by Ryan Weber
A new report from the US Congress highlights Pentagon malpractice in its fuel supply contracting in Kyrgyzstan. As the details of the report filter out, clear repurcussions are ahead for the companies involved, the US Afghan war effort, and the future of US-Kyrgyz relations. What remains obscure is how US government contracting could be conducted to such poor standards for so long, and how the new report justifies its assertion that corruption - in the form of bribes and other kick-backs to former Kyrgyz regimes - was not part of the problem.
Background
On December 21, the US House of Representatives Oversight Subcommittee on National Security and Foreign Affairs issued its final report on an 8-month investigation into US fuel supply contacts for the Manas Transit Center in Bishkek, Kyrgyzstan. Situated on the grounds of the country's main international airport, within line-of-sight of commercial travelers, Manas ferries troops and supplies to Afghanistan as part of the Northern Distribution Network (NDN) .
When it was originally leased in December 2001, the US offered an aid package to the Kyrgyz government of Aksar Akayev totaling just over $2 million, a large portion of which went directly to Akayev's son, Aydar. Since then, two governments have fallen - Akayev's, and his 'revolutionary' successor Kurmanbek Bakiev - but Manas remains, first with an increase to $17 million annual rent in 2005, and now with a $63 million annual rent established in summer 2009. (See expert Alex Cooley's "Manas Matters" article for the above figures)
Just how "critical" Manas is continues to be debated. Prior to 2009, when most US military supplies entered Afghanistan through neighboring Pakistan, Manas was probably more important as an emergency "pressure valve" - a way to quickly evacuate US forces in the event of a Vietnam-style catastrophe. But with the rise of the NDN, Manas has proven increasingly valuable as a logistics and personnel hub.
Russia, which leases the Kant airbase just East of Bishkek, continues to press for the removal of the base - Kyrgyzstan is currently the only country in the world hosting both a US and Russian airbase, which causes tension mostly for reasons of political posturing.
Manas has been a delicate issue, especially since December 6, 2006 when US serviceman Zachary Hatfield shot and killed Alexander Ivanov, an ethnic Russian Kyrgyz citizen who was delivering supplies to the base. Kyrgyz citizens were incensed at the killing, especially when trumped-up claims that the truck driver "may" have been armed - with a knife - were issued by the US embassy to justify the soldier's actions. Instead of submitting Hatfield to local authorities, the US claimed diplomatic immunity and whisked him out of country, with no formal hearing or even a reprimand.
The 2006 shooting has largely faded into the past, but remains a rallying cry in Bishkek whenever the base's presence causes any further discomfort. For their part, US forces at Manas make extra efforts to curry favor by sponsoring educational missions, donation drives, and even assisting in relief following natural disasters.
They were noticeably absent, however, when the collapse of local police and military discipline in April and June allowed for widespread public violence.
Following the 2006 incident, however, US personnel are generally restricted from leaving the base. This has had the unfortunate double-effect of isolating US service members in a secretive installation, and funneling almost every penny that passes through Manas into the pockets of the very small number of companies awarded monopoly contracts to supply the base.
Supplying the Transit Center - Monopoly Contracts & Greedy Contractors
The largest such contracts were awarded to Mina Corp. and Red Star Enterprises Ltd., two fuel supply companies owned by the same 3 individuals with no physical headquarters, minimal staff, no public business records, or references outside of Kyrgyzstan.
None of this threw up red flags for Pentagon procurement officers, who signed a no-bid contract with Mina Corp in 2002. Renewed each year, the total sum paid by the US government from 2002-2009 totaled over $2 billion, a staggering amount in a country with a cumulative GDP from the same period of just $24.5 billion. Nearly 1/12 of the entire economic activity of the Kyrgyz Republic went from the US government into the pockets of Mina/Red Star owners.
But the real question which the US Oversight subcommittee sought to answer was whether or not that's where the money stopped.
Within Kyrgyzstan, it has long been "known" that the ruling elite - and specifically the family of the Presidents (both Akayev and Bakiev) - enjoyed considerable largess as a result of these government contracts. Many of the other companies that provided services and equipment for US personnel at Manas were owned directly or indirectly by these political dynasties.
But not Mina/Red Star. In a country where nepotism and patrimonialism were the main determinants of economic power, these companies managed to secure some of the largest and most lucrative contracts in all of Kyrgyzstan without any connection or concession to the ruling regimes.
At least, that's what the US Oversight Subcommittee claims in the final version of its report, "Mystery at Manas." (full report, pdf) Subtitled, "Strategic Blind Spots in the Department of Defense's Fuel Contracts in Kyrgyzstan," the 'mystery' of Manas according to the report is how Mina/Red Star managed to pull off a daring tariff-evasion scheme with the full knowledge of Pentagon officials. In this plan, Mina/Red Star purchased oil from the Russian company Gazprom Neft, claiming it was for civilian use, resold the fuel directly to the US military, and got Kyrgyz officials - two different Prime Ministers, in fact - to issue fraudulent documents certifying that 100% of the fuel was used for civilian aviation.
And they were pretty proud of just how clever they were. "I'm proud of it, we beat the Russians, and we did it for four or five years," Mina Corp./Red Star Director of Operations Chuck Squires told House investigators at the Subcommittee hearing.
The audacity of the scheme alone is stunning, but even more so is the apparent collusion of Pentagon procurement officers, US embassy staff, and even members of the Russian gas company supplying the fuel. According to William A. Buck, one of the international attorney's now representing Mina/Red Star, "There was no deception at all; the Russians, the Kyrgyz authorities, and the Department of Defense all knew exactly where the fuel was coming from and where it was going." In other words, it shouldn't be called fraud if 'everyone is in on it.'
But 'everyone' wasn't.
When the Russian government learned how its policy of waiving tariffs on civilian fuel - but not on military fuel - was being flaunted, it punitively increased the price of all energy exports to Kyrgyzstan. The Kyrgyz public suffered, and ultimately rose up, resulting in the ouster of President Bakiev in April 2010.
In this way, as Steve LeVine of Foreign Policy Magazine has suggested, Mina/Red Star are responsible for both the wealth and the collapse of the Bakiev regime.
Business as Usual
Unfortunately, the drama surrounding Manas - and there has been no shortage of it - overshadows just how ridiculous the key finding of the Subcommittee's report is. Their suggestion that the Akayev and Bakiev families were not complicit, consulted, or bribed as part of the fuel contract arrangement is very difficult to accept for anyone who has even a passing familiarity with Kyrgyz politics. The final conclusion of the Subcommittee report, as brilliantly summarized by Joshua Kucera of Eurasianet, is that while the US contracting procedures regarding Mina/Red Star were unfortunate, they were more the result of negligence/ incompetence, rather than corruption/ ethical violations. In other words, the Pentagon was being stupid, not evil, in its complicity with long-running international commodities fraud.
In fairness to the Subcommittee, there is a 'Mystery' to Manas, and it is one they inadvertently discovered, even if they didn't recognize it as such. The Mystery is: where's the proof? If you believe, as most in Kyrgyzstan do, that Mina/Red Star - and Manas in general - were major generators of government corruption, kick backs, and a whole host of other unsavory regime-bolstering actions, the US Subcommittee - in what must at least be described as an earnest and thorough investigation - found no evidence of it.
For example, prior to the Subcommittee hearings, no one even knew who owned Mina/Red Star. Deirdre Tynan, of Eurasianet, has been a tireless investigator of the Manas fuel contracts now for more than a year, and was largely responsible for what was known about the shadowy businesses up to that time. She tracked them to a post office drop box in London, and an empty building with accounts registered in Gibraltar. But it was only when the Subcommittee issued subpoenas for the company owners that it was revealed that the Pentagon didn't even know who they were, where they were, or how to get in touch with them.
Eventually, 58 year-old Douglas Edelman, a US citizen, was established as the 'mastermind' of the operation, though both companies were actually registered in the name of his wife, Delphine LeDain and his Kyrgyz business partner Erkin Bekbolotov.
And that's almost where it ended. As initial reports about the Subcommitee's findings were leaked - that the Pentagon had not done anything necessarily wrong in contracting with Mina/Red Star - the Department of Defense issued a new contract extending its relationship with the (now-discredited) company.
The new Kyrgyz government, which had taken over since Bakiev's ouster and long-seen the Manas fuel contracts as a major contributor to the former regime, was furious. They instigated their own local investigation of Mina/Red Star business practices, and even began implementing questionable warrants and seizures of company documents.
While visiting Bishkek after her trip to the OSCE summit in nearby Astana, Kazakhstan in December, US Secretary of State Hillary Clinton tried to assuage Kyrgyz animosity by promising a larger share in the fuel contract to a state-owned Kyrgyz gas company.
It wasn't enough.
As the full report became available - and Kyrgyz as well as American critics saw just how complicit the US government was in the nefarious transactions - pressure stepped up in both countries to distance themselves from Mina/Red Star. By December 22, the Defense Logistics Agency-Energy, the branch of the Pentagon responsible for soliciting fuel supply contracts for bases abroad, began asking other companies to resubmit bids for the Manas contract. As journalist Tynan puts it, Mina/Red Star were on "Thin Ice"
While not yet confirming that the Mina Corp. contract will be cancelled, all signs from both the Kyrgyz government and the Pentagon now point in this direction.
And thus a (bad) company using fraud with the full knowledge of US officials, to the detriment of the Kyrgyz people and perhaps as a contributing factor to the political instability of the small Central Asian nation, finally comes to an end.
8 years, $2 billion, and 3 governments after the Pentagon knew what was going on.
The great "Mystery" is how it took this long to uncover.
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