Tajikistan's Aluminum Company Lives on Subsidies and Debt Write-Offs

Tajikistan has been in discussions with the International Monetary Fund (IMF) for months on a bailout said to amount to more than $500 million. The latest news on that front, reported by Reuters, cites the deputy director of the IMF’s Middle East and Central Asia department, Juha Kahkonen as saying that progress has been made and an agreement can be expected in the coming months. Kahkonen’s comments came a few weeks after the department’s director Masood Ahmed, responded to a question on whether a program would be settled this year in similar fashion: “We are working to come to closure on an IMF-supported program in Tajikistan, as soon as the policy framework can be defined that would help to address the challenges that Tajikistan faces. And I’m hopeful that we’ll be able to do that during the course of this year.”

The Reuters report notes that Tajikistan has sought $100 million in loans from the European bank for Reconstruction and Development, loans that will only be offered once an IMF program is established. The report goes on to note recent efforts on the part of the Tajik government to convince the IMF it’s serious about reform. Dushanbe reportedly agreed to raise the price of electricity by 16 percent starting in November. It also said it would phase out subsidies.

The company that has benefited the most from state electricity subsidies and routine debt writes-offs is TALCO, the country’s national aluminum operation. The tangled TALCO web has been shielded by shell companies managing all sales abroad and Tajikistan’s general financial opacity. A leaked 2008 U.S. Embassy cable claimed that TALCO was Dushabe’s largest source of revenue at the time, “It generates 33 percent of the country’s gross domestic product, 48 percent of its export revenues, and 75.3 percent of its foreign currency reserves.” The cable also noted that while TALCO had been “under President Rahmon’s de facto authority since 1994, TALCO officially came under direct control of President Rahmon’s family in 2004.”

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This direct link to the power president’s family makes a report released by the Tajik Finance Ministry regarding the company’s operations all the more interesting. According to Asia-Plus, the ministry’s report said that TALCO “has been faced with [an] unfavorable financial situation.” The website reported that TALCO is losing $100 on each ton of aluminum sold via a tolling arrangement with TALCO Management Ltd, which apparently gets $500 per ton, well below the present market rate which is a fraction of what it was two years ago. The Finance Ministry’s report noted a bit of financial confusion. From Asia-Plus:

According to the report, TALCO earned 3.9 billion somoni (equivalent to 1.6 billion U.S. dollars) from production activity in 2010-2015.

“Taking into account the external commerce, to company has mentioned that it earned 10 billion somoni (equivalent to 2.7 billion U.S. dollars),” the report says noting that the company has not mentioned the income of 3.8 billion somoni (equivalent to 1.1 billion U.S. dollars) earned from external commerce.

TALCO fired back, denying that any income had been concealed by the company and questioning where the ministry got its numbers from.

Aluminum production has fallen in Tajikistan, even as the state has gone out of its way to prop up the industry. First with subsidized electricity and then with the writing off of millions in debt. According to Asia-Plus, in 2009, 50.9 million somoni in electricity debt was written off by government decree. In 2009, TALCO disputed that it had debt issues but did acknowledge that the government had, in 2005, written off 60 million somoni of the more than 96 million somoni it owed from 1996 to 2004. Asia-Plus also notes subsequent electricity debt write-offs: 143.7 million somoni (2011), 67 million somoni (2014) and 261.6 million somoni (2016).

Bearing in mind that according to the Finance Ministry TALCO presently consumes 30 percent of Tajikistan’s electricity, its payment delinquency is a huge deal. The leaked 2008 U.S. Embassy cable noted that that TALCO consumed “8 billion kilowatt hours of electricity per year – nearly half of Tajikistan’s 2007 electricity production.” During winter energy crisis, TALCO remained operating at “near full capacity for several weeks, while the rest of the country suffered from severe shortages.”

The Reuters report specifically mentions that the phase out of electricity subsidies would target “companies such as TALCO.”

TALCO isn’t turning a profit, aluminum prices and production are falling, and the company has an established history of being unable to pay its debts even with subsidized prices. Government pledges to pursue serious financial and banking sector reform are paper promises.