Uzbekistan: Mystery Surrounds Zeromax Collapse

The sudden closure of a company that played a central role in Uzbekistan’s energy sector has left NBCentralAsia analysts divided over whether Zeromax met its end because of pressure from Moscow, conflict within the Uzbek elite, or financial problems.

A court in the capital Tashkent issued a ruling on May 5 instructing Zeromax GmbH to halt its operations in Uzbekistan and hand over control of its assets there to the state.

Since it was established in 2001, the Swiss-registered company has been active in a wide range of industries in Uzbekistan – agriculture, construction projects, textile manufacturing, mining, and above all the oil and gas sector, in which it has severaljoint ventures. Through one of these, UzGazOil, it operates a large network of petrol stations.

Finding out exactly what has been going on behind the scenes is difficult, not least because Uzbekistan’s tightly controlled state media have passed over this sensitive subject in silence.

“Zeromax GmbH’s assets were seized at the request of the National Security Service, so no one is saying much about it,” said one local economist.

Some analysts think the company has fallen foul of a broad campaign targeting over-powerful business interests.

The campaign is believed to have started afterPresident Islam Karimov gave a speech in December calling for the creation of a stronger middle class and “eliminating the obstacles” to this, which he spelled out as meaning, “We will have no oligarchs”.

In the months that followed, two top industrialists and the head of the state tourism company were arrested and charged with fraud and tax evasion.

Yet by any standards, Zeromax was an exceptionally important player which appeared to be untouchable. The large portfolio of interests it was able to set up in key economic sectors suggests it was very well connected in government. Its website says that by the end of 2007, it had become Uzbekistan’s“largest foreign investor as well as its largest private sector employer”.

One local analyst sees the collapse of Zeromax as the visible outcome of a clash between Uzbek elite groups.

“There’s an active redistribution of major economic assets going on right now…. It has reached its peak,” he said. I’ve no doubt some other company will appear in Zeromax’s place, call it Megamax or whatever, it doesn’t really matter.”

Another quite different version of events is that the impetus for closing Zeromax came from outside Uzbekistan.

According to this theory, that Russian oil and gas firms had grown increasingly unhappy with Zeromax’s role as the dominant player with which they had to deal. The Russian gas firm Gazprom and oil company Lukoil are the major energy-sector investors.

A political analyst in Tashkent, who did not want to be named, said he believed Russian companies used Karimov’s recent talks with President Dmitry Medvedev to get their point across.

“Prompted by representatives of the Russian resource companies, Moscow may have voiced dissatisfaction with the monopoly position that Zeromax held in the resource sector,” he said.

NBCentralAsia sources say that two weeks after Zeromax was placed under administration, 51 per cent of its shares were transferred to the state oil and gas company company Uzbekneftegaz, while the remaining 49 per cent were made over to a major Russian energy firm.

Zeromax had several joint ventures with the state oil and gas firm, and NBCentralAsia understands that a 500 million US dollar payment which the Tashkent court ordered it to make relates to contractual obligations to supply Uzbekneftegas with machinery and equipment.

The court decision suggested that Zeromax may have been in financial trouble before its closure.

“Zeromax had problems meeting its loans and paying its taxes,” said Tashpulat Yoldashev, an Uzbek political analyst now based in the United States. “The company was untouchable…. These rumours reached Karimov long ago, and he took a drastic decision.”

Viktor Ivonin, an economist in Tashkent, says debt problems are endemic to Uzbekistan-based energy firms. The reason, he says, is that they are used – wrongly – as “bankers” to underwrite less successful parts of the economy.

“Debt is the Achille’s heel of the entire oil and gas industry,” he said. “For a long time now, the industry has been a sort of donor to the economy. De facto, it performs the function of a massive lending system.”

This article was produced as part of IWPR’s News Briefing Central Asia output, funded by the National Endowment for Democracy.