Kyrgyzstan: Manas Base Could Face Fresh Disruption Due to Tax Question

A new tax dispute over fuel supplies at a strategically important air base in Kyrgyzstan is looming. US diplomats are concerned that potential wrangling could impede the war effort in Afghanistan.

The taxation issue arose again on January 14, when Kyrgyz government representatives presented US officials and executives of the Pentagon’s fuel contractor at the Manas Transit Center, Mina Corp, with a curious proposal: Pay $55 per ton of fuel in excise tax, or else volunteer to pay $100 per ton of fuel directly to the state budget.

The proposal, which was made during a working group meeting, creates a potential dilemma for the United States. Under the terms of the existing basing agreement for the Manas Transit Center, the US government and its contractors should be exempt from all local taxes.

“We offered them our terms: If they do not want to pay an excise tax of $55 per ton of kerosene, then let them pay $100 per ton of kerosene voluntarily to the state budget. They said that they will discuss this issue,” said Omurbek Abdrakhmanov, an MP from the Ata-Meken party who participated in the meeting.

A spokesman for the US Embassy in Bishkek said the exemption from excise tax is “vital” to the US military’s ability to function optimally at Manas, a logistics hub for American and NATO operations in Afghanistan.

“Under the bilateral 2009 Agreement for Cooperation, the acquisition of articles and services in the Kyrgyz Republic by or on behalf of the United States in implementing the agreement is not subject to any taxes, customs duties or similar charges in the territory of the Kyrgyz Republic,” said embassy spokesman Christian Wright.

“Such articles and services include all fuel provided to the Transit Center, including fuel supplied by sub-contractors. This is standard practice around the world,” Wright continued. “The US government has similar agreements with many countries throughout the world for fuel to be delivered free of all duties and taxes. The exemption from fuel taxes is a vital part of our ability to carry out the mission of the Transit Center.”

Mina Corp representatives are currently in Bishkek holding meetings with various political leaders, hoping to ease tension between the company and the Kyrgyz government. On January 3, the company announced it would subcontract part of its fuel contract to the state-owned Manas Refueling Complex (MRFC).

“We are pleased to be working with the recently created Kyrgyz state company and look forward to a productive partnership supplying jet fuel to the Manas Transit Center,” said Denis Grigoriev, Mina Corp’s Chief Executive Officer in a press statement.

But neither Mina Corp nor MRFC will comment on how much fuel Mina will buy from the nationalized outfit. It is also unclear at whose initiative the partnership was formed, or how active it is.

“At the moment, this question is under consideration. I can’t give you an exact amount of fuel that MRFC is selling to Mina Corp because it’s being studied,” Farid Niyazov, a spokesman for the Kyrgyz government, explained on January 12. “Prime Minister Almazbek Atambayev has commented that previous fuel-supply arrangements were corrupt.” 

On December 30, Atambayev promised to “deal” with Mina Corp and said MRFC should be solely responsible for supplying fuel to the Manas air base. MRFC is poised to meet 20 percent of the base’s aviation fuel needs at the end of February and 50 percent in July.

In May 2010, the Kyrgyz provisional government attempted to introduce value added tax on fuel sales to the Manas Transit Center. Washington put up stiff resistance to the idea and ultimately it was rejected. However, while the matter was being negotiated, the Transit Center was forced to divert air traffic.

Meanwhile, reports in Kyrgyz and Russian media outlets have appeared alleging that President Roza Otunbayeva and Deputy Prime Minister Omurbek Babanov have somehow profited on aviation fuel sales via a shadowy intermediary called Mega Oil. The reports have been dismissed as politically motivated by some industry insiders.

A source told EurasiaNet.org on January 11: “[MRFC] stopped working with [Mega Oil] as they buy directly from Gazprom Neft-Aero now. They needed [Mega Oil] as long as they did not have an export license from Russia - but once obtained, they no longer had a need for Mega Oil as an intermediary company in the loop.”

On January 11, the AKIpress news agency reported that MRFC received permission in October from a Russian governmental agency to export fuel. From that point on, MRFC “began to acquire direct fuel supplies from Gazprom Neft-Aero,” the report added. Between June and October, Mega Oil was reputedly used as an intermediary -- buying from Gazprom Neft-Aero and then selling to MRFC.

According to documents from the Kyrgyz Ministry of Justice requested by EurasiaNet.org in November, Mega Oil’s director is Murat Saralinov, the former deputy director of retail sales for Gazprom Neft Asia. He also served as the director of the Kyrgyz Customs Service in 1998-1999, and as head of the financial police from 1999-2003.