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Marital strife leaves Coca-Cola flat By David Stern Published: July 20 2002 5:00 | Last Updated: July 20 2002 5:00
Divorce can be costly. Coca-Cola is finding out the hard way that in Uzbekistan even a global drinks giant can become like the child trapped in a custody battle while the estranged parents fight it out.
The saga began last year, when Coca-Cola's main Uzbek partner, Mansur Maqsudi, separated from his wife of 10 years, Gulnora Karimova. Perhaps that would hardly have mattered had she not been the daughter of Islam Karimov, the Uzbek president.
Coca-Cola International, along with Mr Maqsudi's company, Roz Trading, and the Uzbek state property committee were co-owners of Coca-Cola Bottlers Uzbekistan, the bottling and distribution enterprise.
The break-up of Mr Maqsudi and Ms Karimova was by all accounts acrimonious. In a development that Uzbek authorities said was not related to the divorce, Mr Maqsudi was said to owe the government $9m in back taxes. Mr Maqsudi resides in the US and has said he will not return to Uzbekistan, for fear of prosecution.
As the atmosphere soured, Coca-Cola was paid visits by the tax police, fire inspectors and other government officials. The heat became so intense that the general manager left the country.
The Uzbek government then sought to take over Roz Trading's share of the company in lieu of the taxes allegedly owed by Mr Maqsudi, leading to the company's multi-million-dollar state-of-the-art factory outside the capital Tashkent ceasing operations for four months. The bottling company was at one point liquidated, although Coca-Cola appealed against the ruling.
"Coca-Cola thought that they had the ultimate 'in' with the government, which would smooth the way for their business here. Unfortunately they didn't take into account the president's daughter divorcing their contact," said one western businessman. Or, as one western diplomat familiar with the case, put it: "Hell hath no fury like a woman scorned."
The case occurs at a sensitive moment. The Uzbek government, which provided the US with extensive military facilities during the war in Afghanistan, has promised the International Monetary Fund to liberalise its Soviet-style economy. Paul O'Neill, the US treasury secretary, lauded President Karimov this week for undertaking necessary reforms.
But the Coca-Cola affair, which many say shows the true side of business in Uzbekistan, has now taken another twist. The US company is threatening to close down the factory again - the first voluntary shutdown in the multinational's history.
Coca-Cola resumed oper-ations at the beginning of the year after the closure but soon found that because of Uzbekistan's draconian restrictions on hard currency exchanges it could not buy enough raw materials to produce its soft drinks. Supplies will last until July 31, officials say.
So far Uzbek authorities have refused to grant Coca-Cola a sufficient quota of hard currency. As a result it is sitting on perhaps as much as $30m in sum, the local currency. "We have probably more sum than the Uzbek government," says Peter Rosema, head of Coca-Cola's Uzbekistan representative office.
Those familiar with the case say that Uzbek authorities are trying to press Coca-Cola into taking their side in the dispute with the Maqsudi family. Uzbek officials were not available for comment.