On 25 October, the country’s Ministry of Finance reported that $1.1Bn (equivalent to more than 14% of the value of country’s GDP [$8.5 Billion in 2013]) has been lost in the period from 2010 until to the middle of 2016 from Talco tolling schemes to its offshore partner Talco Management Limited (TML) in the British Virgin Islands (BVI). They also reported the low rates paid by Talco for electricity compared to domestic consumers and the writing-off of around $40 million in debt to Barqi Tojik, the electricity provider.
The dispute is very public, unlike most matters with respect to Talco. An apparently brave professor, Nuriddin Kayumov, has come out to support the MinFin allegations in strident terms noting that the offshore tolling schemes are a ‘prehistoric method of money laundering’. Talco’s spokesman Igor Sattorov has denied the MinFin claims and threatened legal action against Professor Kayumov. Sattorov argues that the tolling schemes save Talco from seizure by its opponents and have kept it afloat financially.
The framing of the problem by MinFin and Kayumov is that the state is not in sufficient control of Talco. This is a familiar refrain of criticism in the authoritarian state: blame unnamed mid-ranking officials, portray the head of state as impartial (despite the fact that the board of directors of the state company report to him), and invite him to intervene to resolve the matter in your favour. However, the problem is that while the basic description of offshoring and money laundering is correct the analysis of the responsibility for this is not. The state would only lack control if it was something distinct from the regime of persons around and including Mr Rahmon who are directly benefiting from and controlling the offshore schemes.
I have been following this case for a long time and am puzzled by these events. My guess is that it’s a premise for a change of management, the first since 2004. If this set of offshore schemes – which have become infamous among those who know about Tajikistan’s political economy – are dismissed as illegitimate then another, more private scheme with a different structure can be set up.
But to do so in such a public way, highlighting schemes which the President’s family has been shown to benefit from in a protracted London court case from 2005-2008, articles by the journalists John Helmer and, for Eurasianet, David Trilling, in Martha Brill Olcott’s 2012 book on Tajikistan, and in the forthcoming book of Alex Cooley and I, is a bit odd. It’s a nice gift for our book and I’m going to try and sneak a sentence into the manuscript at proofs stage. But I’m guessing that’s not the reason they are doing it!
Rather than a process coordinated by the president this may be an open dispute with an uncertain outcome but with the aim of seizing control of the aluminium plant and, more importantly, its offshore schemes.
In order to make some sense of what’s going on it may be worth remembering three earlier moments of dispute over Talco or other businesses controlled by family members in 2004, 2008 and 2010.
In 2004 Talco’s previous management and financial arrangement under Anvar Nazarov and the Ansol offshore company were usurped by a new deal which brought the company under the management of Orienbank, headed by President Rahmon’s brother-in-law Hassan Sadullayev (who later changed his named to the Persian form, Asadullozoda). Court records in London showed that the President was already overseeing the company and off-budget payments were made to family members’ private interests and state projects prior to 2004.
However, the new deal with the offshore company CDH meant that the regime and particularly Sadullayev – the financier and former shopkeeper – gained greater control over the offshore schemes. This was revised further in 2007 when Talco gained its name (it had previously been known by the Russian acronym TadAz) and re-entered partnership with Norsk Hydro through TML.
In Spring 2008 news broke of an internal feud in the Rahmon family over business interests. Details were never more than sketchy and subject to conspiracy theories over the details but it was widely understood in Dushanbe that Sadullayev had been shot by Rahmon’s son Rustam (aged 20, at that time) in a wider argument over business with the children of the president. Certainly, Sadullayev disappeared from public view for several weeks and delayed his witness statement in the London court. It was later rumoured that Sadullayev had lost part of his business interests to other members of the family, particularly the daughter Ozoda and her husband Jamoliddin Nuraliev.
In 2010, Deutsche Welle reported that Innovative Road Solutions, which managed the Chinese-built toll road from Dushanbe to the city of Chanak, was established as an offshore company in the BVI by Nuraliev. Rather similarly to recent events, a senior state financial official, Amonulloh Ashur, the head of Tajikistan’s Antimonopoly Committee, raised the alarm and an academic economist, Hojimuhammad Umarov, criticised the secrecy of the offshore scheme. Other state officials weighed in to defend Nuraliev and Ashur was later demoted.
Nuraliev was deputy minister in the Ministry of Finance in 2010 dispute and is now in the position of deputy at the National Bank and appointed as a governor of the European Bank for Reconstruction and Development. His wife and the president’s daughter, Ozoda, rose in the Ministry of Foreign Affairs to become first deputy minister in 2014 before being appointed chief of staff to her father and a senator in Tajikistan’s upper house in 2016.
One possibility raised by one Tajikistani expert on business and politics – who shall remain unnamed but, at least, anonymously credited – is that Nuraliev is using his MinFin connections to reverse roles this time around. This expert alleges that Nuraliev, through his contacts at MinFin, and perhaps on behalf of several family members, is seeking to push Sadullayev out of Talco and gain control of the largest industrial asset of Tajikistan.
With the new Rogun hydroelectric power station, the largest in the world, due to come online in 2018, those seeking to wrestle control of Talco may guess that abundant cheap electricity and a possible rise in the price aluminium make control of the offshore schemes linked to the state company particularly profitable.
This seems a plausible argument. Time will tell. But a change of management a la 2004, echoing the family feud of 2008, with accusers deploying a similar modus operandi to 2010, may be on the cards.
These events ought to be of concern to Norsk Hydro’s board who have long-defended their partnership with Talco (which ran until 2013) despite these many accusations, and Glencore, which is the main partner today. Their supply of alumina and participation in the tolling scheme (see the forthcoming Dictators Without Borders) implicates these major companies in the hiding of money alleged by MinFin and the money laundering identified by a senior Tajik academic.
As Hydro is half-owned by the Norwegian state and listed on the New York Stock Exchange this rather odd story should be of interest both to the (Norwegian) public and international regulators troubled by the use of offshore schemes for capital flight and corrupt purposes by the world’s kleptocracies.
But are they interested enough to really explore how the international financial system is used and abused by Central Asian regimes?