Bishkek Official Shines Light on Fuel Re-Exporting Practices

Contractors supplying jet fuel to the Manas Transit Center in Kyrgyzstan were allegedly re-exporting Russian TS-1 jet fuel bought for use at the air base to third countries, the head of the Oil Traders Association of Kyrgyzstan asserts.

Bazarbai Mambetov, a former deputy prime minister and current head of the Oil Traders Association, told EurasiaNet.org that Russian authorities discovered in 2009 that a significant portion of the fuel procured from Russian suppliers by companies operating in Kyrgyzstan was not being used domestically, but was instead being re-exported, primarily to Afghanistan.

The re-exports outraged Russian officials because it deprived the Kremlin of tax revenue. In retaliation, Russia imposed a tariff of $193.50 per ton on fuel exports to Kyrgyzstan, Mambetov asserted. The tariff went into effect on April 1, 2010, and had an immediate inflationary impact on the Kyrgyz economy. [For background see the EurasiaNet archive].

According to Mambetov, Russian officials found out about the re-exporting of fuel supplies “when containers with the oil they were sending from Omsk were not coming back in the seven days that they were supposed to.”

“Those containers were found on the border at Termez [the Uzbek border crossing to Afghanistan],” Mambetov added. “The Russians then launched an investigation and found out what was happening.” Two other individuals familiar with oil and gas dealings in Kyrgyzstan, speaking to EurasiaNet.org on condition of anonymity, expressed the belief that Moscow knew re-exporting was going on well before 2009, but did not make an issue of it until the Kremlin’s patience with Bakiyev’s administration wore thin. [For background see the EurasiaNet archive].

According to Mambetov, the re-exporting of Russian fuel violated agreements signed when the Kyrgyz government and the US Defense Department established the Manas facility in 2001.

“Our government agreed that we would deliver fuel to them without VAT and excise tax. We were receiving jet fuel from Russia without VAT and excise tax. [Russia] thought the fuel was for domestic use, but it was taken to the air base. Until now, we’ve provided the air base with cheap fuel, but it turned into an exercise in export corruption, hidden re-export to third countries. That’s the reason why Russia got offended with Kyrgyzstan,” he said.

Mambetov said that in 2009, Kyrgyzstan re-exported a total of 370,000 tons of petroleum products, including 298,000 tons of jet fuel, without Russia’s permission. In 2009, Kyrgyzstan imported 613,000 tons of Russian jet fuel, he said, suggesting that that nearly half of the total was re-exported.

In 2008, Kyrgyzstan re-exported a total of 377,000 tons of petroleum products, including 215,000 tons of jet fuel. In 2007, re-exports from Kyrgyzstan amounted to 169,000 tons of jet fuel, 159,000 tons of diesel, 56,000 tons of gasoline and 60,000 tons of fuel oil, Mambetov added.

The 2007 figures for re-export are significantly higher Kyrgyzstan’s domestic fuel production statistics. In 2007, Kyrgyzstan produced just 13,588 tons of gasoline, 51,592 tons of diesel, 55,501 tons of fuel oil and not a drop of kerosene, Chinara Abdrahmanova, the head of the Department of Industrial Statistics at the Kyrgyz State Statistics Committee, told EurasiaNet.org. Jet fuel is a type of kerosene.

“If jet fuel’s market price was about $660 per ton, it was sold to China and Afghanistan for $1,000 per ton as re-export,” Mambetov claimed.

An Uzbek customs document obtained by EurasiaNet.org also indicates that gasoline, diesel and kerosene sent from Kyrgyzstan in early 2007 weighed in at amounts above Kyrgyzstan’s annual production capabilities. The document provides details on cargo arriving at Termez for onward passage to Afghanistan. The cargo is classified by “sending country” “cargo type” and “weight” from January-April, 2007. The document reveals that 292,998 tons of petroleum products made up 43 percent of all freight, but no where was any petroleum product listed as having come from Russia.

Instead, Kyrgyzstan was the most voluminous sender of fuels to Afghanistan, including 24,795 tons of gasoline, 46,390 tons of kerosene and 68,294 tons of diesel, the customs document states.

The Kyrgyz Interior Ministry on April 29 announced it was launching an investigation into suspected excise fraud committed by at least six Kyrgyz fuel companies that bought and sold Russian jet fuel.

Mina Corp has held the US Defense Energy Support Center contract to supply TS-1 jet fuel to Manas since 2007. Prior to that, Mina Corp’s affiliate, Red Star Enterprises Ltd., held the contract. TS-1 is the primary grade of jet fuel produced in formerly Soviet states.

Both companies are currently the subject of a US congressional investigation into fuel contracting practices at the air base. [For background see the EurasiaNet archive].The alleged re-exporting of fuel, including to US military bases in Afghanistan, is also an aspect of the congressional probe.

Kyrgyz customs documents and sales invoices obtained by EurasiaNet.org outline purchases of Russian jet fuel by Red Star Enterprises Ltd. from two Kyrgyz companies in 2006.

An April 10, 2006 customs declaration shows that Red Star bought 3,000 tons from Aircraft Petrol Management at a cost of $655 per ton. On March 14, 2006 Red Star declared to customs 4,972 tons of jet fuel bought from Kyrgyz Aviation Services at a cost of $531.32 per ton. In both cases the customs declaration documents say the fuel was Russian in origin.

A sales invoice from Aircraft Petrol Management to Red Star, dated March 29, 2006, says the jet fuel was originally bought from Russian company Sibneft. A separate invoice between Kyrgyz Aviation Services and TNK-BP shows that Kyrgyz Aviation Services bought 6,000 tons of jet fuel at $530 per ton from the Russian company on December 13, 2005.

Red Star/Mina Corp would neither confirm nor deny that it made purchases of Russian fuel. “Sources of fuel is something the company does not discuss for commercial and security reasons,” a spokesman for the company told EurasiaNet.org on April 29.

According to the US government’s Federal Procurement Data Systems (FPDS) website, Red Star – in all its available contracting history - acknowledges just once to sourcing fuel from Russia, and that was on December 14, 2009, when Red Star requested a settlement of a claim for open market purchases of TS-1 jet fuel in January and February 2008.

Red Star contracting documents indicate their fuel supplies to Afghanistan and Kyrgyzstan as originating in Turkmenistan, Azerbaijan, Kyrgyzstan and Afghanistan.

Mina Corp contracting information, under contract numbers SP0600-09-D-1009 and SP0600-07-D-1007, list Kyrgyzstan and Turkmenistan as the “country of product or service origin” for TS-1 jet fuel destined for delivery to Manas air base.

Red Star/Mina Corp denies re-exporting fuel bought for the air base to third countries. “Neither Mina Corp nor Red Star have ever re-exported fuel supplies they purchased for use at the Manas Transit Center to third countries,” a spokesman for the company said.