Kyrgyzstan: Manas Fuel-Supply Mess Puts Pentagon on the Spot -- Congressional Report
December 21, 2010 - 2:22pm, by Deirdre Tynan
A scheme to deceive Russia about the purpose of jet fuel purchases, carried out by Mina Corp and Red Star Enterprises, the two main fuel suppliers to the Manas Transit Center in Kyrgyzstan, undermined US diplomatic interests and jeopardized American and NATO military operations in Afghanistan, a US congressional report released December 21 asserts. The report also criticizes a Pentagon agency for turning "a bind eye" to its oversight responsibilities.
The elaborate scheme, which involved the alleged assistance of former Kyrgyz officials, was at the center of Red Star/Mina's business, the report contends. The chief aspect of deception involved the falsification of export certificates that indicated the fuel was intended for "domestic end use" in Kyrgyzstan, and not meant for military purposes. Titled Mystery at Manas, the report is based on an investigation by the US congressional Subcommittee on National Security and Foreign Affairs that was launched in April. Manas is a key logistics hub serving US and NATO forces in Afghanistan.
"Mina and Red Star set up a complicated arrangement in which Kyrgyz authorities, including two prime ministers, were engaged to issue false official end-user certifications in order to evade a perceived Russian ban on export of fuel for military use," the report states. Mina Corp has held the Manas fuel-supply contract since 2007. Prior to that date, Mina's affiliate, Red Star, held the contract.
Mina representatives, who had to be subpoenaed before they gave testimony to investigators, said that they believed Russian officials had knowledge of the deception and that officials at the Defense Logistics Agency (DLA) had been informed of the scheme.
But the report notes that when Russian officials became fully aware of the scheme, Gazprom, the chief Russian supplier of fuel, moved quickly to cut off the export flow causing logistical complications for US and NATO operations in Afghanistan.
The report infers that company officials were misguided in developing such a shadowy fuel-supply system, exposing military operations in Afghanistan to excessive "strategic vulnerability."
"Mina and Red Star were fully aware that suddenly shutting down their operations would grind much of the US mission in Afghanistan to a halt. Further, the fuel supply system was so complex, sensitive, and attenuated that it could take months before new suppliers could fill the gap," the report states.
A Mina Corp representative, when contacted by EurasiaNet.org on December 21, had no immediate comment on the contents of the report.
Taking the State Department to task, the report indicates the US Embassy in Bishkek shirked its responsibilities, deferring all oversight for the strategically sensitive fuel supply arrangement to the Defense Department, thus ignoring "the fuel contracts' serious political, diplomatic, and geopolitical collateral consequences."
As a result, the US diplomatic position in Kyrgyzstan has seriously eroded in recent years. "The collateral consequences of the United States' lack of strategic oversight of its fuel contracting in Central Asia have been significant," the report asserts. "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."
The report goes on to say that, despite allegations made by Kyrgyz officials that Mina and Red Star entered into corrupt dealings with friends and relatives of former Kyrgyz president Kurmanbek Bakiyev, congressional investigators "uncovered no credible evidence to link them financially." At the same time, investigators said they operated under "limitations." "The Subcommittee did not conduct a financial audit of the companies or interview all relevant witnesses," the report states.
Mina actively discouraged DLA from probing its activities, telling Pentagon officials in 2006 that it was "absolutely best to let sleeping dogs lie." Instead, Mina positioned itself as the only company capable of maintaining relationships with "various levels of governments themselves in countries of origin and destinations."
"No other company can currently offer this option and inquiries or attempts by others could severely disrupt fuel supplies to the US Military in Kyrgyzstan and Afghanistan and cause significant material damages," the company stated in 2006.
Chuck Squires, Red Star/Mina's director of operations, boasted to investigators that his firm had "got one over on 'em. I am an old 'Cold Warrior,' I'm proud of it, we beat the Russians and we did it for four or five years."
Russian officials tolerated the scheme because it provided "political cover" that enabled Gazprom to keep making fuel sales, Erkin Bekbolotov, Mina Corp's Kyrgyz partner, claimed in the report. Political upheaval in Kyrgyzstan, featuring the downfall of Bakiyev's administration, appeared to play a pivotal role in the unraveling of the fuel-supply scheme.
"It was not public knowledge, but if it had become public knowledge then it would be something that Russia wouldn't be able to handle politically and they would shut it down. They would have to. They would be forced [to] politically. ... That's exactly what happened after this revolution [in Kyrgyzstan]. Gazprom? Boom, they shut off our fuel supplies when it all came out," Bekbolotov told investigators on August 18, 2010.
According to the report, "sensitivities" concerning the sourcing of aviation fuel from Russia played a major role in prompting DLA to award Mina Corp a no bid, sole source award in 2009 citing "national security" concerns.
Squires told investigators he believed the contract was awarded in this way because "fuel from Russia was a very sensitive issue and we understood that if it ever came to light publicly [...] that's how we briefed it to them and they seemed to understand that there were sensitivities and that there would be real issues if they did let out a solicitation."
The report is critical of the US Department of Defense for relying "exclusively on Mina and Red Star's representations that the system could collapse if there was a public solicitation."
However the report also notes that "the companies' repeated warnings regarding the sensitivities of the Russian fuel supply were likely true; the system was, after all, predicated on false official end-user certifications."
Mina helped establish a number of "subcontractors" to handle the import, certification and storage of aviation fuel, including Kyrgyz Aviation Services, Manas Fuel Services and Central Asian fuels, and registered the companies in the names of "trusted" Kyrgyz employees.
Manas Aerofuels, which purchased the main fuel depot near the Manas base for $7 million in 2009 "was 50 percent owned by an employee of Mina and Red Star, and 50 percent owned by subsidiaries of Gazprom, the Russian state-owned gas monopoly," Erkin Bekbolotov told investigators.
"One of Mina and Red Star's proxy subcontractors would sign a contract for the procurement of a large amount of jet fuel from one of several Russian refineries in Southern Siberia near the Kazakh border. The contract would specify that the fuel was to be exported by the refinery for domestic civil aviation use only," the report says.
Senior DLA officials maintained they were unaware of Mina's financial relationships with its subcontractors and also of Gazprom's 50 percent interest in Manas Aerofuels, the report adds.
Congressional investigators characterized DLA's oversight efforts as "inadequate for proper strategic oversight of multi-billion dollar fuel contracting in a highly graft-prone region of the world."
"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 US military's strategic reliance on the fuel that they provide, the US government knew little about who the companies were or how they operated," the report adds.
The report concludes with a series of recommendations focusing on improving transparency and due diligence surrounding the procurement of fuel supplies for Manas. Among the recommendations is a call for an "interagency analysis of the fuel contracts that support the US mission in Afghanistan and the vulnerability of those supplies to disruption and manipulation."
"This review should focus on: (1) the impact of increased Russian influence over the supply chain, and (2) the US military's extraordinary reliance on Mina and Red Star for jet fuel," the report states.
Editor's note:Deirdre Tynan is a Bishkek-based reporter specializing in Central Asian affairs.
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