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Tajikistan: Gold Mine Joint Venture Closed Over Tajik Inaction

Washington, 1 November 1996 (RFE/RL) -- A goldmining joint venture that has brought foreign investment of more than $50 million into Tajikistan has been shut down by the Western partner in a dispute with the government in Dushanbe.

The Zeravshan Gold Company halted its operations in the Zeravshan valley region of Tajikistan at midnight last night, throwing more than 1,000 local residents out of work.

The mining operation is a joint venture managed by Nelson Gold Limited, which owns 49 percent of the company. The government of Tajikistan owns 51 percent.

Nelson Gold, based in London, undertook the joint venture three years ago in what was then a pioneering move into a country which had drawn virtually no Western investment. The company agreed to invest millions of dollars to take over the old mining facility, upgrade and modernize it and turn it into a world class goldmining plant.

Andrew King, an official of Nelson Gold in London, says the company has invested nearly $54 million into the project so far and has turned the Zeravshan facility into a good operation, but that the government of Tajikistan has failed to follow through on the promises it made as part of the bargain.

King told our economics correspondent by telephone that the government has failed to implement legal, taxation and royalty laws necessary to meet global business standards, has failed to honor its promises on offshore banking arrangements and has unilaterally changed certain operating conditions. Without those legal changes, says King, Nelson would have to pay Tajikistan to operate the mine.

King says that because of these problems, $9.5 million worth of gold sits unsold in storage in Zeravshan.

Tajik Prime Minister Yaho Azimov told an investors conference in Tokyo Tuesday that the dispute "has been solved," but King denies that.

"The dialogue is continuing, we're still talking," he says, but there has been no resolution. "We're not going to live on promises any more."

Nelson Gold insists that the required laws be enacted, that a revised joint venture agreement negotiated between Nelson and the government of Tajikistan in June be registered, and that the original agreed banking arrangement be honored.

"Once we've got all that and we've sold our first gold, we'll open the mine again," says King.

The International Finance Corporation (IFC), the World Bank affiliate which deals with the private sector, decided to buy a five percent share of the ownership of the joint venture in early October. The IFC has not yet made its investment and corporation officials in Washington decline to discuss the situation, calling it "delicate."

They refer all questions to Nelson Gold, which said the IFC has supported the company in its demands on the Tajik government. Nelson official King says the IFC has told the company its demands are "not unreasonable" and that it "should not compromise on these issues, which are fundamental to the project's future."

The Tajik government has not made any specific comments on the situation, although the deputy chairman of the government's Commission on Precious Metals and Gems, Kozi Radzhabov, told the "Financial Times" newspaper this week that Nelson had failed to account for the money it says it has invested in the project and other problems.

Radzhabov, who represents the government on the joint venture's Board of Directors, said the government wanted an effective veto on the offshore banking arrangement, something Nelson rejects as unworkable and unacceptable in international business operations.

King says part of the problem is that Tajik government officials are inexperienced in business and unfamiliar with normal commercial practices. He says the company has tried to accommodate many of their requests, but that there hasn't been reciprocity by the government.

"Perhaps they've got some sellers remorse," he comments. Three years later, the mine is "running very well, everything is looking good and now all of a sudden some Tajiks are wondering if they sold too cheaply," he says.

"But it's too late three years down the line to start renegotiating it while we have just spent $50 million on it with no return yet -- it's a naive situation," comments King.

The company shut the mining operation down for a little over a week in early September in an attempt to force government action, says King. Top officials, including the Prime Minister and Finance Minister, discussed the situation in Washington at the annual meetings of the International Monetary Fund and the World Bank, says King, assuring everyone that the necessary actions would be taken.

The company responded by restarting the mine. But, says King, nothing happened, so now Nelson is forced to close the facility until the situation is resolved.

"We can't just keep going back to our shareholders asking for more money (when) we've produced 25,000 ounces of gold which is all sitting in the mine waiting to be sold," he says.

The mine will stop producing, says King, but the company is not going to waste the down-time.

"We're doing all the maintenance we've wanted to do, we're relining the mold -- that's going to take two months -- and we're doing a winterization process," he says. In addition, the company will use the time to conduct a feasibility study on doubling the plants capacity.

King says he is confident the dispute will be resolved.

"This is political risk in Central Asia rearing it's ugly head," he says. "It's just sad we have to go about it this way."

The biggest losers will be the local employees who have now been laid off. The company distributed flour and other food stuffs earlier this week, but has stopped paychecks, telling the employees it is because the "government won't let us sell the gold," says King. He estimates that perhaps 15,000 people in the valley region are dependent on the mining complex.

Nelson is aiming to be the major gold producing company in the region. It currently has two exploration joint ventures underway in Kyrgyzstan, is involved in an exploration project in Uzbekistan and is considering a number of mining projects in Kazakhstan.