VZCZCXRO1481
RR RUEHC
DE RUEHDBU #1548/01 3541200
ZNR UUUUU ZZH
R 191200Z DEC 08 ZDK CTG RUEHZC #3645 3541809
FM AMEMBASSY DUSHANBE
TO RUEHC/SECSTATE WASHDC 1274
INFO RUCNCIS/CIS COLLECTIVE
RUEHIL/AMEMBASSY ISLAMABAD 0263
RUEHBUL/AMEMBASSY KABUL 0360
RUEHNE/AMEMBASSY NEW DELHI 0204
RUEAIIA/CIA WASHDC 0257
RUCPDOC/DEPARTMENT OF COMMERCE WASHINGTON DC 0096
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNS/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 02 DUSHANBE 001548 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD PGOV ELAB TI
SUBJECT: Audits of Three Major Tajik Concerns May Not Reveal Much 
 
Ref A: 07 Dushanbe 1753 
Ref B: 08 Dushanbe 1502 
Ref C: 08 Dushanbe 1518 
Ref D: 08 Dushanbe 1470 
 
¶1. (SBU) Summary: The international donor community in Tajikistan is 
eagerly awaiting the results of audits of three key institutions: 
the National Bank of Tajikistan, the state electrical company Barki 
Tojik, and the country's largest industrial concern, the Talco 
aluminum smelter.  The audits were commissioned in part as a 
response to the National Bank's acknowledgment that it had 
deliberately misreported its balances to the International Monetary 
Fund (IMF).  While no official results of the audits have yet 
emerged -- and indeed, most results will never be made public -- 
there are indications that auditors have been frustrated by poor 
recordkeeping and restrictions on their scope.  The National Bank 
and Barki Tojik audits are nearly complete, while the Talco audit 
has not yet begun.  End summary. 
 
¶2. (SBU) At the beginning of this year the National Bank of 
Tajikistan acknowledged it had consistently and purposefully 
misreported its balances by failing to the inform the International 
Monetary Fund of over $500 million in loan guarantees to cotton 
sector investors (refs A, B, and C).  As a result, the IMF demanded 
early repayment of $47.8 million in past loans and interest to the 
National Bank.  The Bank has made its first four of six scheduled 
payments.  To be considered for future lending, the IMF required 
that the National Bank undergo an external audit by a reputable 
company, and that the key findings be relayed to the IMF.  In 
addition, the IMF pushed for two additional audits, of the national 
electrical company Barki Tojik and of Tajikistan's largest 
industrial enterprise, the Tajik Aluminum Company (Talco).  Although 
the latter two companies were not directly linked to the 
misreporting scandal, IMF resident representative Luc Moers said 
that the IMF had decided to use its new leverage in the wake of the 
scandal to demand more openness from key players in the Tajik 
economy that have long operated under opaque and questionable 
business practices. 
 
National Bank Audit: Almost Finished 
 
¶3. (SBU) The National Bank audit, conducted by Ernst and Young, is 
being finalized in London and is nearly complete.  According to an 
embassy contact with long experience at the Bank, the audit did not 
go entirely smoothly: auditors were reportedly frustrated with the 
bank's lack of responsiveness to requests and poor record-keeping. 
Moers acknowledged that he had heard of some difficulties, but he 
ascribed them more to a clash of different corporate cultures than a 
deliberate attempt on the part of the National Bank to impede the 
audit. 
 
¶4. (SBU) According to the agreement under which the audit was 
conducted, the National Bank is obligated to make public by 
publishing on its website only the "key findings" of the audit. 
Moers said that although this did not seem to be a problem at the 
time, in hindsight, he wished the IMF had been more forceful in 
insisting that the entire audit be made public.  Although the 
auditors had been asked to prepare a section of the audit explicitly 
entitled "key findings," Moers said he was concerned that the bank 
might have enough wiggle room to keep even these points off of its 
website if it would rather not see them publicized.  World Bank 
Qwebsite if it would rather not see them publicized.  World Bank 
Country Manager Chiara Bronchi was less concerned about this, 
however.  She said that since in most cases forensic audits are 
never made public, the decision to publicize even key findings is an 
unusual step. 
 
 
Barki Tojik: Not Very Encouraging 
 
¶5. (SBU) The audit of Barki Tojik, the state company that manages 
Tajikistan's electricity grid, is being conducted by BDO Unicom 
Russia, which Moers described as "a second-tier, but reputable 
auditing firm."  The audit is over, but no results have been 
released.  In all likelihood, Moers said, it would "not be very 
public," although the World Bank might have some leverage here, 
since the audit was part of its three-year (2007-09) Energy Loss 
Recovery Project.  He added that so far the "results are not very 
encouraging."  The auditor had actually been "unable to come to a 
conclusion" about much of Barki Tojik's financial activity -- not 
because officials are trying to obfuscate, but because so much of 
the company's records are in "such a mess." 
 
 
DUSHANBE 00001548  002 OF 002 
 
 
Talco: Real Activities May Never Be Public 
 
¶6. (SBU) The audit of Talco has not yet started.  The company is 
just now finalizing its selection of an auditor.  Moers said it 
would be one of the big four accounting companies.  Even once the 
audit is completed, though, it may not reveal much about the 
operation's balance sheet, since Talco's profits and inputs are 
managed by an offshore company, Talco Management, based in the 
British Virgin Islands.  According to Moers, although the IMF 
insisted that the auditors be allowed to "look at third-party 
arrangements" when going through Talco's books, at the end of the 
day they had no authority to actually audit the off-shore entitles 
involved in Talco's operations.  He was thus somewhat pessimistic 
about what the audit would ultimately reveal. 
 
¶7. (SBU) Comment: Of all three audits, the one of Talco has the 
potential to be the most revealing, because Talco's finances are the 
most opaque, its revenue the largest, and its operations the most 
closely linked with the inner circle of leadership.  Given the 
restrictions on the auditors, however, it is unlikely that the 
results will be very illuminating.  Unfortunately, the same may also 
be true of the National Bank and Barki Tojik audits.  Because of 
their limited scope, difficulties accessing records, or restrictions 
on their dissemination, these audits may also fail to live up to the 
hopes the international donor community had that they might peel 
back the shroud of secrecy concealing the questionable economic 
activities of Tajikistan's political elite, and reveal the true 
state of health of Tajikistan's economy.  End comment.