VZCZCXRO9304
PP RUEHDBU
DE RUEHNT #1648/01 2601033
ZNY CCCCC ZZH
P 171033Z SEP 07
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC PRIORITY 8469
INFO RUEHAH/AMEMBASSY ASHGABAT 3262
RUEHTA/AMEMBASSY ASTANA 9444
RUEHEK/AMEMBASSY BISHKEK 3876
RUEHDBU/AMEMBASSY DUSHANBE 3741
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 TASHKENT 001648 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR SCA/CEN 
 
E.O. 12958: DECL: 09/17/2017 
TAGS: ECON EINV ETRD ICAC UZ
SUBJECT: U.S. COTTON GIN IS A RARE SEMI-SUCCESS STORY 
 
 
Classified By: CLASSIFIED BY ECON OFF B. OLSEN FOR REASONS 1.4 (B, D). 
 
¶1. (SBU) Summary: On September 7, econoff visited the Central 
Asia Seed Company (CASC), a modern, fully U.S.-owned cotton 
gin located in Syrdarya, about two hours southwest of 
Tashkent.  With over ten years experience in Uzbekistan, CASC 
is valued by the provincial government for its social and 
economic contributions to the local community.  CASC buys 
cotton from the farmers for five percent over the government 
rate, exports cotton fiber to Europe, and sells seed on the 
local economy.  Its contributions have protected CASC from 
any government-led harassment.  However, the Government of 
Uzbekistan (GOU) has an outstanding debt of three million 
dollars to CASC.  End summary. 
 
The Facts 
--------- 
 
¶2. (SBU) CASC is a completely computerized ginning operation 
that uses U.S.-built machines. (Note: CASC Amcit owner 
commented that the poor quality of Uzbek education makes it 
difficult to hire laborers capable of operating and repairing 
the machinery.  End note.)  The gin can process up to 360 
tons of cotton a day, and CASC expects to process 30,000 tons 
in 2007.  The high quality processing of the raw cotton 
yields 35 percent long fiber (a very good result) and 52 
percent seed, with the remainder going to animal feed.  The 
seed is acid-delinted and packaged for sale on the local 
market into 50 pound bags emblazoned with the American flag. 
The seed, colored to identify it as CASC's, is of a much 
higher quality than GOU-produced seed.  CASC's gin is the 
only one in Uzbekistan that acid-delints seed, resulting in 
disease-free seed.  CASC Amcit told econoff the GOU is 
interested in processing its own acid-delinted seed, but has 
not taken concrete action. 
 
Cotton Buyers 
------------- 
 
¶3. (C) CASC packages its fiber and ships it directly to 
Europe via railroad.  Its major buyers are Italy, Bulgaria, 
France and Germany.  CASC Amcit owner told econoff the Uzbeks 
refuse to sell to the Europeans due to the political rift 
over human rights and sanctions, which resulted from the 
events in Andijon.  According to the Amcit, this has given 
CASC a de facto monopoly on the sale of Uzbek cotton to 
Europe.  (Note: In previous years, the GOU exported cotton to 
Europe, traditionally via Riga.  End note.)  As it only sells 
to A-rated European countries, he said CASC can insure its 
product; the GOU cannot insure its product as it sells mostly 
to low-rated countries, such as China. 
 
Why is CASC successful? 
----------------------- 
 
¶4. (SBU) CASC was established in 1998, a time of thawing, if 
not yet entirely warm relations between Uzbekistan and the 
U.S.  CASC received a 99-year lease on its property and a 
contract valid through 2015.  The contract allows CASC to 
operate as a completely private foreign business.  (Note: 
Under current conditions, it is very difficult for foreign 
businesses to establish themselves without an Uzbek partner; 
it is even more difficult to do so in strategic sectors, such 
as energy and cotton.  End note.) 
 
¶5. (SBU) CASC buys directly from the farmers for five percent 
over the government price.  Farmers sign contracts with CASC; 
this allows them to transport their cotton from other 
provinces, something Uzbek farmers otherwise have difficulty 
doing.  CASC Amcit owner said the local hokim (governor of 
region) supports his business because it employs 66 locals, 
pays a fair price for cotton, pays on time, and donates to 
community events.  CASC paid USD 574,000 in taxes to the 
provincial government in 2006 and expects to pay over USD 
840,000 in 2007. 
 
Outstanding Debts 
----------------- 
 
¶6. (SBU) CASC entered into the Uzbek market under a World 
Bank program in 1998.  The Uzbek Government received a loan 
for USD 66 million, of which 8.3 went to CASC through the 
GOU.  According to CASC, the Ministry of Finance owes CASC 
three million USD from cotton it seized in 2005 without 
remunerating CASC.  The GOU owes the World Bank another three 
million from the original loan amount.  CASC's owner told us 
he has contacted both the Ministry of Finance and the World 
 
TASHKENT 00001648  002 OF 002 
 
 
Bank's Country Director, but has been rebuffed by both.  He 
just started judicial proceedings to force the GOU to repay 
the outstanding debt. 
 
¶7. (C) CASC is one of a handful of wholly U.S.-owned 
investments in Uzbekistan.  CASC's contribution to the local 
economy has insulated it from the difficulties faced by many 
international firms.  Post will stay in touch with Amcit 
regarding this commercial dispute and seek ways to assist, if 
needed. 
NORLAND