Manas Fuel Supply Contract Stinks

“Allegations” that top Kyrgyz government officials, their families and mysterious connections enriched themselves by pocketing money from jet fuel contracts at Manas Transit Center in Kyrgyzstan can no more be called allegations. Back in April 2010 I wrote about this subject here on my blog (Oil Money Fuels Corruption in Kyrgyzstan). Now, let’s see what happened since then.

In April 2010, National Security and Foreign Affairs Subcommittee initiated an investigation into allegations of corruption in connection with the U.S. contract to supply fuel to the Manas Transit Center in Kyrgyzstan and held a hearing on 22 April 2010. The Subcommittee will be issuing a report with the full results of its investigation soon.

On 3 November 2010 the Defense Logistics Agency awarded a $315 million one-year contract with a one-year option to Mina Corp. Ltd. to supply 96 million gallons of jet fuel to the U.S. Transit Center in Manas, Kyrgyzstan. (more precisely the contract says “a maximum $315,180,960 fixed price with economic price adjustment, requirements-type contract for jet fuel.” This makes $3.28 per gallon). I don’t know what else that price includes but when the contract was awarded the average jet fuel price in Europe and CIS was $2.27 per gallon. The Department of Defense is in ongoing negotiations with the Kyrgyz government to award a second contract to a Kyrgyz state-owned fuel supplier. 

On 3 November 2010 Subcommittee released a Statement in response to the DOD’s Manas Transit Center Fuel Contract to Mina Corporation. John F. Tierney, Chairman of the Subcommittee, stated that “Although our investigation has not uncovered any underlying corruption in the Manas fuel contract, we did find that the Pentagon and State Department had ignored widespread Kyrgyz public perceptions of contract corruption engendered by a fundamental lack of transparency in the contracting process and Mina Corporation’s operations.  Supplying vast quantities of fuel in support of U.S. operations in Afghanistan is an extremely sensitive endeavor with significant political, diplomatic, and geopolitical ramifications; it is not logistics-as-usual.  The lesson going forward is that this critical fuel supply contract must have top-level oversight at every step of the way.”

In an interview shortly before meeting with President Obama in September 2010, new Kyrgyz president demanded the Pentagon stop using private contractors and work through a state-run Kyrgyz venture instead. Well, the US government wants to make the Kyrgyz government also happy. The contract, awarded to Mina Corp covers only 80 percent of the overall projected jet fuel needs over the next year at Manas. The other 20 percent appears destined for a Kyrgyz government-run entity.

Washington Post ran a good piece about this on 1 November 2010 (Kyrgyz contracts fly under the radar). The article presents how legitimate are the Mina and Red Star companies and makes you wonder why the hell is the need for a long chain of intermediaries who buy the fuel and deliver it to the base. In essence “Mina and Red Star have little of the visible infrastructure usually associated with an enterprise handling billions of dollars of business. At an address in Gibraltar used by both Red Star and Mina is a law firm that specializes in virtual office services. Mina's London office consists of a small glassed-in cubicle. An address in Toronto that Red Star used to win its first Pentagon contract turns out to be a business center in a high-rise tower,” documents the Post.

Will the Kyrgyz government allow Mina Corporation to operate on its territory? If they still believe what they were saying before, they should not. But money is sweet.

On 5 November 2010, the Kyrgyz Foreign Ministry issued a statement urging the US government to “suspend its cooperation” with Mina Corp until the completion of an investigation by state prosecutors.

According to Scott Horton, the Kyrgyz admire “American rhetoric about transparency, democracy and human rights. But they see an increasingly large gap between U.S. rhetoric and U.S. action.”

It is true, apparently the Pentagon asked for details of who owns Mina Corp. and Red Star Enterprises only a week ago. Why? Because, DOD contracting regulations do not require that contractors reveal their ownership. Read the Washington Post article by Andrew Higgins (Controversial defense contractors Mina and Red Star reveal owners, 6 November 2010) to know more about the comedy. Good Morning Pentagon!

According to Derek Mitchell, the principal deputy assistant secretary of defense for Asian and Pacific security affairs, DoD recognizes “the importance of a fuel contract process that is publicly transparent and fully in compliance with U.S. and Kyrgyz laws and regulations.” The key word here is “process.” This is what DOD cares apparently.

The companies reportedly have denied wrongdoing and stated they are the victims of misinformation spread by rivals. BUT the more you dig, the murkier the two companies’ corporate structures and affiliations get. There is an abundance of evidence that suggests Red Star is a thread in a vast web of business operations that extends across Afghanistan.

Ray Mabus, Secretary of the Navy, said in October 2010 that “We have to change the way we operate. We have to change the way we produce and we use energy.” Yes, but they have to change the way they procure energy too.

As one of the readers of my blog stated, this story and the its main actors are looking more and more like a "shadow" business used to fund other activities in the region. Good point. Really, can anyone guarantee that this shadow does not extend to Al-Qaida, Taliban or Iran?

PS. see the full process of the cotract at FBO.
The problem is that last year’s contract was given to the company without a competitive bidding to avoid unspecified "reasons of national security". The November 2010 contract however followed a review of rival offers by different firms. The ugly part of the contracting is that regulations do not require that companies detail their ownership. This is the best example of how transparent the DOD is.