Thursday, December 23, 2010

Tragy-Comedy of the Manas Fuel Contracts

Manas Transit Center (formerly Manas Air Base) at Manas International Airport in Bishkek, Kyrgyzstan, is one of the busiest U.S. military installations in the world. About one-third of all fuel delivered over Afghanistan comes from the flying gas stations (KC-135 Stratotankers) in that Center.

Since it opened in 2001, the US government paid over $1.5 billion to not more than three companies (AvCard, Red Star and Mina) for their services under five separate fuel contracts. In November 2010, the sixth contract was signed for an estimated $600 million through the end of 2012. Red Star and Mina account for 97% of the total ($2.1 billion).

Mina and Red Star are major jet fuel supplier to the Department of Defense. When supplied fuel to U.S. bases in Kyrgyzstan and Afghanistan in exchange for over $3 billion in remuneration.

Things were going fine until early 2010 when corruption allegation drums became too loud. I wrote on this too (Manas Fuel Supply Contract Stinks and Oil Money Fuels Corruption in Kyrgyzstan).

On 22 June 2010, the Majority staff of the Subcommittee on National Security and Foreign Affairs released a report entitled Warlord, Inc. Extortion and Corruption Along the U.S. Supply Chain in Afghanistan. On 21 December 2010, another report titled Mystery at Manas: Strategic Blind Spots in the Department of Defense’s Fuel Contracts in Kyrgyzstan followed. (Excellent titles by the way). Both reports show how the Pentagon and State Department turned a blind eye to glaring red flags and their failure to manage and oversee multibillion dollar fuel contracts in Central Asia. Both reports are well researched, very good written but hides the truth - that emperor is naked.

If I had written a similar caliber report I would title it “Tragedy or just a comedy of errors?”

Abovementioned “Mystery at Manas” report gives most of the elements. Here are the findings, each is a chapter in the report. I highly recommend you to read that 68 page report instead of watching a thriller or tragy-comedy.

1. Mina and Red Star Have Successfully Provided Massive Amounts of Aviation Fuel to the U.S. Military in Kyrgyzstan and Afghanistan, but the Companies Operate in a Highly Secretive Manner that Often Conflicts with U.S. Diplomatic Interests

2. Mina and Red Star Are Beneficially Owned by a Kyrgyz National and an American Citizen with Backgrounds in Fuel Supply at Manas

3. From 2003 through 2005, Red Star Subcontracted with Fixed-base Operators at Manas Controlled by the Family of President Akayev

4. Mina and Red Star Deny Financial Ties to the Bakiyev Regime and the Subcommittee’s Investigation Uncovered No Credible Evidence to Link Them Financially

5. Mina and Red Star’s CEO Served as an Intermediary Between Maksim Bakiyev and the U.S. Department of Defense After Russia Pressured President Bakiyev to Close Manas

6. DLA-Energy Conducted Only Superficial Due Diligence on Mina and Red Star, and Turned a Blind Eye to Allegations of Corruption

7. DLA-Energy Took Few Steps to Mitigate Potential Corruption and Ignored Red Flags of Anti-competitive Behavior

8. The Department of Defense Failed to Oversee a Highly Sensitive Fuel Supply Arrangement Created by Mina and Red Star to Disguise their Fuel Procurement

9. The U.S. Embassy in Bishkek Claimed to Know Little About the Manas Fuel Supply Contracts Even After They Began to Seriously Undermine U.S.-Kyrgyz Diplomatic Relations

10. The United States’ Lack of Strategic Visibility into the Fuel Supply at Manas Led to Over-reliance on Mina and Red Star and an Unaddressed Vulnerability in the Supply Chain

Here are a few striking points I want to mention.

1. “Despite awarding Mina and Red Star several billion dollars in contracts over the past eight years, the existence of two ongoing investigations into serious allegations of corruption, significant political and diplomatic fallout in Kyrgyzstan, the companies’ unusual behavior and hyper-secrecy, and the U.S. military’s strategic reliance on the fuel that they provide, the U.S. government knew little about who the companies were or how they operated.”

2. “The collateral consequences of the United States’ lack of strategic oversight of its fuel contracting in Central Asia have been significant. Allegations of corruption in the Manas contracts have been linked to two revolutions in Kyrgyzstan and resulted in widespread public perceptions … that the United States has deliberately and illicitly used the fuel contracts to bribe Kyrgyzstan’s two past presidents.”

3. The slow and disorganized fashion in which the (State) Department responded raises serious questions about the completeness of its document production and its current organizational capacity to respond to congressional inquiries.

One of the things disturbing in the report is the following conclusion: “Despite many of the ingredients for corruption, after a diligent eight-month investigation the Majority staff of the National Security Subcommittee uncovered no credible evidence to support the allegation that President Bakiyev, his family, or affiliates were financially linked to Mina and Red Star.”

This is to say there is smoke but we couldn’t find a fire. This also implies that everything was done according to the established rules. If you cannot change the rules then why not change the game?

I wonder why investigation team did not meet and discuss with Russian officials, relevant Kyrgyz national personnel who worked for the companies’ primary subcontractors, or prime suspects.

The report also says that “One of the key ingredients to their success, Mina and Red Star claim, is their secrecy. The companies operate entirely out of the public view: they have no website; their listed physical address is a corporate drop-box in Gibraltar; until April, their operations were run out of a second-floor hotel suite at the Hyatt in Bishkek; and their beneficial ownership is buried deep under layers of shell companies formed in countries whose corporate laws are designed to facilitate secrecy and tax avoidance.”

Apparently, this seems very normal to DOD and investigation team. It is a shame. Give billions to companies without knowing their beneficiaries and without knowing where the money goes. Continue a war on terror without knowing whether you finance the terror or not.

Advising the DoD “to consider how it can significantly improve its wartime contracting practices” is not enough. Improve means a positive progress. DoD cannot improve it simply because it is doing it already wrong. Secretary Mabus reiterates all the time that “We've got to change the way we do business.” Dear Secretary, not only renewable and alternative energy sources but signing billion dollars worth fuel contracts are business too.

The recommendations given in the report are very soft. Further research suggestion to focus on “(1) the impact of increased Russian influence over the supply chain, and (2) the U.S. military’s extraordinary reliance on Mina and Red Star for jet fuel,” are however very important. All senior DOD officials who make so much fuss about energy security should note this.

I mentioned several times in my articles that Defense Department’s wartime contracting practices is something that should be looked at very carefully. Government Accountability Office wrote many excellent reports on this issue. The problem is that many look, few see and nobody takes any action. And the story goes on.

 I wish you a happy new year and thank you for following me.

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