a necessary price to pay in re-establishing a successful aluminium industry in Tajikistan.” Talco had earlier ordered Herbert Smith not to answer Mineweb’s questions.

Simon Bushell, the lead lawyer for Herbert Smith in the case, refused to respond to Mineweb, but he told the London publication, Legal Week: “This has been a massive case which is likely to last for four years [overall]. All of the parties’ lawyers are conscious of the high fees involved and are committed publicly to exploring solutions to bring this long-running dispute to an end, if possible.”

The hint that the Tajik President and his lawyers are under growing international pressure to put a stop to the case has been reinforced by reports from Dushanbe; and from Oslo, where Hydro Aluminium, the state-controlled aluminium company, is Rahmon’s partner in the aluminium cashflow from Tajikistan.

Hydro has a 5% share in global aluminium production, or about 1.74 million tonnes per annum. It also produces 500,000 tonnes of bauxite, and more than a million tonnes of alumina. Its deal with the Talco smelter, and with its Caribbean affiliates, CDH and Talco Management Ltd., involves about 200,000 tonnes of primary metal; that represents 12% of Hydro’s annual production.

Following a special mission to the Tajik capital at the end of April, the International Monetary Fund (IMF) has decided to intensify its investigation of the Tajik government’s public finances, focusing not only on the National Bank of Tajikistan, but now on Talco, and on Barki Tojik, the state power utility, which has been supplying electricity at subsidized pricing to the smelter.

Contrary to claims an IMF spokesman made to Mineweb several weeks ago, the auditors are to be selected from one of the Big-4 international firms. The audit of the National Bank is also publicly characterized as forensic, meaning that auditors are looking for the possibility of criminal or fraudulent diversion of money. A source in Dushanbe told Mineweb this week that “the terms of reference for the National Bank Audit have been more or less agreed; they are to be sent to three of the big four accounting firms with a request for proposal. Price Waterhouse is not included because it failed to pick up on the misreporting during previous audits. The selection of the auditors for Barki Tojik and Talco will be separate from the selection of auditor for the National Bank.”

Masood Ahmed, the IMF spokesman, was asked by Mineweb how the IMF had managed to miss the expenditure of up to 4% of Tajikistan’s gross domestic product on the London and British Virgin Islands litigation, which Talco has pursued for the past three years. He declined to say. Ahmed also refused to say if the IMF has verified whether Hydro is a contractual beneficiary of the Talco litigation in London and elsewhere.

In recent weeks the UK High Court has reviewed contract documents of what Judge Tomlinson has called the “Hydro scheme”. This scheme, according to testimony in court, generates losses on alumina purchases and aluminium sales for the smelter in Tajikistan, but profits for Tajik-controlled companies in the British Virgin Islands, as well as for Hydro, which supplies alumina, and receives aluminium. Hydro’s spokesman Halvor Molland has told Mineweb his company “is not a party to the UK High Court proceedings to which you refer and Hydro has not in any way been involved
in such proceedings.” But Hydro’s London arbitration proceeding against Talco in 2005-2006 has produced a court record of Hydro charges of fraud against the plant, which may be called in evidence.

Hydro concedes it is following the “IMF’s findings and actions in Tajikistan. This information will be taken into account by Hydro when assessing our engagement in Tajikistan.”

Tracey Jacobson, the US Ambassador to Tajikistan, today told Mineweb she “would hope that all audits would be as complete as possible.” Official intervention by the US in support of the IMF’s mission to Dushanbe, and in the financial crisis now gripping Tajikistan, is unusual.

The Norwegian government, which is directly exposed to the results of the Talco audit, because of the Hydro scheme, has yet to comment publicly. But if it turns out that, as a result of the “Hydro scheme” with the Tajiks, the Norwegian government as 43.8% stakeholder in Hydro is a potential beneficiary of the Herbert Smith litigation, the embarrassment in Oslo will be acute.

Rahmon’s international isolation is growing as a result of the Talco misadventure in the London courts. US and Norwegian officials have already made clear they will not be receiving President Rahmon on state visits to either Oslo or Washington in the near future. Rahmon is even more coldly treated by the Kremlin.

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