Friday, April 16, 2010

Oil Money Fuels Corruption in Kyrgyzstan

After the visit of Richard Holbrooke (US Special Representative for Afghanistan and Pakistan) to Kyrgyzstan in early March 2010, there were speculations that the US reached an agreement with Kyrgyzstan on the renewal of the lease of Manas Transit Center (formerly called Manas Air Force Base) in its territory (outside of Bishkek, the Kyrgyz capital). Current contract for the lease is due June 2010.

Why Manas Transit Center is important?

Important because it has been an important logistics hub supporting the theater of operations in Afghanistan since the US military opened it in December 2001. It supplies fuel, troops and equipment to
Afghanistan. The Manas TC is the transit point for soldiers that stop over the base on the way to and back from Afghanistan. The airbase also hosts fuel transporters. Hence, it is most of all a critical site for refueling Air Force aircraft flying over Afghanistan. It accommodates the 376th Expeditionary Logistics  Readiness Squadron (see Fact Sheet).

376th Air Expeditionary Wing
mission fast facts
(Jan 2008 – Dec 2008)

  • Fuel Offloaded from KC-135 Stratotankers: 194,453,400 lbs
  • KC-135 sorties flown: 3,294 sorties
  • Number of aircraft refueled over Afghanistan: 11,419 aircraft
  • Passengers Moved: 170,000 personnel
  • Cargo Moved: 5,000 short tons
The Manas Transit Center broke a record in March 2010: The passenger terminal pushed through approximately 50,000 multi-national, U.S. and coalition troops, and the petroleum, oil and lubricants
flight issued 12,500,102 gallons of jet fuel in March.

In addition, the 22nd Expeditionary Air Refueling Squadron (KC-135 flying gas station group) celebrated the 16,000th sortie milestone on 10 April 2010.

Meanwhile 376th Air Expeditionary Wing broke its own record on 18 February 2010 by pumping 544,758 gallons of jet fuel in a 24-hour period. Previous record on October 8, 2009: 501,662 gallons in 24 hours.

Oil and Corruption in the same soup

Reportedly, Manas International Services Ltd. and Aalam Services Ltd. were the only companies in Kyrgyzstan with facilities to transport and store fuel at the Manas air base. Coincidently Aydar Akayev, the then President Askar Akayev’s son, was a part owner of Manas Ltd. And Adil Toiganbayev, the president's son-in-law, is said to be one of the owners of Aalam. Avcard, a Maryland aviation fuel company used those two companies as subcontractors there. The contract in early days of Manas Base was 250,000 gallons of jet fuel a day. [Why these two companies were supplying the fuel but an American company was the official contractor?] In early 2003, after the Pentagon reopened the contract for bidding, Avcard was replaced by Red Star Enterprises Ltd (a London ?, Toronto or Gibraltar based company), but Avcard’s deal with those two companies remained. In late 2005 Kyrgyz prosecutors and FBI agents investigated whether (Askar Akayev, the president at the time) and his family pocketed hundreds of millions of dollars, partly from Pentagon fuel contracts, before he was ousted in March 2005.

A DoD Press Release (No.649-08; August 01, 2008) stated that “Red Star Enterprises Limited, Gibraltar is being awarded a maximum $720,568,375 fixed price with economic price adjustment, sole source contract for fuel deliveries.  Other location of performance is Bagram Air Base Afghanistan.  Using service is Army.  This proposal received one response.  This contract is for a period of two years with a one year option.  The date of performance completion is Sept. 1, 2011.  The contracting activity is Defense Energy Support Center, Fort Belvoir, Va., (SP0600-08-D-1017).”

With over $1,069,266,941, Red Star had the 55th place in Top 100 Recipients of Federal Contract Awards for FY 2008 and number 3 Contractor for Fuels, lubricants, oils and waxes in 2008. Over $1 bn
contract and yet the company does not even a website. How discrete, no?

NYTimes reports that some of Red Star’s business in Kyrgyzstan had been assumed by the Mina  Corporation Limited. Mina Corporation was awarded an annual fuel contract worth potentially more than $200 million in July 2009. Note that Mina Corporation Limited, with a $364,420,792 contract in 2007 was among the DoD’s Top 10 Contracts for Fuels, lubricants, oils and waxes in that year.

What is the connection between Red Star and Mina Corporation? Well, it seems that they have more in common than the director of Operations (Chuck Squires is director of operations for Red Star Enterprises Limited and Minacorp Limited, trade and finance companies operating in Eurasia and Africa.) Statement By Mina Corp on Recent Media Reports says it “is affiliated with family members of present or former government officials.”

The corruption arguments and news surfacing out recently about the Red Star Ltd are indeed not out of blue. A former fuel section employee of Kellogg Brown and Root Inc. assigned to Bagram Airfield in Afghanistan, was sentenced in 2009 to 84 months in prison for his role in a bribery and a fuel diversion scheme, by accepting payments from drivers hired by Red Star, who in fact were selling their fuel to parties outside the airfield, in return for providing the drivers with documents to deliver to Red Star falsely showing that the truckloads of fuel had been delivered to the airfield. According to evidence presented in court, more than 48 truckloads of fuel were diverted for sale outside the airfield between May and September 2006, valued at more than $800,000. (see also FBI site, and a detailed background from DESC Fraud Awareness Newsletter)

Another company supplying the Manas base today is Manas Aerofuels. NYTimes also says that the Mina Corporation and Manas Aerofuels share office space in the Hyatt Regency hotel in Bishkek! According to NY Times, Manas Aerofuels and the Mina Corporation are linked to Maxim Bakiyev, and the primary source of the fuel was an Omsk-based refinery owned by the oil division of Russia's state-owned gas monopoly, Gazprom. These companies were making money selling cheap Russian jet fuel (TS-1) at world prices to the Manas base until the Russian government made an April 1 joke this year and imposed a steep tariff on refined products for Kyrgyzstan, hence ending what the Moscow News call “Maximisation”. Before, the exports were tariff-free under a customs agreement. Within Kyrgyzstan, sales to the base were exempt from the usual 20 percent sales tax.

Now, the spicy bit. I mentioned above that according to press reports, companies controlled by Aidar  Akayev, son of Askar Akayev, who was then the president, was getting lucrative contracts to sell fuel to Manas air base.

But things didn’t change when Akayev was ousted in March 2005. The Bakiyev family, according to press reports, assumed control of part of the business immediately after the 2005 uprising. Manas Aerofuels mentioned above is believed to be controlled by Maksim Bakiyev, the 32 year old son of the ousted president. He is now accused of pocketing as much as $8 million a month from fuel sales to the Manas air base by relying on a monopoly and favorable taxes. According to unofficial estimates appearing in press, the annual profits made by Bakiev’s family on jet fuel reach at least $80 million. Kyrgyz senior leaders are also accusing the US of allowing family members of the ousted president Kurmanbek Bakiyev to enrich themselves with contracts supplying jet fuel to Manas.

Now, the National Security and Foreign Affairs Subcommittee of the House Committee on Oversight and Government Reform is opening a wide-ranging investigation into the DoD’s fuel contracting practices at the Manas Transit Center in Kyrgyzstan. The investigation will seek to determine what relationship, if any, existed between Red Star Enterprises Ltd., its affiliate Mina Corp. and the family of nominal president Kurmanbek Bakiyev, whose administration collapsed amid political violence in Bishkek on April 7. Mina Corp. currently holds the contract for fuel deliveries to Manas. The contracts
previously were held by Red Star. Manas base is a key hub for US and NATO troops and materiel going to and from Afghanistan. (See, source)  

Where is Maxim? Bakiyev’s son, Maxim, is believed to be in the US and is now wanted in Kyrgyzstan on criminal charges. The US government’s close relationship with the Bakiyevs has quickly emerged as a sore point in US relations with the new Kyrgyz leadership. (Source)

This story shows that talking only about military-industrial complex is just one side of the bigger story. There are two sides in corruption – corrupters and corrupteds. We can call these two as the group of greedy elites if you wish. A country like the US and a federal government institution like the DoD have always been shown as examples of transparency, justice and equality trinity. Where do they stand now? In the club or corrupters, or corrupteds or something else? The US government agencies should not be allowed to transfer contractor payments to overseas bank accounts. Moreover, they should investigate deeper the companies before giving any job.

For a simple tourist visa application USA asks hundreds of documents and questions. How come then it can give millions of dollars worth contracts to private companies without performing a thorough checking process? Why the reports of the Government Accountability Office on contractors are still neglected?

As far as fuel contracts to Afghan theater are concerned, I am not in a position of making recommendations. One recommendation mentions that the United States can publicly encourage the Kyrgyz interim government to nationalize the distribution of fuel to the Manas base. In less developed or developing countries corruption is an extremely big and important problem. And that neither nationalization nor liberal system would put an end to it. In order not to be perceived as a corrupter at least, the US government, for instance, could establish a company under DLA to take care of the fuel chain. Most of such a company’s employees would be hired through fixed-term contracts.

Additional info: see Kyrgyzstan: Business, Corruption and the Manas Airbase and More Aviation Fuel For Afghanistan, and Washington's Afghan Quandary

According to here are the contracts with Red Star:
2006: $187,373,785
2007: $10,929,737
2008: $1,069,266,941 
2009 Q3: $90,362,237


At 7:57 PM, Blogger sohbet karbuz said...

On 22 April 2010, House Subcommittee on National Security and Foreign Affairs
held a hearing on this issue.

Also see,
The Nation article "Fueling the Afghan War" on April 21, 2010
Fueling the Afghan War
April 21, 2010

At 8:26 AM, Blogger ruddcl said...

Your post is an excellent and well supported summary of the situation. I am located in Uzbekistan and am currently involved in assisting local and foreign suppliers prepare to respond to some of the DESC needs for Afghanistan. During my investigation I have encountered the monopolistic and corruption prone business structures that inhibit any efforts for potential competitors to enter the market of fuel supply to Afghanistan or Kyrgyzia. Your recommendation or suggestion regarding changes in fuel transport and storage should be examined in detail. I am of the opinion that all airbases should control the storage facilities and maybe allow the management of those facilities be given to the successful bidder of the any fuel supply contract. The Baghram fuel storage under control of a private entity seems from a military point of view absurd and reckless with respect of safety and avoidance of disruption of supply. With regards to Manas the problem is yet complicated by the terms and conditions of the supply contract where the delivery terms are specified to be FOB Destination. No non-resident foreign supplier can solve the customs, internal delivery, reserve storage question without creating a local legal entity or sub-contracting this to a local entity thereby opening the door to unmonitored corruption and addition costs.I think it would be more prudent for DESC to award a separate contract for management of DOD controlled storage facilities and for handling all issues related to transport of goods from the Kyrgyz border to the Manas delivery point (point of acceptance)and allow all potential supply competitors to use the storage facilities on the same commercial terms and conditions. I can't find anyone in the government who is willing to open a dialog on these issues. Who is responsible for the overall logistic problem?

Charles Rudd, USA Citizen, resident in Uzbekistan


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