TAJIK ENERGY MINISTRY RELUCTANT TO WORK WITH MEHRON OIL

1. (C) SUMMARY: Deputy Energy Minister Emomiddin Aslov
reported the Tajik government would only allow a $20 million oil
refinery project if the investors assume 100 percent of the risk
and make no claims on the Tajik Government, should the project
fail. The actions and background of Mehron Oil LLC and its
founder, Michael Jay, created enough doubts that the Tajik
Government suspects fraud. Unwilling to pull the plug entirely,
Aslov said Sofitel Capital Corporation was welcome to invest,
provided they understood the risks involved with working with
Mehron and did not hold the Tajik government responsible. END
SUMMARY



2. (C) Aslov sent the Embassy a letter December 27, 2005,
outlining his concerns about the refinery project. In an
hour-long meeting with PolOff January 5, Aslov said Jay had been
in negotiations with the Tajiks for almost two years, but always
failed to secure financing. According to Aslov, Energy Minister
Nurmamatov himself had asked Jay "10 times" when Mehron Oil
would find the financing. "We have serious doubts," he
underscored.



3. (C) Sofitel Capital Corporation USA, Inc, based in
Annapolis, has emerged as a potential backer for Mehron Oil's
refinery project. As part of its loan commitment, Sofitel
requires Mehron Oil to provide a guaranty of the loan from the
Republic of Tajikistan (or any sub-sovereign entity) to be
further guaranteed by the Multi-Lateral Investment Guaranty
Agency. (NOTE: Ron Flax-Davidson of Sofitel Capital Corporation
plans to visit Tajikistan January 21-25 to visit the proposed
refinery sites and has asked for Embassy assistance in
facilitating the necessary guarantees for the project. END
NOTE) While Aslov did not explicitly refuse to issue a guaranty,
he made it clear that the Government of Tajikistan would not
ensure Mehron Oil's activities.



4. (C) Jay's credentials are unclear. He holds an Australian
passport, but Aslov said Jay was born and raised in Russia and
may have attended university there. Mehron Oil is a joint stock
company owned 94 percent by BA Oil Pty Ltd and six percent by
the Republic of Tajikistan. Jay owns 100 percent of Wombat's
Machinery Pty Ltd, which formed BA Oil as a joint venture with
the Kyrgyz Republic. When the Tajiks inquired in Kyrgyzstan
about Jay's activities there, Kyrgyz authorities said Jay had no
business in the Kyrgyz Republic, but was involved in several
projects in Tajikistan. According to Aslov, Jay had not
responded to Tajik requests to provide pictures or evidence of
his successful joint ventures or refinery projects.



5. (C) Aslov emphasized that Tajikistan welcomed foreign
investment and very much wanted the refinery project. "We have a
site, we have transportation linkages, now we just need a
state-of-the-art refinery. In three years we could be processing
oil here!" Aslov said Energy Minister Nurmamatov was frustrated
by Jay's empty promises and deeply concerned about the
ramifications of a failed joint venture. "Tajikistan is not a
joke," said Aslov. "We need real investment and cooperation."

NO ONE WANTS ANOTHER CASE LIKE GERALD METALS, DO THEY?


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6. (C) COMMENT: Although this is only one side of the story,
the Tajiks have never previously discouraged a $20 million
foreign investment. Given the Tajik government's reluctance to
support Mehron Oil's involvement in the project, Post may find
it extremely difficult to help Sofitel Capital secure the
guarantees required. Post will need to do more digging to get
the full picture on Mehron's capability and reliability, but we
should consider this a serious red flag. Gerald Metal's
difficult history with Tajik Government guaranties also should
persuade all parties to proceed very cautiously. END COMMENT

ARMBRUSTER


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