Desk Study: Rural Sector Reform and Legal Aid in Tajikistan

June, 2008

KasWag AgriConsulting Worldwide

Project 7F-00351.06.14 Executive Summary

Agriculture is a key sector of the Tajik economy, accounting for 24% of GDP, 66% of employment, 26% of exports, and 39% of tax revenue (2004). Agricultural land in Tajikistan covers about 4.6 million hectares (ha), with 732,000 ha of irrigated area. Most rural households depend on their household plots for subsistence. Over 70% of horticulture output (about one million tons of fruits and vegetables) is produced on these household plots. The commercial livestock sector has essentially collapsed. Cattle, small stock, and poultry numbers have declined and livestock ownership has shifted to households, which own about 90% of all livestock, and are the dominant suppliers of milk, meat, and other livestock products.

Under the Constitution, all land in Tajikistan is owned by the State and citizens receive various forms of use rights. Land reform has ostensibly been continuing for several years although the land reform program has failed to provide equitable and secure land-use rights to farmers due to fundamental flaws in the farm restructuring process and the continued command approach to farm management.

Tajikistan’s economy is highly dependent on cotton production. Cotton is grown on 53% of the country’s irrigated farmland, and provides an estimated 60% of total agriculture output value. Key political and financial players are involved in the industry as processors and traders. However, cotton sector performance has been eroding due to pervasive market failures and strong government presence along the entire value chain. Significant debt accumulation is the most obvious symptom of the dysfunctional business model, with spillover effects to the economy. At the end of 2007 the Government of Tajikistan (GoT) claimed there was more than US$400 million outstanding debt of farmers to cotton investors, although the validity of much of the debt assigned to the farmers is questionable. In addition, the disclosure in late 2007 that the National Bank of Tajikistan had guaranteed key cotton sector loans with international banks with a face value of approximately $300 million resulted in the IMF mis-reporting events and link the central bank (and by implication the Government) to the debt obligations.

Winter 2007/2008 saw the worst food security and energy crisis since the civil war. In May 2008, a joint donor Food Security Assessment revealed that the crisis in the agriculture sector has been ongoing since 2005/2006. Lack of appropriate land and water management, insufficient farmer skills and access to information, lack of access to credit, lack of access to fertilizer and pesticides, and an increase in animal and crop diseases and pests have serious implications for the agriculture sector. In addition, the current price rises in food and fuel (100% in 2007 and already 56% in the first quarter of 2008) are expected to further deplete rural communities’ meager income and livelihoods. Many farmers have lost hope in agriculture as the main source of income, resulting in increased labor migration, further depleting the badly needed manpower for the sector.

There is no comprehensive agricultural sector policy or strategy approved by the GoT. Rather, the de facto sector structure and focus remain oriented to cotton production no matter the cost to rural livelihoods, productivity or the environment. However, GoT has stated a commitment to sector reforms and asked for help. On 5 March 2007 the President signed Resolution 111, The Action Plan (Road Map) for the Implementation of the Farm Debt Resolution Strategy in the Republic of Tajikistan for 2007-2009, which provides for:

2 • freedom to farm without Government interference, • improvement of secure land rights for farmers, • development of inputs and outputs markets, • improved and expanded agricultural credit, • removal of government interference in a variety of key areas, • improved public information access.

The Government has made some progress in implementation of Resolution 111, such as the approval of amendments to the Land Code, the introduction of Universal Cotton Grading Standards and (minimal) steps toward allowing Freedom to Farm. However, a broader agricultural sector policy that includes diversification of crops, facilitating private sector development for inputs and finance, a sequenced land reform process and a revised role for the government is still needed.

Regarding cotton, Tajikistan is currently in a transitional phase as financing shifts from the cotton investors to commercial credit. In 2008, only one large investor now dominates cotton financing and then only in 7 rayons in the south. The Government provided about US$40 million from the budget as a loan to commercial banks for on-lending to farmers. However, as the investors dominated not only credit provision but also inputs supply and marketing, there have been significant shortfalls of seed and fertilizer. Problems with energy and a shortfall of rain and snowmelt over the last year are having negative effects on agricultural production and a further food security crisis is imminent. Nevertheless, these crises provide an opportunity to introduce some fundamental changes in the sector and donors are working to coordinate their efforts carefully to take advantage of the possibilities.

In the past two years donors have made efforts to improve donor coordination and communication with the GoT. In October, 2007 the Donor Coordination Council (DCC) set up a special sub-group on agriculture which meets regularly to discuss issues, to better coordinate programs and to hold unified discussions with the GoT. In addition, more than nine donors have initiated the process to develop a Joint Country Support Strategy (JCSS). At the June, 2008 JCSS key findings for the agricultural sector were presented, including the following specific recommendation: …..Better coordination in provision of farmer services Better coordination in farmer services (legal, business and agricultural extension) is critical, since this is the area where there are currently the most gaps and overlaps… Donors such as DfID, USAID, SDC, UNDP, UNFAO etc are strongly encouraged to support a more unified national Legal Aid Center Network as opposed to continuing support for separate centers. The pooling of donor resources will allow a unified approach for provision of farmer services, create a minimum standard of professional services, provide a single set of information materials for farmers, increase the likelihood of leaving behind a sustainable network and provide a unified approach for monitoring and for advocating farmer’s rights with the GoT. The national network or ‘coalition’ should build on what has already been developed over the past 5-7 years, not create yet another parallel system…. With specific reference to farmer services, there are several donor agencies involved in legal aid centers (LACs) and extension services. Currently, there are more than 90 offices in the country.

3 Each donor has set up and funded its own centers and the result is a relatively non-coordinated series of offices where various types of assistance are offered and varying levels of professional competency are evident. While substantial amounts of money have been spent, the overall sustainability of these services is questionable. The significant gaps/overlaps in geographic coverage also mean that many farmers most in need of assistance (i.e. in cotton rayons) have limited or no access to support at all or else receive different advice from the various donor supported offices.

Under this current desk study, interviews with donors and their implementing partners highlighted the need for more coordination at all levels; this means donors must coordinate their programs and funding mechanisms amongst themselves and their implementers must ensure that field level activities are consistent throughout the country and coordinated to avoid gaps and overlaps in geographic coverage. Ultimately, the main objective is to achieve greater standardization in areas such as the development and publication of farmer information and training materials, contracts and other transaction documents. There is also a demand for a certification process for each of the local NGOs or other implementing partners to ensure a minimum level of service amongst LAC staff and a higher level of professionalism in service delivery. Better coordination can also increase operational efficiency, particularly in the dissemination of information and outreach capacity of LACs.

This conclusion was reached after two years of informal coordination and a review of donor funding to farmer education and LACs. In 2006, USAID set up the Legal Aid Center Coordination Group (LAC CG) that includes members with offices funded and/or implemented by USAID, ACTED, EC, CIDA, OSCE, DfID, UNFAO, SDC, UNIFEM etc. To the extent possible, the LAC CG has exchanged information and even set up a database to record information on their respective activities, geographic outreach and funding time frames. The most significant coordination effort has been the development, publishing and distribution of the Freedom to Farm brochure. The members of the LAC CG collaborated to develop and distribute the brochure which has set the precedent for the development of a series of other brochures for joint development and use.

However, even though coordination efforts amongst the implementers are well intentioned, donors continue to fund separate LAC, develop their own methods and materials and to cover sporadic geographic areas. The forthcoming SDC Assessment should review and incorporate the coordination efforts done to date and then build on the experience to produce a comprehensive proposal and mechanism for donors to use in developing their future programs and to direct funding to the national network.

There is consensus amongst all interviewed parties that LAC output will benefit from greater networking and that it be best achieved through a representative umbrella organization (variously called ‘a national association’ or ‘coalition’). The design and creation of such an umbrella organization and its operational and financial support should be central to the SDC project design. The design and creation of an umbrella organization for LAC service providers must rest on an extensive consultative process involving all the stake holders (donors and their implementing NGO partners). The objective is to design terms of reference for the umbrella organizations (or ‘national association’ or ‘coalition’) which respond to the need of its future members (NGOs) and which secures broad agreement and potential financial co-contributions

4 from key donors (EC, DFID, USAID). It is particularly important to consult and coordinate with DFID and USAID because both donors are about to enter new project/strategic plan cycles.

During the preparation of this report, parties met at the donor level made the following suggestions regarding objectives and deliverables for an umbrella organization: • Set up the umbrella organization in the form of an association or ‘coalition’ of existing LAC • Develop LAC membership (company) mechanism and/or individual membership of professionals (legal aid, business advisors etc) • Design and implement a compulsory certification program for members • Ensure Certificate is (officially) recognized by authorities or relevant ministries/agencies • Develop and distribute standardized training material to members • Provide up-skilling and training • Maintain donor coordination, information to members • Provide a voice for advocacy • Organize and coordinate monitoring activities • Promote best business management practices to members and provide training and information on achieving self sufficiency • Develop plan for self-sustainability. (i.e. create a “Special fund” where member LACs contribute a % of fee revenue from income) • Secure donor financial and operational support for short to medium term and develop a business plan for long term

The above list is not exhaustive and project design must ensure that stakeholders are consulted and their opinions considered for the design of the umbrella organization. The structure of the organization should follow internationally accepted standards, comprising of membership, elected board of directors, appropriate committees (manned by members) and an executive office (salaried, full time).

Of special note is the need to link the LAC network to forthcoming land reform initiatives. Land reform is a key element for SDC and special attention should be paid to integrate its objectives and deliverables with other donors in this area including SIDA, the World Bank and ADB. Of specific relevance is the role of LAC in the farm restructuring and land titling process. Due to the dubious results in the land reform and farm restructuring process to date and the creation of the new land registration authority and forthcoming registration initiatives, farmers throughout Tajikistan will require increased access to information and legal advice. One of the main safeguards donors can provide in the shift to a market oriented economy is to ensure access to legal information and advocacy for both rural and urban citizens. Without this support, citizens, especially farmers, risk losing their rights to land and other property. Special coordination with the SIDA Cadastre Support Project is necessary and once the SIDA project has made concrete advances so that methodology and processes for land registration can be applied more widely, the SDC project design could include additional land titling activities in another two pilot areas. This would require the direct support for two LAC offices under the project.

Linking the project to other services (rural finance, business and farm management advice and agricultural extension) is also important. These services are essential to support farmers to attain

5 a higher productivity, profitability and sustainability. These services also fulfill an important role in promoting and monitoring the implementation of “freedom to farm”. Some of the parties met during the preparation of this report expressed an opinion in favor of creating an umbrella organization not just for LACs, but one representing agricultural and business service providers as well. There may exist some advantages with this concept (such as avoiding the creation of numerous umbrella associations) but this suggestion was rejected by most of the interviewees on grounds that it would not be manageable and they expressed a preference for a clear separation of areas of expertise, despite the fact that many extension providers cover a range of services in all areas. Perhaps the SDC project can, via its NGO implementer in the two proposed pilot areas, engage directly with existing service providers, including the private sector to develop better linkages to all farmer services

6 TABLE OF CONTENTS Page 2 Executive Summary

11 1. Background 11 1.1. Importance of Agriculture in the Tajik Economy 11 1.2. Performance of the Agricultural Sector 13 1.2.1 General Agriculture and Livestock 15 1.2.2 Cotton Sub-Sector 18 1.3. Food Security 19 1.4 Overview on Agricultural Development Strategy 21 1.5 Reform Program and Resolution 111

24 2. Resolution 111: Freedom to Farm, Land Reform and Farmer Legal Rights 24 2.1 Freedom to Farm 25 2.2 Land Reform 25 2.3 Legal and Regulatory Framework 26 2.3.1 Land Code 27 2.3.2 Law on Land Use Planning 28 2.3.3 Registration Law 29 2.3.4 Law on Mortgage 29 2.3.5 Law on Third Party Arbitration 30 2.4 Gaps in Legislation

40 3. Current status of implementation of freedom to farm and land reform 40 3.1 Constitutional Management Structure 41 3.2 Implementation of Legislation on Freedom to Farm and Land Reform 41 3.2.1 Central Government Institutions: Policy and Activities 45 3.2.2 Role of Local Government in Farm Operations and Decision Making 46 3.2.3 Role of Investors and the “New Finance Mechanism” 53 3.2.4 Legal and Developmental Obstacles for Farmers 60 3.2.5 Gaps in Implementation of Resolution 111

63 4. Cotton Sector Debt and Freedom to Farm and Land Reform 63 4.1 The Cotton Sector Debt 66 4.2 Consequences of Cotton Sector Debt for Implementation of “Freedom to Farm” 68 4.3 Debt Resolution 70 4.4 Proposed Approaches to Debt Resolution 70 4.4.1 ADB Options: Suggestions from Technical Assistance Program 72 4.4.2 ADB Option: Debt Restructuring 74 4.4.3 DFID Option: Third Party Arbitration and Court of Law 77 4.4.4 World Bank Option 78 4.4.5 National Bank of Tajikistan Option 79 4.5 Outlook for a Fair and Timely Resolution of the Debt Overhang 82 4.6 Impact on Farmers 82 4.6.1 Farm Management and Debt 83 4.6.2 Migration

7 86 4.6.3 Effect of Migration on Farming Families

88 5. Legal Service Providers and Their Approaches 88 5.1 Mapping of Legal Aid Services 91 5.2 Main Organizations Involved in Legal Aid 91 5.2.1 Donors 97 5.2.2 National Union of Dehkan Farms and Businessmen in the Republic of Tajikistan 98 5.2.3 Main Local NGOs 103 5.2.4 Conclusions on Existing Legal Service Providers

107 6. Other Essential Services at Farm Level 108 6.1 Agricultural Extension 111 6.2. Business Advice and Farm Management Services 112 6.3 NGOs and Other Organizations Providing Extension Services 117 6.4 Rural Finance and the Banking Sector 124 6.5 Relevance of Essential Services at Farm Level to Legal Aid

125 7. Key Areas in Legal Aid and Land Reform of Interest to SDC 125 7.1 Gaps in Existing Legal Aid Service Provider Approaches 125 7.1.1 Coordination and Standardization of Approaches 129 7.1.2 Linking with Other Essential Farmer Services 133 7.1.3 Sustainability of Service Providers into the Future 135 7.1.4 Gaps/Overlaps in Geographic Spread 135 7.2 Recommendations for the SDC Project Design 135 7.2.1 Creation of an Umbrella Organization for Legal Aid Services 136 7.2.2 Integration with Farm Restructuring and Land Titling Activities 138 7.2.3 Linking with Other Essential Services

140 Sources Used

Annexes (attached to this report as a separate file) 1 List of Contacts 2 Schematic Overview of the Tajik Cotton Value Chain 3 Road Map for Sector Reform and Debt Resolution (2006) 4 IMF Executive Board Reviews Noncomplying Disbursements to Republic of Tajikistan and Breach of Obligations Under Article VIII, Section 5 Debt Resolution Proposal from NBT 6 USAID Success Story 7 Questionnaire used for Survey of Selected LACs 8 Minutes of the 2nd National Coordination Workshop on Extension 14th of March 2008 9 Mapping of LAC Distribution 10 Table of Court Cases

8 Acronyms and Abbreviations

AAT Agribusiness Association of Tajikistan ABC Agribusiness Consultants ACTED Agency for Technical Cooperation and Development ADB Asian Development Bank AICC Advisory Information Coordination centre ALMGC Agency for Land Management, Geodesy and Cartography (former State Land Committee) ATAC Agricultural Training and Advisory Centre BM Best Management BMP Better Management Practices BOP Balance of Payment BSAIDO Batken and Sugd Agri Input and Dairy Development Project CA Central Asia CECI Centre for International Studies and Cooperation CIDA Canadian International Development Agency CIF Cost, Insurance and Freight CIS Commonwealth of Independent States Dehkan Farm ‘Peasant’ farm DCC Donor Coordination Council DCF Domestic Cotton Financiers (investors or ‘futurists’) DF Dekhan Farm DFID UK Department for International Development DRR Direct Rule Rayon EBRD European Bank for Reconstruction and Development EC European Community FARMS Facilitating Agricultural Reform and Marketing in Sugd FDI Foreign Direct Investment GDP Gross Domestic Product GTZ Deutsche Gesellschaft fuer Technische Zusammenarbeit GoT Government of Tajikistan Hukumat Local Government office or Head of the local government (used interchangeably) IC Independent Commission IFC International Finance Corporation IMF International Monetary Fund Jamoat The lowest level structure of rayon administration (usually a group of villages) JCSS Joint Country Support Strategy KI Kredit Invest Kolkhoz Collective Farm LAC Legal Aid Center MEDA Mennonite Economic Development Associates MFP Micro- Finance Project NBFI Non-Bank-Finance-Institution NBT National Bank of Tajikistan NDS National Development Strategy NGO Non- Governmental Organization

9 Oblast Region ODA Official Development Assistance Raion (rayon) District Rais Local governors SAS Sugd Agro Serve SDC Swiss Agency for Development and Cooperation SECO (Swiss) State Secretariat for Economic Affairs SENAS Support to the Establishment of a National Agricultural Advisory Service in Tajikistan SIDA Swedish International Development Cooperation Agency SITAF Support to provide Information, Training and Advice to Farmers Sovkhoz State Farm TA Technical Assistance TACIS Technical Aid to the Commonwealth on Independent States TAFF Tajikistan Agricultural Finance Facility TC Technical Cooperation TMSEF Tajik Micro and Small Enterprise Finance Facility TOR Terms of Reference ToT Training of Trainers TPAC Third Party Arbitration Court TSB Tojiksodirotbonk TUGCE Tajik Universal Goods and Commodities Exchange UNFAO United Nations Food and Agriculture Organization UNDP United Nations Development Program UNIFEM United Nations Development Fund for Women USAID United States Agency for International Development USD US Dollar USDA United States Department for Agriculture (Universal Cotton Grading Standards) VAT Value Added Tax WB World Bank WG Working Group WUA Water Users Association ct Centner (100 kg) ha Hectare (10,000 m2) kg Kilogram (1,000 grams) m3 Cubic meter (1,000 liters) Mt Metric ton (1,000 kg) ML Mega liters (1,000,000 liters)

10 1. Background

1.1. Importance of Agriculture in the Tajik Economy

Agriculture is a key sector of the economy, accounting for 24% of GDP, 66% of employment, 26% of exports, and 39% of tax revenue (2004). Agricultural land in Tajikistan covers about 4.6 million hectares (ha), made up of pasture (3.8 million ha), arable land (900,000 ha), and perennial crops (103,000 ha). The total irrigated area is about 732,000 ha, of which pump irrigation covers about 338,000 ha, or 46% of the total irrigated land. Irrigation serves 504,000 ha of arable land, 122,600 ha of household plots, 79,500 ha of orchards and vineyards, and 25,900 ha for other uses. The main irrigated crops are cotton, grains (wheat and corn), fruits, and vegetables. Over 72% of the population—over four million people—depend on agriculture for their livelihoods. Agriculture has accounted for one-third of economic growth since 1997 and thus has made a major contribution to the fall in rural poverty.

The rural population depends on household plots for subsistence. These plots are largely free of state interference; farmers can choose what they produce, consume, or sell. The size of household plots is about 0.10–0.15 ha for irrigated land, and about double that for non-irrigated land. Household plots are also by far the most productive segment of agriculture, accounting for well over 50% of the value of agriculture production on about 12% of arable land.

1.2. Performance of the Agricultural Sector1

After independence in 1991, Tajikistan, one of the least developed members of the former USSR, suffered huge shocks, first by an abrupt termination of economic support from Russia, and then by a protracted civil war from 1992–1997. By 1997, GDP had fallen by about 60% to US$175/capita. Economic recovery began in 1997 with the end of the civil war. Improved political and economic stability provided the base for the recovery, which further benefited from favorable prices for cotton and aluminum, strong regional economic growth (particularly in Russia), a substantial flow of remittances from Russia, and increased support from the international community. Agriculture and the service sector benefited most from these influences (Figure 1).

1 Sources: ADB, 2006 “Preparing the Rural Development Project” / FAO, 2006,”Tajikistan –Expanding Rural Finance”

11 Figure 1: GDP and Sector Growth Rates

Source: Goscomstat and IMF estimates, based on Republic of Tajikistan National Issues and Statistical Appendix, March 4 2005 IMF.

The composition of agricultural output changed substantially after independence, due to changes in cropping patterns and a fall in livestock numbers. The contribution of crops increased from 60% to 80% in gross agricultural output. The most important changes are (i) substantial decrease in the area of fodder crops because of pressure to grow wheat for food security and cotton for exports; (ii) substantial increase in wheat planting after 1995 for food security; (iii) initial substantial decrease in cotton area until about 1997 because of poor incentives to produce it; since then return to near pre-independence levels achieved mainly by government compulsion; (iv) steady increase in the total area cropped since 1995, now exceeding pre-independence level, mainly due to population pressure and encroachment on marginal lands unsuitable for farming (e.g. ploughing steep mountain sides).

Crop yields have increased substantially since 1998, although they remain extremely low by regional and international standards (Table 1). Political and economic stability has brought about increased use of fertilizer, which has driven up yields. Still, limited access to quality seed (home saved seed is used most often) and near absence of mechanized equipment, pose severe technical constraints on agriculture growth. Over 50% of farm equipment is out of order and new equipment is generally unaffordable. Often, possibly because of high business risk or other factors, comparable farm equipment is much more expensive than elsewhere in the world. As a result mechanized equipment is unavailable and most agricultural operations are done manually (nearly 30% of wheat is harvested by sickle). Wherever possible, mechanized equipment is being replaced by horse-drawn implements. An additional difficulty is the intermittent supply of electricity, especially in winter. Growth is further constrained by limited access to credit.

12 Table 1: Trends in Crop Yields 1998–2003

Source: Goscomstat, Agriculture of Tajikistan, 2005.

1.2.1 General Agriculture and Livestock2

Tables 2 and 3 illustrate the main trends in crop production since 1988 in terms of area and output. The most notable trend is the expansion of cereal production, especially wheat, in terms of area and output, even beyond the levels on 1988. The production of potatoes, vegetables and fruits has also increased. In turn, fodder production has sharply declined. Overall, the cropped area has increased since 1995 and now exceeds the levels prior to independence. This reflects the expansion of wheat production which mainly took place on marginal agricultural lands and former pastures, fuelled by the allocation of 75,000 hectares of so-called Presidential Land in the late 1990s. Although this trend has increased food security of rural households, it has caused considerable negative environmental externalities such as soil erosion.

Table 2: Crop Areas (‘000 ha), 1988–2004

a) Mainly wheat. Source: Statistic Compendium ‘Agriculture of Tajikistan, 2001” (1992, 95, 97). Statistic Compendium “Tajikistan in figures, 2005” (2002, 03, 04).

2 Sources: ADB, 2006 “Preparing the Rural Development Project” / FAO, 2006,”Tajikistan –Expanding Rural Finance”

13 Table 3: Output of Major Crops (000 tons), 1988-2004

Sources: Statistic Compendium ‘Agriculture of Tajikistan, 2001” (1992, 95, 97). Statistic Compendium “Tajikistan in figures, 2005” (2002, 03, 04).

Trends in agricultural output by farm size show that most of the growth has occurred on household plots . Output on household plots increased by 56% between 1999 and 2003 and contributed to 51% of the overall sector growth during this period. Though household plots only account for less than 13% of the agricultural land, they contributed to 54% of sector output in 2003. The share of households in total output is particularly high in the case of potatoes, fruits and vegetables. On irrigated plots, often two or three crops cycles of vegetables and potatoes are grown during one cropping season. The strong growth of production on household plots also reflects the better incentive structure, because households are free from state interference in cropping decisions and do not have to pay taxes.

Produced on about 170,000 ha of land, fruits and vegetables are a traditional domain of Tajik agriculture, particularly in the hills and mountains. Over 70% of horticulture output (about one million tons of fruits and vegetables) is produced on household plots. Production is mainly for home consumption, barter trade, and opportunistic sales. Orchards and vineyards need replacement because of neglect, infestation, and disease. Post-harvest losses are large because of poor or even absent storage and processing facilities. The processing of fruits and vegetables is divided into canning and drying. The privatized industrial canning sector comprises about 32 plants, which are deeply underutilized (utilization is generally less than 30%) and obsolete.

Agricultural export is limited to cotton, and fruits and vegetables. Cotton accounts for 85–90% of agriculture exports, and fresh and processed fruit and vegetables for the remaining 10–15%. The Russian food market is evolving quickly as consumer income grows and international supermarkets expand, making it increasingly difficult for Tajik products to compete. Wheat, flour, and edible oils are the main food imports. Most fertilizer, agrochemicals, and fuel are imported from neighbouring countries, and quality tends to be unreliable. The commercial livestock sector has essentially collapsed. Cattle, small stock, and poultry numbers have declined and livestock ownership has shifted to households, which own about 90% of all livestock, and are the dominant suppliers of milk, meat, and other livestock products. Milk and meat production is low (1,000–1,400 kilograms [kg] per dairy cow). Poor livestock nutrition is caused mainly by the lack of suitable fodder especially in late winter and early spring, and limited access to pastures throughout the year which results in damage to close pastures. Other major problems in the livestock sector relate to animal diseases. The capacity to control diseases has declined considerably because of the reduced reach of veterinary services and the low supply of effective drugs. Livestock processing plants have been privatized but operate at a fraction of their installed capacity, often in unsanitary conditions and with obsolete equipment. Farmers try to avoid these facilities, selling milk directly to consumers and meat mainly through bazaars.

14 Table 4: Changes in the Composition of Livestock

Growth is further constrained by limited access to credit. In non-cotton growing areas farmers have some access to microfinance. Official National Bank of Tajikistan (NBT) statistics show that the total level of microfinance disbursed in Tajikistan in 2005 was approximately $90 million at the year-end exchange rates. The majority of microcredit is lent for livestock (43%), followed by small trade (24%), crops (18%), small and medium enterprises (8%), and other agricultural activities (7%).

1.2.2 Cotton Sub-Sector3

Tajikistan is mostly mountainous, with arable land confined to major river valleys in the North (Sugd Oblast), around Dushanbe (Regions of Republican Subordination, DRR) and the South (Kathlon Oblast). Total arable land is approximately 900’000ha (7% of the country’s territory), including very marginal areas on steep land (used for dry land wheat cultivation). The climate is arid and agriculture relies heavily on irrigation. Whilst irrigation has been practiced in the region for centuries, irrigation infrastructure was vastly expanded during soviet times, to water the cotton industry. Over 700’000 ha were developed for irrigation, sourcing water from annual snow melts in the countries mountain ranges. Today, a steady process of infrastructure deterioration and land degradation has reduced the effective irrigation area to an estimated 550’000 ha4(ADB, 2400). It is difficult to attain exact figures on current irrigation capacity in the major cotton growing districts, but it is unlikely to exceed 350’000 ha5. This estimate is somewhat validated by the fact that farmers are forced to cultivate at least 70% of total irrigated arable land to cotton (260’000 -280’000 ha depending on the year).

Large scale cotton production started in the 1930s (100’000 ha), expanded over the following decades and reached its peak in the 1980s (1988, 320’000 ha). Yields followed a similar trend, averaging approximately 3000 kg of raw cotton/ha during the 1970s and 1980s.

After independence (1991) and through the years of civil war, area grown to cotton dropped off significantly (1997, 220’000 ha), in favor of wheat cultivation. At the same time, cotton yields dropped sharply, from 3000kg/ha to 1200-1700kg/ha (raw cotton). This was directly attributed to

3 EBRD, 2007, “Tajik Agriculture Finance Facility – Cotton Sector Review” 4 Infrastructure deterioration is widespread due to shortages to fund maintenance and repairs and due to inefficiencies in running the irrigation system. In Kathlon, much of the damage caused during the civil war remains to be adequately repaired. Rising water tables and increasing soil salinity are becoming widespread as a direct result of poor maintenance of drainage systems and of poor irrigation practices. 5 Statistical data is often contradictory, depending on its source. State Land Committee (SLC) data on irrigated arable land in cotton growing districts is at times less than the Ministry of Agriculture’s data on cotton area sown in those districts.

15 changes in terms of trade following the collapse of the Soviet Union, including lack of production inputs and a disarrayed farming sector.

Since 2001, annual sowing of cotton is back to approximately 270’000 ha, 15% below plantings of the late 1980s. But compared to pre- independence levels, national production of raw cotton has fallen by over 50% (From 900’000 Mt to 438’000 Mt in 2006). The reason for this is the inability of the sector to raise average yields to pre-independence-levels (Figure 2). Yield averages persistently remain below 2000 kg/ha of raw cotton – without any hope of producing positive returns6.

Figure 2: Relative Comparison of yield and area sown, 1971-2006 (Source D.V.Atta, July 07)

400 35

30 300

Cotton Yield (ct/ha) Area (000 ha) 25

Area (000 ha) 200 Yield (ct/ha)

20

100 15

0 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 10

The root cause of this problem is the perceived “strategic” importance of cotton cultivation by the Government (tax revenue, export revenue, ginning industry, textile industry, etc). In response to falling output, authorities ordered more land to be cultivated with cotton. The recent increase in area sown confirms this. In a free economy, no farmer would choose to grow more cotton in a loss making environment.

The cotton sub-sector suffered (and continues to suffer, see section 3.2.2) from restrictive government policies, poor management practices, inadequate peripheral services (finance sector, extension services, input supply), deteriorating infrastructure (irrigation, machinery, gins) and a

6 Cotton world market prices have been quite low in the last few years, mostly influenced by production and consumption patterns in China and USA. Recent relative strengthening of cotton world market prices have been somewhat offset by increases in energy prices, resulting in higher input and production costs for growers. In average, Tajikistan’s cotton growers must produce no less than 2200kg of raw cotton/ha before positive returns become possible.

16 general lack of awareness and know how at farm level. The net result is that too much cotton is planted where it should not be planted, and too little cotton is managed adequately.

Most of the cotton is grown across 30 Districts (Rayon) spread over 3 Regions (Oblast). Production statistics for 2006 are summarized in Table 5.

Region Best Worst Ha Cotton Tons Cotton Av. Yield % % District District (000’s) (000’s) kg/ha kg/ha kg/ha Sugd (North) 80 31 133 30 1650 2000 1080 DRR (Dushanbe Area) 21 8 48 11 2290 2420 2170 Kathlon (South) 161 61 259 59 1600 2140 1080 262 440 Table 5: 2006 Production Summary by Region (Source: Ministry of Agriculture/ADB)

It is worth noting that productivity is highest in the DRR Region, with average yields allowing for (small) profits at current prices (2006). There is only a small spread between the highest and lowest yielding districts. DRR’s superior performance may benefit from its proximity to Dushanbe:

o Easier access to peripheral services, including finance and inputs o Better infrastructure, including more reliable water supply o Potentially better terms of trade, with higher degree of “freedom to farm” to provide food security for the capital. More incentives for farmers. o Entrepreneurs and politicians (from Dushanbe) directly involved in farming o More diligent local authorities, closer to central government and thus more accountable (the cotton crops appear much better looked after).

In stark contrast, average yields in Sugd and Kathlon Regions (the main production areas) are very low with a large variability. Even the best performing districts fail to produce profitable crops (on average). Key constraints are:

o Chronic lack of services and inadequate access to finance o Expensive and unreliable supply of production inputs (quality, quantity, timing) o Old and unreliable farming implements and machinery o Inefficiencies and wastages in value chain o Infrastructure in poor state of repair, especially water supply (the main reason for large variability in yields) o Farmers disowned, disinterested and devoid of incentives to produce, very high control/interference from authorities o Poor management/agronomic skills and practices

The chart below shows the regional performance of Tajikistan for cotton in comparison with Kazakhstan and Kyrgyzstan:

17 2006 Regional Cotton Performance (Table 6)

TAJ KAZ KYR Yield/ha 1.60 2.30 2.60

Tax/ha 187 92 35

Seed Cotton Price /ton 275 322 456 (price paid to farmers for raw cotton)

Production Cost/ton 491 257 349

1.3. Food Security7

Despite advances in non cotton agricultural production, described in the previous sections, there is evidence of stagnation, and possibly regression, in food output. In May 2008, a joint FAO/UNICEF/WFP/Government emergency assessment was carried out to evaluate the food security situation in the country. This undertaking followed a particularly harsh winter. Crops and livestock had suffered extensive damage.

From interviews with farmers conducted in 19 zones across Tajikistan, the survey established that farmers have suffered gradual harvest declines from unfavorable climatic events (drought, flash floods) during the last 2 years (Figure 3). In addition, winter 2007/2008 saw the worst food security and energy crisis since the civil war. Initial data on 2007/2008 Winter Crop Damages and expected yield outcome for 2008 (Figure 3):

Wheat: damage between 35% and 60% Potato: damages between 30% and 50% Vegetable: damages between 25% and 65% Fruit trees/vine damage: between 30% and 60% The preliminary findings note that lack of appropriate land and water management, lack of access to fertilizer, pesticide and an increase in animal and crop diseases and pests, including locust, have had serious implications on the agriculture sector. The already weakened sector, then, was further deteriorated as the result of the harsh winter 2007/2008. Many farmers have lost hope in agriculture as the main source of income – during the assessment, remittances were mentioned as the main source of income for almost all households - resulting in an increased labour migration, further depleting the badly needed manpower for the sector.

7 Source: FAO/WFP/UNICEF/Government, 2008, “Emergency Assessment of food security in rural areas of Tajikistan”-preliminary findings

18

Expected 2008 Crop Harvest Compared to 2005, 2006, and 2007

100

90

80

70

60

50

40

30

20 10

0

2005 2006 2007 2008

Highest Second Highest Second Lowest Lowest

Figure 3: Declining yield trends and expected yield for 2008

The spring and summer seasons will increase access to food (especially fruits and vegetables), improve household diet, and will save scarce cash by reducing food purchases. However, the current price rises in food and fuel (100% in 2007 and already 56% in the first quarter of 2008) might further deplete rural communities’ meager income and livelihoods. The assessment concluded that 11% of the rural population are at risk of severe food insecurity, 23% are moderately so and 66% are considered food secure.

Due to the advanced stage of the season, as well as critical shortages of inputs for cropping (seed, fertilizer, water) it is deemed too late to improve the situation through production support in 2008 (the country will most likely require ongoing food aid). It begs the question why so much cotton was planted in a situation of ongoing food shortage – all the more since the cotton crop cannot be supplied appropriately with water and other vital inputs and is doomed to return loss making yields in many areas.

1.4. Overview on Agricultural Development Strategy 8

This section summarizes current strategies of the Government for economic development, with special reference to agriculture.

The 1999–2015 Millennium Development Goal for Tajikistan is to halve the proportion of people living on less than $2.15 per day, and who are suffering from hunger. Sustainable agricultural

8 Sources: ADB,2006, “Republic of Tajikistan: Preparing the Rural Development Project” /” Final Report – December 2007, EuropeAid 122386/C/SV/TJ – Support to the Development, Implementation and Evaluation of Agricultural Policy”

19 development, food security, and nutrition are, therefore, important issues for the Government. The Ministry of Agriculture is the lead government agency responsible for the design of strategies to address the development of the agricultural sector, and its associated contribution to increased wellbeing.

The Draft National Development Strategy 2006–2015, and the draft Medium Term Poverty Reduction Strategy 2007–2009 have economic development and growth as the main priorities. Specific strategies have been elaborated (but not necessarily approved) for (i) public administration reform; (ii) private sector development and attracting investments and (iii) development of human resource potential. The intention is to maintain higher growth rates than neighboring countries; and to diversify and to improve competitiveness.

The strategy for the development of the agricultural sector is given in the Food Security and Agro-Industrial Complex Development Strategy 2006–2015, April 2006 (unofficial draft translation). In general, these do not have accountabilities for results allocated. It should be noted that in many instances the funding required for this work has not been identified. The report identifies a number of issues, including lack of food and poor nutrition. Problems identified that act as restraining forces to agricultural development include cotton debt, poor access to credit, technologies, markets, underdeveloped agricultural infrastructure and other supporting infrastructure, and high processing costs. Low awareness of land reform and weak knowledge of organizing agricultural production are also highlighted as problems.

The report pinpoints a number of problems to be addressed by Government strategies, including: (i) the need for a clearer definition of government and private sector roles in agricultural development. (ii) poor land use rights and lack of freedom in production and marketing decisions. (iii) complex and strictly controlled procedures for withdrawing from collective dehkan farms; inconsistent local interpretations of land rights, and limits on entrepreneurial decision making. (iv) lack of access to credit for working capital, including credit for horticulture and animal husbandry. (v) lack of agricultural machinery, leading to use of inefficient hand tools. (vi) underdeveloped agriculture infrastructure and markets. (vii) poor irrigation and drainage systems. (viii) low farm labor productivity per person, in part attributed to the need to provide employment. (ix) poor state regulation and sector support, often driven by administrative interference. (x) a shift from high value commercial crops to less valuable grains and a significant reduction in fodder crops. (xi) deteriorating quality of livestock herds with poor breeding rates, insufficient vaccination coverage and a 14% cattle mortality rate dues to infectious disease. (xii) increasing outbreaks of animal diseases.

Measures proposed to address these problems include: (i) short term land reform policies, with the objective of (i) improving land legislation, and ownership; (ii) clarifying the role of local authorities and (iii) giving greater freedom of choice for farmers.

20 (ii) reducing cotton debt in the medium term by improving access to capital and increasing the significance of Tajik cotton on the world market. (iii) increasing the rate of reform in the sector by introducing further institutional reform and reducing interference in production decisions at a local level. (iv) improving productivity by rehabilitation of irrigation and drainage systems; encouraging use of improved farming techniques and increasing marketing awareness.

Development priorities for 2007–2015 include: (i) diversification and increased production, including development of export oriented production and the development or rural businesses, in particular with export oriented opportunities in mind. (ii) streamlining of measures of State regulation, including a move away from State control and interference to one of encouragement. (iii) encouraging rural enterprise and private sector development, which it is recognized will require resolving the discrepancies and gaps in the land reform process; resolving the cotton debt issue (in the short-to-medium term); improving access to credit, improving information and agricultural knowledge; improving infrastructure and further institutional reform and development. (iv) improved public administration of the agriculture sector, including safety and quality of food products.

The focus for the period 2007–2009 will be on: (i) public administration and institutional reform for the agriculture sector; (ii) cotton debt resolution; (iii) improvements in nutrition.

Longer term tasks from 2007–2015 will be to (i) intensify land reform; (ii) increasing the potential and sustainability of the sector; and (iii) improving nutrition for the population.

Livestock improvements have also been recognized as a high priority target.

1.5 Reform Program and Resolution 1119

The Tajik cotton value chain10 is complex and characterized by deeply ingrained inefficiencies. Reforms aimed at transforming the cotton sub-sector into a productive and profitable “free market” industry have failed to attain the desired outcomes. An extensive program of agricultural policy reform was initiated in 1996. Price and trade policy were liberalized, producer subsidies terminated, land reform initiated, and cotton processing and financing privatized. A reform program of this breadth should have resulted in improved access to land and capital, the development of a land market, significant changes in producer incentives, adoption of improved

9 Sources: EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector”/ ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms”/ADB/WB, 2006, “Road Map for Farm Debt Resolution Strategy” 10 Annex 2: “Schematic overview of the Cotton Value Chain”

21 farm production systems and technology, and increased agricultural output. Yet these changes have not occurred. Where possible farmers have shifted and continue to shift from cotton to other cash crops and cereal crops for subsistence, cotton production has declined, production systems remain backward, input use is limited, rural poverty is widespread, public services for agriculture are moribund, and commodity and factor prices remain distorted.

Agricultural policy reform has had a limited impact because the underlying policy paradigm and the institutions responsible for policy implementation have not changed. Government control of cotton production and exports remains the over-riding focus of sector policy, and the institutions which support this imperative remain -- albeit with a different face. Local government coercion and private sector monopsonies of cotton credit and processing have replaced state procurement and marketing; but the result is still tight control of the land, labor, and capital resources which farmers allocate to cotton production. In practice, dirigistic control of the cotton sector has been preserved. Reform has given farmers only limited capacity to use their resources. Sustainable growth will not be achieved until all producers are in a position to take full advantage of the opportunities created by reform -- and this means deepening existing reforms.

TAJIKISTAN NEARS 70 PERCENT OF ITS NATIONAL COTTON TARGET

DUSHANBE, October 29, 2007. Asia-Plus /Mavjouda Salohiddinova/ -- Tajikistan has yielded 382,705 tons of cotton by October 29, which is 69.6 % of the national target that has been determined at 550,000 of cotton, Asia-plus has at the industrial crops and grains department of the Ministry of Agriculture and Environmental Protection (MoAEP).

On October 28, Tajik farmers yielded 2,733 tons of cotton, which is some 056% of the national target.

The southern Khatlon province has pledged to produce 330,500 tons of raw cotton this year. They have gathered 233,963 tons of cotton by October 29, which is 70.8% of the target.

Districts subordinate to the center (RRPs) have yielded some 33,041 tons of raw cotton, which is 68.5% of the target. Their target is 48,200 tons of cotton.

Cotton growers of the northern Sughd province have yielded 115,701 tons of cotton by October 29, which comprises 67.5% of its target determined at 171,300 tons of cotton.

Tajikistan last year yielded 440,000 tons of cotton, which was some 80% of the national target that had been determined at 547,000 tons of cotton. Media extracts demonstrating current thinking and policy on national cotton targets (From: ADB, 2008.”Tajikistan: Cotton Sector and Proposed Policy Reforms”)

Historically, in the cotton growing areas, 70% or more of any DF’s irrigated land was grown to cotton in any one year, mandated by the local authorities and enforced rigorously. Implementation of this policy was carried out at District Level (Rayon), governed by the “Hukumat” and supported by the Ministry of Agriculture. Dekhan farmers had no say in this. Collusion or the power to retract land use rights and are some of the tools available to the

22 authorities to coerce cooperation. This top down approach to cotton production is a key factor for poor yields, lack of profitability and increasing cotton debts. The imposition of planting quotas by the Hukumats jeopardized financial outcomes because fields are planted (and financed) where no opportunity for achieving profitable returns exist. Farmers retained relative freedom to farm the reminder (30%) of their land, which provides subsistence and sometimes cash income to shareholders.

Cotton cultivation requires high levels of management and significant production inputs. Farmers struggle to meet both these demands. Access to technical know-how through extension services is largely unavailable and most farmers and their leaders do not sufficiently understand cotton cropping to grow the crop properly.

Inadequate arrangements for securing vital production inputs, such as fertilizers and fuel, plague the industry. Historically, finance and inputs have been mostly provided to growers by cotton processors (ginners) and marketing firms (Investors), using future yield as collateral. There are many problems with this system. Financial management practices (budgeting, book keeping, accounting and auditing) are of poor standard at both the finance provider and farm level, resulting in loans being made or taken without due diligence regarding re-payment capacity. Where inputs are provided in lieu of disbursing money, problems with timing, pricing, quantity and quality of these deliveries are reported regularly.

The consequences of this situation have led to the accumulation of a large debt, surpassing USD 400 million in early 2007 (see section 4.1). Major reforms of the farming sector, such as Resolution 111 proclaiming “freedom to farm” (abolishing mandatory growing of cotton), are central to the issue of debt resolution in the cotton sub-sector, and to achieving socio-economic sustainability of the entire Tajik farming sector.

Donors and government agree on the need for wider reform as a clear national policy. The government, in coordination with donors, has accepted a blue-print (the Road Map) for sector reform, a pre-requisite for debt resolution. The policy and institutional reforms developed in conjunction with the Government arise from the desire of the Government to fully implement the contents of Government Resolution 111 of March 5, 2007, "Plan of Measures for Cotton Farm Debt Resolution Strategy in the Republic of Tajikistan". The goal of the resolution is to restructure the cotton sector so it becomes productive, profitable and competitive. Resolution 11111 key reform items include:

• Freedom to Farm: Termination of government intervention in cotton production, processing, and marketing.

• Selling and Processing of Cotton: Cotton sector tax regulatory review and reforms Markets reforms to simplify cotton marketing and shipment Increased transparency of processing and marketing transactions Adoption and implementation of Universal Cotton Grading System

11 Annex 3: “Road Map for Sector Reform and Debt Resolution“

23 • Farm Debt Resolution Policies and institutional measures that will facilitate debt resolution and a more competitive Cotton sector and formulate protocols, procedures, policies on farm debt resolution

• Land Reform Increase land tenure security Use of land use certificates in market transactions

• Rural Finance Improved regulation of lending activities in the cotton and non-cotton sectors A wider variety of private lender options More competitive and transparent regulatory environment for lenders

2. Resolution 111: Freedom to Farm, Land Reform and Farmer Legal Rights

The Terms of Reference of this review focus on land reform and legal aid issues. It is therefore outside the scope of this review to discuss the broader reform elements under Resolution 111. This report provides a detailed analysis of issues related to “Freedom to Farm” and “Land Reform”. Regulatory and legislative aspects relevant to the “Legal Status of Dekhan Farms” and to “Rural Finance” will also be discussed.

2.1 Freedom to Farm12

As noted, the agriculture sector has not responded positively to earlier reforms. The broad changes to price and trade policy, production subsidies, financial institutions and land policy prior to and in 2002 have not elicited changes in producer incentives nor in the behavior of factor and commodity markets because farmer decisions about what to produce, how to allocate their land and who to do business with are still driven by central-planning style production targets and enforced by local government.13 This is reinforced by the fact that dehkan farm managers are often former brigade leaders schooled in collective management systems and appointed by local government officials to whom they owe fealty. Further, the privatization of cotton credit and processing has not increased competition or efficiency. In short, policies have changed but practices followed by public and private institutions have not.

Resolution 111 commits the Tajik government to comprehensive changes of practices and policies in the cotton sub sector. The practice of imposing cotton production quotas (or indeed production quotas for any other crop) is illegal under the stipulations of Resolution 111. Resolution 111 stipulates:

(i) The right of farmers to use their land as they choose and to sell their products to whoever they choose; and

12 Sources: ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms”/ADB/WB, 2006, “Road Map for Farm Debt Resolution Strategy” 13 Enforcement is carried out by numerous extra-legal means and by threatening termination of land use right under the “irrational” land use provisions of the land code.

24 (ii) That the following practices will be terminated at national, regional, and district levels of government: (a) The setting of production targets for cotton, and the related monitoring and reporting of cotton cultivation and harvesting on a daily basis (b) Requirement that any irrigated, arable land must be used for cotton production. (c) All controls over where, and with whom producers sell and gin their cotton, except where written legal agreements between farms and financiers require this as part of the financial concession. (d) All controls over the internal physical movement of seed cotton within or between districts for sale and processing

2.2 Land Reform14

The history of land reform has been recently summarized as follows: Tajik land reform can be seen to fall naturally into four phases: The first period, from 1991 through 1995, is local implementation and adaptation of late-Soviet agricultural reforms without fundamentally challenging or rethinking Soviet agricultural institutions. The second phase, from 1996 through 1998, encompasses the general transformation of collective and state farms into a variety of other legal and organizational forms, echoing agrarian transformations in 1990s Russia. The third phase of the land reform, from 1998 through the end of 2007, again imposes a single legal and organizational form on all agricultural enterprises, and becomes a purely formal effort to change land tenure in response to donor demands and concentrating on issuing land-use certificates without particular concern for the resulting farms’ economic, political, or social viability. During the same period, the debt of farms to their input suppliers becomes a crushing burden. A fourth phase began at the end of 2007 when President Rakhmon denounced the system of agricultural financing by “futurists” and a new Land Code intended to allow mortgage financing of agriculture was adopted.

2.3 Legal and Regulatory Framework15

The basic legal and regulatory framework that governs land issues in general is covered in other sections of this report. This section will focus on the recent legislation relevant to Resolution 111 and the land reform agenda and will also provide an analysis of some problems with the new legislation. In late 2006, the Working Group on Structural and Land Reforms (WG) was set up under the Independent Commission (IC) and assigned the task of drafting amendments to land legislation. The WG was comprised of both donor and GoT representatives and is the body responsible for drafting the Amendments to the Land Code, which were finalized and formally submitted to the Government in mid 2007. The amendments that were presented aimed to:

14 Sources: EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector”/ ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms”/ADB/WB, 2006, “Road Map for Farm Debt Resolution Strategy”; Van Atta, Don, The Failure of Land Reform in Tajikistan, paper from13th Annual World Convention of the Association for the Study of Nationalities, April 11, 2008. 15 Sources: USAID Land Reform and Market Development Project Commentary on the Land Code and the Law on Mortgage; FAO Comments to the Law on Land Use Planning; USAID Institutional and Financial Assessment: Creating a Unified State Register in Tajikistan, June 2007

25 • improve land tenure security (reducing the power of hukumats, ensuring freedom to farm, defining expropriation concepts and procedures, etc.); • permit the introduction of a market (buying/selling/gifting etc) for land use rights; • introduce a more appropriate land administration system; and • allow the mortgaging of land use rights.

The majority of the proposed Amendments to the Land Code were approved by Parliament in December 2007 and promulgated by the President on 5 January, 2008. These amendments are perhaps the most significant achievement under the Resolution 111 reform agenda and represent the first real shift in land policy since independence. Although it can be argued that more in-depth changes in the Land Code would have been desirable, the changes that were made represent a shift away from the previous complete state control over land toward a more market-oriented view and are an important first step in transforming the Tajik agricultural sector.

In addition to the Land Code, five other laws have been passed that related directly to Resolution 111 or support the reforms. Each of these laws is summarized below and includes brief comments on the implications.

2.3.1 Land Code

As noted above, the 2008 amendments to the Land Code will provide the basis for further development of a market-oriented land sector. Although the changes fall short of allowing private ownership of land, it nevertheless provides for more secure and tradable rights. It should be pointed out the full ownership is not a pre-requisite for a healthy and well-developed market economy. Rather, the test is how clear and secure the rights are and to what extent the right- holders are able to trade or use their rights as collateral. The amendments are summarized as follows:

• Improve land tenure security. The amendments provide greater protection to land use right holders, particularly in regard to termination of land use rights, by limiting the circumstances in which a person’s land use right can be withdrawn and ensuring due process. For example, the land use right cannot be withdrawn for ‘irrational use’, failing to pay land tax or failing to plant specific crops. By making land use rights more certain and secure, it will encourage economic activity and social stability.

• Create a “land market”. The amendments expand the types of transactions that can be made with respect to land use rights and in theory, include buying/selling. These new transactions permit the owners of land use rights to make their asset more productive, therefore contributing to economic development. In addition, a land market is a pre- requisite for developing a mortgage market. The ability and procedures to transact land will be further defined by Government Resolution.

• Create the conditions for a mortgage market to develop. In making the above mentioned changes, the draft amendments will help to create a mortgage market. This is important because a mortgage market is a way to fully utilize existing resources in developing the economy. The improvements to the security of land use rights will

26 encourage banks to lend money that is secured against a land use right. Mortgages will be governed by the Law on Mortgage.

• Clarify the powers and responsibilities of government. The powers and responsibilities of multiple levels of government are regularized through the amendments, in particular by limiting how land use rights are withdrawn and by ensuring due process.

2.3.2 Law on Land Use Planning

The Law on Land Use Planning (Nr 356, 5 January 2008) was adopted at the same time as the Amendments to the Land Code. Unfortunately the new law, which was presented directly to Parliament by a Parliamentarian thereby by-passing the normal government review structures, undermines a key step toward reform, especially the concept of Freedom to Farm. Specific concerns with the law are outlined below: • Intervention in farm production decisions through land use planning The government intends to continue its intervention in farm-level production decisions through the tools of land use planning, in contravention of the letter and spirit of Government Resolution 111 and the 2008 Amendments to the Land Code. This is starkly evident from Articles 28, 29 on intra-farm (i.e., farm-level) land use planning. Although the language of Articles 28, 29 is not particularly aggressive and somewhat unclear as to exactly what types of farms it pertains to, the intention is clearly to involve state land planners in organizing land use and agricultural production on the farm level. Article 29 (“Desiderata of intra-farm land use planning”) is a verbatim reiteration of Soviet practices of central planning in rural areas. It is strongly recommended that Articles 28, 29 on intra-farm land use planning be deleted in their entirety.

• Monopolistic position of the state in surveying activities There is a serious ambiguity in the language of the law regarding the participation of private licensed surveyors in the process of preparation of documents for “land planning files”. A superficial reading of the law creates an overriding impression that the entire land planning process is the monopoly of the “competent [authorized] state body for land planning and its local [regional] branches”. It is never clearly stated that land surveying activities will be open to private firms. The law should be revised to clarify beyond doubt that properly licensed private surveyors are allowed to take part in the land planning process. Donors that develop projects for land registration activities will likely require participation from the private sector.

• Inclusion of soil testing and cartography in land planning activities In line with long-standing Soviet traditions, the law places considerable emphasis on soil quality, soil testing, and related geodesic and cartographic issues. The aim is to collect enough land quality information through surveys and soil investigations that should enable the Tajik authorities to produce a “valuation” of land. However, the focus on soil quality must be put in context with the ability of the State to pay for such tests and the fact that the development of a land market where information on land transactions are recorded will serve as the main valuation method. It should be noted that most donors who fund land registration systems refuse to pay for soil quality tests and recording.

27

• Role of land planners in reallocation of land The law gives land use planning a role in reallocation of land in response to the needs of agriculture, forestry, rural and urban population, etc. The reallocation mechanism involves the creation of a special land reserve, which is used to provide land to physical and legal bodies for household plots and also for the creation of dehkan farms and corporate farms (cooperatives, partnerships, etc.). However, there are potential dangers with this provision: since it does not say reallocation of “unused” or “unutilized” land, hypothetically it can be applied to expropriate and reallocate land currently used by farmers (like repartitioning in China). To avoid this danger, Article 21 should explicitly refer to reallocation of “unused” or “unutilized” land.

2.3.3 Registration Law

The Law on State Registration of Immovable Property and Rights to It (Nr. 375, March 20, 2008) establishes the legal basis for state registration of immovable property, land use rights, other rights and encumbrances and is the basis for the creation of the Unified Registration System (URS) - an institution that will be responsible for mapping and registering legal rights to all property units (land use rights, buildings, apartments) in Tajikistan; whether urban or rural, state or private. The new URS will combine the current functions of more than three separate institutions (ALMGC, Ministry of Justice, MBTI, local government offices etc.) into a more efficient and streamlined registration authority.

In terms of the institutional structure there will be three tier system, consisting of the Specially Authorized State Body in the Sphere of State Registration, which has a policy setting and supervisory role, and the Republican Enterprise of State Registration, which is responsible for implementing the legislation, and which will do so through the local offices or Territorial Enterprises of State Registration.

The Law on Registration does not specify which body or ministry will be responsible for registration work. Instead, it simply refers to the entities mentioned above, so the question of who will carry out the work remains open, and it will need to be defined by a GOT decision. According to the terms of the law, the institution responsible for the URS shall be defined within 3 months after official publication (June, 2008). In addition, it states that the URS shall be functioning within 1 year from the date of publication (March, 2009).

Although not essential to the creation and operation of the USR, there are a number of matters that could be improved in the Law on Registration and other related laws. These are:

• The definition of Immovable Property The definition in the Law on Registration is inconsistent with that in the Civil Code and, overall, problematic. Tajikistan is one of the few countries in the world that does not include land in the definition of ‘immovable property’.

• Cadastral surveying As noted in the comments to the Law on Land Use Planning, it is not clear whether it is intended that cadastral surveying services will be provided solely by the state institutions or whether

28 private survey services will also be allowed. International best practice generally concludes that surveying is a role for the private sector, while the state institutions play a monitoring and control function.

2.3.4 Law on Mortgage

The Law on Mortgage, (Nr 364, 20 March 2008) is, in general, a well drafted and useful addition to the growing number of laws supporting market development in Tajikistan. It has clear definitions and rules, embodies sensible and practical mortgage concepts, and allows for non- judicial foreclosure. There are however a few concerns, as noted below:

• Past debts should not be subject to a new mortgage There is no prohibition in the Law on Mortgage on the incorporation into the mortgage of past debts, which had not been secured against the property. Carrying forward (or “rolling over”) old debt into new will make it much more difficult for borrowers to pay back the debt, thereby raising the risk of foreclosure and sale. While it would be extremely difficult to draft a statement in a law to prohibit past debts being secured in new mortgages, a statement would send a clear indication to the courts that they should not consider past debts when adjudicating on breaches of obligations. Considering the current debt crisis and the questionable legality of debt involving cotton investors, such a statement would be an important safeguard for borrowers(farmers), and it would not adversely affect lenders (cotton investors and various state bodies) since they originally lent the money without security over the property.

• Appraisers The Law on Mortgage requires the value of the property to be established by independent professional appraisers, but no such appraisers exist yet. Unless large numbers of independent appraisers can be quickly trained and deployed, it appears that the mortgage market will be frustrated.

• Foreclosure The non-judicial foreclosure article assumes that the mortgagor (borrower) and mortgagee (lender) will reach an agreement on the foreclosure and sale of the property. In practice, it is unlikely that a defaulting mortgagor will cooperate with a mortgagee, so it needs to be clarified that the mortgagee can foreclose and sell the property without the mortgagor’s consent.

Also, the law refers to the purchase of the mortgaged property by the mortgagee, specified in an agreement between the mortgagor and mortgagee (without any oversight by the court). This provision would avoid a public auction in the case of foreclosure and could therefore be open to abuse by the mortgagee, who could insist on a price below what the property is worth.

2.3.5 Law on Third Party Arbitration

The Law On Third Party Arbitration Courts was approved by Parliament in December 2007, promulgated by President in January 2008 and became effective as of April, 2008. The TPAC Law allows for the development of independent (non-governmental) professional mediation and arbitration services in Tajikistan and, significantly, allows for fees to be charged for the services. The law states that arbitration proceedings are based on the principles of legality, voluntariness,

29 confidentiality, independence and impartiality of arbitrators, optionality, adversarial relations and equal rights of the parties

2.4 Gaps in Legislation This section will focus on legislation that is relevant to the reform agenda but that has not been amended to reflect the new concepts in the Land Code or the Resolution 111 reform agenda.

Law on Dekhan Farms A specific analysis of the Law on DF is found in section 3.2.4. For the purposes of this section it is noteworthy that there are at least three versions of amendments to the Law on DF (from the ALMGC, an internal Parliamentary document, and several proposals from donors). The most contentious issue is that of the legal status of Dekhan farms. Contradictions exist between what the 2002 law says (that Dekhan farms are not legal entities) and what happens in reality (that the new Law on Mortgage allows farms to pledge their assets against loans from financial institutions, contrary to the Civil Code, which states that only legal entities can own, use, dispose or pledge property as collateral.) Although most people now recognize the need for farms to have a legal identity, there is an unresolved impasse as to whether a farm should register as any type of business under the Civil Code or whether an additional legal entity called a “Dekhan Farm” should exist. In either case legislation will need to be amended to reflect the final policy decision. In the meantime, the lack of legal status hinders a farm’s ability to obtain commercial finance.

Another important issue has been the confusion surrounding the procedure for allocation of farms and the management of those farms. The current law requires farms to have general assemblies which are supposed to take decisions on important issues. However, there are many instances where farm leaders have taken decisions without consulting with members or where assemblies are not formed at all. More precise regulations on Dekhan Farm governance are necessary for a proper functioning farm business environment.

Law on Land Valuation: The current basis for land valuation is established by the Law On Land Valuation (Nr. 18, 12 May 2001). It is designed to define the state cadastre valuation as a normative price of land for taxation purposes and the establishment of lease payments. The “state” character of land valuation is reflected in the fact that the valuation process is implemented by the ALMGC. All natural persons and legal entities interested in valuation activities as a business must have a valuation license issued by the ALMGC. Although there was some discussion and drafting of a new Law on Valuation in 2006-2007 under the direction of the ALMGC, the current status of the draft is uncertain and seems to have been put on hold for the moment. The general comments to the text noted that and content of the draft law is not significantly different from the current Law and continues to focus only on valuation for taxation purposes based on a normative price and implemented by the state bodies of land management. Thus, the draft law needs significant changes in order to facilitate a more open, market-based valuation conducted by independent appraisers. These amendments are key for proper implantation of the new Law on Mortgage and the general functioning of the land market.

30 Law on Bankruptcy The Law on Bankruptcy is of particular relevance to the agricultural sector due to the overwhelming debt burden of investors and farmers. However, the legal basis for using bankruptcy as a mechanism in the debt resolution process is hindered by a few key issues.

The main problem is that the law applies to legal persons and individual entrepreneurs. However, as noted throughout this report, not all types of Dekhan Farms are commercial enterprises or individual entrepreneurs (see section 3.2.4). Although the Law on Dekhan Farms states that one of the grounds for liquidation is bankruptcy, the Law on Bankruptcy contradicts this provision. Thus, the Law on Bankruptcy can only be applied to a limited number of farms.

If the two laws are harmonized and bankruptcy is applied to all types of farm enterprises (for example by allowing all Dekhan Farms to be legal entities) then a second practical problem arises: under the terms of the Law on Bankruptcy, a legal entity or individual entrepreneur can be recognized as a bankrupt if they are unable to satisfy requirements of their creditors and the corresponding obligations are not paid by them within three months and if the total sum of obligations exceeds the cost of property belonging to them. Thus, under these definitions, almost all Dekhan Farms should be categorized as bankrupt and risks destabilizing agricultural production as farmers deal with the solvency issues

Table 7 outlines specific references to implementing legislation in the Land Code and the other new laws: Table 7: Necessary legal acts to implement recent land legislation

ЗЕМЕЛЬНЫЙ КОДЕКС РЕСПУБЛИКИ LAND CODE OF THE REPUBLIC OF ТАДЖИКИСТАН TAJIKISTAN

Статья 9. Отнесение земель к категориям и Article 9. Land categorization and the transfer of перевод их из одной категории в другую land from one category to another Отнесение земель к категориям и перевод их из Land within the categories specified in Article 3 of the одной категории в другую производится в present Code and its transfer to another category shall be соответствии с порядком, установленным made in accordance with the procedure established by Правительством Республики Таджикистан. the Government of the Republic of Tajikistan.

Статья 15. Государственная регистрация прав Article 15. State registration of the right of land use пользования землей The procedures for state registration of the right to use a Порядок государственной регистрации прав land plot shall be defined by the normative legal acts of пользования земельным участком устанавливается the Republic of Tajikistan (defined by the legislation). нормативными правовыми актами Республики The form of the state registration book for the right to Таджикистан (определен законодательством) use a land plot, the land cadastre forms necessary for Форма государственной регистрационной книги reporting and registering a land plot shall be defined and права пользования земельным участком, форма approved by the authorized state body of land документов земельного кадастра, необходимых management (Agency or Ministry act). для отчетности и регистрации участка земли, определяется и утверждаются уполномоченным государственным органом по землеустройству

31 (ведомственный акт)

Статья 19. Права первичных землепользователей Article 19. Rights of primary land users - порядок, установленный Правительством - convey the right of land use to another person, Республики Таджикистан, передавать право except for the cases established by law, in accordance пользования земельным участком другому лицу, за with the procedure established by the Government of исключением случаев, установленных законом the Republic of Tajikistan (Governmental act); (Правительственный акт). - receive compensation in the event of withdrawal of the - возмещение убытков в случаях изъятия права right to use the land plot for state and public need in пользования земельным участком для accordance with Articles 41–43 of the present Code (for государственных или общественных нужд, в Article 43 of the Land Code, Resolution of the соответствии со статьями 41 и 43 Кодекса ( по ст. 43 Government of RT №515 as of December 30, 2000 ЗК принято ППРТ №515 от 30 декабря 2000 года «On approval of Regulations on the procedure of «Об утверждении Положения о порядке compensation of damages and agricultural losses to возмещения убытков землепользователям и the land users» was adopted, there is a necessity to потерь сельхозпроизводства», необходим draft additional Governmental act on compensation дополнительный Правительственный акт по of right to use a land plot for state and public needs Возмещение убытков в случаях изъятия права or amend the existing one). пользования земельным участком для государственных или общественных нужд, либо изменить вышеуказанный).

Статья 22. Порядок предоставления земель Article 22. Procedure of land allocation Порядок предоставления земельных участков The procedure for allocating land plots shall be устанавливается Правительством Республики established by the Government of the Republic of Таджикистан. Tajikistan. (Resolution of the Government №342 as of September 1, 2005 «On approval of Rules on (ППРТ №342 от 1 сентября 2005 года «Об allocation of land plots for natural persons and legal утверждении Правила об отводе земельных entities ») участков для физических и юридических лиц»)

Статья 33. Ставки, порядок налогообложения и Article 33. Rates, taxation procedure, and rental fee арендная плата за землю for land Оценка земли в Республике Таджикистан для The assessment of land in the Republic of Tajikistan for установления нормативной цены земли в целях determining the standard cost of land for objective объективного налогообложения и арендной платы taxation and payment of rental fees shall be carried out осуществляется в соответствии с Законом in accordance with the Law of the Republic of Tajikistan Республики Таджикистан "Об оценке земли" “On Land Valuation”. (New law “On Land Valuation” (Необходим новый закон «Об оценки земли). needs to be drafted).

Статья 43. Порядок возмещения убытков Article 43. Procedure for compensation of losses to землепользователям или пользователям других land users or users of other registered rights зарегистрированных прав, связанных с землей и regarding land and losses connected to the removal of потерь, связанных с выводом земель из оборота land from circulation Порядок возмещения убытков землепользователям In the event of withdrawal of a land plot for state and или пользователям других зарегистрированных прав, public need, the procedure for compensation of losses to связанных с землей и потерь, связанных с выводом land users or users of other registered rights regarding a земель из оборота, в случае изъятия земли для land plot and losses connected to the removal of land государственных или общественных нужд from circulation shall be defined by the Government of определяется Правительством Республики the Republic of Tajikistan. (Resolution of the Таджикистан.». Government №515 as of December 30, 2000 «On approval of Regulations on the procedure of (ППРТ №515 от 30 декабря 2000 года «Об compensation of damages and agricultural losses to утверждении Положения о порядке возмещения

32 убытков землепользователям и потерь land users») сельхозпроизводства»)

Статья 51. Цели и задачи охраны земель Article 51. Goals and objectives of land protection Cоздать механизм учета и проверки экологического To create a mechanism of registration and examination состояния земель, а также обеспечить of the ecological conditions of the land, as well as to землепользователей экологическими нормативами, provide land users with ecological standards, approved утверждаемыми в порядке, устанавливаемом in accordance with the procedure established by the Правительством Республики Таджикистан Government of the Republic of Tajikistan (Правительственный акт). (Governmental act).

Статья 52. Мероприятия по охране земель Article 52. Measures of land protection В случае невозможности в ближайшее время If it is impossible within a short period of time to restore восстановить плодородие почв деградированных the soil fertility of damaged agricultural land, as well as сельскохозяйственных угодий, а также земель, land polluted with chemical and radioactive materials in загрязненных химическими и радиоактивными excess of allowable limits, the land shall be conserved in веществами свыше допустимой концентрации accordance with the procedure established by the предусматривается консервация земель в порядке, Government of the Republic of Tajikistan установленном Правительством Республики (Governmental act). Таджикистан (Правительственный акт)

Статья 53. Экологические требования к Article 53. Ecological requirements for locating, размещению, проектированию, строительству и designing, constructing and putting into use objects, вводу в эксплуатацию объектов, строений и buildings and structures сооружений Locating, designing, constructing and putting into use Размещение, проектирование, строительство и ввод в new and reconstructed objects, buildings and structures, эксплуатацию новых и реконструируемых объектов, as well as introducing new technologies that negatively строений и сооружений, а также внедрение новых affect the condition of the land, shall provide for and технологий, отрицательно влияющих на состояние take measures to protect the land to meet ecological, земель, должны предусматривать осуществление sanitary, hygienic and other special requirements мероприятий по охране земель, обеспечение provided for by the legislation in accordance with the соблюдения экологических, санитарно- procedure established by the Government of the гигиенических и других специальных требований, Republic of Tajikistan (Governmental act). установленных законодательством, в порядке, определяемом Правительством Республики Таджикистан. (Правительственный акт)

Статья 55. Органы, осуществляющие Article 55. Bodies exercising state control over land государственный контроль за использованием и use and protection of the land охраной земель The procedure for exercising state control over Порядок осуществления государственного контроля compliance with land legislation, land use, and за соблюдением земельного законодательства, protection of the land and the distribution of functions использованием и охраной земель и разделением between the bodies exercising state control, and their функций между органами, осуществляющими position, shall be determined and approved by the государственный контроль, и их положений Government of the Republic of Tajikistan (approved). определяется и утверждается Правительством Республики Таджикистан (принято).

Статья 61. Содержание и назначение Article 61. Contents and purpose of the state land государственного земельного кадастра cadastre Порядок осуществления государственного The procedure for conducting the state land cadastre земельного кадастра устанавливается shall be established by the Government of the Republic

33 Правительством Республики Таджикистан (ППРТ of Tajikistan (Resolution of the Government №447 as №447 от 3 октября 2006 «Об утверждении Правил of October 3, 2006 «On approval of Rules on ведения государственного земельного кадастра»). conducting of state land cadastre»).

Статья 72. Предоставление земельных участков Article 72. Allocation of land plots for collective fruit для коллективного садоводства и огородничества and vegetable cultivation Порядок предоставления земельных участков для The procedure for allocating plots for collective fruit and коллективного садоводства и огородничества vegetable cultivation shall be established by the устанавливается Правительством Республики Government of the Republic of Tajikistan Таджикистан ((Правительственный акт) (Governmental act)

Статья 74. Размещение объектов Article 74. Location of intra-farm structures внутрихозяйственного строительства The procedure for allocating land plots for intra-farm Порядок предоставления земельных участков для structures shall be established by the Government of the внутрихозяйственного строительства Republic of Tajikistan (Governmental act). устанавливается Правительством Республики Таджикистан. (Правительственный акт)

ЗАКОН РЕСПУБЛИКИ ТАДЖИКИСТАН LAW OF THE REPUBLIC OF TAJIKISTAN «О ЗЕМЛЕУСТРОЙСТВЕ» ON LAND USE PLANNING

Статья 5. Цели проведения землеустройства Article 5. The goals of land use planning Землеустройство проводится уполномоченным Land use planning is carried out by the competent state государственным органом по землеустройству и body for land use planning and its local branches, and местными его органами, а также его отраслевыми also by its sectoral [professional] organizations. The организациями. Данный орган и его полномочия Government of the Republic of Tajikistan establishes the определяются Правительством Республики competent body and determines its powers Таджикистан (Resolution of the Government of the RT №613 as of (ППРТ №613 от 23 декабря 2006 года «Об December 23, 2006 «On Agency of land planning, Агентстве по землеустройству, геодезии и geodesy and cartography under the Government of картографии при Правительстве Республики the Republic of Tajikistan). Таджикистан).

Статья 7. Сведения о землеустройстве Article 7. Information about land use planning Сведения о землеустройстве предоставляются за Information about land use planning is provided for a плату. Порядок и объем оплаты определяются fee. The amount of payment and the corresponding Правительством Республики Таджикистан. procedures are set by the Government of the Republic of Tajikistan.

Статья 11. Права при выполнении Article 11. Rights in the performance of land землеустроительных работ planning operations Разработчики землеустроительных работ имеют Land use planners have the right: право: - To supervise the preparation of land planning - вести авторский надзор в соответствии с порядком, documents in accordance with the procedures определенным уполномоченным государственным established by the competent state body of land use органом по землеустройству (ведомственный акт); planning (Agency act).

Статья 13. Нормативные правовые и технические Article 13. Normative legal and technical documents

34 документы по землеустройству for land use planning Нормативные правовые и технические документы Normative legal and technical documents are developed разрабатываются уполномоченным государственным by the competent state body for land planning and are органом по землеустройству и утверждаются в approved within the scope of its authority (Agency act). пределах его компетенции (ведомственные акты).

Статья 16. Виды работ по изучению состояния Article 16. Types of land assessment operations земель Periodic updating of topographic, geodesic, and Периодичность обновления материалов cartographic surveys, as well as agrochemical, топографических, геодезических, картографических geobotanical, and other soil investigations is scheduled обследований, агрохимического, геоботанического и by the competent state body for land use planning. другого изучения почвы определяется (Agency act). уполномоченным государственным органом по землеустройству (ведомственный акт).

Статья 26. Формирование землепользования Article 26. Creation of land use territories Технические требования к изготовлению и The technical requirements for the preparation and оформлению плана земельного участка определяются presentation of a land plot plan are established by the государственным уполномоченным органом по competent state body for land use planning (Agency землеустройству (ведомственный акт). act).

Статья 27. Межевание земель Article 27. Demarcation of land Координаты пунктов опорной межевой сети The coordinates of the reference grid points are определяются по международной системе координат determined according to the international or local system или местной системе координат. of coordinates. Переход на эту или другую систему координат The decision to use a particular system of coordinates is определяется Правительством Республики made by the Government of the Republic of Tajikistan Таджикистан (Правительственный акт). (Governmental act). Порядок межевания земель, контроль за The competent state body for land use planning is соблюдением технических требований к межеванию responsible for setting the procedure of land земель, охраной пунктов опорной межевой сети и demarcation, safeguarding the technical specifications of межевых знаков осуществляется государственным demarcation, and protecting reference grid posts and уполномоченным органом по землеустройству markers (Agency act). (Ведомственный акт).

Статья 32. Утверждение землеустроительной Article 32. Approval of land planning documentation документации The form and procedure of approval of land planning Вид и порядок согласования землеустроительной documentation is determined and established by the документации определяет и устанавливает competent state body for land use planning (Agency уполномоченный государственный орган по act). землеустроительству (ведомственный акт).

Статья 33. Землеустроительное дело Article 33. Land planning file Порядок разработки, использования копий и их The procedure for the preparation, use, and filing of the хранения определяет уполномоченный copies is set by the competent state body for land use государственный орган по землеустройству planning (Agency act). (ведомственный акт).

35

ЗАКОН РЕСПУБЛИКИ ТАДЖИКИСТАН LAW OF THE REPUBLIC OF TAJIKISTAN «ОБ ИПОТЕКЕ» ON MORTGAGE

Статья 39. Реализация заложенного имущества Article 39. Sale of mortgaged property 1. Порядок проведения публичных торгов по 1. The procedure of the public auction for the sale of продаже имущества, заложенного по договору об property mortgaged in a mortgage agreement is defined ипотеке, определяется законодательством by the legislation of the Republic of Tajikistan, unless Республики Таджикистан, если настоящим Законом otherwise established by the present law. (legislative не установлены иные правила (законодательный act) акт).

Статья 46. Особенности залога права пользования Article 46. Special provisions for the mortgage of земельным участком сельскохозяйственного land plots for an agricultural purpose назначения 2. The Act of Cadastre cost for the land plot, copy of 2. Акт кадастровой стоимости земельного участка, land plot plan, information on availability (absence) of копия плана земельного участка, сведения о наличии limitations (encumbrances) to the land use right shall be (отсутствии) ограничений (обременении) на право issued by the authorized state bodies in accordance with землепользования выдаются в установленном the established procedure. порядке уполномоченными государственными (Resolution of Government of RT №447 as of органами. October 3, 2006 «On approval of Rules for (ППРТ №447 от 3 октября 2006 года «Об conducting state land cadastre», Instruction on утверждении Правил ведения государственного registration of land in cities and settlements, земельного кадастра», Инструкция по учету approved by the Land Agency №36 as of April 24, земель городов и поселков городского типа, 2007; registered in the Ministry of Justice №269, 13 утвержденная АЗКГ №36 от 24 апреля 2007года и June, 2007). зарегистрирована в МЮ №269 13 июня 2007 года).

ЗАКОН РЕСПУБЛИКИ ТАДЖИКИСТАН LAW OF THE REPUBLIC OF TAJIKISTAN О ГОСУДАРСТВЕННОЙ РЕГИСТРАЦИИ ON STATE REGISTRATION OF IMMOVABLE НЕДВИЖИМОГО ИМУЩЕСТВА И ПРАВ НА PROPERTY AND RIGHTS THERETO НЕГО Статья 24. Регистрационная книга Article 24. Registration logbook 3. Каждый раздел содержит в отношении 3. Each section shall contain the following information конкретного объекта недвижимого имущества: with regard to a specific object of immovable property: 1) запись о зарегистрированном недвижимом 1) A record about registered immovable property– the имуществе наименование и реквизиты документов, name and detail of the documents that provide the являющихся основанием для государственной grounds for state registration of the establishment, регистрации образования, изменения, прекращения alteration or termination of immovable property, существования недвижимого имущества, описание description of immovable property characteristics, характеристик недвижимого имущества, в том числе including its value and basic data. Information about the его стоимость и другие основные данные. Сведения о purpose of immovable property shall be recorded in назначении недвижимого имущества записываются в accordance with the Uniform Classification of Purposes соответствии с единой классификацией назначения of Immovable property Objects, which shall be adopted объектов недвижимого имущества, утверждаемой by the Government of the Republic of Tajikistan Правительством Республики Таджикистан (Governmental act). (Правительственный акт);

Статья 31. Порядок осуществления Article 31. Procedure of conducting registration государственной регистрации actions

36 2. Осуществление государственной регистрации 2. State registration shall be performed by registrars of производится регистраторами республиканской и national and territorial organizations for state registration территориальных организаций по государственной (to define which body – Government). регистрации (определить какой орган)- 5. While conducting state registration of immovable Правительство. property, the registrar shall have the right to assign 5. При осуществлении государственной регистрации technical inventory of immovable property in cases and недвижимого имущества, регистратор имеет право in accordance with the procedure established by the назначить техническую инвентаризацию specially authorized state body (Agency or Ministry недвижимого имущества в случаях и порядке, act). установленных специальным уполномоченным государственным органом (ведомственный акт).

Статья 34. Прием документов, представленных Article 34. Receiving documents submitted for state для осуществления государственной регистрации registration 4. Прием документов, представленных для 4. Acceptance of documents submitted for state осуществления государственной регистрации, может registration can be carried out by registrar outside the производиться регистратором вне помещения premises of organization for state registration in cases организации по государственной регистрации, в and by order established by national organization for случаях и порядке, установленных республиканской state registration (Agency or Ministry act). организацией по государственной регистрации (ведомственный акт).

Статья 40. Регистрационные действия в Article 40. Registration of actions with respect to отношении недвижимого имущества, immovable property located on the territory of more расположенного на территории более чем одного than one registration district or cadastral quartal регистрационного округа или кадастрового 1. In case of the need to conduct registration actions with квартала respect to immovable property (except for land plot) 1. В случае совершения регистрационных действий в located on the territory of more than one registration отношении недвижимого имущества (за district, registration shall be carried out by order исключением земельного участка), расположенного stipulated by a specially authorized state body (Agency на территории более чем одного регистрационного or Ministry act). округа, регистрация производится в порядке, 2. In case of the need to conduct registration actions with определенном специальным уполномоченным respect to immovable property (except for land plot) государственным органом (ведомственный акт). located on the territory of more than one cadastral 2. В случае совершения регистрационных действий в quarter, cadastral number shall be assigned by order отношении недвижимого имущества (за stipulated by a specially authorized state body (Agency исключением земельного участка), расположенного or ministry act). на территории более чем одного кадастрового

квартала, присвоение кадастрового номера производится в порядке, определенном специальным уполномоченным государственным органом (ведомственный акт)

Статья 41. Регистрационные действия в Article 41 Registration of actions with respect to отношении объектов специального назначения special purpose objects 1. Регистрационные действия в отношении объектов 1. Registration actions with respect to special purpose специального назначения совершаются objects shall be conducted by the registrar of the national регистратором республиканской организации по organization for state registration in accordance with the государственной регистрации в порядке, procedure established by the Government of the установленном Правительством Республики Republic of Tajikistan (Governmental act). Таджикистан (Правительственный акт). 2. The list of special purpose objects shall be stipulated 2. Перечень объектов специального назначения by the Government of the Republic of Tajikistan

37 определяется Правительством Республики (Governmental act). Таджикистан (Правительственный акт).

Статья 59. Особенности государственной Article 59. Special provision concerning state регистрации связанных между собой прав, registration of related immovable property rights ограничений (обременении) прав на недвижимое and restrictions (encumbrances) имущество If, in accordance with the Republic of Tajikistan Если в соответствии с нормативными правовыми legislation, immovable property rights and restrictions актами Республики Таджикистан права, ограничения (encumbrances) are related (the right to a room in (обременения) прав являются связанными между common household and the related right for common собой (право на помещение в совместном joint property in common household; the right of домовладении и неразрывно связанное с ним право ownership and the right to economic administration or на общее имущество совместного домовладения; operational management; the termination of the right of право собственности и право хозяйственного ведения lease; the transfer of the ownership right on the basis of a или оперативного управления; прекращение права contract of immovable property sale in installments and аренды; переход права собственности по договору mortgage; other related rights and restrictions продажи недвижимости в рассрочку и ипотека, иные (encumbrances), their state registration shall be связанные права, ограничения (обременения) прав), conducted simultaneously in accordance with the их государственная регистрация осуществляется в procedure established by the national organization for порядке, установленном республиканской state registration (Agency or Ministry act). организацией по государственной регистрации (ведомственный акт).

Статья 65. Особенности системной регистрации Article 65 Special provisions concerning systematic недвижимого имущества и прав на него registration of immovable property and rights to it 2. Особенности системной регистрации 2. Special provisions of the systematic registration shall определяются Правительством Республики be determined by the Government of the Republic of Таджикистан (Правительственный акт). Tajikistan. (Governmental act).

Статья 67. Гарантийный фонд Article 67 Guarantee Fund 3. Порядок образования и распоряжения 3. The setting-up procedure and administration of the гарантийным фондом устанавливается Guarantee Fund shall be established by the Government Правительством Республики Таджикистан of the Republic of Tajikistan. (Governmental act). (Правительственный акт).

Статья 68. Переходный период Article 68. Transitional period 1. Переходным периодом является промежуток 1. The transitional period shall be a period of time during времени, в течение которого формируются: which the following shall be formed: - система организаций по государственной - A system of organizations for state registration; регистрации; - Documents of the Unified State Register of Immovable - документы единого государственного регистра property and Rights to it. недвижимого имущества и прав на него. 2. The transitional period shall be counted from the 2. Переходный период исчисляется с момента moment the current Law comes into force and its вступления в силу настоящего Закона и его duration for particular administrative units shall be продолжительность по отдельным административно- determined by the Government of the Republic of территориальным единицам определяется Tajikistan (Governmental act). Правительством Республики Таджикистан (Правительственный акт).

Статья 69. Формирование структуры Article 69. Forming a system of organizations for государственной регистрации state registration

38

1. Специальный уолномоченный государственный 1. The specially uthorized state body of the Republic of орган Республики Таджикистан в области Tajikistan in the sphere of state registration and the государственной регистрации и республиканская national organization for state registration shall be организация по государственной регистрации в срок, designated by the Government of the Republic of не позднее трех месяцев, со дня официального Tajikistan within a period of no longer than three months опубликования настоящего Закона определяются since the date of the official publication of the current Правительством Республики Таджикистан Law (Government). (Правительство). 2. The property of communal ownership that shall be 2. Имущество коммунальной собственности, used for state registration of land plots at the moment of используемое на момент принятия настоящего the adoption of this Law, as well as the property of Закона для государственной регистрации (учета) в communal legal entities that conduct state registration of отношении земельных участков, а также имущество buildings at the moment of the adoption of this Law, коммунальных юридических лиц, которые на момент shall be transferred without any compensation from the принятия настоящего Закона осуществляют communal to the domain of national ownership in государственную регистрацию (учет) в отношении accordance with the procedure established by the строений, подлежат безвозмездной передаче из Government of the Republic of Tajikistan. The above- коммунальной собственности в республиканскую, в mentioned property shall be assigned to territorial порядке, установленном Правительством Республики organizations for state registration (Governmental act). Таджикистан (Правительтственный акт).

Статья 70. Формирование документов единого Article 70. Forming documents of the unified state государственного регистра недвижимого register of immovable property and rights to it имущества и прав на него 4. The state registration of residential and non-residential 4. Государственная регистрация жилого и нежилого building, structure used before the moment when this здания, сооружения, эксплуатируемых до момента Law enters into force, about which the state вступления в силу настоящего Закона, в отношении organizations that previously conducted state registration которых в государственных организациях, do not have all the necessary information, shall be осуществляющих ранее регистрацию (учет) conducted in accordance with the procedure established недвижимого имущества, отсутствует необходимая by the Government of the Republic of Tajikistan информация, производится в порядке, (Governmental act). установленном Правительством Республики 5. Rights and restrictions (encumbrances) shall be Таджикистан (Правительственный акт). considered registered, if, at the moment when this Law 5. Права, ограничения (обременения) прав на enters into force, state organizations that previously недвижимое имущество считаются conducted state registration of immovable property зарегистрированными, если на момент вступления в rights have information required for entering respective силу настоящего Закона, в государственных records into the registration book. With respect to such организациях, осуществляющих ранее регистрацию rights and restrictions (encumbrances), the procedure of (учет) прав на недвижимое имущество, имеется entering respective records into the registration book информация, необходимая для внесения записей в shall be established by the national organization for state регистрационную книгу. В отношении таких прав, registration. If the full information for entering ограничений (обременении) прав порядок внесения respective records into the registration book shall be not записей в регистрационную книгу устанавливается available, the respective organization for state республиканской организацией по государственной registration shall make up the missing information регистрации. Если имеется неполная информация (Agency or Ministry act). для внесения записей в регистрационную книгу, то недостающая информация восполняется соответствующей организацией по государственной регистрации самостоятельно (Ведомственный акт).

39 3. Current status of implementation of freedom to farm and land reform

3.1 Constitutional Management Structure16

The Constitution, adopted in 1994, is the fundamental document that regulates the political and administrative structure of the Republic of Tajikistan. Article № 76-78 of the Constitution relates to local executive authority. In particular, the Constitution authorizes Madjlisi Namoyandagon (Chamber of Representatives) to approve local budgets and report on its execution; define the strategy of economical and social development of rayons, as well as giving a right to own and use public property.

Generally speaking, Tajikistan is divided on four regional territorial regions, as it is shown below: • Rayons of Republican Subordination (RRS): In central part of the country there are 13 rayons and 5 towns surrounding Dushanbe city. Legislation of Dushanbe City has a special status. Each rayon directly reports to Central Government in Dushanbe city. These rayons are not united administratively. • Sughd Oblast. (Former Leninabad). Sughd Oblast covers Zaravshan Valley and western rayons of Fergana Valley. Sughd Oblast is also known as Northern Tajikistan. It is the most economically developed oblast. Geographically it is separated from southern part of the country by three mountain ranges. • Gorno-Badahshan Autonomic Oblast (GBAO). It is the most geographically isolated oblast in Tajikistan and located in the west of the country. • Khatlon Oblast is located in southern-western part of the country.

Within the regions, administration is structured as follows: (i) Villoyaty – Oblast (ii) Nohiya - Rayons (iii) Cities of Republican Status (iv) Cities of Oblast Status (v) Cities of Rayon Status (vi) Jamoats – local self-administration, combining a group of kishlaks (vii) Kishlaks - villages

According to the Constitution, Majlisi Oli (National Legislative Body or Parliament) and Majlis of Oblast, city and rayon levels (but not the jamoat level) should be elected. Elections should take place every five years. Based on the Constitution, the President has a right to nominate a candidate of Prime-Minister and other Ministries, including Chairman of Oblast for their further approval by Majlisi Oli. President can also offer a dismissal from occupied position.

Jamoats are at the lowest level in the structure of rayon administration, acceptable by Constitution. Each rayon consists of a number of jamoats,. Big cities report directly to the Central Government but not the rayon administration, and thus rayon authorities maintain more control. Jamoats are rural self-administration bodies, which were created by territorial characteristics. They consist of a number of kolkhozes (former and currently existing collective farms), sovhkozes (state owned farms) and kishlaks or deha (villages). Legally Majlis of Jamoat have 8 responsibilities, and the

16 Source: EC, 2006, Review of the Current Situation in Agriculture in Tajikistan, («Support to the Development, Implementation and Evaluation of Agricultural Policy» Project, funded by European Union )

40 Chairman has 27. Officially, decisions should be made based on open voting. In reality the Chairman is the key person responsible for making routine decisions. Presidential authority to nominate candidates of administrative officials and give a power to appointed Chairmen shows the presence of strong centralized control.

Jamoats are financed out taxation fees collected, regional Majlis and charitable contributions. Some surveys demonstrated that probably Jamoats Development Committees (JDC) don’t always represent interests of village citizens. Local executive bodies of oblasts, cities and rayons were represented in Majlis (Chamber of Representatives), headed by the Chairman. Each Oblast, city and rayon have a local Municipality department (state or central administration). Executive and representative agencies of state power are controlled by the Chairman of Municipality. The Chairman is appointed once in five years.

The Chairman (hokim) is a head of Municipality (local administrative body). The Chairman of Majlis Namoyandagon (local Majlis) is elected by the order of Hokim, and very often it is the same person. That’s why his position is determinant. The Chairman of viloyat, city and rayon is a key figure of local authority and the main representative of the President. The President has an exceptional power to appoint chairmen of Viloyat (Oblast), Nohiya (Rayons) and cities, which demonstrates strong centralized power.

3.2 Implementation of Legislation on Freedom to Farm and Land Reform

3.2.1 Central Government Institutions: Policy and Activities17

There are 23 ministries and 20 agencies controlled by the President. All these institutions have a potential influence on activity in rural areas. Executive power is shared by the President and the Government, as the result there is a duplication of functions. The same organizational structure exists even on the local level, where administrative officials directly report to central ministry as well as the local administration.

Table 8: Government Institutions and their influence оn initiatives to develop rural areas Strategy Agric. Production Marketing agric. products Processing procedure added value Surveys in sector agric. Infrastructure Water supply Ministry of Agriculture L M L L M L L Ministry of Economy and L M H H H M M Trade Ministry of Finance M L L L M L L Ministry of State Revenue and H H H H L M H duties

17 Sources: EC, 2007,” Final Report – December 2007, EuropeAid 122386/C/SV/TJ – Support to the Development, Implementation and Evaluation of Agricultural Policy” / EC, 2006,” Review of the Current Situation in Agriculture in Tajikistan”, («Support to the Development, Implementation and Evaluation of Agricultural Policy» Project, funded by European Union )

41 Ministry of Energy H H L H L M M Ministry of Melioration and H H L L M M H Water Resources Management State Committee on L L L L L L M environmental protection and forestry Sate land use committee H H L L M L L Academy of Agricultural H L L M H L L Science of Tajikistan Ministry of Transportation H H H H L H M Ministry of Education M H L M В L L Ministry of Culture L L N/A. N/A N/A M N/A Ministry of Health H H M M M Н H H -high; M-moderate; L-low; N/A.-not applicable. Source: ADB

Key policy agenda in the agrarian sector includes a wide reaching reform agenda under Resolution 111 of March 5, 2007 ("Plan of Measures for Cotton Farm Debt Resolution Strategy in the Republic of Tajikistan"), discussed in previous chapters of this report. To date progress on the reform agenda has been slow and implementation is suffering lack of leadership, political will and coordination at both Central Government and donor level. Progress has been achieved in some areas, notably the introduction of a “Universal Cotton Classing System”, the restructuring of the mechanism for seasonal financing of cotton production (see sections 3.2.3 and 6.4) and in the drafting and promulgation of laws relevant to land reform (see section 2). Little or no concrete progress has been achieved on the overall aspects of debt resolution (see section 4.5).

More generally, policy and strategy development in the agricultural sector faces capacity issues and is met with a low level of interest within the participating ministries. The following extract from the final reporting period of the EC funded “Support to the Development, Implementation and Evaluation of Agricultural Policy” project epitomizes the problem in the Ministry of Agriculture:

“Result 2: Support the development of agricultural policy and strategy, based upon the National Development Strategy 2006 – 2015 (NDS) and other relevant strategic documents.

Tajikistan has no overall agricultural policy and strategy for the sector. Rather, the existing policy is “more of the same”, continuing to do what has been done since the collectivization of agriculture. Without an overall strategy for the sector, donor and Government of Tajikistan activities will remain uncoordinated in attempting to develop the countries agricultural and rural sector. Furthermore, and most important, neither the Government of Tajikistan or the Ministry of Agriculture has staff with the capacity to develop, implement and evaluate agricultural policy and strategy. This has serious repercussions as without clear policies and strategy for the sector, growth will not occur in the rural economy, poverty will remain endemic, activities in the sector will remain uncoordinated and largely ineffective, and donor support will decrease as the Government will have no strategy for the sector upon which government or donors can fund development interventions. It is the role of Government, regardless of political ideology, to develop, implement and evaluate agricultural policy and strategy.

At the project March 2007 Steering Committee meeting the project tabled that the PSU should proceed to develop an agricultural policy and strategy for Tajikistan as a document for

42 discussion. The meeting was chaired by Deputy Minister Isroilov who stated that the project should proceed with the work of developing an agricultural strategy for Tajikistan. The project began work on developing this strategy in April 2007, but without the level of co-operation and interest required by the project from the Ministry. As a consequence project management began intensive lobbying of the Ministry of the need for an Agricultural Strategy for Tajikistan and for the Ministry, with the aim of getting the Minister directly involved in leading the Ministry’s effort for an Agricultural Strategy.

The lobbying resulted in the Minister chairing the project July 2007 Steering Committee meeting. The key item at this meeting was a presentation on Agricultural Strategy. The outcome of this meeting was the Minister requesting the project’s help to develop an Agricultural Strategy. This was followed a few days later with the same presentation being made at the Minister’s request to the Ministry’s quarterly collegium meeting, the key staff in the Ministry. A Ministerial Order followed establishing a Ministry Working Group to draft an Agricultural Strategy supported by the project by 31st November 2007, under the leadership of the first deputy minister. Progress by the Working Group to develop the strategy has been slow and laborious. This was not unexpected, as the Ministry has neither the experience nor capacity to develop a strategy…….”

A recurring government activity is the setting and enforcing "production forecasts" for cotton cultivation. The Government develops national and rayon (district) cotton production forecasts and the rais or hokim (local governors) are held accountable for ensuring that farms meet the forecasts in their jurisdiction.

Cotton is the perceived as “strategic” crop by the government (tax revenue, export revenue, ginning industry, textile industry, etc). In response to falling output (see chapter 1,2.2), authorities ordered more land to be cultivated with cotton. The recent increase in area sown confirms this. As a result the cotton sub-sector suffers from restrictive government policies, poor management practices, inadequate peripheral services (finance sector, extension services, input supply), deteriorating infrastructure (irrigation, machinery, gins) and a general lack of awareness and know how at farm level.

Cotton planting forecast 2008 The Ministry of Agriculture (MoA) states that no “quotas” have been set for 2008 but that “96% of the forecasted area had been planted by early June”. Overall plantings are just 4.5% lower than in 2007, a strong indication that there has been little change in the policy on cotton production targets (an effective implementation of “freedom to farm” will lead to greater crop diversification, taking advantage of high value alternative crops, such as cereals). Table 9 summarizes cotton plantings for 2008. It does not provide information on the area which was successfully established. In reality much of the planted area failed to emerge due to lack of water (20’000ha in Sugd Oblast alone) and in some areas authorities have pressured farmers to replant (see section 3.2.5 (field observations).

43 Table 9: 2008 cotton planting - forecast and progress (Source: Ministry of Agriculture)

Report on sowing of cotton in the Republic of Tajikistan by region, districts at 02.06.2008 Name of Plan Planted % 2007 Difference regions (ha) to 2007 Total includin Total includin Total fine - 2007 Difference g fine - g fine - fibred between fibred fibred with 2007 In the Republic 253752 47000 243660 8217 96.0 17.5 255596 -11936 Sugd Region 76570 2000 75006 98.0 77175 -2169 Asht 7400 7400 100.0 7520 -120 Aini 400 310 77.5 400 -90 Konibadam 7300 1000 7100 97.3 7100 0 Zafarabad 16000 15867 99.2 15280 587 Mastchokh 15350 1000 14729 96.0 15542 -813 Spitamen 7400 7400 100.0 7600 -200 Rasulov 9600 9600 100.0 11113 -1513 Gafurov 12350 11870 96.1 11600 270 Istravshan 430 430 100.0 430 0 Isfara 40 0.0 35 -35 Gonchi 300 300 100.0 555 -255 Khatlon Region 160000 45000 154058 8217 96.3 18.3 161230 -7172 Bokhtar 14778 5000 14778 330 100.0 6.6 15083 -305 Vahkhsh 12000 6600 10745 1585 89.5 24.0 11520 -775 Khuroson 5500 1000 5000 90.9 0.0 5008 -8 Jilikul 9200 3500 8860 180 96.3 5.1 9760 -900 Kubadien 10000 4000 9840 365 98.4 9.1 10190 -350 Rumi 11900 3000 11960 646 100.5 21.5 12525 -565 Jomi 9850 1400 9742 1400 98.9 100.0 9866 -124 Kumsangir 10138 5200 9464 1434 93.4 27.6 10138 -674 Panj 8284 4800 8285 1791 100.0 37.3 8501 -216 Shakhrituz 6500 2000 6296 77 96.9 3.9 6760 -464 Yovan 15480 14331 92.6 14760 -429 Khusrav 4650 1500 3841 82.6 0.0 4658 -817 Sarband 1070 700 1071 50 100.1 7.1 1071 0 Kulob 4500 4500 100.0 4608 -108 Vose 10540 1300 10540 100.0 0.0 10540 0 Khamadoni 8000 1000 7600 170 95.0 17.0 8012 -412 Farkhor 12310 4000 11905 189 96.7 4.7 12930 -1025 Dangara 5300 5300 100.0 5300 0 Central region 17182 0 14596 0 84.9 17191 -2595 Tursunzade 6200 5028 81.1 6132 -1104 Khisor 3767 3188 84.6 3581 -393 Rudaki 2200 1701 77.3 2667 -966 Shakhrinav 2300 2100 91.3 2100 0 Vakhdat 2715 2579 95.0 2711 -132

44 3.2.2 Role of Local Government in Farm Operations and Decision Making18

The local executive administration includes a department responsible for service provision (education, health, communal, water supply and etc) and the financial department responsible for budget management. Heads of these departments apply a dual reporting system. First they report to the local executive body, the Presidential representation, (or superior Khukumat) and then they directly report to ministries and agencies, responsible for these services sector (or relevant high level departments). The current legislative environment, due to the existing power concentration, would give some incentives and opportunities for local executive bodies to implement local initiations, but unclear distribution of functions for each level of administration is a key problem. The majority of local authority management functions are delegated and local authorities have limited freedom or no freedom at all, for taking decisions independently. It prevents local authority from planning priorities, as they are not sure about their responsibilities. Current duplication of functions among different levels of power, functioning within the same territory, creates inefficiency, which Tajikistan as a poor country can not afford. . 60-90% of jamoats’ work is dedicated to execution of orders, resolutions and taxation. It includes issuing of certificates etc, which is approximately 10 % from above-mentioned work. People can meet with jamoat representatives only on certain days of the week (2-3 days), depending upon the location.

Implementing cotton production targets19 Local authorities continue working based on a”top-down” approach. The level of local involvement in economic development is low. Neither jamoats nor Mahalla, which are at the lowest level in local executing authority hierarchy, have a budget (Surveys carried out by Aga- Khan Foundation «Tajikistan at the junction – decentralization policy, report on current situation, January 2004. », Cimera). According to other reports, there is a trend of decreased community involvement and loss of community spirit, which is critical and plays an important role in communities revival. Of course it doesn’t happen everywhere.

Farms face lots of barriers and problems mostly in the cotton growing sector, including other crops, because of the pressure of Municipality. As the result, important decisions are taken by those who are not responsible for agricultural output results, whereas dehkan farmers do not have freedom of speech and power, and are not motivated to improve production.

During interviews with government officials it was found that the selection of crops to be cultivated depends upon their decision.

In many cases, dehkan farmers have to submit planed production indicators to local executive authorities (Khukumats). It is required because of taxation issue, to some extent, so that dehkan farmers couldn’t escape paying taxes. However it also demonstrates the presence of central

18 Sources: EC, 2006,” Review of the Current Situation in Agriculture in Tajikistan” 19 Sources: EC, 2006,” Review of the Current Situation in Agriculture in Tajikistan”, («Support to the Development, Implementation and Evaluation of Agricultural Policy» Project, funded by European Union ) / ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms”/ ADB, 2008, “Farmer Survey”

45 planning and impacts life of the poor stratum of the society. It is necessary to note that despite of such measures, the level of informal economy remains high.

To meet the production targets set by the Central Government, the rais/hokim require farmers to cultivate cotton in at least 70% of their farmland. The rais and hakims (district governors) have significant influence over farmers because of their authority to revoke farmers’ land use certificates on the basis of the “irrational use” of agriculture land20. The rais also grants monopsony rights to "investors" who provide credit to cotton growers.

In 2008, anecdotal evidence suggests that there has been a relaxation of local authorities’ interference and control in cotton production in some rayons, mostly in Sugd Oblast. An informal farmer survey conducted by ADB through Legal Aid Centers and extension service organizations across the cotton growing areas in April 2008 also provides some indications to this effect (the survey is discussed in sections 3.2.3 and 3.2.5). Whilst local authorities are aware of Resolution 111, it is not clear if the change in attitude of the local authorities in question is due to leadership or a result of prevailing acute economic, logistical and climatic constraints. Indeed, lack of electric power to drive irrigation pumps, lamentable state of much of the production infrastructure, absence of vital inputs (fertilizer) and general lack of irrigation water due to poor snow melt and poor rain fall would see only the foolhardiest grow large areas of cotton in 2008. Unfortunately, ADB’s farmer survey and other anecdotal evidence from the field suggest that in the vast majority of areas, local authorities conduct “business as usual”, irrespective of the dire consequences.

3.2.3 Role of Investors and the “New Finance Mechanism”21

Next to Dekhan farmers and government, “Investors” (also referred to as “Futurists”) are the third main stake holder in the Tajik cotton sub sector. “Investor” is the term commonly used to describe privately owned joined stock companies established as the new owners of cotton gins (processing), following the privatization of processing and marketing in the sub-sector. Historically, the vast majority of crop finance has been channeled to farmers through the Investors. Investors hold key positions across the entire value chain; as finance and input providers (laid out in “business plans” – contracts with growers) and as purchasers/processors/merchants of cotton. Until this year, Commercial Banks and Micro finance providers have played no major role in providing working capital to the cotton sub sector.

The non-bank-finance-institution (NBFI) “Kredit Invest” was created to streamline cotton crop financing (with funds from foreign lenders – notably global cotton traders and textile industries) and debt management. To date, Investors have shunned from formally acknowledging responsibility for being lenders to growers. Whilst they have assessed and issued crop finance at farm level, the risk and responsibility was not clearly assigned to them (but perceived to be with Kredit Invest – defining responsibilities for existing debt is part of the debt resolution process).

20 Note that the 2008 Amendments to the Land Code eliminated the right of the state to withdraw land use rights for ‘irrational use”. 21 Sources: ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms”/ ADB, 2008, “Farmer Survey”/ EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector”

46 Lacking funds to adequately service farmers, Investors also have poorly developed lending skills and are all too often coerced by Hukumats to spread the finance over too many acres. They are allotted districts in which they are to finance the growing and processing of cotton. The business practices among local investors in Tajikistan lack transparency and are biased against farmers. Crop loans are therefore rarely made on the basis of individual farmers’ credit assessments.

Farms growing cotton usually have a very limited capacity to provide working capital of their own. Cotton farming has not been very profitable recently and many farms are carrying large debts owed to local “Investors”. Funds are usually secured by the cotton crop.

Figure 4: Schematic of Cotton Financing in Tajikistan

Source: Improvement of the Tajik cotton Industry, pdf, Reinhart Report, 2006.

Preceding the start of the 2008 cotton season, the Government implemented a step in finance sector reform by announcing a “New Finance Mechanism”, under which working finance for farmers must be channeled through duly registered financial institutions. De-linkage of direct financing from Investors is in the interest of farmers and an important reform item under Resolution 111. It provides farmers with cash loans and consequently, the option to source inputs freely. Under the old system, Investors mostly provided working capital loans in kind, often in form of production inputs at inflated prices. (see section 6.4)

Action on this issue may have been accelerated by an acute impasse in available finance for the 2008 cotton crop. The deteriorating economic environment in Tajikistan, coupled with repercussions of the IMF probe into “Tajikistan’s non complying disbursements and breach of obligations”22 (in violation of its statutes, National Bank of Tajikistan (NBT) had in recent years

22 Annex 4: IMF Executive Board Reviews Noncomplying Disbursements to Republic of Tajikistan and Breach of Obligations Under Article VIII, Section 5Press Release No. 08/43 ,March 5, 2008

47 issued guarantees to external finance providers, covering a large part of the USD 240 mil foreign component of the cotton sector debt), and the stalemate in the debt resolution process have led to a severe reduction in foreign capital inflow for cotton working capital. It is worth noting that with the announcement, the Government made available 100 mil Somoni for cotton cropping financing. The funds were to be channeled through a number of commercial banks. This amount was topped up by another 30 mil Somoni in April 2008.

NEW MECHANISM OF FINANCING COTTON SECTOR TAKES FIRST STEPS DUSHANBE, January 11, Asia-Plus /Mavjouda Hasanova/ -

A process of introduction of a new mechanism of funding the cotton sector is under way. Safar Mahmadaliyev, head of the economic policy department of the Ministry of Agriculture and Environmental Protection (MoAEP), said in an interview with Asia-Plus that special commissions, comprising representatives from the ministry, banks, agency for land utilization and the state insurance company Tojiksughurta, had been set up in all cotton-growing districts for assisting farming units in concluding loan agreements with banks. “Taking into account expenses on seeds, fuel, pesticides and mineral fertilizers, the MoAEP economy directorate has set an amount of loan for cotton-growing farms at a rate of 2,770 somonis per one hectare,” Mahmadaliyev said He added that the new mechanism gives farmers the right to choose a cotton-ginning factory to which they will yield their harvest and set prices for the realized cotton at their own discretion. On the farmers’ debts to futures companies, the MoAEP official noted that a special center was established in November 2007 to study the problem of debt crisis among cotton producers. “The debts will not be cleared off by the government; they will just be restructured for several years,” As it had been reported earlier, cotton farmers now owe to the creditors $409 million. Cotton makes an important contribution to both the agricultural sector and the national economy. Cotton accounts for 60 percent of agricultural output, supports 75 percent of the rural population, and uses 45 percent of irrigated arable land. At the national level, it is an important source of both export earnings and tax revenue. Tajikistan is the world’s fourth largest exporter of cotton, and there is strong demand on international markets for its high quality product.

YOVON THE FIRST IN TAJIKISTAN TO INTRODUCE NEW MECHANISM OF FINANCING FARMING UNITS DUSHANBE, January 11 /Mavjouda Hasanova/ --

Khatlon’s Yovon district is the first in Tajikistan to introduce a new method of financing of farming units, Mirzoashraf Sharipov, member of a working group for introduction of the new financing mechanism, said. According to him, 189 dehqan (peasant) farms functioning in Yovon have concluded one-year loan agreements with Agroinvestbonk for totaling 8,613,040 somonis. The funds will go to funding sowing and harvesting campaigns in the district. “The farms have to date received 373,895 somonis of the mentioned amount,” Sharipov said, noting that loans are provided to cotton-growing at a rate of 2,770 somonis per one hectare. He said Agroinvestbonk provides loans to farmers at 18 to 20 percent annual interest. According to the Yovon agriculture directorate, 1,330 dehqan farms now function in the district; of them, 601 farms grow cotton. Yovon cotton farmers now owe more than $30 million to creditors.

48 Media extracts on introduction of the “New Financing Mechanism”

Implications of the “New Finance Mechanism” for the banking sector and farmers are discussed later in this report (see section 6.4).

At the moment there are about 72 investors with a history of credit and other essential farm inputs supply to cotton farmers. Many of them are in debt and may not survive debt restructuring. Others will survive and will continue to supply inputs, including credit, to cotton farmers. When the reforms (Resolution 111) are implemented, the input supply industry will become more competitive as hukumat -directed credit is eliminated, transparent contracting between supplier and farmer becomes widespread, improved pricing information is available, and improved accounting is implemented.

At the same time, farmers will be requiring more inputs as production of cotton and other crops increase – and in many cases they will have cash to pay for it. Thus it is not clear what the scale and structure of the input industry will be other than it will be different than it is now. The most likely outcome is that there will be fewer investors and more input suppliers who will deal directly with farmers rather than through investor intermediaries.

In response to the “New Mechanism for Finance” some of the Investors have taken steps to register as formal financial institutions. Others appear to have stopped providing seasonal cropping finance and even stopped all activities in some of the rayons they were involved with. It is not clear what role the introduction of the new system plays in this development. Lack of financial resources may be more of a determinant. Some of the large Investors continue to provide finance, albeit at a lower level. It is not clear if they have registered as formal financial institutions. It is most likely in contravention of the new mechanism, especially where loans are in kind. In view of the acute shortage of available cropping finance there is tacit agreement between government and investors on this issue (no official donor protests either).

The role of some of the investors in 2008 is summarized below. The information is anecdotal, gathered at field level and/or from Investors themselves. There are no formal or verified sources of information available.

Kuhjand Invest Cotton (KIC): The company finances approximately 12’000 ha of cotton and has contracts with roughly 140 farms. It is one of the more progressive operators in the agricultural sector, seeking to integrate vertically (existing processing for both ginning and oil extraction, building a spinning mill, plans for a textile factory). KIC is implementing a policy of change and is relatively open to reforms. In this context KIC is currently transferring part of the financing of farmers to Agro Invest Bank, in a tri-party agreement under the EBRD/TAFF project. In response to anticipated reductions in cotton cultivation in the future, KIC also wants to promote non cotton cropping, particularly crops for oil production (rape seed, safflower, etc) to assure supplies for their oil plants. Terms of their contracts with farmers are not known but seem to be based on payment for lint (which is more favorable for farmers than payment for raw cotton. However, recurrent and prolonged power cuts during the winter months results in long delays for ginning cotton (to obtain lint). Farmers often wait many months for payment).

Sugd Agro Serv (SAS):

49 SAS provides finance for farmers, conduct cotton trading but do not process (thus not a “typical Investor”). SAS carries a loan portfolio of approximately USD 1 million. Loans average approximately USD 450/ha. Since January SAS has turned away many clients due to a lack of financial resources. SAS claim that only 10% of farmers in Zafarabad district have secured finance in 2008 and that despite the finance provided by commercial banks, Investors and farmers own funds, about 70% of the total cotton area remains without funding. SAS have registered as a micro finance organization.

Olimi Karimzod (OK): OK was one of the large investors in the cotton sub sector, both in the north (Sugd) and south (Kathlon). The OK chairman claims that the company has withdrawn completely from operational and financial activities in cotton production. This is confirmed by farmers in Zafarabad district. OK owns several gins and will purchase cotton from growers. It is not known if supply contracts have been made with growers. OK is building a large spinning complex in Mastcho district (capacity of 6000 MT of lint). It should be noted that many of the court cases supported by current LAC are against OK.

Hima: This previously large Investor appears to have closed down (bankrupt). A consultant conducting an assessment on the state of gins in Tajikistan (on behalf of ADB) indicates that a total of 26 gins will be or have been re-possessed. This may also include plants from other investors facing closing down of their operations.

Ismoil Somoni (IS): IS area of operation is Kathlon Oblast where farmers in 7 districts are financed this year. This occurs with the knowledge of WB and government (due to lack of financial resources in banks). Reports from the field indicate that farmers signed supply contracts for raw cotton at prices well below current world market levels. It appears that contracts may be strongly biased against farmers (see chapter below).

The overall “Investor landscape” is changing. Whilst old practices still persist in some areas there are signs of change in others. It is not clear to what extent the reform process is driving these changes, or whether it is prominently due to the tight economic and agronomic (lack of water, inputs, etc) situation across the sector.

Information from the field:

Summary of Farmer Survey in Cotton Growing Rayons23 - Conducted in March 200824

Financing Issues: 1. Financing of cotton has shifted somewhat from investors to banks in 2008. In 2007 106 farmers of Khatlon and 112 farmers of Sughd received financing from investors while in 2008 these figures are 66 and 47 respectively. Moreover, the survey shows that investors are concentrated in some specific districts of Khatlon, where cotton is fully financed only by investors with only a

23 This survey was conducted with the assistance of Legal Aid Center/Farmer Outreach projects funded by USAID, EC, DfID and CIDA and compiled by the ADB Agricultural Sector Coordination Unit. 24 Complete Survey is attached as a separate file to this report (Farmer Survey in Cotton Growing Raions, 2008)

50 small number of self-financing farmers. These districts are: Qubodien, N. Khisrav, Shahrituz, Jilikul and Panj. However, in Sughd oblast only Spitamen district shows domination of investor- based financing with no involvement of banks. In other districts of Sughd financing sources are fairly equally distributed between banks and investors.

2. The survey shows the domination of Ismoili Somini XXI Century among other investors in cotton financing (58 out of 66 investor-based financing for farmers) in 2008. The company entirely covers Qubodien, N. Khisrav, Shahrituz and Jilikul with some participation of Olimi Karimzod in Panj district and Khima in Jomi district. However, domination in these districts is caused not by good quality of service but through pressure of the local Hukumat forcing farmers to sign contracts with the company. Thus, the majority of farmers of those districts reported that they have been forced to sign a contract with the company or that they have no other choice as there is a single investor in the district. Also some farmers reported that they could not get access to bank financing because the investor, with support of the Hukumat, prevented obtaining credit from the bank. It should be noted that answer “Investor (with support of Hukumat) prevented to get credit from the bank” was not included to the questionnaire as one of optional answers and some farmers indicated that on their own initiative. Hence, one can presume that if the answer were included than the number of positive responses might be greater. Also, the fact that a large portion of farmers in the above mentioned districts reported their non-satisfaction to work with investors last year and that were ‘freedom to farm’ a reality farmers would reduce their cotton fields indicates that farmers were pushed to grow cotton and work with a specific investor.

3. In Sughd, however, only in Spitamen district is there a domination of investor based financing (“Dehqon” company). However, it appears farmers prefer to work with “Dehqon” Company as they found it a reliable partner. A majority of farmers reported that they are satisfied with their cooperation with the investment company.

4. The banking sector expanded significantly into cotton sector financing (124 farms or 38%) from last year (30 farms or 9%), mainly due to resources from the state budget. Agroinvestbank is a leading bank in provision of credits to the cotton sector (72 farms or 58% of banking-based financing). At the same time, banks asked 81 farms to pledge their Land Use Certificates (LUC). In total 105 farms have been asked to pledge LUC in order to receive financing for cotton production, 66 of which reported that they have in fact pledged LUC. (Note that pledging the LUC is still illegal because the implementing regulations and registration procedures for the new Law on Mortgage have not been approved. There is a risk that farmers will lose their rights to land before proper procedures and safeguards are in place.)

5. The number of farms receiving credit from the banking sector would be greater if banks could meet farmer demand. In total 199 farmers (or 60% of all farms) applied for credit from banks, out of which 73 farms (or 37% of applications) were rejected, while 31 farms (or 16% of applications) had not received any response at the time of survey (March). The main reasons for rejection are existing debt to investors and shortage of resources in banks. As some farmers refused to pledge their LUCs the third factor appeared to be the request from banks for collateral and the inability of farms to provide it.

6. Qumsangir and Sharituz farmers reported that they were forced to sign a contract with Ismoili Somoni XXI Century. Farmers have not been given a copy of contract and they are unaware of the contract conditions (i.e price of inputs, price of raw cotton etc). Farmers complain that

51 contracts are given to them only in September/October and they have no negotiation possibilities with the investor.

7. One of the disappointing facts for farmers in cooperation with investors is that investors do not provide inputs in accordance with contract, i.e. less inputs provided than recorded in the contract.

8. In Sughd oblast farmers indicate that although “there are enough inputs in the market” that in fact verifying documentation for products are not available, and hence, farmers cannot register these inputs in their accounting records. (this is a reflection of the black market in input supply, thus there has been no inspection or certification for quality, VAT or other taxes have not been paid etc) Differences between districts that were dominated by Ismoil Somoni and those that were not, given our knowledge of the difficult conditions the (USAID Water Users Association) project has found in Shaartuz and Kobodiyon.

The data input by ADB was divided into districts according to those dominated by I. Somoni and those that were not, as below:

Dominated by I. Somoni Not dominated by I. Somoni Vakhsh Yovon Shahritus Vose Qubodien Kulob Panj Hamadoni N. Khisrav Farkhor Khuroson Bokhtar Jilikul A. Jomi

There are several distinctions of note: Dominated by I. Somoni Not dominated by I. Somoni % % Financed 2007 crop by Investor 71 47 Bank 1 26 Will finance 2008 crop by Investor 64 5 Bank 4 69 Applied for 2008 loan Yes 40 85 Bank approved 2008 loan Yes 4 56 Must sign w/specific investor Yes 40 10 Satisfied w/investor 2007 Yes 6 42 Must plant specific area to cotton Yes 81 80

This data surely indicates that areas dominated by investor I. Somoni are at a distinct disadvantage relative to other districts surveyed, particularly with regard to financing their crops through banks and satisfaction with the investor. The one common trait is that all are forced to devote about 80% of their land to cotton. The role of Investors in cotton sector debt and its resolution, the implications for farmers and for the implementation of reforms under Resolution 111 are discussed elsewhere in this report (see section 4)

52 3.2.4 Legal and Developmental Obstacles for Farmers25

Debt resolution and reforms under Resolution 111 are aimed at delivering a profitable, competitive and sustainable agricultural sector in Tajikistan in the future. Whilst explicit laws and regulations already exist (such as Resolution 111, Amendments to the Land Code etc ), today’s reality for Dekhan farmer remains one of hardship where progress and individual initiative are inhibited by a combination of implicit “laws”, unclear laws and other developmental obstacles.

Important legal and developmental obstacles, inhibiting land reform and freedom to farm for farmers include:

Structure and Legal Status of Dekhan farms Despite their prevalence, most Dekhan farms (DFs) are not legal entities or were poorly established and have ill defined legal capacity. In general, a DF is an independent managing agent carrying out its activity without forming a legal person (Art. 3). Land remains the property of the state which grants inheritable use rights to members of DFs who receive inheritable use rights to the land. Three types of DFs can be distinguished: In the case of individual DFs, the land certificate is issued to one individual. In the case of a family DF, the certificate is issued in the name of several family members. In the case of a collective DF, the certificate is issued in the name of the chairman of the farm, while all other members are listed as such. As such DFs farms cannot enter legal contracts such as borrowing from banks.

Three main types of DF farms exist. Important differences apply between individual and family DFs on the one hand and collective DFs on the other.

Collective DFs typically emerged from a fast-track approach to farm restructuring. In order to meet privatization targets, kolkhozes and sovkhozes were often converted into one or several collective DFs, depending on the size of the previous entities. Usually, the former chief of the kolkhoz/sovhhoz or head of a brigade is “elected” chief of the new DF and the administration continues as before. A certificate is issued in the name of the chief listing all members working on the farm as shareholders. The resulting farms are medium to large, with land sizes ranging from 40 up to 2,000 hectares. Surveys in restructured farms revealed that the majority of the shareholders of collective DFs is barely informed about the change and many believe they are working for a kolkhoz / sovkhoz. There are issues around collective versus individual ownership and problems with governance of dehkan farms where the manager often behave like the owner and small shareholders are treated as menial workers.

Individual and family DFs have been created “from below” by an initiative from individuals or families rather than by official restructuring. The land certificates are issued by the hukumat in

25 Sources: ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms”/ FAO, 2006, “TAJIKISTAN: Expanding Finance in Rural Areas” / EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector” / EBRD /TAFF Project/NBT, 2008 – “Data on price evolution”/ADB, 2007, “TA4664 – Debt Resolution and Awareness Raising” Final Report –Agronomy / ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution”.

53 the names of the individual(s) or family members who requested the creation of the DF. Individual and family DFs are smaller, usually in the range between 0.5 ha and 40 ha. Individual/family DFs tend to be better managed since they were founded by private initiative and their members have a stake in the farm’s success.

Associations of Dekhan Farms are a third type of farm organization emerging from farm restructuring. The associations vary in the degree of autonomy of their member farms. In some cases, member farms are managed independently but certain functions such as input purchase, operation and maintenance of farm machinery and output marketing are carried out by the association. In other cases, state and collective farms have been converted directly into associations of DFs, with the association still functioning like a kolkhoz (Porteous, 2003). Overview on legal status of farms:

Most farms exist as Dekhan farms (DF) or as productive cooperatives. There are also farms that were formed as joint stock companies and various legal hybrids prior to the passing of the Civil Code (CC) and the Law on Dekhan Farms. Current legislation now limits farm ownership to physical persons as individual entrepreneurs, various forms of DF described under the DF Law but not described elsewhere, partnerships, and productive cooperatives.

The Law on DF mentions the following types of DF: (i) dehkan farm based on individual enterprise; (ii) dehkan farm whose business activity is carried out as a family business and on the basis of jointly held property; (iii) dehkan farm created in the form of simple partnership on the basis of common shares of property and agreement on joint activity (iv) dehkan farm in the form of a business partnership or productive cooperative

Comments on each form of DF follow:

Dekhan farm based on individual enterprise: Article 24 of CC says that citizens have the right to engage in entrepreneurial activity without the formation of a legal person from the time of state registration unless it is otherwise provided by the present CC. This means an individual entrepreneur DF can receive a certificate of state registration without being a legal entity. The entrepreneur must obtain an INTP (individual tax identification number) from the tax department. The respective rules of the Civil Code that regulate the activity of legal persons being commercial organizations are applied also to the entrepreneurial activity of citizens conducted without the formation of a legal person.

In the ordinary understanding the term “individual entrepreneur” means a single person- entrepreneur. According to the DF law the whole DF can be registered as an individual entrepreneur but it is unclear how the internal relationships of joint owners of a DF should be regulated. If a person registered himself as an individual entrepreneur it should mean that he rents or has bought land plots from other land plot users and then registered himself as an individual entrepreneur. Since this type of activity of individual entrepreneur is already regulated under the CC it appears its insertion in the Law on DF is redundant. Dekhan farm as a family business on the basis of jointly held property: The Civil Code and Tax Code do not mention such types of entrepreneur activities as “family business”. From a tax

54 perspective, a “family business” is similar to that of an individual entrepreneur. Why is it necessary to define a DF as family business?

It is possible to say a family business is founded on joint property as mentioned in the Law on DF and therefore this implies common joint ownership. However other types of DF, according to the CC, also imply common joint ownership, as stated in Article 273 of the CC. Taking into consideration that Article 24 of the CC says that all citizens conducting entrepreneurial activity in the formation of a DF, regardless of the form of its creation, shall be exempted from state registration means that it is not necessary to specially mention a family business as a form of DF. Or if this form of DF is considered necessary, unique characteristics for it need to be properly defined and included in legislation. In this case it would be necessary to change the CC and Tax Code so as to include such unique definitions. It would be better to allow the creation of a juridical person which has membership of only family members.

Dekhan farm created in the form of simple partnership: Part 1 of CC of RT does not mention such form as «simple partnership», when listing types of legal entities. Part 2 of CC in Article 1058 says that individual entrepreneurs and (or) commercial organizations can be parties in the agreement on joint activities. It is therefore obvious from this article that farmers as physical persons have no right to conclude such a type of agreement. This means that for the conclusion of such agreement, farmers should get an INTP, as an individual entrepreneur, and only then can they conclude an agreement on joint activity. But this arrangement has no special significance and should be removed as irrelevant to the CC requirements.

Dekhan farm in the form of business partnership or productive cooperative: This is a form of juridical person and consistent with other legislation. Many farms have been formed, nominally, as productive cooperatives (PC). Most PCs, however, are legally incomplete for a variety of reasons, including (i) they were not correctly registered, (ii) many are registered as productive cooperative dekhan farms for which there is no legal definition under current legislation, therefore they are not legal persons, (iii) the PCs have no capital allocated to them by their members, and (iv) many PCs are supposed to have land but members have not transferred their land use rights to the PC. In many cases, the formation of a PC was not originated by the members but imposed on them by local authorities.

Table 9 below summarizes the most usual forms of farm ownership and the actions that are needed to transform them into a proper legal form consistent with the CC.

Table 9: Forms of Farm Ownership

Ownership Form Legal Standing Concerns and Needs Common ownership Not a juridical person Need to convert to one of the legal forms listed below in this table Family farm Not a juridical person Need to convert to one of the legal forms listed below in this table Individual entrepreneur Recognized by CC and Suitable only for DFs with individual or DFL small number of owners Business partnership Recognized by CC and Concerns over responsibility for liabilities

55 DFL of co-partners Productive cooperative Recognized by CC and Most have been improperly established DFL therefore lack legal capacity: require restructuring or liquidation Company ownership Not recognized by CC or CJSC and LLC forms make share DFL or DFs transfers, share pricing and admission of new shareholders difficult & place limits on numbers of shareholders Trusts Recognized by CC Not widely used for farms but broadens options for land use right and property transfers CJSC = Closed Joint Stock Company, LLC = Limited Liability Company

Production quotas Production targets are still imposed on farmers by district governors. Despite "freedom to farm" declarations, farmers are still required to plant cotton, are instructed when to till and plant, and are directed to acquire inputs and sell output to certain merchants. This denies them choice, often compromises yield (because of poor timing), removes competition, and limits profitability. Interference by local government officials in production and marketing decisions is significant and continues. Issues of “Freedom to Farm” are also discussed in section 3)

The following developmental obstacles are not directly linked to land reform and/or “Freedom to Farm”. They are nevertheless of great importance and are listed here for the sake of completeness.

Market access Cotton gins were privatized and are owned by Investors, but Government still holds significant shares in many of them. Most gins are old, badly maintained and poorly run. Gin out turns of 31% are very low compared to international standards (approximately 38%). Farmers are linked to Investors through crop loans and movement of cotton is controlled by the Hukumat.

The inefficiencies in cotton production are exacerbated by those of marketing and processing. The lack of competition leaves ample room for monopolistic practices such as overpricing and under-delivering of inputs and low farm gate prices. Farmers claim that inputs such as seed and fertilizers are not delivered on time and are often of insufficient quantity and poor quality.

Tajikistan is poorly furnished with agricultural processing and storage capacity. This particularly affects perishable produce such as vegetables. Fluctuations in demand and supply leave farmers vulnerable to exploitation by merchants, especially as farmers are usually not in a position to store produce for a prolonged period of time. In 2007, farmers in Sugd Oblast put too much emphasis on cultivation of onions, leading to an over-production and to prices below production costs. The best illustration of the effects of oversupply (due to absence of processors) is the evolution of the price for fresh tomatoes during 2007, when prices rapidly dropped six fold during the season, whilst tomatoes for paste retained a constant price (Figure 5)

It is a reminder that “Freedom to Farm” and crop diversification requires careful planning and a basic level of marketing know how.

56

140

120

100

80 Fresh and pickled toma toes Tomato paste

60

40

20

0 Dec 06 J an‐07 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Figure 5: The price of fresh tomatoes and paste tomatoes during 2007(Dec 2006= Index 100) . Source: EBRD/TAFF, NBT

Farm production factors Dekhan farmers face widespread technical, logistical and management constraints:

Management: Poor management practices = lack of planning, poor business structures Low participation rate of DF share holders = little sense of ownership, low interest Obsolete accounting standards = poor budgeting, cost tracking, analysis and reporting Lack of transparency = poor accountability, wastage, diversions

Agronomy: Monoculture (cotton)= loss of soil fertility/structure, low yields Poor irrigation management = Poor watering strategies, not responsive to crop needs Poor pest management = yield loss from damage Poor crop management = little understanding of crop physiology needs and timing Poor seed (genetic quality) = low genetic potential, low yield

Resources (Infrastructure, equipment, finance): Expensive machinery = old, frequent repairs, inefficient to operate Inputs = availability of fertilizers and fuel, bad timing of use, quality? Water = Deteriorating water distribution systems, unreliable supply Extension advice = expert advice not available

Access to working capital Dekhan farms’ access to working capital is constrained by several factors:

• Existing debt overhang (especially in the cotton sub-sector) • Absence of legal entity status of Dekhan farms

57 • Weak banking sector (especially with regards to cropping finance) • Lack of immovable collateral • Poor business management skills (at farm level) • Poor lending skills (at lender level) • Shortfall of financial resources at lender level

Issues of agricultural finance are also discussed in section 6.4.

Taxation The main taxes currently imposed on the agriculture sector and their unintended consequences are as follows:

A 10% cotton export tax imposed by the TUGGE on fob cotton fiber prices, and paid by exporters. To raise compliance, the TUGGE derives a price based on a discounted world price to assess this tax. In a business environment as non-transparent as the cotton sector, a mechanism like this provides a transparent means to determine prices and assess taxes. But the current formula results in the imposition of additional implicit taxes on cotton production and exports because of the way the price is calculated.26 If losses were eliminated by refining the formula, both the private and public sectors would benefit due to higher export prices, higher producer prices and sector income, and increased tax revenue.

A new unified tax for agricultural producers (UTAP) is paid by all producers and replaces an agricultural land tax and a number of national and local taxes, and simplifies payment procedures. Land under cotton cultivation pays half of the assessed UTAP. The UTAP is essentially an agricultural land tax levied on the basis of land area and land-type, but the rate has been set at four times the rate for the prevailing land tax. Coupled with new laws to increase the underlying land tax, the UTAP has significantly raised the overall tax burden on farmers. Irrigated land is now taxed at twice the previous land tax rate, dry arable land at five times more and pastures at 25 times more. Higher overall levels of taxation will reduce farm incomes and could make some farms unprofitable and unsustainable. This is leading to farmers not investing in their farms and even leaving some of their land idle. Further, the 50% UTAP reduction for cotton land distorts the incentives for cotton production and discriminates against farmers in non- cotton growing areas. Relative prices and profitability should drive decisions on how farm land is allocated, not taxation; and taxes should be imposed equitably across regions and farm types.

Research shows that total taxation of the cotton sector is more than double that of neighboring countries. The current ad hoc approach to tax policy should be replaced by a deeper, more consistent system of taxation which looks at the combined impact of current taxes (explicit and implicit) on production incentives and farm profits, and considers the wider implications of tax policy for land reform, water use and poverty reduction. Increased simplicity, transparency, and consistency should remain a priority, including measures to eliminate implicit taxes.

Essential services

26 The World Bank (2004, op.cit.) notes four sources of bias that result in over taxation.

58 Beyond policy reforms and debt resolution, sustainable profitability of the cotton sub sector and the agrarian sector as a whole will rely on improved management practices, higher yields and higher efficiency at farm level. Needs at Dekhan farm level are particularly great in the following areas:

• Governance: o Farm financial management (book keeping, accountability, finance procurement, reporting) o Farm business management (budgeting, cropping activities, input procurement, share holder participation) o Extension services

• Agronomy: o Crop management (irrigation, pest control, weed control, nutrition) o Water management (cropping practices, irrigation scheduling/allocation) o Soil fertility (crop rotations, organic matter, green manure, mineral fertilizers) o Genetic characteristics of cotton (varieties, seed quality, seed increase) Extension services

• Resources: (Infrastructure/equipment/finance) o Input supply (fertilizers, fuel, pest control agents, etc.) o Water supply and distribution (Water user associations, maintenance, rehabilitation) o Machinery and equipment (improvements, efficiency, new technology) o Finance (access to cropping and capital investment finance)

Neither the government or the farmers nor other stake holders in the cotton value chain currently possess adequate capacities to effectively address these issues. In a “post reform” (Freedom to Farm) environment, the sub-sector will need to be supported. Rehabilitation of infrastructure and improving the resource base of Dekhan farms are key objectives and are closely linked with sector policy reforms. However, the practical implementation of rehabilitation and improvement works at farm level must concur with greater productivity and profitability. Over time this will enable farmers to strengthen their capacity to raise finance for or to self finance these works. For this to become possible, improvements in farm and agronomic management must be attained. Donor support can effectively target these areas through implementation of wide reaching extension and training programs.

Issues of agricultural extension, farm business management and rural finance are also discussed in section 6.

3.2.5 Gaps in Implementation of Resolution 11127

Resolution 111 was ratified by the President of Tajikistan on March 5, 2007. The “Roadmap for Debt Resolution”, developed by donors in conjunction with the Government outlines key reforms to be implemented under Resolution 111 (see sections 2 and 4).

27 Sources: WB/ADB, 2007, “Road Map for Debt Resolution” / ADB, 2008, “Farmer Survey Summary”/

59

The fundamental objective is the resolution of the debt overhang in the cotton sub-sector and is perceived by the Government as a pre-requisite for wide reaching reform. Unfortunately, the proposed approach to debt resolution, using a process of debt validation (by conducting a “farm- by-farm” analysis), followed by a process of sharing responsibility between the key stake holders (Government, Investors and farmers) derailed early in the process. Significantly, it proved difficult to validate debt at farm level due to poor records and multiple farm re-organizations and it soon became apparent that the number of farms in question would extend this process over many years.

Further, there was (and still is) significant disagreement between stakeholders (including donors) on the best and fairest way to resolve the debt. IMF’s findings regarding “Tajikistan’s non complying disbursements and breach of obligations”28 caused more uncertainty and donor reluctance to commit to the debt resolution process. Consequently, very little concrete progress has been made towards this all important objective. The cotton sector debt and its resolution are further discussed in section 4 of this report.

ADB, a former key champion of debt resolution, formally informed the Government of its decision to withdraw from the resolution process in February, 2008. ADB nevertheless remains committed to supporting the cotton sector policy reforms and has elaborated a wide reaching policy matrix based on the original “Road Map”29. A possible sector loan package of approximately USD 40 million to support important reform items, notably by financing projects in land reform, market reform, agricultural extension, legal aid and rural finance, has been presented to the government.

WB is investing into sector reforms through its USD 15 million “Cotton Sector Recovery Project”. The project contains a debt resolution aspect (USD 2.9 million) but its main focus will be on the development of the cotton production chain (USD 9.8 million.

The stalled debt resolution process is hindering timely implementation of the broader reform agenda. As discussed in previous sections of this report significant progress is made on developing appropriate law for land reform, some progress is achieved on certain market reforms (notably on the issue of “Universal Standards for Cotton Classing”) and on finance sector reform. The rest of this chapter discusses gaps in implementation of the key reform items of primary interest to this review, land reform and “Freedom to Farm”.

Land reform A more in-depth analysis of land reform legislation is found in section 2.3. What is noteworthy for this section is the fact that a fairly large body of implementing regulations specific to land reform and the new policy objectives embodied in the 2008 Amendments to the Land Code still need to be approved and implemented (see tables in Section 2.4).

“Freedom to Farm”

28 Annex 4: IMF Executive Board Reviews Noncomplying Disbursements to Republic of Tajikistan and Breach of Obligations Under Article VIII, Section 5Press Release No. 08/43 ,March 5, 2008 29 Annex 3: “Road Map for Sector Reform and Debt Resolution“

60 The “Road Map” stipulated that senior political figures announce in television, radio and newspapers the provisions of Resolution 111 in relation to “Freedom to Farm”, notably, the right of farmers to use their land as they choose, sell their produce to whoever they choose and that the practice of setting production targets for cotton and the compulsory cultivation of land with cotton cease at all levels of government.

Announcements to this effect were carried out during the early part of 2007 to the rayons, but failed to be disseminated widely and clearly by the district authorities. During June 2007, UNDP carried out a series of regional and district public meetings to help disseminate information on Resolution 111 and the “Road Map” reforms. The meetings were attended by local authorities but farmers were generally poorly represented.

At this time rayons authorities across all cotton growing districts are well aware of the reform item “Freedom to Farm” and it appears that most farmers have some knowledge about it. However, across most districts there appears to be the implicit understanding amongst farmers that in reality nothing has changed. This applies particularly to the more conservative Khatlon Oblast and is somewhat less prevalent in Sughd Oblast. However, also in Sughd farmers appear to be planting cotton as per previous practice.

In March 2008, As part of the “Road Map” monitoring activities, ADB with the cooperation of legal aid centers and local extension service NGOs, conducted a survey to assess the development of “Freedom to Farm” across the rayons. . Summary of Farmer Survey in Cotton Growing Rayons30 - Conducted in March 200831

General Information:

1. In total around 400 questionnaires were received of which 331 responses were fully completed and processed. The survey covered 13 cotton growing districts of Khatlon oblast (5711.5 hectares of arable land) and 7 cotton growing districts of Sughd oblast (9818 hectares of arable land).

Information on 2007 Production:

2. In 2007 cotton was mainly financed by “investors” (69%) with co-financing by farmers themselves (27%). Farmer co-financing was around 30% of the total cost of production. Only 24% of farmers completely financed cotton production themselves.

3. About 50% of farmers (156/331) reported that they have not been paid or not completely paid for the delivered cotton by the end of March, while a Settlement Act has been signed by 79%. (which means farmers are signing Settlement Acts before they have been paid for their cotton)

4. Fifty eight percent (58%) of farmers are not satisfied or have dubious feelings about cooperation with investors. High price (higher than the market) for provided inputs and lower than market

30 This survey was conducted with the assistance of Legal Aid Center/Farmer Outreach projects funded by USAID, EC, DfID and CIDA and compiled by the ADB Agricultural Sector Coordination Unit. 31 Complete Survey is attached as a separate file to this report (Farmer Survey in Cotton Growing Raions, 2008)

61 price for delivered cotton prevails among reasons of non-satisfaction. In addition quite a few farmers wrote among “other non-satisfaction factors” the delayed payment for delivered cotton.

Freedom to Farm Issues:

5. The survey shows that farmers would like to slightly decrease their cotton production in Sughd oblast (in average by 10%). However, in Zafarobod the decrease would be more significant (by more than 20%). In Khatlon oblast if farmers were free to chose what crop to grow, cotton coverage would decrease more significantly (by average of 22%). Partially that is due to the preference of some farmers to stop growing cotton completely. In Khuroson, for example, 5 farmers out of 6 would choose not to grow cotton at all. A large decrease would also be observed in Qubodien (from 81% of irrigated land for cotton in 2007 to 48% in 2008), Shahrituz (from 84% to 56%), Yovon (from 78% to 48%), Kulob (from 84% to 34%), Jomi (from 69% to 37%) and Panj (from 70% to 32%). As it was expected the second largest crop would be wheat for which farmers of Khatlon would allocate 25% of irrigated land and 20% in Sughd oblast.

6. A large number of farmers reported that they have been instructed by the local Hukumat to allocate specific area for cotton production in 2008: 62% of farmers of Sughd and 80% of farmers of Khatlon). In Sughd oblast the highest “instructed” area for cotton production is observed in Zafarobod district (22 farmers out of 24 have been instructed to allocate about 85% of their irrigated land for cotton production), the lowest “instructed” cotton area in J. Rasulov district (61% of irrigated land). Although many farmers of Mastchoh and Asht reported that they have not been instructed yet to allocate a specific area for cotton production, they say that “rumors exist that instruction will come soon”. (note that the survey was conducted in late March and the cropping season had not started in Sughd). In Khatlon oblast the highest percentage of land allocation for cotton is observed in Khuroson – 4 out of 6 farmers reported that they have been instructed to allocate 90% of their irrigated land for cotton production (note as it was said above in case of real “freedom to farm”, 5 out of 6 farmers of the district would choose not to grow cotton). The situation is not much better in Qubodien, Shahrituz, Yovon, Vose, Kulob, Jilikul and Panj where the vast majority of farmers reported that they have received instructions but if “freedom to farm” was real, cotton production would be significantly reduced.

Field observations by author – June 2008

Field visits to Mastcho districts and reports from Kanibadam and Zafarabad districts (all in Sugd Oblast) show that implementation of “freedom to farm” varies from location to location. All areas share an absence of policy to effectively implement the reform. The situation in the agricultural sector is dire: In Sugd alone there are thousands of hectares of prime agricultural soil left unplanted or if planted, facing crop failures due to lack of irrigation water. Against this back drop, many district authorities started by imposing targets for cotton, but gave up in view of the situation. In Mastcho district, for example, two of the main water supply channels (canal 4, canal 5) will not receive water at all in 2008 (announced by the humutat). No cropping is possible I those areas, affecting a large number of farms. In other areas of Mastcho district cotton was established successfully but water supply is inadequate and late. Yields will be reduced.

In Zafarabad district, where 16 000 ha of irrigated cultivation rely on a central pumping system, the situation is even worse. No more than 40-50% of the crops are expected to produce a harvest

62 and yields will be severely depressed. Despite of this situation it is reported that local authorities still asked farmers to replant cotton crops which failed to emerge. This occurred as late as May 28, well beyond the planting window for cotton. In Kanibadam district, traditionally a productive area, no irrigation water was available until last week. Many crops have already suffered significant reductions of yield potential. It is not clear if water supply will be able to be maintained throughout the season.

In Sugd Oblast, approximately 76 000 ha of cotton were planted in 2008, of which as many as 20’000 ha failed to establish. Production of raw cotton may not exceed 80’000 MT (130’000 MT in 2007). Food crop production appears to be similarly affected. Even where cotton production quotas were not strictly inposed, authorities have failed to implement policies enhancing food security by advising farmers to utilize land and the little water available for food crop production. The situation In Kathlon Oblast is no better, with similar reports of water shortages and crop failures coming from various regions in the south.

The status of progress regarding implementation of “freedom to farm” is distorted as a result of the dire situation. It is not clear if the strict implementation of production quotas would have been upheld more generally, had the season been a “normal” one. However, it is clear that despite the severe situation facing farmers, there are still many instances of local authorities insisting on cotton being planted.

It is also noteworthy that there are many instances where farmers themselves are poorly equipped to embrace “freedom to farm”. Dependencies from cotton (for supply of heating and cooking fuel and cotton seed oil) and a poorly developed decision making and planning skills prevent farmers from diversifying their cropping enterprises. There is a great need for government (and donors) to conduct a concerted information campaign at district level, combined with the provision of coordinated advisory and support services (covering all needs, including agricultural extension, farm management, legal aid and advice, etc).

4. Cotton Sector Debt and Freedom to Farm and Land Reform

4.1 The Cotton Sector Debt32

In October 2006, ADB’s Technical Assistance program on Debt Resolution sets the cotton sector debt at over USD 400 million, as outlined in Table 10.

Region District USD – 000’s Region District USD – 000’s Kathlon A.Hom 21’329 Sugd Asht 6’360 Bochtar 18’437 B.Gafurov 12’588 Vachsh 19’207 H.Rasulov 9’525 Dangara 7’610 Zafarabad 17’555 Yavan 26’214 Kanibadan 5’846 Kolhozabad 20’110 Mastcho 24’350

32 Sources: ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms” / EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector” ; Lucock, D. draft paper on farm profitability and cotton debt, unpublished

63 N.Hisrav 13’030 Gonchi 2’951 Panh 11’270 Spitamen 8’328 Huroson 11’640 Total Sugd 87’503 Schahritus 11’100 Kubodyion 16’470 DRR Tursunzoda 7’472 Kumsangir 21’045 Sharinav 3’115 Chilikul 22’105 Gisar 5’114 Khuliob 4’448 Rudaki 1’700 Vose 27’290 Vahdat 1’580 Farhor 25’605 Total DRR 18’980 Hamadoni 22’058 Total Kathlon 298’970 TOTAL ALL 405’453 Table 10: Cotton Sector Debt by District Figures do not sum up due to rounding. Source ADB, TA 4664, 2007.

Cotton is Tajikistan’s premier agricultural crop, at times providing employment to half of the country’s labor force, accounting for approximately 15% of the country’s export revenue (2005) and nearly 40% of the Government’s total tax revenue. The Tajik government continues to attach strategic importance to cotton cultivation and remains a key stakeholder in the value chain. Since Tajikistan gained independence in 1991 the cotton sub-sector has experienced a dramatic productivity decline. The turmoil of civil war following independence, coupled with a difficult transition from state controlled economy to a free market system, has seen the Tajik cotton industry’s output plummet from 900 000 Mt of raw cotton during the 1980’s to low’s of around 350’000 Mt in the late 1990’s. Although productivity has since increased somewhat (440’000 Mt, 2006), average yields remain very low and below profit making levels

The amount of debt and its origin is cause for debate between donor organizations. Many disagree with ADB about the amount owed to creditors. Causal factors are also being disputed, at least with regards to their order of importance. WB argues that the accumulation of debt is a result of “producer exploitation by cotton processing and marketing monopsonies, which also control credit and input supply” 33. The authors of FAO’s “Expanding Finance in Rural Areas” (2006) state that cotton yields declined but input packages were not adjusted to lower productivity levels – exacerbated by falling world cotton prices and weather related bad harvests in some years. As a result, the gross value produced by Tajik cotton farms was below production costs, accumulating the huge debt.

Estimates of cotton farm revenues and expenses for 2000-2006, based on national yields and cotton areas grown, showed that on a national basis losses were incurred each year except 2003 Cotton farms made an annual average loss of $112 /ha, cumulating to a total loss of USD 247 million by the end of 2006. Once interest is factored in the total is USD 400 million. The analysis includes a best fit calculation, strongly correlating actual debt and calculated debt based on farm losses (R2 = 98.9), pointing clearly to farm losses being the major cause for farm debt.

Generally, seasonal finance was secured through the National Bank of Tajikistan (NBT) with the majority coming from private banks and foreign cotton trading companies. The finance was then

33 World Bank, PID 2260, 2006

64 passed to AgroInvestBank (AIB), a “credit agency” handling the monies on behalf of the sector as a whole. When AIB fell into insolvency in 2004 due to non-performing debt and an inability to attract external credit lines, much of the non-performing cotton sector debt was “transferred” to a newly created organization called Kredit Invest (KI). KI was created as a non-bank financial institution with an initial capitalization of $300,000. Since 2004, KI has acted as the main credit agency for the distribution of cotton sector financing.

The credit agency passes money to local companies (referred to as investors) who on-lend to farms or farmers. The 3 parties sign a credit agreement which sets out the main terms such as maximum lending levels, prices for inputs, area to be sown etc. The terms of these agreements suggest that the only risk bearing party is the farm or farmer, as any unpaid amounts are owed to the credit agency, with no clauses passing any payment default risk to the investor. Agreements only provide for repayment of financing in cotton, not cash. Often the agreement does not provide for any price information for inputs and no clear method for estimation of the value of outputs. While there are relatively onerous performance requirements on farms, there are either no requirements placed on the investor or KI, or where there are, they are not monitorable.

As a result of the opaque farm credit system, cotton farm debts have been accumulating since 1998 and, as of December 2006 are in excess of $400 million. Outstanding loans from creditors to Domestic Cotton Financiers (DCFs) ($500 million) have funded the credit to farmers ($390 million) and for other agricultural investments ($110 million). DCFs have borrowed from international banks ($252 million), international cotton traders ($128 million), domestic banks ($46 million), the pension fund ($600,000), and others ($74 million). Most of these loans are now due. Default of DCFs to their creditors will affect the country risk profile, since agricultural loans from external creditors will remain unpaid. Such default will also damage funding options for future country seasonal crop finance for both cotton and other crops. Money cannot come from local financial institutions alone, as the seasonal production financing requirements would absorb most of the total bank funding available domestically and provide an unacceptable level of risk to the banking system.

Lenders have not responded to the usual market signals of non-repayment by slowing down cotton lending, and there have been no efforts to consider farms’ capacity to repay on a sustainable basis. Debt has been allowed to accumulate due to three factors: (a) government interference in production and financing decisions, (b) lopsided production contracting arrangements described above, and (c) lack of enforcement of regulations.

a. Government interferes in production by setting and enforcing "production forecasts." The Government develops national and raion (district) cotton production forecasts and the rais (local governors) are held accountable for ensuring that farms meet the forecasts in their jurisdiction. To meet the production targets, the rais require farmers to cultivate cotton in at least 70% of their farmland. The rais and hakims (district governors) have significant influence over farmers because of their authority to revoke farmers’ land use certificates on the basis of the “irrational use” of agriculture land. The rais also grants monopsony rights to "investors" who provide credit to cotton growers.

b. An uncompetitive market environment in input financing encourages the use of lopsided production contracts that favor the investor to the detriment of the farmer, as previously described. Farms and farmers become "tied" to one investor. The problem is

65 further aggravated by the lack of transparency or accountability of farm managers to farm members for financial arrangements.

c. The debt problems are further exacerbated by lack of enforcement of regulations of the National Bank of Tajikistan (NBT) for KreditInvest on its cotton lending operations. Loan loss provisions are not enforced, there are inadequate mechanisms to address debt disputes, and there exists an underlying belief that the Government will deal with the debt overhang.34

The net effect of accumulating cotton farm debt on farmers has been devastating. The usual incentives to improve productivity and maximize net returns do not work because of the complex web of rent-extractive market arrangements. Many farmers produce cotton only because they are instructed to do so by local governments which have control over the farmers’ land use rights, and because cotton is the only crop for which farmers can borrow working capital.

4.2 Consequences of Cotton Sector Debt for Implementation of “Freedom to Farm”35

The objectives of reforms under Resolution 111 are strongly linked. The importance of achieving a workable debt resolution strategy to underpin and promote wider reforms cannot be over emphasized.

Work on a range of reforms has commenced in the absence of a workable debt resolution strategy, as previously mentioned, notably in reforming and drawing new legislation for land reform, reforming the finance sector and in addressing some of issues related to cotton production and classing. In other areas, notably the improvements of the taxation system for cotton production and trading (to increase the margin in the cotton value chain keeping revenue considerations in balance) little concrete action has been observed to date.

The concept of “freedom to farm”, as expressed in Resolution 111, is an effort to move away from the Soviet-style planning in the cotton sector and allow farmers the freedom to manage all aspects of their farming operation as they choose. This means that controls, explicit or implicit, over production levels, planting dates, harvest times, what gins to use, what input suppliers to patronize, and so on are removed. Freedom to farm is the overarching goal of Resolution 111.

A workable debt resolution strategy is all important to move reforms forward and this applies particularly to the reforms linked to “freedom to farm” and core policy areas of production and infrastructure reforms (such as amending relevant legislation to restrict rayon heads’ appointment authority to only those positions financed by the district budgets, removing local government interference in private sector activities and improving the contractual system governing the

34 International Monetary Fund Country Report No. 06/63, Republic of Tajikistan- Ex Post Assessment of Longer Terms Program Engagement, Washington, D.C. IMF. The Paper noted that public financial assistance through a government guarantee of the private loan provided by Rhinehart (one of the major fiber cotton importers) should have been monitored properly to ensure its transparent channeling in the budget. 35 Sources: EC, 2006,” Review of the Current Situation in Agriculture in Tajikistan”, («Support to the Development, Implementation and Evaluation of Agricultural Policy» Project, funded by European Union ) / ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms”

66 production, financing, and trade relationships between farmers and other parties in the value chain).

To date, the implementation of “freedom to farm” has been ambiguous to say the least (see section 3.2.5). Political will and leadership appear lacking, authorities have not engaged in a widespread and cohesive information campaign to promote “freedom to farm” across the districts. Knowledge about “freedom to farm” exists at farmer level. But until the government undertakes a clear and unambiguous campaign to inform the population, farmers remain in a vacuum and continue to adhere to the old ways, often motivated by the implicit attitude of local authorities.

The lack of action on “freedom to farm” reform can be partly explained by ingrained and persistent attitudes and practices in the constitutional management structure. Soviet style top- down approach of government officials lingers in dealing with citizens and with problem solving; officials are often insensitive, often meddling and often interfering in private business. Officials tend to misuse law and order institutions to enforce their will on citizens who have little hope of protection by the Courts; precedence of unwritten laws (e.g., rule of man) prevails. Officials attempt to impose and to enforce production targets - extractive policy - on a subdued population, rather than the creation of an enabling environment for enterprise, and otherwise control economic activity. Officials have no incentive to deal fairly and transparently with issues of land reform, privatization, in simplifying and otherwise facilitating licensing and permits for setting up and conducting private business. Often, their incentives directly contradict long-term public interest. However, there is little doubt that the cotton sector debt, and in particular the absence of a workable resolution strategy, remains a key obstacle for “freedom to farm”. At this time, the cotton debt is directly linked to farmers. Existing debt at the time of farm re-organization was passed on to the newly formed Dekhan farms (“Separating Balance” - There are serious questions about this “old” debt and many question its validity). Most farms continued to accumulate debt after re-organization, mostly through ill conceived seasonal cotton financing by Investors. Likewise, many government departments are owed various taxes and outstanding dues for electricity and water use.

In this context there is little incentive to liberalize the current control over farmers. The cotton value chain is tightly knit. Government and Investors alike are experienced stake holders and their reluctance to reduce their influence and power is also linked to the danger of loosing control over the debtors. As long as the status quo is maintained and farmers produce cotton to be sold to specific gins, Investors and government recoup money. In a “freedom to farm” environment, in which farmers increasingly produce alternative crops to be sold in a much more open market, the hold of Investors over the debtors would be much reduced.

4.3 Debt Resolution36

36 Sources: ADB, 2006, “Proposed Loan and Asian Development Fund Grant Republic of Tajikistan: Sustainable Cotton Subsector Project” / DFID, 2007, “THIRD PARTY ARBITRATION COURTS Project – Debt Resolution component” 2nd Annual Report 2006-2007 / ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution”.

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In March 2005, the President of Tajikistan approved the Cotton Farm Debt Resolution Strategy (CFDRS). The strategy based on a two-pronged approach: (i) resolving the immediate and urgent problem of a huge debt overhang through the facilitation of debt workouts between private lenders and private borrowers to ensure fair and equitable resolution of the debt on a farm-by- farm basis; and (ii) a medium-term policy as well as legal and institutional measures that will enable a properly functioning cotton market.

In May 2005, the IC (The Independent Commission (IC), an inter-ministerial government body established by the President of Tajikistan in to address and resolve cotton farm debt) was established. The IC developed the terms of reference, action plan, and guiding principles during an ADB-initiated, multi-donor funded retreat; and received prime ministerial assent to the final action plan in September 2005. The first priority of the action plan was to pilot test the conduct of debt analysis and the formulation of a workout strategy for debt resolution in 12 heavily indebted farms. ADB’s technical assistance (TA) on "Farm Analysis and Awareness-Raising for Debt Resolution” approached these initial tasks, in partnership with efforts under the United Kingdom’s Department for International Development (DfID) Third Party Arbitration Court project and the World Bank Lands Registration and Cadastre System for Sustainable Agriculture Project.

On 13 February 2006, ADB and World Bank officials met with the President of Tajikistan. During this meeting, ADB and the World Bank expressed the view that the rapid transformation of Tajikistan’s cotton sub-sector is possible by focusing attention and actions in five key areas: (i) Debt resolution. Cotton farm debts must be analyzed and the debt resolution plans developed on a farm-by-farm basis, and through transparent and participatory approaches based on farmers’ capacity to repay. (ii) Agricultural financing oversight. A transparent and sound regulatory framework for agricultural financing, particularly in setting the rules and monitoring and enforcing such rules, must be worked out—including alternative financing mechanisms for agriculture on a pilot scale and the implementation of the bankruptcy law. (iii) Farmers’ freedom to choose. Farmers must be able to make fundamental farm management decisions on their own, including what to produce, where and when to sell and process their produce, without interventions by the local authorities. For this, the current practice of issuing production quota or production planning and processing targets must cease. (iv) Secure land tenure. Individual farmers must be allowed to have their own land use certificates which can be used as collateral. (v) Access to markets. This must be strengthened by implementing an internationally recognized cotton classification mechanism, restructuring the pricing mechanisms and encouraging improved auction and other systems, adopting bonded warehouses, and installing other market facilitation measures.

In a subsequent meeting of ADB and World Bank officials with the President of Tajikistan in May 2006, it was agreed that the Government and the international community would jointly develop a cotton sub-sector reform “Road Map”37. The “Road Map” was developed and adopted

37 Annex 3: “Road Map for Sector Reform and Debt Resolution“

68 by the government and was ratified by the President of Tajikistan on March 5, 2007 as “Resolution 111” ("Plan of Measures for Cotton Farm Debt Resolution Strategy in the Republic of Tajikistan").

ADB’s technical assistance (TA) on "Farm Analysis and Awareness-Raising for Debt Resolution” was implemented in 2006-2007 to develop standard farm analysis and farmer awareness protocols for use by the Independent Commission (IC). The basic principle called for a farm-by-farm analysis to debt resolution, which would allow the IC to develop farm debt protocols, procedures, and policy measures to be used in a nationwide farm debt resolution and policy reform program. Soon after the start of farm reviews the consultants encountered many on-farm problems of inaccurate and lost data, data difficult to access or obtain, farms not existing in a legal form, most farms making operating losses each year, an unclear legality of original allocated debt and current seasonal debt, an inability of farmers to verify the exact amount of original debt and that it had been correctly calculated, a lack of awareness of most farmers of their debt position and their responsibility to repay debt, and excessive controls over farm management and land use exercised by local administrations. The consultants then recommended that a farm by farm approach for debt resolution would be too difficult to implement. It was also seen that low levels of farm productivity and profitability were key issues that needed to be addressed urgently. A more comprehensive review of farm debt showed the need to analyze the financial positions of domestic cotton investors (CIs), Kredit Invest and banks, and foreign creditors as well as farms. Background issues relevant to the debt resolution process:

(i) The debt held by most farms is invalid or voidable because farms were not in a correct legal form at the time of debt transfer or contract signing or the contract was signed by a person who lacked authority to sign on behalf of others;

(ii) Outstanding balances of debt include combined interest and principal: separate records for each have not been kept by many creditors. This complicates a legal claim for debt repayment as repayment of interest takes priority over repayment of principal according the Civil Code;

(iii) The validity of the rollover of past debt into new contracts is legally suspect;

(iv) SB debt (“Separating Balances” - existing debt at re-organization of Kolkhozes/Sovkhozes, rolled over to the new Dekhan farms) was not correctly established and verified at the start of farm reorganization, outstanding balances today are not accurate, and in most cases the debt would be overturned by the court. SB debt appears to be more than half of total farm debt;

(v) There is no accurate record of past payments credited to SB debt and seasonal debt, separately, concerning total amount paid and breakdown into interest and principal payments;

(vi) To enforce debt repayment on the few farms properly formed as legal entries and allowing other farms to escape debt repayment is not equitable;

69 (vii) It is likely that the amount of debt that can be recovered legally would be quite small: probably less than $50 million (most debt to banks and up to 10% of debt to investors);

(viii) Most of the legal debt that can be recovered would be recovered anyway as it is fully current under the present creditor/debtor relationship;

(ix) This would mean that more than $360 million of farm debt would not be recovered under a legal process;

(x) The debt repayment capacity of farms will be enhanced by (i) allowing farms to grow profitable crops, and (ii) improving the tax regime faced by farmers so that it is less of a burden and less regressive.

(xi) Debt owed to Government (taxes, charges for water, gas, electricity) be recovered from all farms;

(xii) The debt databases in NBT and the relevant credit institution will need to be improved for all farms (legal and non-legal) showing (a) the tax identification for each farm so that data can be shown on a per farm basis, (b) the legal form of the farm, (c) the number of shareholders on each farm, (d) correct area of irrigable land, (e) the seasonal debt balance, and (f) all payments due to GoT for taxes, utilities, and water charges as these will affect farm debt repayment capacity and the need for longer term restructuring of debt.

(xiv) Clearly, the debt recovery process requires the use of international and domestic specialists with advanced knowledge in law, finance, accounting, farm management, and agronomy.

4.4 Proposed Approaches to Debt Resolution

4.4.1 ADB Options: Suggestions from Technical Assistance Program

The Final report from TA "Farm Analysis and Awareness-Raising for Debt Resolution” suggests that there are (at least) three options for farm debt recovery. (Note: These options were not formally proposed to stakeholders and are included in this report as a contribution to the discussion).

Option One

Steps: (i) All SB debt be forgiven. The debt originated from government farms, was never transferred properly and creditors were not allowed to exercise due process to recover debt before the original farms were subdivided and parceled off. The GoT needs to bear responsibility. It will be extremely difficult to determine the SB for each farm;

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(ii) Legally recoverable debt be pursued. This will require (a) that farms are quickly identified as to whether they are legal entities or physical persons, (b) verification is made that all shareholders signed the loan agreement(s), (c) that farms have the capacity to repay the loan, and, possibly, (d) a restructuring of the debt to a longer term to allow time for readjustment.

(iii) Where the farm is unable to fully repay the debt the options are (a) for a process of bankruptcy to be followed, or (b) for the creditor and debtor to reach an agreement on the amount that cannot be repaid and for both parties to sign a cancellation of debt as outlined in Article 447 of the Civil Code.

Supports: (i) Land Use Rights will need to be checked to verify that all shareholders appear on the LUR and that they have all been identified and that all signed the loan contract(s) or provided proxies for a nominee to sign in their absence.

(ii) Assistance will be needed to assess farmer capacity to repay as this may require a switch to a balanced cropping rotation and the growing of more profitable crops.

Option Two

This is to pursue debt where it is legally recoverable. But acknowledge that this alone will recover only a small amount of debt. Then provide three courses of action for all other farms: (a) to accept their debt even though it is legally voidable and enter into an agreement with the creditor or assignee to repay the debt following guidelines set out in option one above, or (b) Government to impose a levy on all non-legal farms so that they make a payment equivalent to a debt figure, or (c) to request that their land be taken back by GoT and reassigned to other farmers who would accept either (a) or (b) outlined in this section.

A concern is that this option would require GoT to issue a decree covering debt recovery from non-legal farms. It would be an admission by GoT that it has allowed non-legal entities to exist.

Option Three

This option is seen as being more equitable across all farms and legally and administratively easier to implement than the previous two options.

(i) All SB debt would be forgiven as with the other options;

(ii) All remaining debt due to creditors would be listed (inventoried) with an outstanding balance shown for each farm;

(iv) An agency would take over the debt through negotiations with creditors so as to agree on an amount of settlement;

(iv) All farm debt owed to the creditors would be cancelled using Article 447 of the Civil Code;

71 (v) All farmers would be levied an Agriculture Sector Reconstruction payment set at (for example) $750 per ha38. The actual levy would average $750 per ha but be related to cotton yields that can be achieved on the different lands plus an adjustment for distance from a main center. This assessment would need to be set by a small valuation working group comprising an Agroprom official, a creditor and a professional debt negotiator. The assessment could be computerized easily;

(vi) Farms could apply for a levy rebate that would be calculated as the amount of their earlier debt less $750. For example, a farm with a debt (legal or non-legal) of $300 would pay a levy of $300 ($300 minus $750 = rebate of $450). If a farmer did not wish to acknowledge past non-legal debt, then he/she would not be eligible for a rebate;

(vii) Farmers could pay the levy immediately or pay it off over a period of 30 years at an interest rate that is indexed to real value;

(viii) Payments received by the agency would be passed on to the creditors;

(ix) The agency would need to issue interest-bearing notes to be held by creditors as assets while they are waiting for full repayment of their debt.

Debt recovery under the various options: Under option one the amount of debt that would be recovered is estimated to be in the range of $50-$80 million and most of this would be recovered anyway in the normal course of business. There would be legal expenses to be offset against debt recovery. Under options two and three the amount of recovery would be much greater. The height of the ceiling will affect the amount of debt that would be recovered from farmers. For example, with an assumption that all irrigated land be levied, a ceiling of $750 per ha would result in 61% of farmers paying an average of $260 per ha and 39% an average $750 per ha: a total of $190 million would be recovered. If the ceiling were set at $500 per ha, 52% of farms would pay an average $168 per ha and 48% would pay $500 per ha: a total of $138 million. A ceiling of $300 per ha would raise $93 million.39

4.4.2 ADB Option: Debt Restructuring In latter 2007 ADB developed a further proposal which was presented to the government and donors. In a first phase, all loans not covered by realizable security and held by borrowers with no realistic outlook for repayment are to be declared impaired (non performing asset) and written down to the amount which could be expected to be retrieved. This would be carried out in line with international standards of accounting. For most loans (an estimated 85-90% of all loans are not properly secured) this would result in a total write-off, to be booked as a loss in the income statements of the lender (Investors). If

38 The levy amount would be calculated based on data in the list showing outstanding balances for each farm after the deduction of SB. The calculation would take into account debt forgiveness expected from creditors. 39 These numbers are based on the NBT database that shows debt per contract not per farm and the same farm can appear more than once in the database. The calculated amounts are only indicative. An improvement to the database to show debt per farm will change these numbers.

72 applied across all impaired debt, most lenders would become insolvent40 and in turn, this would lead to similar write downs at the level of their creditors (in this case Kredit Invest). The net result would be a total write off of approximately 90% of the debt at farmer level, creating the conditions for effective implementation of Resolution 111, including the re- organization of farms into legal entities. Cotton Investors, as a key element of the value chain, would be preserved under strict conditions (registration, accountability, minimum capitalization, clear and legal contractual arrangements with farmers) Kredit Invest, as the main vehicle to channel external working capital into the industry, would be restructured into a new state owned institution with explicit government guarantees. Foreign creditors: When restructuring debt, the existing obligation is written down in value in accordance to legal and accounting requirements. Thereafter the business is recapitalized by raising fresh funds. Existing debt-holders bear the cost of the write-down. Shareholders (Creditors) usually see the value of their holdings reduced to zero. In the case of Tajikistan’s cotton debt, there is evidence the Tajik Government issued guarantees (implicitly and explicitly) for a greater part of the debt owed to external lenders. Of course, these guarantees must be honored, else it would signal a debt default at national level, undoubtedly leading to a deep financial and economic crisis. This debt resolution approach puts the remaining value of adequately secured debt squarely onto the guarantor, notably the government41. But at the same time allows for a complete and quick restructure of the industry across the entire value chain. Government response to the proposal was encouraging but donor disagreement delayed forward action. In December 2007, the IMF probe into NBT ended all hopes for rapid progress. In early 2008, ADB officially informed the government of its decision to withdraw from direct involvement in debt resolution (but is still considering supporting sector reforms under Resolution 111), handing the leading role to the World Bank instead.

4.4.3 DFID Option: Third Party Arbitration and Court of Law At the end of 2004, a Farm Debt Resolution Component (FDR) was included into the DFID Third Party Arbitration Courts Project in Tajikistan – Phase I. The Project Consultants established close contacts with officials representing the Tajik Government; selected three pilot farms; analyzed the financial situation of the agricultural sector in Tajikistan in general and of the

40 After deduction of total liabilities of USD 659.2 million, the net worth of 59 Investors analyzed was 23.6 million (ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution”) 41 The Resolution Plan will be designed on the following principles: (i) resolution does not mean outright debt absorption by the Government; specifically, all negotiations on restructuring shall be carried out in good faith by the Government without any preconceived notions that the debt will be absorbed by the Government; (ii) full, complete and transparent verification of the legality of the explicit and implicit guarantees extended by NBT and/or Government, so that any debt absorption by the Government shall have a sound legal basis; (iii) full, complete and transparent verification of the legality of the private debt contracts, and the enforceability of such contracts, so that any debt burden can be assumed appropriately to the relevant private parties; and (iv) repayment capacity of the parties involved in the private or international transactions shall be a key criterion. (ADB, 2007, Policy Matrix for the Cotton Sector Restructuring Program)

73 three pilot farms in particular; identified the reasons for debt accumulation; developed mechanisms for debt reduction and estimated the feasibility of debt repayment by the pilot farms. Among the new reasons for debt accumulation the Project Consultants identified high transaction costs associated with servicing debts and incomplete institutional reforms.

The main purpose of the FDR component is the development of farm debt resolution mechanisms and the application of third party arbitration mechanisms to protect dehkan farmers’ rights in the process of farm debt resolution. At the same time specific objectives that the Project has been trying to achieve have been modified and are adjusted on an on-going basis to take account of the changing legal, economic and political environment, i.e. changes in Tajik legislation, the focus of efforts of other international donors, the readiness of debtors and creditors to take steps towards debt resolution, on-going division of farms and the accumulation or reduction of debt following the application of third party arbitration procedures, including mediation. Since no state debt restructuring program is in place the Project Consultants have been testing the possibility to reduce the debt burden using third party mediation.

Third Party Arbitration: Debt Resolution (DFID – TPAC-FDR) Parties: collectively-owned dekhan farm named after Kh. Kambarov and closed joint stock company ‘Pakhtai Khatlon’ Location of the dekhan farm: Kabodiyon district Creation of the dekhan farm: The collectively-owned dekhan farm named after Kambarov was formally created during the period from 05.02. to 08.08.2005 following the reorganization of the collectively-owned farm ‘Ok-Oltyn’. Debt history: The collectively-owned farm ‘Ok-Oltyn’ had borrowed from Tajikglavkhlopkoprom in 1998. The debt was then transferred to its legal successor, closed joint stock company ‘Pakhtai Khatlon’. The debt consisted of the principal debt and interest. ‘Pakhtai Khatlon’ continued to charge interest on the debt. As of 20 April 2005, the dekhan farm had a debt of USD809,312, including principal – USD470,832.00 and interest – USD338,480.00. Debt transfer to the dekhan farm: The debt was transferred in accordance with a three-lateral agreement on debt transfer, the parties to which were the dekhan farm, closed JSC ‘Pakhtai Khatlon’ and CreditInvest, and against a verification act. Grounds for reference to the court: The dekhan farm is not a legal successor of the collectively owned farm ‘Ok-Oltyn’ as legal

succession is only possible between legal entities. A dekhan farm is not a legal entity.

74 A debt transfer is effected according to a separation balance sheet and an act of transfer. A dekhan farm, not being a legal entity, cannot be party to a separation balance sheet. When the debt owed to Tajikglavkhlopkoprom was passed on to the closed JSC ‘Pakhtai Khatlon’ only the principal debt could be transferred as the interest is not the subject of transfer, according to the debt transfer procedure. The debt owed by ‘Ok-Oltyn’ could be passed on to its legal successor – a legal entity – only in respect of the principal debt and not in respect of interest. Subject matter of the claim: declare the debt transfer invalid Ways to settle the dispute: Examining the dispute in a third party arbitration court Examining the dispute in a court of law Chosen way to settle the dispute – third party arbitration Outcome – the dispute has been settled in part. The interest in the amount of USD 388,480 have been written off. Further action: reference to the economic court to get the debt written off in full

Case Study: Debt resolution through third party arbitration court

In spite of the obvious success in debt resolution through third party arbitration the scope of application of such mechanisms is limited. The limiting factors include: (i) Lack of arbitrators with relevant qualification sufficient to examine disputes over debts worth hundreds of millions of dollars. Such arbitrators, on the one hand, should be knowledgeable in accounting and law while, on the other hand, they should command respect of the companies which monthly operating capital amounts to millions of dollars. There are very few such arbitrators in Tajikistan. (ii) Reluctance of dehkan farms to take part in third party arbitration proceedings because such proceedings, as a rule, result in writing off of part of the debt whereas a court of law may rule in favor of writing off the debt in full. Mechanisms for protecting dehkan farmers’ rights have also been tested and refined by LAC in the course of court of law proceedings that considered disputes between farms and investors.

Court Case: (supported by USAID Land Reform and Market Developmet Project)

Parties: Dekhan farm ‘Oikul’ and closed joint stock company ‘Olimi Karimzod’

Location of the Dekhan farm: Zafarabad district

Creation of the dekhan farm: Dekhan farm ‘Oikul’ was created on 10 March 2006 at the general meeting of the shareholders as a result of the reorganization of the agricultural production co- operative named after R.Khojiev of Zafarabad district.

75

Debt history:

The debt in the amount of USD8,494.21 owed by the agricultural production co-operative named after R.Khojiev to the closed joint stock company ‘Olimi Karimzod-M’ was transferred to the dekhan farm ‘Oikul’ according to the minutes of the three-lateral agreement of 1 January 2005. The verification act of 1 January 2007 showed the dekhan farm’s debt to the Claimant in the amount USD9,589.06, of which USD8,494.21 were owed by the agricultural production co- operative named after R.Khojiev. Procedure for debt transfer to the dekhan farm: Three-lateral agreement Grounds for reference to the court: The debt owed by the agricultural production co-operative named after R.Khojiev has been transferred to an entity that in legal terms does not exist.

The founding documents of the dekhan farm ‘Oikul’ confirm that the farm was created at the

general meeting of the shareholders on 10 March 2006, following the decision of the head of Zafarabad district №101 of 20 March 2006. The creation of the dekhan farm was legally confirmed by the certificate issued by the Land Surveying Committee of the Republic of Tajikistan Number А №0130205 of 20 May 2006.

The above proves that on 1 January 2005 when the debt of the agricultural production co- operative named after R.Khojiev to the closed joint stock company ‘Olimi Karimzod- M’ was transferred to the dekhan farm ‘Oikul’ there was no such a dekhan farm of this name in legal terms and therefore no debts could be transferred to this entity.

Subject matter of the claim: declare the debt transfer invalid

Ways to settle the dispute: Examine the dispute in a third party arbitration court Examine the dispute in a court of law Chosen way to settle the dispute: court of law

Case Study -Debt resolution in court of law

The above precedent is of great importance as a vast majority of contracts between cotton producers and cotton exporters in the Republic of Tajikistan are contracts on joint cotton production. Now that the court has accepted this approach it can be extended to other contracts which should result in re-distribution of profits and losses proportionally to the contributions made by each party to the contract. In other words, all the debts (a total of $402 million) could be shared between dehkan farms and their investors and not just transferred in full to the dehkan farms as is the current practice. Court proceedings may result in writing off of a larger part of the debt than state debt restructuring programs provide for. The fact that there have been no mass references to court is explained by high litigation fees (0.7 % of the total value of the claim). The Project Consultants have developed an approach that helps to remove this barrier (claim is formulated as a non- property claim attracting a flat litigation fee). As the Project has demonstrated there is a huge potential for having debts written off in courts of law due to the following legal loopholes:

76 (i) Missed limitation periods (particularly for farms that had separated from their mother farms three and more years prior to the moment when they were offered to assume the debt accumulated before and after their separation by the mother farm or its legal successor) – court case of dehkan farm ‘Istiklol’ against company ‘Tamer’; (ii) Incorrect transfer of debt – court case of dehkan farm ‘Istiklol’ against company ‘Tamer’ (despite the unwillingness of the investors to co-operate with the Project, the Project by defending the case in court encourages them to apply correct debt transfer procedures which reduces the possibilities for this debt to be restructured by the decision of a court of law); (iii) Incorrect charging of interest. The mistakes include charging interest by persons who had no legal right to do so, or charging interest on the interest, or charging interest on a debtor that demonstrates all the features of insolvency; (iv) No written documents to confirm the debt. For most pilot farms creditors can only produce verification acts starting from 2002 to support their case in court. This makes it possible to challenge the very amount of the declared debt. (v) The precedent established by Chemonics lawyers that allows regarding contracts of joint cotton production as contracts of joint activities. In line with this precedent, all the debts accumulated under such contracts (since 2002) can be shared between investors and farms. Since, according to investors, their contribution to cotton production is far more significant, then the share of losses they will have to share will also be larger. The experience of the pilot farms demonstrates that this type of contracts (contracts of joint cotton production) is prevailing. Nonetheless, the scope of application of in court proceedings to reduce the farm debt is limited for the following reasons: (i) It is not clear whether the courts will have enough courage to refuse to take into account the provisions of the President’s Decree that stipulate allocation of debts to dehkan farms proportionally to their land size. Although these provisions have substantial drawbacks the regional economic courts reject claims filed by dehkan farms without looking into the subject matter of the dispute by making reference to the above provisions. Higher level courts (where most judges/arbitrators are better qualified) refuse to examine such cases on their merit dismissing the case for formal reasons. (ii) Hesitation/unwillingness of arbitrators to rule against a strong business, fear to establish a precedent in dehkan farmer’s favor (the lawsuits with regard to the case of the dehkan farm named after Kambarov against ‘Pakhtai Khatlon’ keep on being rejected for formal reasons. An arbitrator of the regional court of law admitted, “Let them, up there [higher authorities], decide first and then we will make our decisions accordingly.”).

4.4.4 World Bank Option (WB)

WB has been involved in the cotton sector debt problem since 2002, working on programs alongside ADB and others. The WB endorsed an approach to debt resolution based on:

(i) “Farm by Farm” analysis to determine origin of the debt, validate debt and establish farm capacity for repayment

77 (ii) Debt resolution procedures and policy measures for debt resolution (iii) Public information and support for sector reform agenda (“Cotton Sector Recovery” project). The approach foresaw the establishment of a “Debt Resolution Agency” (DRA), comprising representation of stake holder Ministries, NBT and President’s Office to implement the program.

ADB initially supported the same approach but found the “Farm by Farm” methodology to be unworkable, thus presented a significantly different approach to resolving the debt (see above). ADB’s formal withdrawal from the debt resolution process in early 2008 puts WB at the helm of donor input towards agreeing on a workable approach to resolving the problem. WB agrees that the proposed approach via a DRA may need reworking. Focus is on promoting mediation between stake holders. Validation of the origin and legality of the debt remains a pre condition. The establishment of a “Special Vehicle Fund” to recover debt, based on a “levy per irrigated ha” payable by farmers over a number of years, may be one approach of interest to WB.

There does not appear to exist a concise WB debt resolution proposal at the current time, nor is there any evidence of progress being made towards agreeing on one of the currently available proposals. WB is “on hold” pending completion of IMF’s audit of NBT (amongst other irregularities, NBT has issued extra legal guarantees to foreign lenders using the countries foreign exchange reserves), a process likely to take several months. Depending on outcomes, IMF’s findings will nevertheless not be an automatic “green light” to move forward, but may be the basis for revisiting proposals for debt resolution. WB is waiting for the Tajik government to become more forthcoming in the decision making process, in order to create more clarity on an agreeable way forward.

WB has a program in support of Resolution 111 sector reforms, notably the “Cotton Recovery Project” which aims at supporting production/processing elements in the value chain. Currently under preparation is the project “Tajik Cotton Export Financing”, which aims at supporting the establishment of trade finance mechanisms in the cotton sub sector. The project is in its initial preparation phase and remains to be fully appraised and is still subject to approval by the WB board.

4.4.5 National Bank of Tajikistan Option (NBT)

The NBT, in response to lack of agreement between donors, drafted a debt resolution approach of their own in early 2008 (“On debt resolution of cotton sector and finance improvement of agriculture producers in the Republic of Tajikistan”)42.

1. Ministry of Finance, the State Committee on Investment and Management of State Property to resolve debt and to reach arrangements to secure grants and credits from donors and international financial institutions. 2. The Ministry of Economic Development and Trade is to tender for and appoint a professional company to address concrete questions of debt resolution and to restructure debt of farms and manage a general debt restructuring. Subject to negotiations with international creditors, recommend to NBT and Tajik commercial banks to stop charging

42 Annex 5: “On debt resolution of cotton sector and finance improvement of agriculture producers in the Republic of Tajikistan” –.Russian and rough English translation

78 of interest on old debt and restructure all existing old debt as at January 1, 2008 (minus proceeds of yet unrealized sales of cotton products at that date). 3. Investors (regardless of their form of entity during the previous three months prior to the adjustment date of January 2008) to provide a list of debtors where debt has been restructured according to arrangements made under point 2., separating principal and interest, and submit as confirmed true and correct by farmer debtors. 4. To fix a grace period of three years regarding the repayment of the restructured debt 5. To fix an annual payment (levy) of USD 50/ha of (irrigated?) land starting from 2011, until all debt is paid. Ministry of Finance to create a “Special Fund” for the collection of levy and to repay external and interior creditors. 6. The Ministry of Energy and Industry, Ministry of Melioration and Water Resources , JSC “Barki Tochik”, SUE “Tajikgas”, Tax Committee and Customs service under the Government to restructure existing debt with farmers and Investors and present debt balances, confirmed as true and correct by debtors. 7. Other items in the proposal: Local Government to stop interfering in agricultural activities (planning, production, processing and marketing), “freedom to farm” for farmers and development of a competitive environment, to review VAT for gins, to promote favorable production environment for farmers, develop farm business management. 8. That all ministries and agencies accept the necessary steps to speed up reforms according to Resolution 111.

The proposal includes elements from other existing proposals (ADB, WB). It is presented as a short document lacking detail on practical aspects. It seeks to resolve debt based on mediation at all levels (including a “farm by farm” approach, rather than a straight forward commercial restructuring process (as in the ADB proposal)). This is likely to require much time and will stall if agreements cannot be reached. Negotiating debt restructuring with international creditors seems to aim at reducing the (critical) exposure of existing government guarantees, by repaying debt via the “Special fund” (farm levy). It is questionable if foreign creditors will agree to such an approach or if they will have the necessary patience.

“Restructuring” of debt at farm level is assigned to Investors, potentially creating transparency issues. Many farmers do not have the capacity to understand the processes and may be vulnerable to unfair outcomes. The raising of a flat “levy” may create issues for farmers who have repaid their debt (10-15% of farms are debt free). A system containing a “levy rebate scheme” (as per options listed at the beginning of this chapter) may help overcome this.

At this time it appears there has been little engagement between donors and between the various ministries on this proposal although the Deputy Prime Minister formally requested the creation of a joint DCC-GoT Working Group on Debt Resolution in a letter dated 11 June.2008. AT the time of this report compilation, the DCC was working on a response to this request..

4.5 Outlook for a Fair and Timely Resolution of the Debt Overhang43

The cotton sector debt has reached proportions calling for urgent action to resolve or at the least stabilized it. The status quo or a worsening of the situation could eventually force Kredit Invest

43 Sources: ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution”

79 into default, with potentially devastating implications. External capital flows for the future financing needs of the Tajik economy would most probably suffer across all sectors, possibly triggering a significant economic crisis.

Despite of this, at the time of writing, the outlook for a timely solution of the problems is bleak:

(i) There is no indication that donors and government are close to agreeing on a methodology for debt resolution.

(ii) There is no evidence of close coordination seeking solutions to the debt resolution impasse between donors, government and other stake holders.

(iii) The relationship between the World Bank and ADB is acrimonious on the issue of debt resolution approaches. ADB has retreated from a leading role in the process. This situation further hampers the chances for speedy progress.

(iv) The government has to date not led the process by unequivocally adopting one of the debt resolution approaches proposed. Nor has there been clear and coordinated approach to implementing reforms, especially relating to “freedom to farm”.

(v) Debt resolution through arbitration or courts of law is currently the only action to address the problem. Arguably a valid approach, it is unrealistic to expect from it a “quick fix” solution, due to capacity constraints, the length of the process and the sheer number of individual farmer clients. This approach also neglects to address the risk of the external debt profile as it resolves the debt at one level only (the debt at farm level is usually declared invalid. On a national scale the debt needs to be re-structured in an orderly process so as to address all levels, including external obligations).

(vi) The debt is likely to increase further in 2008. Despite the changes to the financing mechanism for cotton production (loans to be channelled through the bank sector), direct financing through Investors still occurs. Banks also have issued loans to a value of at least Somoni 130 million. Experience of banks in agricultural seasonal financing is very weak and farmer client credit assessment was done hastily. This occurred against a backdrop of widespread problems with crop establishment due to seasonal conditions and lack of irrigation capacity. It must be expected that the banks will face many bad loans, thus becoming an additional factor in the debt quagmire.

Outlook for a “fair” resolution:

(i) The determination of “fair” varies between stakeholders.

(ii) All stakeholders of the value chain (farmers, Investors, government) bear some responsibility: Farmers: Have limited farm management skills and lack financial discipline. Some farm managers have entered into loan agreements of their own accord, did not disclose existing liabilities or failed to honour the loan. Farmers reportedly divert inputs to other crops. Farm managers at times treat shareholders as nothing more than cheap labor. Farm income or money from loans is at times used for personal goals of farm

80 leaders. On the other hand, farmers have been deprived of their rights, forced into cotton production and suffered from restrictive marketing arrangements. Investors: Have applied extra legal contractual arrangements to farmer clients, biased to their own interests. Producer price, the final amount of fiber cotton (gin turn out) and quality discounts applied to the cotton delivered lacked transparency and were in favour of the Investors. Investors in some instances supplied production inputs late, at inflated prices or of inferior quality. On the other hand, Investor gin owners suffered long delays in processing cotton (due to the chronic power shortages during the ginning season). Investors often complained about being coerced by rayon authorities into financing clients they knew were not viable. Some Investors have a genuine interest in the industry’s long term sustainability, investing into infrastructure, machinery or processing plants (Thus showing a readiness to take on risks) Government: Has benefited from vast tax income from cotton production. Production quotas have been set by the central government and strictly imposed by regional authorities. Non-compliance was not tolerated. This led to 60-80% of Tajikistan’s best agricultural land being planted to a mono-culture regime of cotton. This practice, exacerbated by a shortfall of capacity, inputs and know how at Dekhan farm level produced loss making yields, year after year.

(iii) Separating balances (the portion of existing debt allocated to the new farms) at the time of farm re-organization from kolkhozes/sovkhozes to Dekhan farms has not been transparent and equitable. Records and documents to verify the legality of the SB are generally not available. Working capital debt accumulated after re-organization is also extra-legal, as both Dekhan farms and Investors are not permitted to take on or issue loans under the law.

(iv) Should a farm that has correctly formed itself in to a legal entity and properly signed loan agreements be responsible for debt repayment whereas a farm that is not a legal entity and has entered in to debt agreements irresponsibly walks away from the debt. While the answer to the first part of the question is clearly yes, it does raise an issue of equitable treatment of all debtors.

(v) The cotton industry full fills an important role in Tajikistan’s socio-economic environment. It generates taxes for the government, export revenue for the country, work and food (oil) for the rural population, heating material for rural households (cotton sticks are the sole combustible for many rural house holds), cash income for producers. The produce is non perishable and has a ready market at all times. To exist, the industry depends on a functioning value chain. In this context, a fair debt resolution process must permit all stake holders to remain in the value chain, albeit in a reformed, transparent and efficacious manner.

81 4.6 Impact on Farmers44

4.6.1 Farm Management and Debt

At all levels of ownership and management, farmers have been prevented from acting in a proper entrepreneurial manner. Managers are required by hukumats to agree to land use as laid down by the hukumat and are called into the hukumat’s office on a regular basis to report on their farming activities. The concentration of authority in the hands of hukumats and farm managers facilitates top down management controls over land use and farm management and dissuades dissenting opinions. By being forced by local government to grow cotton on unsuitable land and where irrigation services are deficient, farmers are incurring financial losses. Farm workers are either unaware that they are actually common shareholders of land use rights (LURs) or lack sufficient information of their rights, duties and responsibilities as common or share owners. They are regarded by most farm managers and by local government officials as farm workers required to follow their instructions.

The subdivision of large farms into smaller farming units did not involve any change in the management structure: workers continued to be workers under the control of managers imposed on them by local authorities. Consequently workers were unaware of their ownership of LURs and their rights and responsibilities to participate in farm management decisions. This established the environment under which decisions could be made by farm managers, or imposed on farms by hukumats, that were not in the best interests of farm shareholders themselves. Farm workers as laborers pressed officials for wages and these were paid out of loans made to the farms for cotton production. Workers were not concerned that there was insufficient farm revenue available to pay these salaries. Had they seen themselves as co-owners, as they were, their demand would have been for farm profitability not farm wages. Less cotton would have been grown and more profitable crops would have replaced cotton.

These problems of perception were caused by the low level of education and semi-literacy of many shareholders, especially women. They had no understanding of the land reform process and their new rights and no one in authority was interested in informing them of these rights and providing protection for them. This situation was exacerbated by the movement of almost half of male shareholders to other countries to seek employment and income and, as a result, the loss of many capable farm managers.

Despite of Resolution 111, this situation remains widespread. As noted previously, the impasse on debt resolution, combined with ingrained and persistent attitudes and practices associated with political and institutional management structures are key obstacles to change.

Physical inspections of cotton crops in the major cotton areas (2005, 2006, 2007 ) clearly pointed to current practices as being the key reason for causing farm losses, a major contributor to the ongoing accumulation of debt. Observations indicated that as much as 30% of the total crop in the major cotton growing districts were likely to produce significant losses in 2007, enough to threaten the profitability of the entire cotton sub sector and likely to add substantially to the already high cotton sector debt. As noted in other areas of this report, field observations show

44 Sources: ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution” / EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector”

82 that the situation in 2008 has not improved and is even worsening. This year, ongoing bad practices combine with a dire seasonal cropping environment, threatening a large portion of this year’s agricultural output.

An unprofitable cotton sub-sector is inextricably linked to poverty. While recent growth rates have resulted in the reduction of poverty incidence, the proportion of poor rural households remains highest in Sughd and Khatlon. About 65% of the total population lives in these two oblasts (regions). The probability of being poor is higher in these two cotton-growing areas than in the other regions. Cotton farm workers constitute the bulk of the rural labor force and the rural poor. More than 75% of the estimated 400,000 farm workers in the sub-sector are women. Minors and employees of government office and private-run organizations are also employed, especially during harvesting season. Enhancing cotton farm profitability is thus a priority agenda for alleviating rural income poverty and child labor in Tajikistan.

At the recent “Joint WFP/FAO/UNICEF/GOVERNMENT Food Security, Livelihoods, agriculture and Nutrition Assessment” survey (May 2008) presentation, it was stated that farm income from farm production is now inferior to income from remittances received from emigrated family members. The debt overhang, especially debt originating from “Separating Balances” (debt passed on at the moment of farm re-organization) is a major disincentive for farmers to continue working the land. The poor outlook for subsistence from farming, let alone profitability and wealth creation, is driving increasing numbers of farmers from the villages, mostly to seek laboring work outside Tajikistan.

ADB’s TA “Farm analysis and awareness raising for debt resolution” (2007) found that in the pilot farms half of male and one third of female LUR holders are absent. Widespread rural poverty is the major cause of this as men travel to Russia to seek work and income and many women work off-farm. The other causes of worker absenteeism are marriage of women leading to them moving off-farm, childbirth, illness, physical disabilities and deaths.

The lack of security of land tenure is also a major cause of farm absenteeism. The authority originally given by the Land Code to Hukumats for the withdrawal of land use rights for a reason such as irrational use of land and the lack of definition for irrational use as well as clearly defined reasons for, and procedures of, expropriation make farmers feel insecure in their LUR holdings. Even though the 2008 Amendments to the Lane Code eliminated the ‘irrational use’ provision, the subsequent Law on Land Management reinforces the right of the local government to stay involved in farm management decisions. (see Section 2.3 for analysis of legislation)

4.6.2 Migration45

There are different estimates of both the number of Tajik labor migrants working abroad and remittances they send to Tajikistan. Majority of Tajik labor migrants work in the Russian

45 Sources: ADB, 2007,“A Study on International Migrants’ Remittances in Central Asia and South Caucasus - Country Report on Remittances of International Migrants an d the Financial Sector in Tajikistan” (Draft) / WB, 2006, Tajikistan Policy Note -Poverty Reduction and Economic Management Unit Europe and Central Asia “Enhancing the Development Impact of Remittances”

83 Federation. Official statistics seem to underestimate the actual number of labor migrants, but Tajik authorities acknowledge that about 400,000 of the country’s labor migrants are in the Russian Federation. Russian estimations are significantly higher, exceeding 1.5 million. According to the International Organization for Migration (IOM), more than 632,000 Tajiks had left their homeland and are working abroad. A recent setting of quotas for labor migrants has been negotiated by Tajik authorities; from a restriction of only 400,000, this was raised to 800,000 Tajik labor migrants. It can then be concluded that the government acknowledges that up to 800,000 Tajiks work in the Russian Federation.

Who are the migrants? A migration survey conducted in May 2005, shows that the average migrant is a male ethnic Tajik, with an average age of 34 years, married and with 5 dependents. The majority of migrants have secondary education or vocational training. Most are unemployed or grapple with a low wage level that is insufficient to meet basic household needs. They travel alone and mainly head for Russia for an average of 14 months and then return to Tajikistan.

Remittance inflows to Tajikistan demonstrated very fast, exponential growth in 2002 –2006. This dynamics has been mainly driven by inflow of remittances through formal channels. Until October 2002, there was a tax on incoming remittances in Tajikistan equal to 30%. Therefore, remittance senders favored unofficial transfers of money which were not tracked by surveys or by other means. After the abolition of this tax, a significant increase in inflows of remittances through official channels occurred. In 2003, the annual volume of remittances coming in through banks and MTOs to Tajikistan was equal to $253.6 million, in 2004 – $433.5 million, in 2005 – $664.0 million, and in 2006 – $1,120.1 million.

Not only the amount of remittance inflows but also their ratio to GDP has increased considerably, as shown in Figure 6. Specifically, the ratio of remittance inflows to GDP, at the market exchange rate, rose from 6.4% in 2002 to 20.1% in 2005. The ratio of remittance inflows to GDP in 2006 is preliminarily estimated at 39.1% of GDP. Although this increase, to a certain extent, can be explained by improvements in the quality and coverage of data, the magnitude of these flows is evident.

Figure 6: Gross Inflows of Remittances to Tajikistan, 2001–2006

GDP = gross domestic product, NBT = National Bank of Tajikistan, US = United States, $ = dollar. Sources: NBT and estimates of the author.

84

Remittance inflows have become the second largest source of foreign currency for the country after exports of goods. In 2002 –2006, remittances receipts grew much faster than exports of goods and services, FDIs, and ODA. The ratio of remittances to GDP (at market exchange rate) has also been growing. In 2002, it was at 6.4%, 2003 – 9.4%, 2004 – 12.2%, 2005 – 20.1%, and in 2006 inflow of workers’ remittances was preliminarily estimated at 39.1% of GDP. Importance of remittances relative to other sources of foreign exchange inflows shows their position in BOPs and the economy in general. In the table below, the proportion of remittances in comparison with other sources of foreign income in Tajikistan is given. As it can be observed from the figures, there is a tendency for an increase of remittances’ share in the overall foreign currency inflow in Tajikistan, which amounted to 31.84% in 2006.

Table 11: Tajikistan: Major Sources of Foreign Exchange, 2002–2006 (in 000’s USD)

FDI = foreign direct investment, NBT = National Bank of Tajikistan, ODA = official development assistance , US = United States, $ = US dollar Sources: NBT, Department Balance of Payments .

Remittances to Tajikistan are highly significant as they have become a source of income for many low income families to meet basic needs and thereby help reduce poverty. They are clearly welfare enhancing for households who benefit from these flows. The survey of Tajik migrants suggests that the financial situation of Tajik migrants and their families improve after migration. Their income overseas i s ten times what they earned in Tajikistan before migration (US$274 per month compared with a pre-migration income of US$30 per month), of which about 48 percent i s remitted to Tajikistan. Remittance recipients earmark funds for consumption, home repair, education and health, and savings. ’ Consequently, they have contributed to short-term economic growth and poverty alleviation through increased domestic demand that leads to increased employment, income and output. At present, their contribution to longer term growth through investments in productive activities i s limited by the low level of migrants’ income and an unfavorable business environment that constrains the development of small and medium enterprises (SMEs). However, their contribution to funding the education and health needs of families i s arguably a contribution to investment in human capital that can yield benefits both in the near- and medium-term.

Remittances to rural families contribute significantly to poverty alleviation. Farmers also increasingly derive part of the working capital needs for cropping operations from remittances.

85 4.6.3 Effect of Migration on Farming Families46

4.5.2.1 Absentee Land Use Right Holders The absence of many farm members has meant that (i) there has been a decline in the management and technical skills on farms, (ii) remaining farm members and their families are either older people or are children who lack physical capacity as well as farming knowledge, (iii) teenage girls have been forced to drop out of school so as to work on farm, and as a result (iv) farm productivity has declined.

Because of their cultural background, remaining members have not asked that absentee members transfer their Land Use Rights to them but this idea has been voiced at farm meetings attended by the consultants. Remaining members question why they should carry out all the work when they receive so little income in return. Another concern is that absentee members will accumulate financial wealth relatively greater than that of remaining members. This financial disparity will cause social and financial changes in the relationships among farm members.

1. Gender Issues Because many members had left the farm, mainly to seek more income elsewhere, the bulk of farm tasks have been left to women and in particular young teenage girls. Consequently many girls are not attending school on a full time basis and many do not attend school at all. Many girls cease schooling beyond the ninth grade and many girls were seen who had ceased going to school after grade four so as to work in the cotton fields. In a farm workshop in Vose district most of the participants were girls and women aged from 12 to 25 years. Of this group, more than 50 % were not able to read and write their names and many did not understand the meaning of a signature.

Many women and girls work off their farm to gain income. They are often itinerant labourers working on different farms. In Sughd, near the Uzbek border, there are labour centres where women gather early morning to wait for potential employers who take the women by trucks to the field and back in the evening. These women work 10-12 hours each day and receive TJS5 - TJS8. The employer assumes transportation costs and provides a meal. For poor households this provides an essential source of cash but at the cost of deprived education and frequent ill health. Although the living standards of migrant workers' families have improved, the negative impact of extended periods of separation cannot be dismissed. Many women suddenly find themselves having to take on new responsibilities as the head of the household. It is a role they are not generally brought up to perform in this largely traditional, male-dominated society. With no child-care facilities available, the children of working mothers are often left on their own.

Some reports quote the number of female headed households to have increased by more than 40% in some rural areas. In 2002, there were an estimated 25,000 female-headed households (FHH), predominately in Khatlon and Garm. Some women lost their husbands during the war. Others lost their husbands to emigration. A few of the latter group abandoned their families and created new families. In all of these cases, the woman became the head of the household. According to the Save the Children 1998 Socio-Economic Survey of Households, Farms and Bazaars, FHHs have less access to land, irrigation and livestock. They are also less food secure,

46 Sources: Sources: ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution” / EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector”

86 but receive more humanitarian assistance. Even with this assistance, their monthly income is less than that of male headed households.

Women represent the majority of the agricultural work force. They play a key role in cotton production, making up 85- 90 % of the work force in the sector (International Crisis Group, Feb 2005). Although a higher proportion of women are employed in agriculture than men, the decision-making positions are dominated by men, especially in the cotton sector. Women work long hours in the field, but they are also responsible for running a household and cultivating food on the allocated household plot. The amount of work done on household food plots is often underestimated. Those plots usually range in size from 0.1- 0.3 ha. Women (and children) cultivate food for their own household and to be sold on the local market. This represents an important source of income for farm laborers.

Most tasks in cotton production allocated to women are manual tasks. They include: o Cotton thinning o Hand weeding o Top cutting o Picking

These tasks require long hours in cotton fields, often enduring temperatures exceeding 40 0 Celsius (in the shade). Cotton picking is arguably the most physically demanding task on a cotton farm. Most of the picking is done by women, students and children. They get paid approximately 15 diram (4- 5 US cents) per kilo of raw cotton

2. Child labor. The un-profitability of farms, the excessive level of farm indebtedness, and widespread poverty are having a very severe and potentially long lasting negative impact on rural society. As outlined above, these factors are severely affecting the education of females. Despite statements of high- ranked officials, child labour is widely used in cotton fields, starting from processing up to harvesting cotton. Parents are also acting irresponsibly in neglecting the need for literacy among their children. During interviews and discussions, illiterate young females on the farms stated that they ceased to attend school because they had to work in the cotton field while their mothers cared for babies.

Child labour is mostly used in the cotton harvest season usually with the consent of the parents to gain cash to be able to purchase school clothes and kits and contribute to the family budget. Despite this, many children do not attend the school during the winter season as they do not have adequate clothing and shoes. Each year, students miss classes for about two months as they collect the cotton in the fields. During this time they often live in field sheds, so called field stations, which do not meet normal living standards. Besides missing classes, some students get various infections and illnesses but there are no statistics collected on this. This practice of child labor has been inherited from the Soviet time and operates in Central Asian countries. Although it is banned in Tajikistan to force schoolchildren and students to labour in cotton fields (under legislation and a Presidential Decree), such child and student labour exploitation is justified by authorities as a “voluntary initiative from children and students”. Tajik legislation allows the use of child labor above the age of 14 years providing the work is not heavy and does not interfere

87 with the education and health of the child. These principles have not been followed for decades. Men are rarely involved in picking cotton.

Many farm managers state they do not gain profit from the use of student labour as obtaining and managing their labour input causes additional costs. The initiative for and insistence on the use of student labour comes from local government in their desire to achieve cotton production targets.

5. Legal Service Providers and Their Approaches

The terms of reference for this review specify a clear focus on legal aid in the context of agrarian sector reform, with an emphasis on land reform and “Freedom to Farm”. This section of the review describes the current legal aid landscape in Tajikistan, the organizations involved and their activities and approaches. Conclusions are summarized at the end of this chapter and needs and recommendations for future activities are discussed in the final chapters of the report (see section 7).

5.1 Mapping of Legal Aid Services

In November 2007, the Legal Aid Center Coordination Group conducted a nationwide survey to map and list legal aid services provided. Extracts of the survey are provided below.

The complete “Legal Aid Center – data base”, which outlines donors, implementers, areas of specialization, services and location for each organization is part of the electronic library to this report. In addition to the organizations listed in the database, various organizations (mostly NGOs) active in the field of agricultural extension also provide some legal aid services. A list of agricultural extension services is provided in section 6.3. Activities and differences in approaches between some of the main providers of legal aid, refer to sections 5.2.1 and 5.2.3 of this report.

88

89

90 5.2 Main Organizations Involved in Legal Aid

5.2.1 Donors47

CIDA/UNIFEM/FAO

Finance: CIDA (USD 1.987 million.) Title: “Improved Food Security and Enhanced Livelihoods Duration: 2006 – August 2008 (with a possible no-cost extension to December, 2008)

The project was developed as a partnership between the Food and Agriculture Organization of the United Nations (FAO) and the United Nations Development Fund fro Women (UNIFEM). The purpose is to effectively implement land reform policy at the district level and to establish related monitoring systems throughout Tajikistan with a special focus on gender mainstreaming and consultative processes.

The project's fundamental goal is to ameliorate rural livelihoods and increase food security by addressing structural barriers to land reform. In particular, the initiative seeks to secure land-use rights for women, who currently make up 73% of the agricultural workforce. Broadly, the approach integrates the strengthening of government institutions which administer land registration and redistribution, with efforts to safeguard the rights of the rural poor, particularly in terms of access to productive agricultural resources

FAO is the implementing agency with UNIFEM as a sub-contractor. FAO established 3 LACs in Ghonchi, Panj and Danghara and, from those centers, extends services to 15 rayons. Unifem organized 16 legal advice offices in an additional 16 rayons, located in the Hukumats (District information centers).

The project provided information and training to 29 klolkhozes/sovkohozes due to be re- organized into Dekhan farm units. To date 28 of those farms have been re-organized. In addition, assistance in court support, mediation and dispute resolution was provided (although the authors of this desk study question the validity of this statement). The project contains a strong gender component, ensuring the rights of female headed households are upheld during the re-organizing process of the farms. A short farm management training package is to be concluded before the end of the project (mid August), directed at 61 farm leaders (of which at least 50% shall be female). All services were provided free of charge and the offices are staffed with part time help.

Project highlight: Strong response from target groups. Popularity of the project’s regular radio program (broad range of agricultural issues).

Project difficulties: Low level of motivation at level of government institutions associated with the project. Opaque farm re-organization schedule. Strenuous bureaucracy connected with re- organization. Ambiguous law reform process indicating low motivation to implement reforms at political level.

47 Sources: Information received from interviews with the various agencies/donors – see Annex 1 “List of Ccontacts”

91 DFID

Finance: DFID Name of Project: THIRD PARTY ARBITRATION COURTS (TPAC) Project Duration: Ends September 2008

Output: Establish an arbitration mechanism for the resolution of land and property disputes in support of Tajikistan's land reform program. ‘Third Party Arbitration Courts (TPAC)’ are the process of out-of-court mediation and third party dispute resolution, based on the institutional arrangements underpinning the application of the process. The key objectives include: - Establish an effective and sustainable third party arbitration court (TPAC) mechanism for the resolution of land and property disputes in support of the country’s land reform program. - Introduce a legal base for operation of a dispute resolution mechanism through TPAC including the possibility of establishment of permanent TPACs - Confirm acceptance by the Government of the general principles of TPAC - Include other donor programs involved in land reform and poverty reduction in TPAC dissemination and access - Establish an association of TPAC judges and secretaries - Establish an affordable mechanism for the monitoring of TPAC impact and quality - Involve Tajik higher education institutes in the development of TPAC training modules for internal and external students - Create an accessible and affordable TPAC delivery mechanism on a sustainable basis using the experience of TPAC provision in the wider region - Support the wider programs of rural development, land reform and poverty reduction

The implementing agency is a local NGO: Public Foundation for the development of third party arbitration and legal support centers, Arbitrazh, Tajikistan. Using third party arbitration mechanisms the project has to date achieved write-off of debts or interest due on debts to the value of approx. USD 1.2 million. Whilst most cases were settled through TPAC, some were settled in courts of law.

A planned output is the establishment of an Arbitrators’ Association in Tajikistan. It is expected to provide professional support and networking among all arbitrators operating in different parts of the country, monitor quality of service delivery and promote wider applicability of TPAC, for instance in micro-credit operations, input supply and marketing operations.

Project highlights: Successful arbitration cases, passing of law on Third Party Arbitration Courts Project difficulties: Lack of arbitrators with relevant qualification to examine disputes over large debt. Uncertainty about courts’ readiness to rule in the spirit of Resolution 111 reforms (freedom to farm). Level of political leadership with responding to reported infringements on “freedom to farm”.

Future activities in land reform/ legal aid: DFID is in the process of developing the strategic and business plan for the next five years. Land reform and legal aid will be under the plan’s “Rural

92 Growth” component and concept notes for proposed activities are yet to be drawn. DFID welcomes discussion on priorities for the document. Deadline for completion is end of August.

EC Funding: Euro 2 million. Name of project: “Land reform – Wealth for all” Duration: January 2008 – December 2009

Project output is to establish standardized and coordinated centers providing farmers business advice and farm management expertise (not direct provision of legal aid). Three NGOs have been contracted to implement the project: ACTED, via “Agricultural Information Network” AIN. Arbitrazh “Infromation Consulting Service” Jovid (Sugd only)

The three NGOs work in close coordination, conducting monthly meetings. Close contact is also sought with other organizations, such as USAID/Chemonics. Working with a common approach, and using standardized methods and materials are key targets.

The range of services will cover management, taxation, accounting, etc. A set of brochures for each service is currently being developed (to be completed by August). “Fee for service” concept must be based on clear conditions and professional service. Differential rates reflecting client capacity are to be considered.

Project highlights: Joint effort, good cooperation between implementing partners/donors, resolving practical issues.

Project difficulties: Many barriers in current environment (farm level logistical, technical, know how and capacity constraints, debt problems, problems with farm re-organization, etc.).

Other activities in land reform/legal aid: EC also provides financial assistance to the programs of a range of NGOs working in Tajikistan (AKF, GAA, Oxfam, Mission East).

SIDA

Funding: approx. USD 1.5 million. Project name: “Land Cadastre Project” Duration: July 2008 – December 2010

This is the second phase of the project, following on from a first phase which ended in 2007 (resulting in new regulations on land and immovable property). The start of the second phase is imminent but subject to the government defining which ministry/agency will act as project implementation unit. It is expected this may be the “Land Agency for Geodesic and Cartography”. Defining the PIU is a pre-requisite for project start and must occur before the end of June.

93 The projects objective is institution building and capacity development in land title registration activities (land cadastre): (i) Identify processes and methods for a unified land registration system (ii) Application of new regulations according to the law (iii) Implementation on a pilot area basis

The pilot area has not yet been identified. The area should cover both rural and urban land and property holders, should be serviced by (a) well functioning and strong LAC(s) and should have had arail mapping of its geographic spread completed (World Bank has conducted wide spread aerial mapping of Tajikistan. SIDA believes that the accuracy is appropriate for land registration purposes).

Approaches: (i) Develop organizational structures at PIU level (ii) Access to land information (various agencies). Registration of land titles subject to back ground search (to validate claims, protect vulnerable holders of land use certificates from the danger of misappropriation by shrewd interests) (iii) Strong link with LACs (no financing or subcontracting by SIDA) to provide information to stakeholders and advocacy where needed. (iv) Information campaign and monitoring via existing extension services network, NGOs and donor projects working in pilot area (coordinated approach). (v) Coordination between PIU – government agency and all other interest groups involved in project implementation in pilot area (NGOs, LACs, etc).

Future activities in land reform/legal aid: SIDA will terminate its involvement in Tajikistan after completion of this project (December 2010).

OSCE

Funding: Euro 130 000 Project: “Business Advisory Centers” Duration: July 2008-July 2009 (1 year project cycles)

OSCE is supporting local NGOs and Civil Societies in different areas of Tajikistan. Focus is on information and advice on a range of issues: (i) Training courses for people intending to commence small businesses (ii) Taxation advice and legal information (iii) Advice and information for migrant workers (iv) Agricultural business advice

The project currently supports 11 centers, of which 6 have an outreach to rural population (agriculture) in the south western parts of Kathlon Oblast. Other centers are located in urban areas and/or provide services in a specific area of need, such as advice to migrant workers or advice for companies conducting cross border business with Afghanistan (export).

The project works closely with local governments in the field to meet their needs for services and, in the future, would hope to receive formal support from them (also in the form of a financial contribution to the centers).

94

Training on agricultural business management has a strong gender component, and is attended by many women. However, it is open to all and is particularly interested at attracting return migrant workers. This target group usually has own financial resources, is motivated and, with appropriate training, is in a stronger position to commence small business activities.

SDC

Funding: SDC Project: “Access to Justice and Judicial Reform Project” Duration: January 2006-October 2008

A Pilot Phase of the project was launched in cooperation with a mix of governmental and non- governmental partners in April 2001 and lasted until end of December 2003. The Project consisted of five components: 1) Improvement of the Conditions for the Independent Judiciary; 2) Support to the Association of Judges (AJRT), 3) Support to the Creation of the JTC, 4) Promotion of Legal Aid through the Support of the Legal NGOs, and 5) Assistance in the Establishment of the Transparent and Consistent Legal System. The Main Phase officially started in September 2005 and will finish at October 2008. The overall goal of the Main phase is: “To contribute to increased respect and protection of the rights of poor and marginalised on the grounds of gender, ethnicity, age or other prejudice in Tajikistan by strengthening the rule of law, access to justice and measures for improved administration of justice”.

The Project has three outcomes (objectives) and corresponding outputs (results):

Outcome 1 – “Poor and marginalized women and men in Tajikistan are better aware of their rights and confident to seek to be protected by them”. The planned outputs are: functioning of 7 legal aid centres in the biggest cities and 2 legal aid centres rural districts; measurable improvement in the quality of counselling and representative casework and in legal awareness raising activities conducted by the staff of the centres; extension of the legal aid services to two rural areas (districts); and launching of new services, such as the mediation, general legal awareness raising and group actions.

Outcome 2 – “The protection of the right of poor and marginalized women and men to fair and equal treatment in judicial processes in Tajikistan is enhanced”. The planned outputs are: increased professional knowledge and social awareness of judges, which will enable them to better adjudicate cases involving poor and marginalized men and women.

Outcome 3 – “The protection of human rights of poor and marginalized women and men in Tajikistan is improved”. The planned output is the development and functioning of an advocacy platform for the exchange of experiences and opinions and the development of a number of clear strategies and joint campaigns designed to achieve commonly shared goals related to prioritised, gender disaggregated human rights abuses in the justice and legal reform and to channelling of advocacy issues to the Government.

95 The ultimate beneficiaries of the Project are poor and marginalised women and men, facing problems with the access to justice. In order to improve their situation, the Project will work at three levels:

Micro level: Legal NGOs, through their legal aid projects will be delivering free legal services to the poor and marginalized individuals thus promoting access to justice for them. In addition, they will be providing legal awareness for specific target, such as farmers, rural women, etc, and free legal consultation to the local self-government. By this, they will contribute to the improvement of the overall environment for the improved rules of law and respect to the rights of local residents;

Meso: support will be provided to the civil society organisations, primarily partner legal NGOs, to increase their organisational capacity. Support will also be provided to the Judicial Training Centre in order to enable it to continue its training activities for judges. Finally, selected Media outlets will be supported in becoming more active actors in the area of judicial reform and improvement of access to justice. ;

Macro: The Project will support the creation of the National advocacy platform of actors in the judicial reform and access to justice, and related areas. This platform will allow for the better use of positive experiences, made by various actors in their projects, at the national level, by inter alia, using this experiences for advocacy and pressure campaigns before the Government of Tajikistan.

The free legal aid component is one of the activities within the Access to Justice and Judicial Reform Project, which is supported by the Swiss Cooperation Office (SCO) in Tajikistan . The project is assisting in developing a sustainable and effective model of free legal aid services provided to the vulnerable population in the country. For this purpose the project currently supports 4 NGOs namely “Madadgor”, “League of Women Lawyers”, “Human Rights Center” and “Inis”. These NGOs have several legal aid centres located in Dushanbe and Khujand cities as well as in Isfara and Vahdat districts. These NGOs don’t provide trainings.

USAID

Name of project: “Land Reform and Market Development” Duration: 2005 – September 2008

The USAID funded Land Reform and Market Development Project is implemented by Chemonics. The project is designed to strengthen land tenure rights and improve people’s access to information on land related issues. The main focus is on: (i) Legislative reforms –supporting the government in drafting land reform legislation and advocating policies to improve land tenure security. (ii) Farmer education – improving farmers’ knowledge of their land rights through training and mass media campaigns. (iii) Legal assistance – through regional Legal Aid Centers (LAC) and local rural activists (Tashabbuskor).

The project works with and provides financial support to a network of 11 local NGOs which operate regional LACs, providing a range of services and information to rural farmer clients. This

96 includes field training but also activities in advocacy for defending legal rights of rural citizens. Local lawyers from the NGOs assist farmers in negotiations with state institutions and private parties and also represent farmers in court.

In addition, the project supports a network of more than 60 local activists call Tashabbuskor. They are individuals of good repute and standing in their communities, where they work to help identify and solve problems related to land reform and land rights. Tashabbuskors work closely with the LAC responsible for their areas and refer cases or problems to the local LAC when they are beyond his/her capacities. The Tashabuskor is one of the most effective means for identifying and solving problems because they work on a daily basis in their community and have the trust of the citizens

The project also operates an information campaign via weekly radio and TV programs “Your Rights to Land” and publishes a monthly newspaper which is distributed through the LAC and Tashabbuskor network.

Project highlights: 2007 the project, through the LACs helped farmers win several ground breaking legal suits against powerful Investors for contract fraud and abuse and protected the rights of vulnerable women (see Annex 6 for USAID Success Story). In 2008, the newly amended Land Code was promulgated by the President.

Project difficulties: Sustainability issues with regional LACs after project end in September 2008 The current project ends in September 2008 and there is on-going discussion about future activities in land reform/legal aid. At this time USAID hopes to fund a 7-10 month extension (called a ‘bridge’) and then consider a follow on project starting in 2009.

USAID has indicated that they believe it is necessary to go “back to the basics”- that future programs should focus on land reform and water rights with the acknowledgement that the ‘reforms’ done in the past were superficial and need to be reviewed and possibly re-done.

5.2.2 National Union of Dekhan Farms and Businessmen in the Republic of Tajikistan48

The Association of Dekhan Farms and Businessmen was established in 1996 as a non – governmental organization, an independent and a self governed social association. In August of 2003 the Association was reorganized into the Union of Dekhan Farms and Businessmen of the Republic of Tajikistan. (UDFB). A change of legal status again took place in July 2005 when the Union was re-registered as the National Union of Dekhan Farms and Businessmen of the Republic of Tajikistan.

Global aims of the UDFB are to support dehkan farms and businessmen on implementation and improvement of the market infrastructure on the basis of strengthening and coordinating farms and entrepreneurs, protection of human rights and union of dehkan farms and businessmen interests, to improve qualifications and establishing links with foreign partners.

48 Soruces: Landell Mills, 2006,”Support to the Union of Dekhan Farmers and Businessmen of Tajikistan – Final Report” / Landell Mills, 2005 “Support to the Union of Dekhan Farmers and Businessmen of Tajikistan – Activity report, September”

97 Association Aims and Objectives • Protection of human rights and the interests of dehkan farms and businessmen; • Business training for union of dehkan farms and businessmen; • Provision of business consultations and consulting services; • Leasing activity; • Support of investment and innovative projects; • Marketing and evaluation of the market for dehkan farms and businessmen; • Publishing information on activities on development of dehkan farms and businessmen • Educational support to UDFB • Creation of effective bank support to UDFB • Conduct theoretical and practical seminars. Round table discussions for UDFB members;

An EC funded project in support of developing UDFB concluded in 2006 with limited results. The final report raised questions about lack of coordination with NGOs working in common areas. The report states that “a serious detriment to the development of the Association was, and still is, the lack of a functioning Board of Directors. This was not a specific strategy of key decision makers in the management structure of the Association but a consequence of the inability to communicate with the members and have their active involvement in the decision making processes relating to policy and strategy development. The Chairman was appointed by the President and the head office is in the Ministry of Agriculture- giving many the impression of conflicting goals and messages.

The Association needs to improve its co-ordination with funding agencies and NGOs. During the lifespan of the project, in addition to support from TACIS, the Association was also being supported by CIDA the Food and Agricultural Organisation, (FAO), and working in conjunction with Chemonics funded by USAID. However, many donors cease funding after inadequate results. It is important that the Association becomes a better organized and democratic organization before it will ever be able to take over the role of a true national association.

5.2.3 Main Local NGOs

There are more than 90 LAC’s in the country. Each donor has set up and funded its own centers and the result is a relatively non-coordinated series of offices where various types of assistance are offered and varying levels of professional competency are evident.

CECI/FARMS:

Funding: CIDA, ends 2010 Project: FARMS - “Facilitating Agricultural Reform and Marketing in Sugd”

This CIDA financed project is implemented by the Canadian NGO CECI (Centre for International Studies and Cooperation). CECI are the only international non- profit organization directly involved with farmer extension and agronomy training in the cotton sector. Key project activities include: o DF management and training o Adoption of new technologies and production systems o Voluntary DF associations management developmentnt

98 o Legal awareness and governance structure improvements o Advocacy and negotiation skills o Management and crosscutting themes

The FARMS project is cooperating with more than 200 DFs across 4 cotton growing districts of Sughd Oblast (June 2008). All activities are carried out in the context of improving knowledge, gender awareness, accounting and management skills and DF members’ understanding of their rights and obligations regarding land use. Field activities seek to enhance cooperation between neighboring DF (hashers = “working groups”). A strong focus is placed on enhancing the participation of members, in particular women, in the farm management and operations through: o Enhanced gender-sensitive and participatory management, transparency, and legal awareness and accountability within the governance structure of DFs, and their voluntary associations. o Increased advocacy and negotiation skills of DF members and leaders to better exercise their legal rights. o Training and practical interventions aim at improving the tools and abilities of men and women of selected farms to manage and control the productive assets of the DF. o Developing advocacy capacity of DF members enabling them to participate in policy dialogue.

The farms project aims at increasing cooperation with other NGOs, particularly in the areas of social and legal awareness. Currently the project coordinates activities with 15 other NGOs working in 5 Districts, by conducting meetings on a monthly basis. The project occasionally provides financial support to such NGOs. The coordination effort aims at avoiding duplication of services in areas where more than one NGO provides similar services.

Arbitrazh:

Funding: DFID – ending September 2008 Project: THIRD PARTY ARBITRATION COURTS (TPAC) Project

NGO Arbitrazh is implementing the DFID funded project (see section 5.2.1), has a main office in Dushanbe and 12 representative offices in Districts49. The main goal of the project is the provision of assistance for an efficient realization of Land Reform processes, to promote wealth creation for rural populations and help poor farmers to gradually transit to a proper system of production based on sound financial and economic management (Through the development of service centers for DFs).

Arbitrazh NGOs are active in Aini, Penjikent, Tursun-zade, Hissar, Shartuz, Kurgan-Tube, Faizabad, Shahrinau, Vahdat, Rudaki, Khujand, and Istravshan.

Main services and support are provided to farmers through: - conducting mediation/arbitration; - rendering of consultation on the fields on legal and agricultural questions (on the fields and fields camp of DF); - conduct meetings and spread of information;

49 For list of NGOs and locations: see electronic library:. “ Legal Aid Center – data base”

99 - assist to farmers in business-plan development for future possibility to receive credit in banks; - conducting legal trainings; - development cooperation with local administration, law enforcement bodies, NGO etc.

Arbitrazh provide their services for free. Filed visits to the Istarfshan office of Arbitrazh indicated that the NGOs are facing capacity limits due to a shortage of qualified staff. The result is that too many cases are taken on which eventually cannot be properly represented due to time and staffing constraints. Funding stops in September 2008 and it is unclear how many Arbitrazh LACs will be able to persist beyond the end of the project although the recent EC funding may help sustain the network.

USAID/ Chemonics – NGO Program

Funding: USAID/Chemonics – ends July 2008 Project: Land reform and market development

The project is implemented by 11 local NGOs50 operating LACs across much of Tajikistan. Activities are coordinated from the central offices situated in Dushanbe and Khojand. Most of the LACs have office equipment and have operated for more than 3 years. Experienced and trained staff, a good reputation, experience in working with international organizations, good relations with government officials and rural population are attributes of NGOs working in the Chemonics program. Most LACs are concentrated in cotton growing areas, providing services to the most vulnerable and economically unstable regions, suffering from problems with improper reorganization and property division of land and farms, as well as from huge amounts of debts.

The LACs focus on providing legal consultations in their offices and in the field where they conduct trainings on different topics such as taxations, creation and reorganization of farms, inheritance, types of contracts and other legal problems raised by the framers. This supports farmers applying to Local Governments regarding their rights for the creation of the farms, demanding their land shares, asking for the issuing of the necessary documents – land use certificates and land share certificates. Based on information provided by the LACs they openly refer to legislation regarding freedom to farm and, most importantly, even go to court to defend their rights and fight against investors and local government representatives. The NGOs currently have more than 25 active court cases (see Annex 10 for complete list). LACs also liaise closely with the project’s rural activists – the Tashabbuskors - who are the main link between LAC and villages. NGOs working under the Chemonics program currently provide services for free, in accordance with the project mandate.

The project is in its final year, during which activities have concentrated on: - Support of the discussion Land Code and other legislative acts on the land, adopted and residing on consideration; - Providing assistance for development implementing legislation for Land Code; - Continuation of rendering assistance to farmers legal suits; - Realization of a monitoring mechanism for implementation Resolution 111 and the process of freedom of farm;

50 For list of NGOs and locations: see separate electronic library file:. “Legal Aid Center – data base”

100 - Provide trainings for representatives of local authorities about changes and additions in the Land Code and on questions of freedom of farm; - Expansion of LAC network and network of Tashabuzkors

Some NGOs associated with the Chemonics project also receive funding from other sources and pursue additional activities. NGO “Citizen’s Right”, located in Istaravshan district (Sugd Oblast) for example is also funded by FEZA. At the present time the NGO concentrates on 3 projects: 1. Legal consultation and practical assistance. Within the framework of the project "Land reform and market development" the LAC provides legal consultations to farmers. Significant support of NGO lawyers was rendered to DFs and other commercial enterprises defending rights in court. Clients included DFs "Hushbaht", "Bunafsha", "Nortochbobo", "Dilishod", "Murodbek' and another 9 industrial and commercial enterprise such as JC "Tomiris", CJSC "Cova", LLC "Orien-impeks", CJSC "Hamid-Oyl ". 2. Advocacy and education. Within the framework of the project “Initiative of young people” the NGO realizes initiatives and projects directed on moving interest of young people and forming them to participate in the process of decision making. In 2006 a coalition with youth organization of Sugd area was formed improve youth’s living conditions during the annual cotton picking campaign’s imposed by the authorities and to provide protection from forced labor. 3. Gender equal rights: The project “Defense rural women against violence” were established resource/consulting center for women with cooperation with NGO “Women against violence” under the support of OSCE.

Whilst NGO “Citizen Right” doesn’t ask fees for its services at the present, several contracts were signed with DFs for providing legal support on a payment basis. Also they are thinking on establishing an association with DFs and forming a juridical clinic, and ask for payment of membership fees. This NGO is good example how NGOs can gradually become sustainable into the future (see point 7.1.3).

NGO Jovid:

Funding: EC Projects: “Land reform – Wealth for all”

International Charity public organization “Jovid” was registered in 2002. The main goals of organization are:

- rendering humanitarian aid; - rendering aid in emergency situations; - social and economical rehabilitation and development; - rendering consulting aid to farmer by the way of conducting trainings and seminars; - giving natural credits and money sources; - assisting in improving life conditions of vulnerable groups, predominantly in rural areas.

At the present time Jovid is an implementer of the EC project on improving access of local farmers to the land resources by providing juridical consultations, defense of rights and

101 improving organization of land use in Sugd region. The main purpose of the project is to support the process of land reform and provide access of the rural population to land resources by means of legal, economic and agricultural consultations, improvement of land management and conducting information campaigns within the framework of rendering of consultation services.

Jovid opened 6 resource-consulting centers. 3 of them are situated in Jamoats H.Aliev, A.Jomi, city Zafarabad (Zafarabad District, North of Republic) and 3 in Jamoats Buston, Avzikent, Mastchoh city (Mastchoh District, North of Republic).

Jovid plans to provide legal, economic, veterinarian and agricultural trainings, consultations, services and conduct round tables. For effective project implementation it seeks the creation or strengthening of institutional capacity of resource- consulting centers (RСС). Jovid conducts training for selecting RCC consultants, including agronomists, veterinaries, economists and lawyers. The consultants who complete the trainings have to spread their knowledge and experience among local farmers through conduction of trainings, seminars, working meetings and round tables. Theoretical courses are accompanied by practical parts, conducted in the demonstration fields in the target districts. Besides, it is planned to establish initiative groups which will be involved in preparation and conducting of informational campaigns among farmers and the rural population. Initiative groups will be responsible for spreading of news about land reform in the districts and supporting the defense of land use rights. Initiative groups (IG) will lead the establishment and strengthening of local partnerships amongst the public and private sectors by means of working meetings. IGs will consolidate sides to participate in problem discussion regarding improving land management, diversification of agricultural production and the possibility to establish links between local farmers and potential internal and external customers. Project activities aimed at farmers include: - rendering of consulting services on the fields (on the fields and fields camp of DF); - organization of thematic theoretic trainings which are accompanied by practical trainings on demonstration fields; - open door days; - informational campaigns through mass-media (local television, newspapers, journals, brochures); - conducting different competitions ( for example “the best farmer of the year”) - organization of educational trips for farmers to neighboring countries.

Currently Jovid doesn’t ask fees for its services are investigating possibilities of payment of a symbolical sum for services. An oral survey on the possibility of charging fees for consulting services found that farmers are not fully ready to pay. Jovid is considering embedding fees into the provision of materials and inputs. For example by providing high quality seeds to farmers where fee for consulting will be included in the price of seeds.

In frame of the current EC project Jovid in cooperation with Arbitraj and ACTED develop information materials and brochures.

NGO AIN (“KIS”):

Funding: EC -ends December 2009 Projects: “Land reform – Wealth for all”

102 The NGO “Consulting Informational Network” (Konsultativno-Informazionnaia-Set), or “Agricultural Information Network” (AIN) provides consulting and information services in agriculture. KIS was created in 2007 by the NGO ACTED, in the frame of EC project “Food security in Tajikistan”. “KIS” main objective is increasing welfare of farmers by building knowledge and experience of agriculture management. The NGO is active in 5 Districts in Sugd and 4 Districts in Khatlon Oblasts.

KIS provide legal and agricultural advice on economy and agricultural management, production technology, cattle breeding and basic information on land reform. Services are provided through: - group and individual trainings; - individual consultations; - field demonstration plots to demonstrate best agricultural practice; - individual consultations based on the agreement between consultants and DF

KIS provide their services for a fee on the basis of signed services agreement, but experience to date shows farmers’ reluctance to paying for such services. This may be partly due to engrained farmer attitudes but may also be a reflection of a low perceived value of the services rendered. AIN is one of the 3 implementing NGOs for the EC “Land Reform – Wealth for all” project, alongside Arbrtrazh and Jovid.

“Women’s Information Centers”:

Finance: Unifem/FAO project with CIDA funding – ends August 2008 Project: “Improved Food Security and Enhanced Livelihoods

UNIFEM opened 15 legal advice offices in the Republic, located in District offices of regional authorities. The offices are staffed by a lawyer and provide trainings mostly to women working in farms on the subjects of land reform and reorganization of DFs.

The part time lawyers are hired and paid for by Unifem and work in close cooperation with the “Committees of Women” under the hukumat (Regional government). Consultations are providing 3 times per week (2 times in hukumat office and 1 time in jamoats level) for 4 hours.

The project will end in August 2008 and it is not clear if and how the offices will continue to operate beyond project end.

5.2.4 Conclusions on Existing Legal Service Providers

For the purpose of this report, a small sample of LAC’s was surveyed to illustrate activities51, approaches and level of coordination between centers. The main findings are summarized in Table 12 and are briefly discussed here:

The survey investigated six LACs, of which three are implementers of the USAID Land Reform and Land Market Development Project and three of EC Land reform - Wealth for all Project.

51 Annex 7: Questionnaire used for survey of LACs (completed questionnaires are attached as a separate file)

103 The “outreach mechanisms” used by the mature USAID Project’s LACs are well streamlined and the outreach activities are pro-active and focused on meeting farmers in the field. The survey indicates that this is less the case within the new EC project and the tendency to rely on farmers to contact the NGO. However, this style may change as the project progresses. The different LAC implementers appear to use different approaches (NGO Jovid using a stronger institutional approach than the others).

“Problem solving” is mostly through the LACs internal capacity, relying on their expertise. Capacity constraints have been mentioned in this regard. Only occasionally do some LACs seek outside support for solving problems which are outside their scope. The USAID Project has experience lawyers in the Home Office and Sughd Regional office that are used for advice and support by the NGOs.

Most LACs prepare “training materials and brochures”. In many instances such material focuses on universal themes and production should be streamlined and shared between LACs and other rural service providers. This is only just beginning to happen.

In 2006, USAID set up the Legal Aid Center Coordination Group (LAC CG) that includes members with offices funded and/or implemented by USAID, ACTED, EC, CIDA, OSCE, DfID, UNFAO, SDC, UNIFEM etc. A key objective of the group is improve the efficiency of LACs and other rural service providers by enhancing communication and streamlining activities LACs share in common. To date, noteworthy output of the DCC is the production of the “Donor Survey on Legal Aid Centers” and the production of a brochure on “freedom to farm” (see section 7.1.1). The group is encouraging the production of standardized brochures and training material.

“Engagement with local authorities” is generally at a low level in all the LACs canvassed, although several instances of delivered training to local government are mentioned. USAID has the strongest programme with a dedicated team that is engaging local governments in training on the new Land Code. Occasionally there appears to be local government interference in LAC activities (especially in litigation cases between farmers and Investors) but most LACs declare local government to be supportive of their activities. There is a need to investigate a coordinated approach for engaging with local authorities, particularly in anticipation of land titling activities and farm legal identity activities in the future.

The overwhelming majority of LACs does not have a “fee structure” and face serious sustainability issues beyond the project phase. In many instances projects mandate LACs to provide a free service under the assumption that farmers cannot afford to pay fees for service. Survey responses paint a mixed picture of this subject but it is evident that self sustainability issues of LACs need further urgent investigation (See section 7.1.3)

LACs ‘main challenges” include capacity constraints (particularly a need for more qualified staff) and difficulties in obtaining updated information on legislative issues. There is a need for a more effective information flow system to overcome this problem. Whilst conducting the survey, it was also observed that cooperation and communication between various local NGO implementers varies greatly and depends on the Central Office international staff. As could be expected, interaction between NGOs working under the same project is more developed. However, beyond the activities of the Legal Aid Center Coordination Group, there exists no formal strategy or institutional body to develop and sustain greater cooperation and coordination

104 between LACs. As a result, most of the LACs working under shared projects will drift apart after project end and interaction between different projects is greatly hindered (at times regarding each other as competitors).There is a need to develop an effective network between the various NGOs/LACs. This is proposed as a key mandate for the SDC project under consideration (see section 7.2.1). Table 12 below summarizes the surveys”

105

NGO: Chemonics NADF - Kuhliab Citizen's Right CIN (ACTED) Jovid Arbitrazh Donor USAID USAID USAID EC EC EC Land Reform and Land Land Reform and Land Land Reform and Land "Land reform - "Land reform - Wealth Project "Land reform - Wealth for all" Market Dev. Market Dev. Market Dev. Wealth for all" for all" Improving Institutional Farm reorg and land Business Legislation Reform - Farm reorg and land practice at farm level, Develop Service Cooperatives reform, Legal advice, Management , Activities Education of farmers - Legal reform, Legal advice, improve access to land, through creating Service agric extension, litigation Legal Advice, Ag Support agric extension diversify agric prod, Centers for DFs cases supporting farmers Extension land rights 1)Resource Workshops and Group/Individual Consultancy Centers, Support to Land reform to "Bottom to top" approach- 4 Districts, workshops, consultancy on legal training, Demo )ToT, Veterinary, Agro, improve productivity and Out reach Visits and training - Jamoat field visits, office matters, including to local plots, Individual Legal, Economists), 2) economic performance - Mechanism based Activists - Mass consultations, Legal government, Local contracts with Initiative Groups to Consultancy to farmers via farm Media advice Activists (Tabushkors) farms. spread info to farmers, visits private sector Staff has basic Clients contact Activists - Through Activists Through Activists RCC specialists, legal knowledge Problem Seek advice from NGO (Tashabouskors), (Tashabouskors), advice through training, relevant to agric Through consultancy Solving and/or outside specialists if advice and mediation and mediation and filed consultation, monitoring ACTED.Legal Dept needed. Field trainings and field trainings trainings and evaluation support available x-Land Reform, x-Land Reform, x-Land use Certs, x-Land use Certs, x-Farm Reorg., x- Land reform, List of x- Farm x-Farm Reorg., x-Taxes, x- Land use rights x- Farm business "100 Materials None specified management, x- x-Taxes, x-Contracts, x- Legislation on land questions and answers" prepared Agric info x-Contracts, x-Domestic issues, reform x-Domestic issues x- Agric info x- Loan applications translating material x-Info on authority of local produced by LAC Prepared for gov and agencies, Coordination group into LAC x-Training methodologies, None specified None specified None specified Tajik and Uzbek. Plan Yes - not specified Coordination x-Information on preparation to develop material in Group of legal docs Coordination with LAC group. Local Active trainings by LAC on Active trainings by LAC Active trainings by LAC Government None None None new Land Code on new Land Code on new Land Code engagement None at this time. Fee Yes -on basis of Fee None - possible gradual None - some farmers structure for future? None charter and type of None strucutre introduction in the future would be willing to pay Farmers not ready to service pay. Amendments to various Reached 10 000 10'000 farmers laws and legislative acts Legal proceedings and members of Dfs on land reached, 3'000 50% target of "Initiative Successes None specified --TV/media campaigns creation of DFs use skills, farm visits to demo plots Groups" reached --Court cases reorganization of 20 DFs in 9 districts Technical constraints, Low risk evaluation by Farmers reluctant Challenges Availability of qualified staff None specified lack of updates on legal farmers regarding their None specified to pay for services issues, lack of finance enterprises

106 6. Other Essential Services at Farm Level

Effective agricultural extension services provide farmers with a range of services to help increase productivity, profitability and sustainability. Farming demands many skills, covering areas such as business management, agronomy and marketing. In advanced economies, farmers have access and recourse to specialist consultants and extension services to help meet the requirements of running their enterprises and to grow them into the future. It would be inconceivable for these businesses to operate without such services.

In Tajikistan, consulting and extension services are poorly developed and most farmers do not have access to any. This results in bad farming practices, poor business and financial management and is a key reason for the dismal overall output of agriculture, including the cotton sub-sector.

The following analysis, conducted by the ADB TA “Farm Analysis for Awareness Raising and Debt Resolution” (2006/2007), illustrates the situation:

In December 2006, cotton production activities were analyzed in 5 of the TA’s pilot farms. Gross margin calculations were carried out on the basis of information obtained from DF chairmen and their accountants. Written records are rare or incomplete and much of the information was supplied orally. One factor complicating the analysis was that none of the growers were able to provide accurate information on the producer price they expected to receive from the Investors for the cotton they had delivered. Some growers had agreed to sell raw cotton, others were to be paid on a lint + seed basis. None had been paid at the time of the interviews. To enable a comparison, the analysis used an assumed producer price based on lint + seed, using TUGCE’s methodica and applied ginning costs as a variable cost. In reality, it is likely that growers’ final price was lower than the price used in the calculations.

Production and profits/losses realized from cotton cultivation in the 5 farms (variable costs only), are summarized in Table 13.

Table 13: Profitability of cotton production in five pilot farms (2006) Farm ha Yield/ ha kg USD/ha USD/ha Profit/ Profit/ Loss (Ex gin Price) Var. Cost/ha Loss USD Total USD/ha Sakhovat 42 1380 555 607 -52 -2191 Nargis 19 2020 748 722 26 495 Kabudbun 60 1119 511 806 -288 -17310 Asad. Soki 30 2520 690 623 66 1988 Arguvon 30 1600 655 698 -43 -1300 Average 1727 631 691 -60 -3663 Note: Revenue/ha includes cotton seed @ Somoni 650/MT Producer Price U$ 783/MT Lint, Fixed costs NOT included. Interest only for 2006 crop finance “

107

Of the five farms only two were able to cover production costs associated with cotton cultivation. After deduction of “Unified land tax” – a fixed cost - only the farm “Asaduloi Soki” posted a modest short term profit of USD 50/ha. None of the above farms made provisions for depreciation, nor were permanent labor costs included in the calculation. Were such fixed costs properly applied, long term gross margins in the five farms would average losses exceeding USD 100/ha. Losses ranged from USD -43/ha to USD -288/ha. This large difference was strongly linked to the cost of operation of machinery and the number of mechanical cultivations carried out. Many farms rely on ageing equipment which is expensive to run and to maintain.

During 2006, key factors for loss making cotton cropping were: - Very low yields of approximately 1.7 Mt of raw cotton/ha. This compares poorly with international competitors, especially under irrigated conditions. - Very low producer price: In 2006 world market prices for cotton were at historic lows (Cotlook A Index <0.55 USD/pound). - High variable costs: Production costs were generally high, relative to production. Highest cost factors: o Machinery cost are up to 35% of variable costs/ha o Fertilizers amount to 10-15% of variable costs/ha o Picking (labor) 10-15% of variable cost/ha o Ginning 12% of variable cost/ha

Key developmental and legal obstacles causing this situation are: - Structure and legal identity of Dekhan farms - Absence of transferability of land use rights - Imposition of production targets - Market access - Farm production factors - Access to finance - Taxation - Lack of essential services

These issues are discussed in section 3.2.4. . This section of the report provides a more detailed review of the current status regarding agricultural extension, business and farm management advice and the rural finance sector. They are all essential for achieving a productive, profitable and sustainable farming sector.

6.1 Agricultural Extension52

Profitability and sustainability for the long term requires fundamental improvements in farming practices and systems. This includes land use (how crops are grown and how the soil is treated), water management (how the water resource is managed and how crops are watered) and crop management (how crops are tended through their growing cycles).

52 Sources: EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector” / ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution- Agronomy”

108 Current agricultural practices have low yield output. For cotton, average yields are approximately 1770 kg/ha of raw cotton. Irrigated wheat yields vary widely (up to 4500 kg/ha), but average production of 1800 kg/ha is not uncommon. In contrast, applying best management (BM) has the potential to significantly raise yields. (For cotton, average yields in excess of 3000 kg/ha can be achieved with BM). Production costs for BM crops do not need to be higher – current variable costs are disproportionately high to output – However, crop management skills and delivery of inputs (especially water) must improve greatly to make this possible. Actual know-how at farm level is generally very low. This is reflected in poor crop management and detrimental agricultural practices. Effective and high quality agricultural extension is essential to improve the situation.

Government, and particularly the Ministry of Agriculture, hasn’t invested in the creation of functioning and wide reaching extension advisory services. The Ministry of Agriculture’s “Agroprom” has officers in all districts but their function is mostly supervisory (Reporting to Hukumats), as well as collecting data for statistical purposes (including yield forecasting based on highly unreliable methodology).

Whilst institutional agricultural extension services in Tajikistan are largely absent, there are some private organizations that have recognized the importance of agricultural extension. Investors should have a strong interest in increasing the knowledge of cotton farmers as they rely on their clients’ success in becoming or remaining productive. Some investors employ agronomists who provide training to clients focusing on agronomy and productivity. At this stage, those services are basic and agronomists often lack the foundation of a strong theoretic agronomy background. In addition to that, some farmers perceive investor- agronomists as controllers rather than partners. However, these service providers need to be considered and could represent valuable partners in the development of a comprehensive extension service that incorporates financial and agronomic aspects of cotton farming.

ADB is currently considering a USD 50 million grant package to support sector reform, including promoting agricultural extension on a fee paying basis, engaging not only farmers but also others in the value chain such as input suppliers (including banks) and processors such as gins.53 There are also possibilities for private extension services taken direct to the farmer and based on a proportion of profits or yields. The ADB estimates that the cost of agricultural extension is about 5% of the increase in profitability it can bring. With correct techniques cotton and tomato yields can be increased considerably (up to 100%) making farms more profitable (an average plot with a rotational system including cotton, wheat, beans and other vegetables can probably generate a profit from $500 USD per year to over $1,000 USD). However, this also requires a fair cotton price determined by a competitive market, and better information on both sustainable agronomic practices and input/market prices and demand. Relative to the size of the cotton sub sector, there is little extension activity in Tajikistan. The concept of “agricultural extension”, providing know-how and advice to producers on an ongoing basis is not widely understood. Farmers do not usually seek agronomic advice. Some “home grown” research is being conducted on state owned farms and government institutions.

53 Although ADB activities in the agricultural sector may be postponed due to GoT requests for assistance with energy and rehabilitation of the Nurek dam

109 At this time, the bulk of agricultural extension is provided by NGO/ donor organizations. Such extension components are usually project specific and not wide reaching. Some NGOs also incorporate research components into their work and some donor projects have established local NGOs focusing on extension (ATAC, AIN/ACTED, etc.).

Dialogue and indeed cooperation between organizations and projects working in the sub-sector is only occurring to a very limited extent. Efforts and activities are often duplicated. This is not news to the donor community and the idea of coordinating efforts has been out there for some time. In October 2006 a positive step towards greater cooperation between NGOs in streamlining agricultural advisory/ extension systems had been taken when representatives of most of the relevant organizations, including the inviting agency CIDA and the EC gathered for a workshop in Dushanbe. 36 participants from 25 organizations took part. The purpose of the workshop was to lay a basis for a country wide extension network and to invite all interested organizations to a partnership in establishing an agribusiness extension/advisory network. This initial gathering was followed by a second workshop54 in March 2007, facilitated by the EC TACIS SENAS project and Ministry of Agriculture. The EU Tacis/Senas project, as one of its deliverables, aims at more effective networking between extension service providers in Tajikistan. Main conclusions of the workshop 1) Networking among the organizations and projects that participated today in the workshop is of utmost importance. A balance needs to be found between competition and cooperation. Good networking can result in and needs a national umbrella organization. 2) Payment for services is a topic that further needs to be discussed and elaborated. Recently a working group on this topic has been established and interested people still can join this working group. For this contact needs to be taken with the Tacis SENAS project. 3) More attention needs to be paid to legal advice. 4) Gender issues also should not be under estimated. 5) MSDSP is piloting its case to make contracts on extension services through CBOs rather than directly through advisory organizations. Experiences and results will be communicated at the end of the year. 6) Increase of quality by being more self critical. M&E among extension organizations and projects will be initiated and encouraged. 7) Consensus among donors on specific guidelines to be respected for support of “Payment for Services” approach as well as allowing projects getting an income for provided services to be discussed in the donor coordination meeting. Despite these advances, the reality is that to date no wide reaching professional extension service has been established, there is no consensus of the concept of “fee for service” and there are questions on the quality of services and approaches applied. Legal advice is recognized as an important service, but there are questions about agronomy extension services’ capacity or if they even should provide such services (rather than clearly separate areas of services).

54 Annex 8: Minutes of the 2nd National Coordination Workshop on extension 14th of March 2008

110 Of the main NGOs currently active in agricultural extension in Tajikistan, only one (CECI/FARMS) has a strong focus on the cotton sub-sector, the others having opted to focus activities outside the cotton industry. The NGOs are not self sustaining and rely on donor funding for maintaining operations

6.2. Business Advice and Farm Management Services55 Alongside agricultural extension, provision of business advice and farm management skills is another essential need at farmer level. As illustrated in the opening section of this chapter, many farms operate at a loss. This is a recurring situation and clearly indicates severe shortcomings in planning and budgeting at farm management level. Farm budgets prepared by farmers tend to be optimistic and based on high yields that do not correspond to historical yields. Despite this, in work carried out with farmers, some budgets showed anticipated operating losses, providing an opportunity to discuss elements of financing and planning (why plan for a loss?).

Gross margin calculations are not well understood and often too simplistic. In many cases variable costs are limited to machinery hire, fuel and lubricants and direct inputs such as fertilizers and seed. Labor cost and some important costs associated with particular operations (for example transport costs) are often omitted. Fixed costs, including “wages” for shareholders, maintenance or depreciation are rarely included. Cash-flow projections are usually absent, begging the question about planning of repayment of loans.

Many accountants have moved away from farms and the smaller size of farms makes it difficult to hire a qualified accountant. The reporting format used is for statistical and tax purposes and urgently needs simplification. Record keeping of farmers is abysmal and many documents go missing. The preparation of financial statements is geared solely to satisfying the requirements of the tax authorities and these statements are usually inaccurate and prepared in a rough and approximate manner. There is no cognizance of the value of financial reports in strategic planning or even in deciding which crop to grow or enterprise to support.

Records on fixed assets, livestock and produce on hand are inadequately kept and valued. It was noticed on many farms that stocks on hand did not show as a revenue item because they had yet to be sold. Information on sundry creditors and sundry debtors is also incomplete and often undocumented. As a result the balance sheets prepared by farms do not reflect the actual financial position of the farm.

Business acumen to improve capital investment decisions and underpin available production and marketing options need supporting. Taxation advice and advice to better understand of contractual issues (for example in obtaining loans, selling produce, ginning , etc.) are other services required.

As with agricultural extension, service provision for business advice and farm management extension is mostly carried by NGOs (mostly by the same ones providing agricultural extension).

55 Sources: ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution”

111 Also here is a lack of coordination between NGOs, resulting in a multitude of approaches, using different formats and methods. Especially with regards to training material, methods and forms used there is a need for standardization and a common methodology. The NGOs are not self sustaining and rely on donor funding for maintaining operations.

6.3 NGOs and Other Organizations Providing Extension Services56

ACTED conducted a thorough review of extension service providers (ESPs) in Tajikistan’s agricultural sector. This was done in the context of an EBRD funded project “Tajikistan Agricultural Finance Facility” (TAFF - see section 6.4). The review focused on ESPs active in the cotton growing districts, with a focus on farm management training. The list is thus not exhaustive, but nevertheless describes 11 organizations, including the key NGOs working in both agricultural and farm management/business advice extension.

As expected, the institutional structure/organization of the ESPs is different. For the 11 ESPs for example, AIN and ATAC are networks of independent consultants and based on the TACIS SITAF model. Some ESPs have a centralized system of functioning, which means they have a main office in the capital or in a province centre with the staff traveling to the districts, e.g. the Foundation for the Cooperation with Farm Enterprises, Hamkori bahri Tarakkiyot, National Agricultural Education Centre (Znanie). The remaining ESPs have offices with staff in some districts apart from their main offices, e.g. Jovid, CECI, UNDP, Union of Farm Enterprises and Entrepreneurs, Zar va Zamin and Arbitrazh.

Each ESP have specialized staff covering one or more aspects of agricultural crop/livestock production, land reform, irrigation, gender, etc. The analysis of results of the questionnaire that follows summarizes the details of the information obtained by the ACTED interview team from the 11 selected ESPs.

In the following tables, the figures 1 to 11 are used to identify the different services providers selected to deliver training in basic farm business management to farmers, i.e.:

1 Advisory Information Network (AIN) 2 Agricultural Technical Advisory Centre (Kulyab) (ATAC) 3 Foundation for the cooperation with farm enterprises (COOP) 4 Hamkori Bahri Tarakiet (Kulyab) (HBT) 5 JOVID (JOVID) 6 CESI (CESI) 7 ‘Znanie’ (knowledge)/ National agricultural education centre (NAEC) 8 UNDP (UNDP) 9 Union of farm enterprises and entrepreneurs (UFEE) 10 Zar Zamin (ZaZa) 11. PF Arbitrazh (Arbitrazh)

56 Sources: ACTED, 2008, “Tajik Agricultural Finance Facility -Farm Business Management Training - Assessment of existing extension service providers in Tajikistan and Selection of suitable extension service providers for Basic Farm Business Management Training” Inception report.

112 Table 14: Staff per area (number and specialization) AIN ATAC COOP HBT JOVID CESI NAEC Undp UFEE ZaZa Arbitra District h) a) zh (D) A3,E2,L (D,A,L,T) A2,E5,J6 Area Area 2 , Dushanbe L3,M3 b) Darvoz D,L,M Vanj Rushon Shugnon Ishkoshim GBAO Murgob Khorog D,L,M Roshtkala 3 indep. Trainers Advisors trained are Asht trained by JOVIDd A2, Y2, Ayni E1 Gonchi (A,L) A,E2 Konibodom (A,L) A2,I A2 A,E,L indep. A A2, Y2, 2 Advisors E1 Trainers are B.Gafurov trained trained by JOVIDd

Sugd 3 A,En inde. Trainers advisors trained are Zafarobod trained by JOVIDd Mastchoh A,En 3 indep. Trainers Advisors trained are J.Rasulov trained by JOVIDd Spitamen (A,L) A2,En A,F,L D,L,M A2 A2, Y2, Istaravshan E1

113 (A,L) A,E,J,L indep. D,L,M A2 4 Advisors Trainers are Isfara trained trained by JOVIDd A2, Y2, Panjakent E1 Mastchohi Kuhi Shakhriston A2,E,G (D, A,L) A4,D,E3, D,L,M A5,D1 Hujand J2 (D,A,L) A2, Y2, Kurgan Tiube E1 A2,G,L A, C,D,G D,L,M A2, Y2, Kulyab E1 A,G f) A2, Y2, Vose E1 MSA (A,L) Khamadoni A5, L5 4jrc e) A2, Y2, Farkhor E1 Dangara D,L,M Khuroson A,L jrc?d) A. Jomi Cdc Bokhtar Cdc Vakhsh Sarband Jilikul Cdc Kolkhozobod Kumsangir 2jrc d) e) D,L,M Khatlon Khatlon A2,L2 2jrc d) e) A2, Y2, Pyanj E1 Cdc A2, Y2, Shahrtuz E1 A2, Y2, Kubodien E1 2jrc d) e) A2, Y2, N.Husrav E1 Evon D,L,M Baljuvon A2,G,L2 jrc e) Temurmalik A,G f) Khovaling A,G,L A2,G2,L A,G f) Muminobod 2 A2,G2,L 2jrc e) Shurobod 2 Norak D,L,M A2, Y2,

R Tursunzoda RP E1

114 D,L,M A2, Y2, Khisor E1 A2, Y2, Shakhrinav E1 Rudaki D,L,M Vakhdat D,L,M Nurobod Varzob Faizobod Rogun Rasht D,L,M Jirgital Tojikobod D,L,M Tavildara D,L,M Total number of staff D+16 34 D+5 30 18 12 contracted trainers 7 19 Dushanbe (contracted) trainers A8,L8 24 20 - 15g) 10 32 c) 7 Rayons

bold cotton areas A = Agronomist I = irrigation specialists Office C = Coordinator J = ‘jurist’; specialist in legal issues trainers trained D = Director jrc = A, L, E, J possible working areas E = Economist L = Livestock specialist cross- district work (possible) En = Entomologists M = Marketing specialist F = fruits specialists T = trainer (specialisation n.a.) G = gender ( ) = planned

Table 15: Number of Active Clients per ESP 1 2 3 4 5 6 7 8 9 10 11 Number of agro groups covered 683 60 8 Number of Dekhan Farms covered 55 153 30 Number of farmers 11027 900 65 2475 1500 NA 1350 10120 No active clients X X X

Most of the 11 ESPs have active clients to provide training. However, the principles of farm group formation are different in each ESPs. Some of them are working based on Dekhan Farms (CECI, UFEE and Zar Zamin), while the AIN, ATAC and JOVID are working though formation of Agro Groups (with 7-15 in a group). Some ESP, as ZNANIE and PFA are working with farmers by linking them with Non Banking Credit Organization (for example ZNANIE)

Table 16: Infrastructure and equipment 1 2 3 4 5 6 7 8 9 10 11 Transport Car rent rent (X) rent 10 2 b) Minibus - - - 2 2 b) hired cars - - - 4 X b) 9 Infrastructure Office in the capital Dushanbe [nb] 1 a) 1 1 1 Office in the (Oblast) centre [nb] 2 1 a) 1 1 1 2 1 b) 2 Office in the Rayon [number] 16 5 a) - 2 15 9 Training premises in Dushanbe X a) 1 Training premises in the Rayons (16) (5) a) a) 2 7

115 a) rented training premises organized by the participants or the mandatory b) under discussion with MEDA to transfer assets

Most of the 11 ESPs are well equipped and have the necessary means to provide training. However, regarding availability of transport only AIN, Znanie and Jovid own their own cars. The majority of ESPs either hire or rent cars/vehicles in the frame of sub contracts and projects.

Table 17: Working language 1 2 3 4 5 6 7 8 9 10 11 Tajik X X X X X X X X X X Uzbek X (x) (x) X X X X X X Russian X X X X X X X X X X English - (x) (x) X

The main working (spoken) languages in rural areas of Tajikistan are Tajik and Uzbek. Training will be limited if Russian is used in rural areas, as it use and understanding by rural people is secondary to that of Tajik and Uzbek. All the interviewed ESPs can provide training in Tajik and Uzbek. Only the Foundation for the Cooperation with Farm Enterprises is lacking Uzbek speaking trainers. It is proposed to deliver training to farmers using the Tajik and Uzbek languages.

Table 18: Extension services 1 2 3 4 5 6 7 8 9 10 11 crop production X X d) X X e) X X X X cotton production - X animal husbandry X X c) X f) X X X X Economy of plant production X X X - X X X X X Economy of animal husbandry X X - X X X Marketing X f) X X X X X farm economy X X - X X X X X farm management - X X X X Business plan preparation X X X X X X X Crediting farmers X X X X X X privatization of farms - X X X land reform X - X X X X legal issues (agric. related laws) X - X X X Taxes X - X group formation, coop./ ass. Building X ass. FG FG X ass. X a) total 17 modules b) total 24 topics c) technical maps in: chicken, sheep, cattle/ horses d) technical maps in: cucumber, tomatoes, wheat, potatoes, onions e) vegetables (cucumber, tomatoes, onions, carrots, cabbage) and potatoes f) covered by a freelance trainer

In general, all the interviewed ESPs provide extension services in the core areas of agricultural production – crop and animal husbandry. Only 2 ESPs Znanie and CECI have proven experience in working in cotton sector. The training offered by Znanie in the frame of the World Bank mandate specifically relates to cotton production. CECI’s main activity has been in improving cotton production and creating a private cotton farm model. Only Jovid, Znanie and CECI have experience in providing training in Farm Business Management. For the remaining ESPs this

116 topic is new, although nearly half the ESPs claim to have working experience in business plan preparation and credit for farmers.

Table 19: Extension dissemination/tools 1 2 3 4 5 6 7 8 9 10 11 training of trainers X undp X X a) X b) X X X X training of farmers 4cyc- lmd b) X X X X X a) X X les Demonstrations X X X 0.5ha X X X X field days X X X X X X monthly bulletins - - X Brochures X - X X X X X Flyers X X - X X X X Books - X X X distribution of seed (& other inputs) X X a) particularly to members of the association, but in principle open to any farmer b) minimum of 15 persons in a training, maximum up to 25 if the donor pays for it.

Demonstration and printed material is considered by the ESPs to be the most effective activities for disseminating extension services and messages to farmers besides just provision of training. This analysis shows that most of the ESPs have these elements in their activities. Some of the ESPs like Foundation for the Cooperation with Farm Enterprises and Arbitrazh did not produce any visual materials and handouts while Union of Farm Enterprises and Entrepreneurs while strong in producing printed material has not implemented any demonstrations and field days

6.4 Rural Finance and the Banking Sector

At certain times, most Dekhan farmers need to obtain money in the form of loans to finance their farming enterprise. There are two main types of farm finance needs:

1) Finance for “capital investments”: The money is used for the purchase of expensive items, such as machinery, an irrigation pump or a tractor. Capital investments are also used for constructing infrastructure, such as buildings, stores, sheds, irrigation canals, etc. Capital investments are mostly used to finance “fixed assets” (items which have and maintain a certain value) and are often paid by taking up “long term” loans (5 years duration or more) with the banks. Most farmers make capital investments only occasionally. 2) “Seasonal cropping finance” (finance for cropping): The money is used for the purchase of inputs and to hire labor needed for growing and harvesting the crops. Often, seasonal cropping finance is needed because the income from the sales of crop produce may only become available after several months, creating temporary shortfalls in finance liquidity (negative “cashflow”). Cotton is a typical crop relying on cropping finance loans. In contrast to the “long term” nature of capital investment loans, copping finance loans are usually of short duration (maximum 16 months). The loans do not finance “fixed assets” and therefore do not increase the value of the enterprise (they are not an “investment”). The loans are used solely as “working capital”.

For the purpose of this review, only short term loans for seasonal cropping finance are discussed.

1. The new “Finance Mechanism for Agricultural Lending” (see also: section 3.2.3)

117

Whilst historically cropping finance was relatively forthcoming for cotton farmers (due to the perceived strategic importance of this crop for the National economy), Tajik farmers more generally have not enjoyed easy access to seasonal cropping finance. Lack of financial resources has often been quoted by farmers as a major reason for low productivity and profitability. Even where finance was injected into cotton production, the process often remained outside farmers’ control, was poorly managed and contributed to plunging farmers into debt.

The Government’s ongoing reform program in the agricultural sector (and in the cotton sub sector) includes making finance more accessible for farmers, for cotton and non-cotton cropping. A key aspect of the reforms stipulates that all crop lending must only be provided as commercial loans through authorized and duly registered financial institutions, such as commercial banks and selected mirco finance institutions (MFOs). The practice of cotton crop financing through “Investors” is no longer permissible (unless they have duly registered as a “financial institution”).

What are the main differences farmers can expect from these changes? Loan from Investors Commercial loan from finance (old system) institution (new system) Loan amount Based on simple business plan Based on farmer’s loan request, and overall money available, commercial credit assessment and often not reflecting farmer’s farmer’s repayment capacity (cash needs and/or repayment flow forecast). Reduced risk of bad capacity. High risk of bad debt. debt. Loan contract Mostly “future yield” collateral, Dekhan Farmers provide various linking farmer to investor’s gin collateral, including future yield, and removing marketing choice. but choose where to market crop, Must accept cotton price paid by potential for better prices investor. Interest rate Often lower than market rate but Market rate off set by overall poor “terms of trade” (cotton price, input prices) Loan duration Amount usually deducted from Negotiable, early repayments cotton revenue. possible to make loan cheaper. Disbursement As inputs (fertilizer, diesel), As money, in tranches to make loan often delayed, sometimes over cheaper. Disbursement timing priced, sometimes poor quality. negotiable to allow buying inputs at Money for harvest (labor) best price and quality. Loan purpose Only for cotton Loans available for cotton and non- cotton cropping

2. Seasonal finance needs (cotton)57

57 Sources: Sources: EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector”

118 Cost of key inputs for which farmers usually seek finance are close to USD 500/ha (2007), or approximately USD 130 million for the entire sub-sector. Tajikistan’s finance system is not in a position to satisfy this demand, thus much of the sector remains cash and input starved. Yields remain extremely low, cost is not recouped and debt increases continually. Invariably authorities continue to enforce production targets, compounding the problem ever further. This situation constricts the emergence of an able cotton sector finance system and acts as a deterrent to commercial lenders. Poor credit assessment and continued financing of loss making farms has accumulated a cotton sector debt exceeding USD 400 million (ADB 2007), historically using funds forwarded by foreign cotton merchants (notably Reinhart of Switzerland). More recently other sources, including money from Kazakh banks have played a more significant role. However, the debt problem is now so bad, that securing all important cropping finance is becoming increasingly difficult. Only an estimated USD 70 million were secured for the 2007 crop, causing much of the cotton to be grown without adequate inputs.

In 2008, the money flow for cotton working capital tightened further. Whilst some Investors continue to provide direct finance (despite the new rules), notably Ismoil Somoni and Kuhjand Invest Cotton, others claim to have stopped and even have pulled out of any involvement in the production cycle (Olimi Karimzod). The central government has stepped in and provided funds for on-lending to cotton growers for the 2008 crop. To this end, a total of 130 million. Somonis (approx. USD 37 million.) were channeled through selected banks.

The reform process of the rural finance sector is supported by two donor projects:

IFC: Southern Tajikistan Cotton Lending Project In partnership with Tojiksodirotbonk (TSB), the third-largest joint stock commercial bank in Tajikistan, the project assists the bank to successfully enter the cotton sector in Southern Tajikistan, assisting small and medium cotton farmers to grow through better access to capital, and helping to empower women farmers. Besides providing a long–term loan to TSB for on- lending to cotton farmers, the project will introduce a specific and tested lending technology for financing cotton farmers, and build internal bank capabilities. The project will address these gaps to enhance sector development as a whole, while providing strong benefit for individual farm-based businesses. By partnering with Tojiksoderotbonk (TSB), the project will help develop loan products targeted toward smaller and medium-sized cotton farms. Leveraging the lessons and experiences learned from IFC’s rural finance projects in other regions of Tajikistan, the project will work with TSB staff to introduce cotton lending products on a commercially viable basis for small and medium size farmers in the Khatlon oblast. Activities also include broadening the scope of the bank’s loan products to finance long-fibered cotton in Kurgan Tyube. In addition to developing new financial products, the project will provide training on the specifics of lending to smaller farms, borrower supervision, and lending review. The project and TSB will also develop a manual of cotton lending policies and procedures for local farmers. A priority is ensuring the integration of women farm workers into all project activities. While currently solely engaged with TSB, the project has the capacity to work with other financial institutions interested in developing loan products targeted toward smaller and medium- sized cotton farms.

119 EBRD: The “Tajikistan Agricultural Finance Facility” project (TAFF) has two components. The first is a credit line of up to USD 35 million from EBRD and co-donors for on-lending to farmers for seasonal cropping finance through commercial banks. There are limits on the portion lent to the cotton sub-sector, promoting lending to general agriculture (70% in year one, followed by a gradual reduction in years 2 and 3).

The second component consists of a technical co-operation program, partly implemented by ACTED (to deliver farm business management extension via selected extension service providers) and partly implemented by “Frankfurt School for Finance and Management” (TAFF team), supporting the partner banks with training and guidance in developing loan products, marketing, client assessment and loan monitoring activities. The project pursues 3 approaches to lending: (1) Individual lending, (2) Institutional Group Lending, and (3) Individual lending involving tri-party agreements, usually involving an agricultural processing company with a strong association with farmers.

Strict conditions and other issues have slowed the implementation of the credit lines. The project is not expected to play a major role in the financing of the 2008 agricultural season. Currently the project works with two commercial banks (Agro Invest Bank and Eskhata Bank).

3. The financial sector58

The financial system remains shallow. Despite improved macro-economic stability in recent years, the financial system remains shallow. The monetisation of the economy measured as broad money to GDP is low, fluctuating at around 8% since 2000. Total deposits in the banking system only oscillated between 4 and 5% of GDP between 2000 and 2004. The low level of savings shows a limited confidence among the population towards the banking sector. Despite declining inflation and modest currency devaluations over the past three years, the ratio of foreign to domestic currency deposits has doubled from 1:1 to 2:1 in the same period1. This shows that there is still limited trust in the local currency, given that public savings have been wiped out twice by surprise devaluations (First when the Russian Ruble was converted to the Tajikistan Ruble and second when the latter was replaced by the Somoni). The total loan portfolio of the banking system as a percentage of GDP remains low, at 14% in 2000, 19% in 2002, and 17% in 2004. However, statistics showing the total lending of the banking system are distorted by the huge amount of cotton debt, estimated at 60% of the total loan portfolio (the bulk of which is accounted for by Kredit Invest rather than commercial banks. See sections 3.2.3 and 4)

The banking sector includes ten commercial banks, one Microfinance Bank and one branch of a foreign bank. The sector is now highly concentrated. End of 2004, Agroinvestbank (AIB), Oriyonbank, Tojiksodirotbank (TSOB) and Amonatbank held about 85% of total deposits and 75% of the outstanding loans of the banking system.

Table 20: Core performance indicators (2004)

58 Sources: FAO, 2006, “Tajikistan – Expanding Finance in Rural Areas” /

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Table 21: Comparative analysis between banks (Dec 2005)

The microfinance market in Tajikistan is small, but has experienced strong growth rates in recent years. The total micro-loan portfolio was estimated at US$30 mn at the end of 2005. Main suppliers of micro-credit are the four commercial banks participating in the TMSEF and the Microfinance Organizations (MFOs), who are members of the National Microfinance Association (AMFOT). Micro-credit providers further include the First Microfinance Bank, the UNDP-funded Community Development Program, the Mountain Areas Development Programs funded by the Aga Khan Foundation, public agencies.

The MFO sector is composed of a few relatively large institutions3, a handful of medium-sized institutions and a huge number of very small institutions. IMON, the largest MFO, has a loan portfolio of about US$4.3 mn, around half of the total outstanding of the sector. The four largest MFOs account for two-thirds of the total MFO portfolio. Only 8 MFOs have more than 1,000 active borrowers. The remainder consists of a huge number of small and very small organizations, mostly located in remote rural areas. They include hundreds of Village Organizations created by the Agha Khan Development Network under its Mountain Areas Development Program (MSDSP), mainly in GBAO and in the Rasht Valley. Moreover, several hundred Jamoat Revolving Funds have been created by UNDP.

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Table 22: Micro Finance Organizations (MFOs), 2006

The main collateral currently available to banks in rural areas is buildings (mainly houses/apartments). The use of moveable assets including farm machinery and livestock becomes much more feasible with the new moveable property pledge law and registry system. Land use rights cannot be sold or mortgaged, but can be leased. The leases do not, however, convey the necessary tenure security to create long-term investment incentives or to serve as collateral Due to the concerted pressure from donors on the government to strengthen land rights and improve the related legislation, there is a good chance that the use of land as collateral might become feasible within the next few years.

Interest rates vary between banks and between loan products. In 2008, annual interest rates between 22 and 28% apply for short term lending, including seasonal cropping finance loans.

Lending skills and practices, especially on seasonal loans for farmer clients remain weak across all the banks. Traditional lending approaches, based on collateral, are not adequate and generally, bank lending officer have very little knowledge about agriculture. Effective credit assessment, based on farm profitability and cash-flow projections is a major challenge for most banks.

122 The TAFF project has developed powerful tools to support bank lending officers in this process. A computerized client assessment program was created, allowing bank officers with little or no agricultural knowledge to accurately assess clients (based on gross margin projections, agricultural production parameters and a risk analysis of the farming enterprise). This process is extremely important as it protects both bank and farmers from risk of bad loans. An extensive training program with partner banks is underway.

The unresolved cotton sector debt has the potential to derail efforts to reform the finance sector, imposing too great a risk for commercial lenders to venture into seasonal crop lending. The recent case of an Investor in Sugd Oblast who successfully sought debt retrieval through a court of law illustrates this (see case study below). It led to the farm’s bank account being blocked, to parts of seasonal crop finance loan issued by the bank to be put at risk, and to the reversal of the loan agreement between the bank and the farmer. The affected parties will seek to resolve the problem through mediation. There is a need for LACs to include a focus on rural finance issues.

123 TAFF lending to the cotton sector and debt vis-à-vis investors A concrete problem case

I Presentation of the case 1) Legal process In February 2008, at a time of a visit in Kanibadam of the Tajik President who urged local commercial banks to provide credit to cotton growers, Eskhata Bank granted two TAFF loans to two Dekhan Farms in Kanibadam (Firus and Madalieb) with good credit history, for respective amounts of 38,957 USD and 22,826 USD. Draw downs of first tranches were made up to 25,362 USD and 10,994 USD respectively. These farms are mainly involved in cotton production. On April 16th and April 10th 2008, the Kanibadam Court of Justice condemned Firus and Madalieb together with 4 other Dekhan Farms (DF) to pay within a maximum period of 6 months their shares of debts of a former kolkhoze out of which they were created in 2007. The creditor is Closed Join-Stock Company “Invest Agro”. Firus has to pay 32,421 USD of debt plus 2,224 SOM of legal costs. Madalieb has to pay 14,079 USD of debt plus 971 SOM of legal costs. Both Firus and Madaliev did not appeal the court decision (maximum period of one month) and it was implemented one month later. Invest Agro seized their cash in Eskhata Bank (interests they have paid on the first tranche of their credit).

2) Case viewed on the side of the farmers Just upon receiving the news of the seizure of accounts of the farmers by Invest Agro, TAFF went to visit the Eskhata branch in Kanibadam to clarify the case, knowing that often investors put pressure on local courts to recover so-called debts which eventually happen not to be valid. The head of the local branch confirmed that the debt was valid but TAFF team asked him to also visit at once the farmers. TAFF team met them in the fields and they gave their own version of the facts: • They recognized that they owe InvestAgro the amounts specified by the Court decision; • They claimed that InvestAgro also owes them some money as it did not pay for some cotton they delivered; • They underlined the facts that among the 30 DF which were created from their former kolkhoze and which inherited its liabilities and its assets, only 6 farms were prosecuted by InvestAgro in court. It happens that all the other farms still work exclusively for InvestAgro.

TAFF team has asked the farmers to provide it the proof that InvestAgro still owes them some money for their cotton.

3) Case viewed on the side of the investor TAFF team has not been able to meet the head of InvestAgro, who is out of the country until June 1st.

Case study: Problematic of unresolved debt for commercial banks’ lending to farmers (Source: EBRD/TAFF project)

Finally, most loans for seasonal cropping finance for cotton issued in 2008 (using funds from the government’s credit line) were not subjected to the necessary scrutiny. The demand for finance and time pressures led many banks to issue loans hastily. There is much anecdotal evidence to suggest that government pressure on banks to “get the loans out” was substantial. It must be expected that loan retrieval will become a major problem for the banks, particularly as this year’s cotton cropping is plagued by input supply problems (major shortages of irrigation water, absence of fertilizers, poor rain fall patterns, wide spread bad establishment of crops). This does

124 not auger well for the overall debt situation, which is likely to increase further. Commercial banks (who carry the risk for the loans issued) are likely to become yet another factor in the debt resolution problem.

6.5 Relevance of Essential Services at Farm Level to Legal Aid

As discussed in the previous sections of this chapter, agricultural extension, business advice and farm management training and access to and better understanding of rural finance are essential to the productivity, profitability and sustainability of the farming sector. The importance of these services will grow as reforms under Resolution 111 progress.

There will always be a need for specialization in providing these types of services to farmers (I.e. a banker is not an agronomist and vise versa). This demands a separation of (or within) organizations providing extension and other services to farmers. Some will concentrate on rural finance (banks), others on agronomy (ESPs) or on business advice and farm management (ESPs and business advice centers). Last (but not least), there are the legal aid centers (LACs). On the recipient side, the targets are individual farmers or groups of farmers who have limited know-how and exposure to such services. At times, at least for some services, there is a low recognition of their importance.

As listed in previous sections of this report, there are many NGO organizations providing such services at Rayon, Jamoat or village level. Concerns have been raised about the lack of coordination between players in the same area of expertise (i.e. agricultural extension) as well as between the different areas (i.e. between ESPs and LACs). As well as complicating standardized approaches to common issues, this situation hinders overall progress. It also has the potential to confuse farmers and to act as a disincentive to seek out services offered (let alone pay for the services, creating sustainability issues).

Efforts must be directed at improving the level of services and at the coordination between different providers. In the context of legal aid and land reform, these issues are discussed in more detail in section 7 (Key areas in legal aid and land reform of interest to SDC).

Areas of relevance for legal aid in the field of agricultural extension, business advice and farm management and rural finance include: (i) Agricultural Extension: - “Freedom to farm” (supporting implementation) - Contracts for service provision (extension providers, future fee for service) - Information pathway (using extension network to spread information) - Monitoring (freedom to farm implementation) - Dispute resolution (ii) Business advice and farm management: - Accounting and taxation issues - Land right and farm legal identity issues - Land lease issues - Contracts for purchase of goods and inputs - Contracts for sale of goods and produce - Due diligence and fair treatment of share holders and farm workers

125 - Dispute resolution (iii)Rural Finance: - Loan agreements (Individual, group and tri-party agreements). - Debt sequencing (sub-ordination) - Collateral issues - Farm legal identity issues - Cooperative/legal structures regarding institutional group lending - Dispute/debt resolution/mediation (see previous chapter).

7. Key Areas in Legal Aid and Land Reform of Interest to SDC59

The first part of this chapter summarizes areas of need for more effective legal aid provision on land reform and “freedom to farm” issues, including recommendations for the SDC project design where appropriate. The following issues are discussed:

- Coordination between legal aid service providers and standardization of approaches to the most common client needs - Linking with other essential farmer services. - Sustainability of service providers into the future - Gaps in geographic spread

The second part outlines recommendations and options for the follow on SDC design of the proposed project and defines three Mandates for the forthcoming mission:

1. Creation of an umbrella organization for legal aid services 2. Integration with farm restructuring and land titling activities 3. Linking project with other essential rural services

7.1 Gaps in Existing Legal Aid Service Provider Approaches

7.1.1 Coordination and Standardization of Approaches

This first part of this section will define the current coordination mechanisms for the agricultural sector within the donor community and in joint donor and government communications. These mechanisms will be relevant to the creation of a national LAC network in so far as they will be the forums to discuss donor programming and support for a more unified approach to agricultural sector reform. The second part of the section will review the specific coordination mechanisms for LAC and other providers of farmer services.

Donor Coordination for the Agricultural Sector60

1. Donor Coordination Council (DCC)

59 Sources: Interviews with donors; USAID Land Reform and Market Development Project Annual Reports for 2006 and 2007; ADB 2008 JCSS Real Sector Report and Donor Surveys; World Bank May 2008 Aide Memiore for the Land Registration and Cadastre System for Sustainable Agriculture Project, 60 Sources: ADB JCSS Real Sector Report, June, 2008

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In October, 2007 the Donor Coordination Council (DCC) agreed to appoint a special sub-group on agriculture whose members include: SDC, ADB, DfID, EBRD, SIDA, USAID, the UN and the World Bank. The DCC sub-group on agriculture meets regularly to discuss important issues, to better coordinate programs and to hold unified discussions with both the IC and the Deputy Prime Minister’s Office. In addition, the DCC supports three new joint donor-GoT Working Groups on Land/Water issues, on Finance and on Debt Resolution. The aim is to provide a forum for better donor and government communication and coordination to work together on developing the policies and implementation mechanisms for Resolution 111.

2. Joint Country Support Strategy (JCSS)

In 2007, several donors initiated the process to develop a Joint Country Support Strategy (JCSS) with the aim to better coordinate programs and funding as well as to improve mechanisms for communication with the GoT. A retreat took place during 1-3 June 2008 with the purpose of discussing the themes, concepts, procedures and timeframe for the preparation of the JCSS. Nine institutions have agreed to prepare the JCSS which will cover a 4 year period, from 2009 to 2012. At the retreat, sector reports were presented, including a report on the agricultural sector. A summary of the presentation is outlined below:

Findings: There are many donors involved in activities in the agricultural sector. However, coordination and results are mixed. For example, there are several donor agencies involved in legal aid centers (LACs) and extension services. Currently, there are more than 90 LAC’s and probably as many agricultural extension offices in the country. Each donor has set up and funded its own centers and the result is a relatively non-coordinated series of offices where various types of assistance are offered and varying levels of professional competency are evident. While substantial amounts of money have been spent the overall sustainability of these services is questionable. The significant gaps/overlaps in geographic coverage also mean that many farmers most in need of assistance (i.e. in cotton rayons) have limited or no access to support at all or else receive different advice from the various donor supported offices.

At the same time, there are large gaps in other support to other parts of the agricultural sector, including financing, processing and marketing support. Various donors are supporting non-cotton activities but the cotton investor monopoly on large scale finance and input supply has made it very difficult for these donor projects to have much success or broad-based reform results.

There is donor fatigue, frustration and a shifting of priorities: SIDA/CIDA/EC are withdrawing support to the agricultural sector or leaving Tajikistan altogether. Current funding under DfID and USAID farmer support centers and land reform work ends in 2008 and future assistance has yet to be decided. Thus, the agricultural sector is losing more than 50% of its grant funders (both in number and by monetary value) within the next 3-4 months. The resulting gap will have ever more devastating effects on sector and rural livelihoods….

Recommendations: An opportunity exists to work with the GoT to create and implement some fundamental changes in the agricultural sector- the investor based system for cotton financing is breaking down and there is a shift to commercial finance, food security issues provide an opening for donors to discuss crop diversification, there is a possible new role for the private sector in

127 input supply, and many of the current donor projects that fund farmer support services are ending in 2008 which will allow for a more coordinated approach in new donor programs and activities. Some specific recommendations are outlined below:

1. Cotton reform must be made a priority First and foremost, donors cannot avoid cotton any longer- we must face needed reforms head on, especially in light of the drastic decline in the agricultural sector, rural livelihoods standards and food security issues. A comprehensive agricultural sector policy is needed and the government will need assistance to develop it. In the meantime, donors should use Resolution 111 as the basis for their sector programs and coordinate efforts to prioritize and sequence actions, avoid continued gaps and overlaps and speak with one voice to the government. 2. Debt Resolution Mechanism is needed Second, the Debt Resolution Mechanism must be agreed with the Government. The unresolved debt issue allows investors and the local government to retain control (real or perceived) over farmers, prevents banks from lending in a commercially responsible way, reduces land tenure security and maintains the precarious macro-economic balance. 3. A comprehensive land reform program must be adopted Unfortunately the GoT farm restructuring program has mostly been a failure, especially in the cotton growing rayons where the former sovkhoz/kolkhoz have been ‘restructured’ into collective dekhan farms, with almost no change in management structures or shareholder governance. The new Registration Law requires $30+ million in investment but before a land titling program can take place, the farm restructuring process needs to be verified or else we risk disenfranchising many people who have been denied their land rights. Thus, sequencing is critical for an effective land reform program and donors will have to accept that some of the work will have to start over or the validity of past reform must be confirmed. 4. Better coordination in provision of farmer services Better coordination in farmer services (legal, business and agricultural extension) is definitely needed, since this is area where there are currently the most gaps and overlaps. SDC is in the process of conducting an assessment to create a coordinated national Legal Aid Center network. Donors such as DfID, USAID, SDC, UNDP, UNFAO etc are strongly encouraged to support the national LAC Network as opposed to continuing support for their separate centers. The assessment will review what all donors have supported to date and try to pull the experience into a “coalition of service providers”. The pooling of donor resources will allow a unified approach for provision of farmer services, create a minimum standard of professional services, provide a single set of information materials for farmers, increase the likelihood of leaving behind a sustainable network and provide a unified approach for monitoring and for advocating farmer’s rights with the GoT. The ‘coalition’ is meant to build on what has already been developed over the past 5-7 years, not create yet another parallel system. The SDC assessment is expected mid-summer 2008…..

Under this current desk study, interviews with donors and their implementing partners highlighted the need for more coordination at all levels is regarded as a priority; this means donors must coordinate their programs and funding mechanisms amongst themselves and their implementers must ensure that field level activities are consistent throughout the country and coordinated to avoid gaps and overlaps in geographic coverage. Ultimately, the main objective is

128 to achieve greater standardization in areas such as the development and publication of farmer information and training materials, contracts and other transaction documents. There is also a demand for a certification process for each of the local NGOs or other implementing partners to ensure a minimum level of service amongst LAC staff and a higher level of professionalism in service delivery. Better coordination can also increase operational efficiency, particularly in the dissemination of information and outreach capacity of LACs.

This conclusion was reached after two years of informal coordination and a review of donor funding to farmer education and LACs. In 2006, USAID set up the Legal Aid Center Coordination Group (LAC CG) that includes members with offices funded and/or implemented by USAID, ACTED, EC, CIDA, OSCE, DfID, UNFAO, SDC, UNIFEM etc.

To the extent possible, the LAC CG has exchanged information and even set up a database to record information on their respective activities, geographic outreach and funding time frames61. The most significant coordination effort has been the development, publishing and distribution of the Freedom to Farm brochure. The members of the LAC CG collaborated to develop the brochure and UNDP funded the publication of 50,000 copies for all LAC members to distribute. This is the first joint donor brochure and has set the precedent for a series of other brochures for joint development and use. The goal is to have a single set of farmer and training materials that all LAC use in their farmer outreach. Building on the success of the Freedom to Farm brochure, the LAC CG is continuing efforts to unify materials. The chart below lists the organizations and the topics for which each is responsible:

Organization Title of brochure First draft presentation

ACTED Contracts 11.04.08 How to protect your rights 11.04.08 Farm business management ADB New mechanisms for financing 05.05.08 EC TALPAR Governance of dekhan farms 11.04.08 Service cooperatives USAID Reorganization and creation of dehkan farms 05.05.08 Taxation 05.05.08 Winrock Setting up a water users association 05.06.08 Arbitrazh Debt resolution ? EC TACIS/SENAS Farm production ? (with Arbitrazh)

However, even though coordination efforts amongst the implementers are well intentioned, donors continue to fund separate LAC, develop their own methods and materials and to cover sporadic geographic areas. A map defining the location of the various LAC was produced in 2006 and 2007 with the recognition that 90+ LAC centers exist but are generally grouped in a few rayons only, causing gaps and overlaps in coverage. Of most concern is the lack of coverage in the cotton growing areas where farmer’s rights are in most jeopardy and the debt problem the

61 The complete “Legal Aid Center – data base” is in the electronic library, added to this report

129 highest as well as the fact that by January, 2009, most of the current funding for LAC will have ended62

The forthcoming SDC Assessment should review and incorporate the coordination efforts done to date and then build on the experience to produce a comprehensive proposal and mechanism for donors to use in developing their future programs and to direct funding to the national network. The USAID model seems to be the most comprehensive, from its rural activist (Tashabbuskor) network which is the most effective outreach for direct access to farmers to active court representation.

There is consensus amongst all interviewed parties that the LAC output will benefit from greater networking and that it be best achieved through a representative umbrella organization. The design and creation of such an umbrella organization, possibly in the form of an association, and its operational and financial support should be central to the SDC project design and represents the most important mandate for the SDC mission.

7.1.2 Linking with Other Essential Farmer Services

“Freedom to farm” and land reform create security and open up opportunities for land holders. However, to realize this potential farmers need access to a range of essential services. Key services include: - Access to working capital and investment capital (rural finance): Lending institutions (commercial banks, MFOs) - Access to business and farm management advice: Extension services, business advisory centers - Access to agricultural advice: Agricultural advisory services

1. Rural Finance As discussed in section 6.4, the rural finance sector is only just entering the agricultural lending market, especially with regards to the provision of loan products for working capital (seasonal cropping finance). It is a risky market for both lenders and clients, as neither are experienced in this area of transactions. A well functioning rural finance sector is of utmost importance to farmers, without which they cannot conduct their enterprises beyond the most basic subsistence farming. Currently, there is no formal linkage between the main commercial banks providing working capital to farmers and projects or organizations providing other essential services (legal, agricultural extension, farm management/business advice).

Future needs for LACs in rural finance:

Collateral using land use rights certificates: As the pace of land reform implementation increases, particularly the right to transfer land titles, it will become increasingly urgent to create linkages between rural finance and legal aid providers. LACs will need to inform and advise farmers on loan agreements involving the

62 Annex 9: Mapping of LAC distrbution

130 pledging of land use rights, especially explaining carefully the consequences of default and subsequent foreclosure. Farmers will undoubtedly be faced with mediation or court actions involving land use right collateral and LAC advocacy will be crucial for protecting the rights of farmers and for resolving disputes. A proactive approach involving good communication and information exchange between lenders and LACs will help to reduce the occurrence of such cases.

Loan agreements As the market for seasonal financing of farmers evolves, borrowers will need to understand increasingly complex loan products and may need to enter into loan agreements involving institutional group lending or tri-party loan agreements. LACs will play a role to support farmers who seek legal advice on such issues. Again, good communication with lenders will be important to ensure all parties fully understand the issues at hand.

Farm legal identity Currently most Dekhan farms are not legal persons. LACs will play an important role as an information and advisory resource for farming enterprises registering as legal entities. This has ramifications for the finance sector, particularly in the case of cooperatives seeking institutional group lending (this product has no history in Tajikistan but is promoted by the EBRD/TAFF project as an effective way for small farmers to access finance more effectively, whilst at the same time enhancing sustainability).

Dispute resolution and mediation LACs will have a market with both lenders and borrowers in the field of mediation and dispute resolution. Issues such as debt sequencing (sub ordination of old existing debt), debt roll over or disagreement on value of collateral may require such services.

A linkage to the rural finance sector within the context of a legal aid project, such as the one envisaged by SDC, may best be achieved through coordination with the EBRD/TAFF project (see section 6.4). The project’s main mandate is provision of working capital to farmers via three of the main commercial banks (Eskahta, Tojiksodirot and Agro Invest bank), in support of Resolution 111 reforms, including “Freedom to farm”.

2. Business and Farm Management Governance is a major problem in Dekhan farms, responsible for poor planning and a key contributor to lack of productivity, profitability and sustainability. Improvements in this area are needed if farms are to progress in a reformed production environment. Currently, business and farm management advice is provided by a number of uncoordinated specialized centers and numerous NGOs as part of their terms of reference (see sections 6.2 and 6.3). Coordination between business and farm management advice providers is particularly important due to the relative complexity of the subject. Whilst advice must be able to respond to individual queries with tailor made programs, it must also provide a standardized basic “know how” package adapted to the average client. This includes standardization of formats and sheets used in farm governance, particularly with regards to financial management (book keeping, budgeting and planning).

131 Business advice provides farmers with skills to develop planning and decision making processes. It applies foremost to long term capital investment ventures (such as investing in infra structure, value adding and vertical integration projects, expansion of existing activities, etc), where accurate business plans and profit/loss forecasts need completing. It also applies to short term investments and annual production plans, to assess basic productivity and to analyze whole farm gross margin and cash flow projections. Taxation advice will also be required in the context of business advice.

Farm management advice improves the planning and monitoring capacity of farmers. Book keeping, resource management (for example irrigation water supply) and production planning (what is needed to grow a particular crop?) are key areas, together with improved accountability and transparency – not least towards share holders. Farm taxation information and advice must also be provided.

At present, cooperation between service advisers is absent or minimal. This results in a multitude of different approaches and an ill defined focus on what is important and what is not with regards to training. In many instances training materials are too complicated, contradictory or not in accordance with international standards (for example in book keeping).

Future needs for LACs in farm management and business advice:

Business advice: Farmer clients may seek advice on contractual issues or tax regulations regarding business ventures. Clients may need LAC services in relation to land leasing or other transaction arrangements such as gifts, exchange or inheritance. Assistance in calculating tax and paying tax dues is also a potential business service that could be provided for a fee, especially if the LAC agrees to represent the client in any disputes with the tax authority.

Farm management: LACs already play an important role in advocacy of share holder’s rights in Dekhan farms. This will become increasingly important with the registration of land titles and transactions under the new Land Code and the Law on Registration, when land use certificates become tradable (and have a real asset value). Farm governance structures must become more democratic and inclusive of share holders, or else there will be little benefit from the new rights for most share holders. To the contrary, it may increase their vulnerability towards unscrupulous farm management practices aimed at accumulating land use rights by a few powerful mangers or business men (a “land grab”). Farmers may seek advice from LACs on the most suitable option to attain a farm legal identity and how best to structure internal statutes for the farm. LACs, via an umbrella organization, can also play a role in facilitating standardization of farm management approaches and LAC regional centers can be a conduit for dissemination of information.

A linkage with business and farm management advisory services within the context of a legal aid project, such as the one envisaged by SDC, may best be achieved through coordination with specialized providers, especially the EC “Wealth for all” project (see sections 5.2.1 and 5.2.3) and its 3 implementing partners in the field (AIN, Jovid, Arbitrazh). In other geographical areas, coordination can be sought with key NGO’s providing such services (see section 6.3).

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3. Agricultural Extension There is an urgent need for stronger agricultural extension services in the rural areas of Tajikistan. As discussed in various chapter of this report, agricultural yields remain low compared to the international averages. Cotton sub sector performance has been particularly poor (see section 1.2.2 ). Causal factors are manifold, including ongoing interference by government and local authorities (see section 3.2.2). Lack of agricultural know how at farm level, combined with fragmented and poorly represented agricultural extension services are strongly associated with poor farming practices and low yields. As is the case with farm and business management, improvements in agricultural practices are needed if farms are to progress in a reformed production environment.

At this time, agricultural extension services are provided by a number of local NGOs (see sections 6.1 and 6.3), supported by donor projects. Operational areas cover specific geographic locations and many are not involved in the cotton sub sector or are only just starting to engage with cotton farmers. A common trait is donor funding dependence, leading to a focus on project activities rather than operating as a responsive, outcome oriented service for farmers’ needs (There is a need for ongoing technical advice to farmers, provided as a defined service focusing on coaching and crop monitoring during the cropping cycles). Whilst institutional extension services are almost absent in Tajikistan, some private companies (such as cotton investors and processors) operate basic agronomy extension services. In other countries (i.e. Australia cotton and non cotton sectors) private sector agricultural extension has proven very effective. It is not surprising as key stake holders in the value chain have a high motivation to improve productivity and sustainability of the agricultural sector, thus ensuring long term supplies and growth. An extension project based on cooperation with the private sector is currently under consideration (ADB). Key points in agricultural extension include land use (how crops are grown and how the soil is treated), water management (how the water resource is managed and how crops are watered) and crop management (how crops are tended through their growing cycles).

The EC funded TACIS/SENAS project is mandated with the creation of an “extension network”, possibly by means of an umbrella organization. The project has limited funding and thus relies on the goodwill and cooperation of all organizations active in agricultural extension to support this process. At this time, it is not expected that this objective will be achieved in the short term. In parallel, the service provider in rural extension NGO ACTED has established a separate local NGO “Agricultural Information Network” – AIN to focus on agricultural extension, business and farm management advice. AIN may have intentions towards fulfilling an “umbrella organization” function.

Future needs for LACs in agricultural extension:

Whilst there may be occasional need for LAC advise to farmers on agricultural extension issues (such as for contractual arrangements for input supplies or service provisions) the main impetus for cooperation between both services is one of information dissemination and monitoring activities.

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Agricultural extension persons have direct access to many farmers across extended areas of a district. They organize field days and spend much of their time in the field, thus gaining an accurate insight on activities and problems. Agricultural extensionists are thus an ideal conduit for spreading information, as well as for monitoring activities (“freedom to farm”, etc.).

Engaging with private industry extension agronomists may also help to bridge and communicate with perceived “threats” to land reform, such as Investors. It may indeed be beneficial to build communication and cooperation ties with such organizations to reduce the risk of confrontations and antagonistic behavior on all sides.

A linkage with agricultural extension advisory services within the context of a legal aid project, such as the one envisaged by SDC, may best be achieved through coordination with key NGOs, such as AIN, ATAC (SENAS) and CECI (see sections 5.2.3 and 6.3). Potential cooperation with the private sector could include companies working with the EBRD/TAFF rural finance project, notably Khojand Invest Cotton. ADB’s private sector extension project, if implemented, will be another important potential candidate for cooperation.

7.1.3 Sustainability of Service Providers into the Future

Many of the parties that met during the scope of this report (especially, but not exclusively donors) expressed concern about the capacity of LACs and other rural service providers to become financially self sustaining into the future. At this time, most if not all NGO service providers across the entire rural sector depend either completely or at least to a large extent on donor funding for their survival. Experience has shown that in most cases the end of funding also means the end of the service provider. This dependency motivates NGOs to focus strongly on securing ongoing funding from donors, across a range of projects. It may detract from achieving continuity of services in the field (new funding = new project= new mandates and deliverables). It certainly distracts NGOs from building a client focused business delivering strong services which eventually allows sustainability from paying clients. Instead most of the effort goes to “selling” services to donors.

Whilst some projects stipulated that service delivery to farmers must be free of charge (such as with DFID/Arbitrazh), there is a widespread consensus that a “fee for service” approach must be included in the project design from the start. It serves to motivate the service provider to deliver better services, helps determine which services clients want (they will not pay for services which are not needed or which don’t deliver results) and gradually, helps farmers to become better managers (as contracting of services becomes a business decision, rather than something that’s there to take or leave).

There is agreement that that “fee for service” needs to be introduced gradually, on the basis of annual incremental increases and in relation to the benefit delivered to the client (success fee). Likewise, several voices expressed the need to have differential fees reflecting the capacity of clients to pay (i.e. rich clients subsidize poor clients).

At a recent presentation by NGO “Citizen’s Right” , an NGO currently supported by USAID, the Director noted that he has developed a client base that is willing to pay for certain services and

134 which will help sustain their NGO when current USAID funding ends in July, 2008. A summary of the Director’s points follows: 1. The NGO was created and registered under the appropriate structures 2. A business plan was adopted using SMART criteria 3. Linkage with farmers and entrepreneurs were developed through the different projects and activities 4. Under the USAID project, they distinguished themselves as legal professionals of high quality (through advocacy and negotiation in court cases and other disputes with government officials, farm managers or businesses, especially investors). Based on the positive results, both government officials and more farmers requested their involvement and advice in various cases. In short, they developed a reputation for providing high quality services at all parties. 5. The NGO tried to diversify the types of services available (i.e. not only legal issues on land reform but also civil, criminal, labor etc). In cooperation with another NGO they received 2 small grants from other donors to implement a project connected with gender issues and youth issues. 6. They have set up a fee structure for payment for advocate services and have licensed advocates on staff. 7. They monitor their own activities using surveys, questionnaires and reports 8. They publish their materials and successes in mass-media

Achieving self sustainability of an umbrella organization created under the SDC project, discussed later in this chapter, is more difficult. NGO-LACs operating on a “fee for service” principle are fundamentally businesses, directly invoicing paying customers. An umbrella organization in the form of an association must rely on membership fees and other member contributions for its operation, unless it itself also conducts some form of “fee for service” operation.

In meetings conducted for this report, the view was commonly expressed that the association should not engage in commercial activities (such as operating an independent LAC of its own) as it may cause conflicts of interest within the organization (emphasis on conducting business to the detriment of the running of the not-for-profit association) and potentially with members (who may compete for the same clients). However, no substantive alternative for increasing self- sustainability was offered.

It is thus likely that the umbrella association will need to rely on financial support through the entire duration of the project and probably beyond. Nevertheless, project design should mandate good management practice so that this support is linked to clear outputs on the basis of strategic plans and on sound financial planning on the basis of budgeting and accounting standards. Beyond the project term, support could be envisaged on yearly cycles based on the same requirements.

7.1.4 Gaps/Overlaps in Geographic Spread

135 The maps in annex 963 reflect the current gaps/overlaps in geographic coverage of LAC and show the alarming fact that, according to current official data, by January, 2009 all but one donor will have stopped funding LAC. However, several donors, including DfID and USAID may be willing to continue funding in their new programs. This provides a unique opportunity to work together and support a more unified approach to delivery of farmer education and advocacy services. The forthcoming SDC assessment will be a critical component in this effort.

7.2 Recommendations for the SDC Project Design

7.2.1 Creation of an Umbrella Organization for Legal Aid Services

The creation of an umbrella organization for LACs (variously called a ‘national association’64 or ‘coalition’) should be included in the project as its first mandate. The design and creation of an umbrella organization for LAC service providers must rest on an extensive consultative process involving all the stake holders (donors and their implementing NGO partners).

The objective is to design a terms of reference for the umbrella organizations which respond to the need of its future members (NGOs) (see Donor Legal Aid Survey65) and which secure broad agreement and potential financial co-contributions from key donors (EC, DFID, USAID). It is particularly important to consult and coordinate with DFID and USAID with both donors are about to enter new project/strategic plan cycles.

During the preparation of this report, parties met at the donor level made the following suggestions regarding objectives and deliverables for an umbrella organization: • Set up the umbrella organization in the form of an association or ‘coalition’ of existing LAC • Develop LAC membership (company) mechanism and/or individual membership of professionals (legal aid, business advisors etc) • Design and implement a compulsory certification program for members • Ensure Certificate is (officially) recognized by authorities or relevant ministries/agencies • Develop and distribute standardized training material to members • Provide up-skilling and training • Provide assistance and legal consultation for LAC members that face cases which are outside their scope or capacity using highly skilled legal professional • Maintain donor coordination, information to members • Provide a voice for advocacy: Develop political clout and standing authority to engage at high level with authorities and assist in the advancement or resolution of cases which are not manageable at a regional level • Organize and coordinate monitoring activities

63 Annex 9: Mapping of LAC distribution 64 Note that the authors of this report decided not to call the umbrella organization a ‘national association’ in order to leave the option flexible but also due to the fact that the GoT implicitly supports the “National Association of Dekhan Farms” and it is important that the organization proposed under this report is separate from this ill- performing quasi association. 65 The complete “Legal Aid Center – data base” is in the electronic library , attached to this report as a separate file

136 • Promote best business management practices to members and provide training and information on achieving self sufficiency • Develop plan for self-sustainability. (i.e. create a “Special fund” where member LACs contribute a % of fee revenue from income) • Secure donor financial and operational support for short to medium term and develop a business plan for long term • Base the head office in Dushanbe

The above list is not exhaustive and project design must ensure that stakeholders are consulted and their considered for the design of terms of reference for the umbrella association. The structure of the association should follow internationally accepted standards, comprising of membership, elected board of directors, appropriate committees (manned by members) and an executive office (salaried, full time).

7.2.2 Integration with Farm Restructuring and Land Titling Activities

Land reform is a key element for SDC and the second mandate of the mission and future project. In developing the project, SDC should pay special attention to integrating its objectives and deliverables with other donors in this area including SIDA, the World Bank and ADB. Of specific relevance is the role of LAC in the farm restructuring and land titling process. Due to the dubious results in the land reform and farm restructuring process to date and the creation of the new land registration authority and forthcoming registration initiatives, farmers throughout Tajikistan will require increased access to information and legal advice. One of the main safeguards donors can provide in the shift to a market oriented economy is to ensure access to legal information and advocacy for both rural and urban citizens. Without this support, citizens, especially farmers, risk losing their rights to land and other property.

This section will review what donors are doing or plan to do with regard to farm restructuring and land registration, and highlight the instrumental role of LAC in safeguarding citizen’s rights and providing farmers with information to help them improve the management of their business.

SIDA The SIDA funded “Land Cadastre Project” (see section 5.2.1) is imminent, due to start in July 2008. SIDA, through the National Land Survey of Sweden, will support the implementation of the Law on State Registration of Immovable Property and Rights to It, with direct support for the: − Establishment of a suitable and sustainable organization for land administration, specifically for land and immovable property registration; and − Implementation of new unified registration operations in one pilot area, covering both rural and urban land and all types of immovable property, for later replication in other parts of the country; The project will work in a (yet to be defined) pilot area that covers both rural and urban areas, together with the new state registration authority, to strengthen the new institutional and begin formal registration of land use and ownership rights to all land and immovable property (buildings).

137 The SDC project design must occur in close consultation with SIDA, delivering clear recommendations for an integrated role of LACs and the LAC umbrella association in the SIDA project and any other future titling activities. General suggestions for the role of LACs include:

• Prior to land titling activities, detailed consultations with farm members on site about the past farm restructuring process and whether the correct procedures were in fact followed. If not, the farm will likely need to go through the restructuring process with the support and oversight of the LAC. Where the farm is already a family farm, the arrangements are usually rapid, but for the many farms where the membership is above ten persons, this process may require education and time.

• During land titling activities, detailed consultations on the location and use of each person’s or farm’s parcel(s). This process is called grouping and arranging, and facilitates individual or household ownership, but can allow for collective options for use in order to limit fragmentation of land use. In this process, all farm members sit down and discuss the probable use they will make of their land such as family farming, leasing to others for farming, or joint farming with others. The LAC will have to be active and diligent to ensure that farm managers, local government officials, or other powerful persons do not influence the decisions made by farm members/shareholders.

• Concurrently with land titling activities, the SDC project design should include a pilot that combines land titling activities with the re-registration of farms as legal entities. Again, the LAC will play an important role in advising farmers on their options and helping them meet legal requirements. LACs will likely have to engage in the process of deregistration and re-registration of farms as appropriate, ensuring that (i) the legal form is appropriate for the wishes and capacities of the owners and shareholders and the potential of the farm to operate profitably; (ii) no person with a legal right is disenfranchised from ownership; (iii) changes in tax status or social security rights are accurately reflected; (iv) all assets, liabilities and equity is properly shifted to any new entity(ies); (v) the registration of the farm business is consistent with the shareholder wishes regarding land use as projected under the land use right registration process; and (vi) all processes of registration are correctly implemented under the law. If the planned one stop shop for business registration is completed, it may be used for the de- registration/re-registration process.

These activities will require a concerted information and education campaign and well developed legal advocacy skills from LAC staff. It also emphasizes the importance of a unified approach amongst donors, especially since farm restructuring and land titling activities will require co- financing arrangements and multi-year projects.

Once the SIDA project has made concrete advances so that methodology and processes for land registration can be applied more widely, the SDC project design could include additional land titling activities in another two pilot areas. This may require the direct support for two LAC offices under the project.

World Bank

138 The WB Land Registration and Cadastre System for Sustainable Agriculture Project aims to expand farm privatization to enable more rural people to become independent farmers and take management decisions in response to market forces, by providing them secure land use rights certificates distributed in a transparent and fair manner, and providing essential complementary support services such as land registration database system including records of immovable property and of transactions to initiate a land market for the areas covered under the project.

However, the project is facing some difficulties and a mid-term review in September will decide whether remedial action is needed in the form of a time-bound action plan to resolve the difficulties. In the extreme, the project is subject to premature closing with cancellation of financing if the action plan is not agreed or not implemented on a timely basis. Nevertheless, the project has made some progress on mapping and digital orthophotos which can be used in other land titling activities but which will requite close donor coordination. In addition, the outreach activities under the current World Bank Land Registration and Cadastre System for Sustainable Agriculture Project and the Cotton Recovery project both contain farmer education and public outreach components that should be harmonized with the SDC initiative.

ADB The Asian Development Bank (ADB) is in discussions with the GoT to provide a large sector loan to support implementation of Resolution 111 which, if agreed amongst the parties, will go to the ADB Board for consideration in late 2008. Currently, there are three proposed components: land registration, farmer capacity development, and support to reform implementation. LACs would be direct partners in implementation of the first two components and play a monitoring role in the third.

Any ADB support for LAC would require that LAC staff are suitably trained and tested in their knowledge of land reform and farm registration options and procedures and that a uniform program for outreach and advocacy is available throughout Tajikistan, particularly in the 33 cotton growing rayons. Thus, the national umbrella organization is a key component in creating a uniform system hat can meet the needs of such large reform projects.

7.2.3 Linking with Other Essential Services

Linking the project to other essential services (rural finance, business and farm management advice and agricultural extension) is important to SDC. These services are essential to support farmers to attain a higher productivity, profitability and sustainability. These services also fulfill an important role in promoting and monitoring the implementation of “freedom to farm”. The third mandate of the SDC project should stipulate the effective linkage of project activities with other essential service providers.

Whilst some of the parties met during the preparation of this report expressed an opinion in favor of creating an umbrella organization not just for LACs, but one representing agricultural and business service providers as well. There may exist some advantages with this concept (such as avoiding the creation of numerous umbrella associations) but this suggestion was rejected by most of the interviewees (on grounds that it would not be manageable and a preference for a clear separation of areas of expertise, despite the fact that many extension providers cover a range of

139 services in all areas). Nevertheless, the SDC project can perhaps, via its NGO implementer in the 2 pilot districts (described in section 7.2.2), engage directly with existing service providers, including the private sector.

Designing terms of reference for this third mandate should refer to section 7.1.2 of this chapter. A consultative approach with potential cooperators must be implemented, to canvass their interest and to agree on basic common objectives. Also, the role of the National Association of Dekhan Farms must also be carefully considered (section 5.2.). Lessons and experiences learned from mandate 3 are to be communicated to the LAC network and its members to advocate similar action in other areas, if capacities and conditions allow.

140 Sources Used: o ACTED, 2008, “Tajik Agricultural Finance Facility -Farm Business Management Training - Assessment of existing extension service providers in Tajikistan and Selection of suitable extension service providers for Basic Farm Business Management Training” Inception report o ADB, 2006 “Preparing the Rural Development Project” o ADB, 2006, “Proposed Loan and Asian Development Fund Grant Republic of Tajikistan: Sustainable Cotton Subsector Project” o ADB, 2007, “TA 4664 Final Report – Farm Analysis for Awareness Raising and Debt Resolution”. o ADB, 2007, “TA4664 –“ Debt Resolution and Awareness Raising” Final Report –Agronomy o ADB, 2007,“A Study on International Migrants’ Remittances in Central Asia and South Caucasus -Country Report on Remittances of International Migrants an d the Financial Sector in Tajikistan” (Draft) o ADB, 2008, “Tajikistan: Cotton Sector and Proposed Policy Reforms” o ADB/WB, 2006, “Road Map for Farm Debt Resolution Strategy” o DFID, 2007, “THIRD PARTY ARBITRATION COURTS Project – Debt Resolution component” 2nd Annual Report 2006-2007 o EBRD, 2007, Tajikistan Agricultural Finance Framework (TAFF) “Review of the Tajik Cotton Sector” o EBRD, 2008, TAFF Progress Report o EC, 2006, Review of the Current Situation in Agriculture in Tajikistan, («Support to the Development, Implementation and Evaluation of Agricultural Policy» Project, funded by European Union ) o EuropeAid 122386/C/SV/TJ – “Support to the Development, Implementation and Evaluation of Agricultural Policy”, Final Report – December 2007 o EC/Landell Mills, 2005 “Support to the Union of Dekhan Farmers and Businessmen of Tajikistan – Activity report, September” o EC/Landell Mills, 2006,”Support to the Union of Dekhan Farmers and Businessmen of Tajikistan – Final Report” o FAO, 2006,”Tajikistan –Expanding Rural Finance” o FAO, Comments to the Law on Land Use Planning o FAO/WFP/UNICEF/Government, 2008, “Emergency Assessment of food security in rural areas of Tajikistan”-preliminary findings o Helmer, John, 2008, Long-running Tajik aluminum case sets UK legal fees record o USAID, Institutional and Financial Assessment: Creating a Unified State Register in Tajikistan, June 2007 o USAID, Land Reform and Market Development Project Commentary on the Land Code and the Law on Mortgage o USAID, 2007, Valuation Report o USAID and World Bank, 2007, KAP (Knowledge, Attitudes and Practices) Study Final Report o Van Atta, Don, The Failure of Land Reform in Tajikistan, paper from13th Annual World Convention of the Association for the Study of Nationalities, April 11, 2008 o WB, 2006, Tajikistan Policy Note -Poverty Reduction and Economic Management Unit Europe and Central Asia “Enhancing the Development Impact of Remittances

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