GERALD METALS RESOLVES DISPUTE WITH TAJIK ALUMINUM, RENEWS

UNCLAS SECTION 01 OF 02 DUSHANBE 001581 SIPDIS SENSITIVE SIPDIS COMMERCE FOR ITA/MAC DANICA STARKS SIPDIS E.O. 12958: N/A TAGS: PREL PGOV EINV ETRD TI SUBJECT: GERALD METALS RESOLVES DISPUTE WITH TAJIK ALUMINUM, RENEWS RELATIONSHIP WITH TAJIKISTAN DUSHANBE 00001581 001.2 OF 002 Gerald Metals Comes Back to Tajikistan ============================= ¶1. (SBU) Gerald Metals Inc. of Connecticut, and the Tajik Aluminum Company ("Talco") have resolved their four-year, $24 million dispute over non-delivery of aluminum for which Gerald had pre-paid. Now Gerald Metals is exploring new opportunities in metal trading with Talco. The two sides reached an agreement-in-principal to supply alumina to, and buy aluminum from Talco starting in 2008, during a recent visit to Dushanbe by Gerald Metals executives. Talco will obtain the Government of Tajikistan's agreement to do this business with Gerald Metals, and will inform Gerald Metals in writing in November ¶2007. Gerald Metals expects additional meetings between the parties to take place in the next two months. In addition to aluminum trading, Gerald Metals expressed interest in investing in energy and mining projects in Tajikistan. We introduced Gerald Metals to SomonCapital (a 50/50 joint venture between Almaty based VisorCapital investment bank, and OrienBank, Tajikistan). If discussions on aluminum trade and mining projects are productive, Gerald Metals will consider requesting a visit for its CEO to meet with President Rahmon in Dushanbe in November or December 2007. The resolution of this trade dispute is symbolically important, as it removes a public irritant in our relations and shows that Tajikistan's major state-owned company is willing to give way on a dispute with a foreign partner (after serious pressure). After Some Hard Times ================= ¶2. (SBU) In early 2004, Gerald made an advance payment of $20 million to Talco (then called by its Russian acronym "TadAZ") for future delivery of aluminum. In late 2004 Talco management changed under government pressure, and in early 2005 it defaulted on deliveries due under the contract. Gerald then demanded repayment from Talco. This had been the largest U.S.-Tajikistan business transaction ever undertaken, and Talco refused to deliver the metal or repay the $20 million advance payment. Gerald faced a loss of $24 million, with interest factored into the original $20 million payment. �0A; ¶3. (SBU) Over the next two years Gerald pursued resolution of this issue up to the top of the Tajik Government, without result. Gerald was also denied due process in Tajikistan's courts, which held legal proceedings about the validity of the original agreement with Talco, without informing Gerald in time to attend. The Tajik courts also named Gerald as a co-defendant in a complaint alleging illegal activities by the previous Talco management. As a result, Gerald sought assistance from the U.S. Embassy in Dushanbe and the Departments of State and Commerce. The U.S. Government raised the issue on many occasions with the Government of Tajikistan, including through letters to the President from senior Commerce Department officials, and personally by the Under Secretary of State for Economic Affairs. The Embassy also counseled Gerald Metals to engage in more active personal diplomacy with the principals of Talco and with the Tajik government. However, for some time, Gerald executives were unwilling to visit Dushanbe, out of fear, they said, of being arrested. ¶4. (SBU) In March 2007, after years of lobbying by the USG, and after Gerald pursued Talco in court in Moscow and London, the Government of Tajikistan indicated it wanted to resolve the dispute. Sherali Kabirov, Deputy Director of Talco, told the embassy that Gerald had received $25 million repayment from the Government of Tajikistan (Gerald declined to tell us exactly who paid it back, but suggested in was a "third party" - probably intermediary Ansol, not the Government). After a variety of communications, and delays, Gerald Metals executives came to Dushanbe in October, and met with Talco's directors to confirm DUSHANBE 00001581 002.2 OF 002 their agreement. New Investment Ideas for Gerald, and New Suppliers for Talco ============================================= ¶5. (SBU) In a meeting with the Ambassador on October 19, at the conclusion of their visit, Gerald executives said they were cautiously interested in investing in power and mining projects in Tajikistan. Ambassador noted that they were right to be cautious, as the Government of Tajikistan still did not collectively understand the basics of free enterprise, and put pressure on private businesses, including foreign investors, to sell their products at below-market prices to favored parties. ¶6. (SBU) Gerald also informed us that Talco was finding new raw materials suppliers. In addition to existing suppliers GenCorp and Norsk Hydro, and the newly developing relationship with Gerald Metals, Talco had begun relations with Alaska Metal (a UK company headed by an Iranian who is said to be a personal friend of President Rahmon) and an unspecified Hong Kong based company. Alaska Metal was also building a university in Tursunzade, where Talco's plant is located. ¶7. (SBU) Gerald reps said they were pleased with the situation, but did not deceive themselves that the either Talco or the Tajik Government had changed fundamentally. They suggested that the resolution of their dispute, and a much larger concurrent dispute between Talco and the Norwegian firm Norsk Hydro, were tactical moves to improve Talco's image. Gerald reps also said that they had learned important lessons; engage personally with Central Asian counterparts, as personal diplomacy counted for more than emails and legal maneuvers; and keep the USG informed and involved at all stages, not just when the going gets tough. They said that in their view, signs of USG support for their business might have prevented the dispute from developing in the first place. ¶8. (SBU) Comment: Resolution of the Gerald Metals dispute -- whatever the motivations on the Tajik side -- is big news and an indication of the Government's willingness to deal constructively with trade disputes and create a more inviting atmosphere for foreign businesses. But its significance should not be overstated; there is a long way to go, and the Tajik Government continues to foist non-market decisions on resident businesses of all kinds. End Comment. JACOBSON