Rustam Azimov’s Comments

At an investment conference in New York on November 21 1997, The President of the Uzbek National Bank, Mr. Rustam Azimov, was asked to comment on the recent press reports of an unsatisfied arbitration award against Uzbekistan.  He indicated that he had five points to make regarding this matter:

  1. The National Bank was not involved in this matter, but was on observer only.

  2. That the Uzbek government had never guaranteed Uzdon.

  3. That the dispute was with Odil, which did not perform.

  4. That Uzdon was not a government corporation, as it was perhaps 5% owned by a State Shareholding Corporation.

  5. That Uzdon did not participate in the GAFTA proceedings.

 

Addressing these points individually, our comments are as follows:

  1. The National Bank was not involved in this matter, but was on observer only.

This argument has a small kernel of truth in it, as the National Bank did not itself give a guarantee, BUT the National Bank did make the initial loan to Odil (see also: Comments on Loan Agreement) which was then “paid off” by delivery of wheat from Romak.  To do this, the Bank accepted shipping lists (reesters) of railcars as proof of delivery, rather than original shipping documents as is standard and prudent banking practice.  In fact, the acceptance of reesters in lieu of proper documentation was specifically instructed by the Deputy Prime Minister in his letter of 18/11/95 to the National Bank.  These reesters were used along with falsified customs declarations to show that wheat, which was in reality shipped from Romak to Uzkhleboprodukt, was instead shipped from Adil (Kazakstan) to Odil (Uzbekistan) (Adil and Odil are in effect the same company with the same owners). 

In January, 1997 Credit Suisse presented Romak’s proper documentation for payment.  In March, 1997 Romak drew the National Bank’s attention to the existence of the falsified customs declarations.  In neither case did the National Bank choose to investigate the apparent discrepancies, or to freeze the hard currency accounts of  Odil or Uzkhleboprodukt as is provided for in the loan agreement.

 

  1. That the Uzbek government had never guaranteed Uzdon.

The guarantee was signed by both Uzkhleboprodukt and Uzdon.  Uzkhleboprodukt is in effect a government owned and controlled corporation and Uzdon is a structural unit of Uzkhleboprodukt, as is proven by the charter of Uzdon itself, signed and approved by “The First Deputy Chairman of State Holding Corporation “Uzkhleboprodukt.””   A Legal Opinion from a lawyer registered with the Uzbek Ministry of Justice was also obtained to this effect.  The government of Uzbekistan names the Managing Director of Uzkhleboprodukt and directs it’s business activities, while the company is directly responsible to the Council of Ministers as stated in its charter.  To claim that these are not government companies is cynical and misleading. (see also: Comments on Uzdon’s Charter)

 

  1. That the dispute was with Odil, which did not perform.

Romak had no contractual relationship with Odil, nor responsibility to ensure fulfilment of Odil’s obligations to anyone else.  The Uzbeks made this same claim and tried to tied Romak to Odil in the GAFTA arbitration, which explicitly rejected the argument and confirmed that Romak has nothing to do with Odil.

 

  1. That Uzdon was not a government corporation, as it was perhaps 5% owned by a State Shareholding Corporation.

See no. 2 above.  In fact, Romak negotiated the business directly with Uzkhleboprodukt, who then instructed that the contract be signed with its foreign trade subsidiary, Uzdon.

 

  1. That Uzdon did not participate in the GAFTA proceedings.

This claim is simply not true.  Uzdon did participate in the GAFTA proceedings and made two submissions, both acknowledged by GAFTA and referred to in the final award.

 

Documents referenced:

Loan Agreement No. 95/14 dated October 2, 1995 between National Bank of Uzbekistan, Uzkhleboprodukt (Uzdonmakhsulot), Odil, and Galla-Bank

Instructions from the Deputy Prime Minister of Uzbekistan to the National Bank Chairman

Sample falsified Customs Declarations

Guarantee of Uzdon and Uzkhleboprodukt

Uzdon’s Charter

Legal Opinion on the ownership status of Uzkhleboprodukt and Uzdon

GAFTA Arbitration Ruling