Gold Dispute Won't Help Uzbekistan's Image

Friday, 24 June, 2011

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Bakhtiyor Rasulov

Whatever the outcome of the ongoing legal battle over a gold company’s assets in Uzbekistan, analysts say the dispute will inevitably harm the country’s reputation as a place to do business in. 

The court case pits Oxus Gold, which has a 50 per cent stake in Amantay Goldfields, AGF – a joint venture with two state-run Uzbek partners – against the government in Tashkent.

The Uzbek finance ministry launched an audit of AGF earlier this year, in a move Oxus said was designed to force the joint venture into liquidation so that the state could acquire the foreign-owned half of its assets at well below their market value. Oxus said its subsidiary – the partner in AGF – was no longer in a position to meet its contractual obligations. It said it was seeking an amicable agreement to dispose of its shares in AGF for a fair value.

In early May, Uzbek deputy foreign trade minister Shavqat Tulyaganov accused Oxus of failing to pay taxes for some of the time it had operated in the country.

The lawyer acting for the company, Robert Amsterdam, said the claim was “false and misleading” and formed part of a “campaign to fabricate a reason to steal the last foreign assets in the mining industry in Uzbekistan".

He also denied Tulyaganov’s assertion that Oxus had turned down an offer of an amicable settlement.

The dispute is now to go to international arbitration.

The Uzbek trade and foreign economic relations ministry refused to comment on the affair, as did the State Committee for Geology and Mineral Resources or Goskomgeo, which has a 40 per cent share in the joint venture.

But a senior Goskomgeo official, who did not want to be named, said the Uzbek government wanted to acquire a complete monopoly of the gold industry because the metal’s world price was rising – and that meant getting rid of foreign partners.

A local analyst suggested a different reason for dissolving AGF – the one-time involvement of a Swiss-registered company called Zeromax GmbH.

In 2006, following a tax dispute with the Uzbek government, Oxus issued a 16 per cent shareholding to Zeromax, which was owned by an Uzbek businessmen and had extensive interests in the country’s energy sector and other industries.

Once seen as untouchable because of its proximity to the Uzbek government, Zeromax lost all its assets in the country last year when they were seized at the behest of the secret police. Many analysts saw its demise as the result of one elite group moving in on the interests of another. 

The analyst said Oxus might have been the unwitting victim of an internal power-struggle in which a company which the regime was once happy to see involved in AFG suffered a spectacular fall from grace.

“It’s likely that… a decision was taken to expel all of the company’s partners,” he said.

This kind of political volte-face is just one of the unpleasant surprises that can face foreign companies which risk investing in Uzbekistan.

“They get invited into the country, and they invest immense sums of money in developing an industry. Later on, they are driven out under formulaic pretexts, and the foreign shareholding [in a joint venture] passes to the Uzbek partner, and is then nationalised,“ the analyst said.

The American mining firm Newmont suffered the same fate a few years ago. Its Zarafshan-Newmont subsidiary was accused of tax evasion around the same time as Oxus in 2006, and its assets seized.

“The authorities’ actions do nothing to contribute to improving the investment climate, and scare off potential investors … but they do serve to enrich individual officials,” an economist in Tashkent said.

(The names of interviewees have been withheld out of concern for their safety.)

Bakhtior Rasulov is a pseudonym for a journalist in Uzbekistan. 

This article was produced as part of IWPR's News Briefing Central Asia output, funded by the National Endowment for Democracy.