2009 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION CASES:

UNCLAS TASHKENT 000927

SIPDIS
DEPARTMENT FOR EEB/IFD/OIA (HEATHER GOETHERT AND
KIMBERLY BUTLER) AND L/CID (PATRICK PEARSALL)

E.O. 12958: N/A
TAGS: CASC EINV KIDE OPIC UZ
SUBJECT: 2009 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION CASES:
EMBASSY TASHKENT SUBMISSION

REF: STATE 49477


1. (U) The United States Government is aware of six
(6) claims of United States persons against the
Government of Uzbekistan (GOU).


2. (U) a. Claimant A

b. 2002

c. Claimant A was the chief operator of a soft
drink manufacturing plant in Uzbekistan after its
independence in 1991. However, the Claimant
alleges that following a personal dispute between
one of the owners of the Claimant and the daughter
of a high official of the Government, the Claimant
executives were all forced to leave the country and
have not been allowed to return or to conduct
business in Uzbekistan. Following prolonged
proceedings in the Tashkent Economic Court and
Supreme Court, the Claimants shares in the
bottling plant were reduced, making a large U.S.
soft drink corporation the major shareholder and
operator of the bottling plant rather than the
Claimant. In addition, the GOU confiscated many
assets of the Claimant, including 600,000 tons of
sugar, 120 cars, 70 computers, and the Sergeli
wholesale supermarket, which had been another large
investment of the Claimant. The GOU has explained
these confiscations as the result of convictions
for tax violations. Finally, a number of employees
of the Claimant were arrested. The U.S. Government
has made representations to the GOU to ensure fair
treatment for the Claimant. The Embassys last
contact with the Claimant regarding the dispute was
in 2003, but the Department of State received
requests for information about factual issues
related to this dispute as late as November 2007,
suggesting that it may be ongoing. The Claimant
has left Uzbekistan.


3. (U) a. Claimant B

b. 2001

c. According to Claimant B, it has been growing
and exporting cotton in Uzbekistan since 1997. The
companys investment is partially funded by the
World Bank. The Seed Law of Uzbekistan guaranteed
it the right to export its product, but according
to the Claimant, it has been forced to surrender
all or part of its hard currency earnings for
exchange to soum at the official rate since 1999.
In addition, Customs officials have often detained
cotton export shipments and disregarded agreements
reached under the Seed Law of Uzbekistan. The GOU
has reduced the acreage the Claimant is allowed to
plant in high-yield seed varieties from just over
10,000 hectares in 1999, to 8,000 hectares in 2001
and then to 5,700 hectares in 2003. Local GOU
authorities are interfering in the management of
the Claimants farms by keeping farmers under state
production plans, even though the original business
plan, approved by the GOU, states the companys
farms are exempt from state orders. According to
the Claimant, continued obstruction by the GOU has
made it impossible for it to repay millions of
dollars in loans and will lead to its insolvency.

The Embassy successfully utilized the visit of
Senator Richard Shelby in January 2002 to force the
GOU to focus on a resolution of problems for the
Claimant. The Embassy arranged a meeting between
Senator Shelby and Elyor Ganiev, Deputy Prime
Minister for the Agency for Foreign Economic
Relations. The Claimants Managing Director and
Ganiev also met to determine a way for the Claimant
to pay back the USD 4.3 million it owes to an
Alabama bank. The U.S. Government has assisted the
Claimant as appropriate, and the Claimant has been
able to repay the Alabama bank and continue its
cotton project. Also, the surrender requirement is
not the punishment it once was, as the unification
of currency rates has diminished the negative
impact of this requirement. At that time, the


Claimant was able, with U.S. Government assistance,
to negotiate additional cotton acreage to use in
its business and continue payment on its
outstanding loan.

Unfortunately, in May 2005, the Government of
Uzbekistan sent a team of inspectors, headed by the
National Security Service, to investigate the
Claimants company. The Claimant perceived this as
unwarranted harassment stemming from familial ties
with Uzbek opposition politicians. The Embassy
assisted the Claimant in addressing this issue by
requesting a meeting with GOU officials and sending
Embassy officers as observers during the National
Security Service Investigation. The Prosecutors
Office nonetheless subsequently brought criminal
charges against the company, freezing its
operations and accounts, and the GOU physically
blocked the factory from receiving raw cotton.
However, in early 2006, the Claimants fortunes
turned when it partnered with a local company.

In 2008 the Claimant alleged that local authorities
in the Tashkent Region were still obstructing
access to the originally agreed 10,000 hectares of
raw cotton input. This in turn was preventing the
Claimant from servicing the $8 million loan from
the GOU that it had taken in 1998. (The GOU, in
turn, had taken these funds from a larger World
Bank loan.) In September, 2008, the U.S. Embassy
assisted the Claimant in arranging a meeting to
discuss these issues with Deputy Finance Minister
Erkin Tursunov. The Claimant subsequently reported
that the situation has improved, that it is
receiving a larger quantity of cotton input, and
that it is making progress in servicing its GOU
loan.

The Embassy continues to monitor the situation and
has regular contact with Claimant B. The Embassy
last spoke with the Claimant on May 21, 2009.


4. (U) a. Claimant C

b. 2002

c. Claimant C provided agriculture chemicals to
the GOU in 2001 in accordance with a government-
issued tender in the amount of $340,000. The
Claimant asserts that it has never been paid for
the products. In February 2003, the Ambassador
sent a letter to Prime Minister Sultanov regarding
this case and in 2004 the U.S. Government
approached high-level GOU officials to assist the
Claimant in resolving the payment dispute. The
Embassy pointed out on numerous occasions that if
the GOU does not resolve this issue, other
companies may be reluctant to invest in the
agricultural sector. Assistant Secretary of
Commerce William Lash III raised the Claimants
dispute with Deputy Prime Minister Rustam Azimov in
November 2004, advising the Deputy Prime Minister
that refusing to meet commercial obligations will
lead other businesses to avoid Uzbekistan. As of
the Embassys last contact with the Claimant in
2005, payment had yet to be rendered. The Claimant
has not been in contact with the Embassy since 2005
and does not have an office in Uzbekistan.


5. (U) a. Claimant D

b. 2003

c. Similar to the issue faced by Claimant C,
Claimant D provided agricultural chemicals to the
GOU in 2001 in the amount of $245,000 and asserted
that it was not paid. In February 2003, the
Ambassador sent a letter to Prime Minister Sultanov
regarding this case and in 2004, the U.S.
Government approached high-level GOU officials to
assist the Claimant in resolving the payment
dispute. The Embassy has raised this issue with
GOU officials, pointing out that it hampers their
ability to attract investment to the agricultural
sector. Assistant Secretary of Commerce William


Lash III raised the Claimants dispute with Deputy
Prime Minister Rustam Azimov in November 2004,
advising him that refusing to meet commercial
obligations will lead other businesses to avoid
Uzbekistan. As of the Embassys last contact with
the Claimant in 2004, payment had yet to be
rendered. The Claimant is no longer present in the
country and has not been in contact with the
Embassy.


6. (U) a. Claimant E

b. 2003

c. Claimant E purchased 51 percent of shares in an
Uzbek fruit processing plant in May 2002 from the
GOU state property committee (GKI). According to
the Claimant, it made an initial investment payment
of approximately $30,000 in June 2002 and a second
payment of approximately $54,000 in October 2002.
In November 2002, GKI returned the Claimants
second payment and declared that it had cancelled
the contract. This action, which the Claimant
believes was motivated by GKIs desire to sell the
plant to a Russian company, was compounded by a
ruling on the matter against the claimant by a
Tashkent court, causing the claimant to lose its
initial investment.

Separately, the Claimant is involved in a joint
venture, having purchased 33.3 percent of the
shares of another American company. Due to a
privatization decree, the GOU sold the governments
portion of the venture, including the property on
which the company operates. The Claimant offered
to purchase the building with a purchasing price
based on previous investments. However, the GKI
requested double the amount of the independently
assessed value of the building at $208,000.

In April 2003, the Ambassador sent a letter to
Prime Minister Sultanov requesting that his staff
investigate this issue. As of the Embassys last
contact with the Claimant in 2005, the company had
partially resolved some issues. The Claimant has
not been in contact with the Embassy since 2005,
and the Embassy has no information about the
current status of the Claimant.


7. (U) a. Claimant F

b. 1996

c. Claimant F, a Swiss company with a U.S.-owned
subsidiary, entered into a written contract with a
state-owned enterprise to deliver 50,000 metric
tons of Kazakh wheat. According to the Claimant,
the wheat was delivered, but the Uzbek party never
remitted payment. Despite repeated inquiries by
the Claimant, at times facilitated by the U.S.
Government, payment was not forthcoming. In 1997,
the Claimant brought its case to the Grain and Feed
Trade Association (GAFTA) under an arbitration
proceeding required by the written contract
controlling the grain purchase. GAFTA ruled on
this matter, and ordered the Uzbek enterprise to
pay the Claimant for the value of the shipment plus
interest, or approximately $18 million. An appeal
of this ruling was denied in July 1998. The U.S.
Embassy raised the issue with senior government
officials, including the Deputy Prime Minister. As
of the Embassys last contact with the Claimant in
2004, payment had not been rendered. The Claimant
is no longer present in the country.


8. (U) None of the claimants have signed privacy
waivers. The claimants are:

Claimant A: Ross Trading
Claimant B: Central Asia Seed Company (CASC)
Claimant C: Dow AgroSciences
Claimant D: Troy BioSciences Inc.
Claimant E: Vergest Ltd. and JV Uzbek Xerox Systems
Claimant F: ROMAK
NORLAND