VZCZCXYZ0001
RR RUEHWEB

DE RUEHNT #0694/01 1701252
ZNR UUUUU ZZH
R 181252Z JUN 08
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 9819
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS TASHKENT 000694 
 
SIPDIS 
 
DEPARTMENT FOR EEB/IFD/OIA (HEATHER GOETHERT AND KIMBERLY BUTLER) 
AND L/CID (GABRIEL SWINEY AND CAMERON HOLLAND) 
 
E.O. 12958: N/A 
TAGS: EINV CASC PGOV KIDE UZ
SUBJECT: 2008 REPORT ON INVESTMENT DISPUTES AND EXPROPRIATION 
CASES: EMBASSY TASHKENT SUBMISSION 
 
REF: STATE 43784 
 
¶1. (U) The United States Government is aware of nine (9) claims of 
United States persons against the Government of Uzbekistan, two (2) 
of which have been resolved. 
 
¶2. (U) a. Claimant A 
 
b. 1998 
 
c. Claimant A is a U.S. trading company that exported alcohol to 
Uzbekistan.  According to the Claimant, in 1998, customs authorities 
seized Claimant A's shipment of ethyl alcohol after a Presidential 
decree changed the requirements for permissible imports of ethyl 
alcohol.  At the time of seizure, the shipment was not destined for 
Uzbekistan.  Claimant A had redirected it to Tajikistan and 
Kyrgyzstan after the decree was announced, but it was seized while 
transiting Uzbekistan.  Although the shipment was already in the 
country before the decree took effect, customs agents seized it for 
failing to comply with the new rules.  Claimant A's shipment was 
worth approximately USD 500,000.  Claimant A's legal representative 
in Uzbekistan was unable to convince the Prosecutor's office to take 
action in the case.  The U.S. Embassy last had contact with Claimant 
A in 2000, at which time Claimant A informed the Embassy they had 
voluntarily abandoned resolving the case. 
 
¶3. (U) a. Claimant B 
 
b. 2002 
 
c. Claimant B was the chief operator of a soft drink manufacturing 
plant in Uzbekistan after its independence in 1991.  However, 
Claimant B alleges that following a personal dispute between one of 
the owners of Claimant B and the daughter of a high official of the 
Government, Claimant B 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, Claimant B's 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 Claimant B.  In addition, the GOU confiscated many 
assets of Claimant B, including 600,000 tons of sugar, 120 cars, 70 
computers, and the Sergeli wholesale supermarket, which had been 
another large investment of Claimant B.  The GOU has explained these 
confiscations as the result of convictions for tax violations. 
Finally, a number of employees of Claimant B were arrested.  The 
U.S. Government has made representations to the GOU to ensure fair 
treatment for Claimant B.  The U.S. Embassy's last contact with 
Claimant B was in 2003.  Claimant B has left Uzbekistan. 
 
¶4. (U) a. Claimant C 
 
b. 2001 
 
c. Claimant C has been growing and exporting cotton in Uzbekistan 
since 1997.  The company's 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 Claimant C 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 Claimant C's 
farms by keeping farmers under state production plans, even though 
the original business plan, approved by the GOU, states the 
company's farms are exempt from state orders.  According to the 
Claimant, continued obstruction by the GOU has made it impossible 
for it to pay off millions of dollars in loans and will lead to its 
financial collapse. 
 
The U.S. Embassy successfully utilized the visit of U.S. Senator 
Shelby in January 2002 to force the GOU to focus on a resolution of 
problems for Claimant C.  The Embassy arranged a meeting between 
Senator Shelby and Elyor Ganiev, Deputy Prime Minister for the 
Agency for Foreign Economic Relations.  Claimant C's Managing 
Director and Ganiev also met to determine a way for Claimant C to 
pay back the USD 4.3 million it owes to an Alabama bank.  The U.S. 
Government has assisted Claimant C 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, Claimant C 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 Claimant C's company.  Claimant C perceived this as 
unwarranted harassment stemming from familial ties with Uzbek 
opposition politicians.  The Embassy assisted 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 Prosecutor's 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, Claimant C's 
fortunes turned when it partnered with a local company.  While the 
Claimant alleges that there is an outstanding GOU debt of three 
million USD to the Claimant, it says that the situation has 
improved.  The Embassy continues to monitor the situation and has 
regular contact with Claimant C. 
 
¶5. (U) a. Claimant D 
 
b. 2002 
 
c. Claimant D provided agriculture chemicals to the GOU in 2001 in 
accordance with a government-issued tender in the amount of USD 
340,000.  Claimant D asserts that it has never been paid for the 
products.  In February 2003, the Ambassador sent a letter to PM 
Sultanov regarding this case and in 2004 the U.S. Government 
approached high-level GOU officials to assist Claimant D in 
resolving the payment dispute.  The U.S. Embassy pointed out on 
numerous occasions that if the GOU does not resolve this issue other 
companies will not invest in the agricultural sector.  Assistant 
Secretary of Commerce William Lash III raised Claimant D's dispute 
with Deputy Prime Minister Rustam Azimov in November 2004, advising 
the DPM that refusing to meet commercial obligations will lead other 
businesses to avoid Uzbekistan.  As of the Embassy's last contact 
with Claimant D in 2005, payment had yet to be rendered. Claimant D 
has since been purchased by a European company. 
 
¶6. (U) a. Claimant E 
 
b. 2003 
 
c. Similar to the issue faced by Claimant D, Claimant E provided 
agricultural chemicals to the GOU in 2001 in the amount of USD 
245,000 and asserted that it had not been paid.  In February 2003, 
the Ambassador sent a letter to PM Sultanov regarding this case and 
in 2004 the US Government approached high-level GOU officials to 
assist Claimant E in resolving the payment dispute.  The  U.S. 
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 
Claimant E's dispute with Deputy Prime Minister Rustam Azimov in 
November 2004, advising the DPM that refusing to meet commercial 
obligations will lead other businesses to avoid Uzbekistan.  As of 
the Embassy's last contact with the Claimant in 2004, payment had 
yet to be rendered.  Claimant E is no longer present in the 
country. 
 
¶7. (U) a. Claimant F 
 
b. 2003 
 
c. Claimant F purchased 51 percent of shares in an Uzbek fruit 
processing plant in May 2002 from the GOU state property committee 
(GKI).  According to Claimant F, it made an initial investment 
payment of approximately USD 30,000 in June 2002 and a second 
payment of approximately USD 54,000 in October 2002.  In November 
2002, GKI returned Claimant F's second payment and declared that it 
had cancelled the contract.  This action, which Claimant F believes 
was motivated by GKI's 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, Claimant F 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 government's portion 
of the venture, including the property on which the company 
operates.  Claimant F 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 USD 208,000. 
 
In April 2003, the Ambassador sent a letter to PM Sultanov 
requesting that his staff investigate this issue.  As of the U.S. 
Embassy's last contact with the Claimant in 2005, the company had 
partially resolved some issues, but continued to battle the GOU. 
Claimant F is still present in the country. 
 
 
¶8. (U) a. Claimant G 
 
b. 1996 
 
c. Claimant G, 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 Claimant G, at times facilitated by 
the U.S. Government, payment was not forthcoming.  In 1997, Claimant 
G 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 Claimant G for the value of the 
shipment plus interest, or approximately USD 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 Embassy's last contact with the Claimant in 
2004, payment had not been rendered.  Claimant G is no longer 
present in the country. 
 
 
¶9. (U) a. Claimant H -- Resolved 
 
b. 2006 
 
c. According to Claimant H, a mining company, from March 2006 to 
August 2006, it was under increasing pressure from the GOU, which 
effectively took over the company's assets and caused the Claimant 
to depart Uzbekistan.  During this time, the Claimant suffered 
repeated audits, removal of permanent beneficial tax status, a fine 
of USD 60 million for alleged non-payment of back taxes, a 
government declaration of bankruptcy, and media criticism for 
damaging the environment.  Additionally, the government revoked the 
presidential decree establishing a joint venture in which the 
Claimant was involved, resulting in the loss of the Claimant's 
benefits, including protection from new taxes and regulations 
adopted after the initial investment. 
 
Claimant H filed for arbitration with two organizations: the World 
Bank's International Center for the Settlement of Investment 
Disputes and the Arbitration Institute of the Stockholm Chamber of 
Commerce.  In late June 2007, Claimant H informed the U.S. Embassy 
that it had reached an agreement with the Government of Uzbekistan 
resolving the dispute.  In a subsequent filing with the Securities 
and Exchange Commission, the Claimant reported that under the terms 
of the agreement, the Government of Uzbekistan agreed to pay the 
company USD 80 million and also agreed to pay outstanding 
obligations to the Claimant's suppliers and creditors.  On August 
27, 2007 the Claimant informed the Department of State that the 
final agreement had been signed.  The Claimant has since received 
four separate payments of USD 20 million. 
 
¶10. (U) a. Claimant I -- Resolved 
 
b. 2006 
 
c. Claimant I, a leading mobile communications provider, started a 
U.S.-Uzbek joint venture in 1996.  In 2000, the U.S. partner 
purchased the Uzbek Government's share of the venture.  In late 
2006, the U.S. partner entered negotiations aimed at selling its 
stake in Claiment I to a Qatari firm.  According to the Claimant, 
the Uzbekistan Agency for Telecommunications and Information 
Technology (the Telecom Agency) pressured the U.S. partner to sell 
the firm instead to a Russian investor, an option that the U.S. 
partner rejected. 
 
The Telecom Agency proceeded to employ a series of legal and 
regulatory measures against Claiment I.  In 2006, the state tax 
authority sued the Claimant for allegedly evading taxes on income 
from international roaming charges, but the charge was resolved in 
the Claimant's favor in Uzbek courts.  In addition, the Telecom 
Agency repeatedly denied approval for the Claimant to establish 
transmission stations to expand its service network.  The Agency 
also sued the Claimant alleging that the firm illegally changed its 
name, and that the U.S. partner in 2000 illegally purchased the 
Uzbek Government's share of the firm for a price far below fair 
market value. 
 
After a two-hour service outage across much of the Claimant's 
network in January 2007 caused by a power surge, the Telecom 
Agency suspended the Claimant's operations for 10 days.  After the 
suspension ended, the Agency only permitted restoration of service 
gradually over a two-month period.  The service interruption led to 
a substantial loss of customers.  The Department of State raised the 
issue with the Uzbek Embassy in Washington, and the U.S. Embassy 
raised it with the Foreign Ministry in Tashkent.  South Central 
 
Asian Deputy Assistant  Secretary Evan Feigenbaum raised it in 
Tashkent with Telecom Agency Chairman Abdulla Aripov in March 2007. 
As a direct result of this meeting, the Agency permitted full 
restoration of the Claimant's operations on April 1, 2007. 
 
On July 16, 2007, TeliaSonera AB, a leading telecommunications 
company in the Nordic and Baltic region, acquired 100 percent of the 
shares of Claiment I, including all its operations in Central Asia. 
Claiment I's joint venture continues to provide mobile phone service 
in Uzbekistan under the new ownership. 
 
¶11. (U) None of the claimants have signed privacy waivers.  The 
claimants are: 
 
Claimant A: Empire United Lines 
Claimant B: Ross Trading 
Claimant C: Central Asia Seed Company (CASC) 
Claimant D: Dow AgroSciences 
Claimant E: Troy BioSciences Inc. 
Claimant F: Vergest Ltd. and JV Uzbek Xerox Systems 
Claimant G: ROMAK 
Claimant H: Newmont Mining, Joint Venture 
Claimant I: MCT Corp., Coscom Joint Venture 
NORLAND