4-Star Wars: flashpoint in Kyrgyzstan

Supplying fuel to the American government to keep military planes running into Afghanistan is a lucrative business. Involving as it does politics and politicians in desperately poor Kyrgyzstan, it is also a highly controversial one. Nick Kochan writes on the fuel contracts that have come to be viewed as issues of sovereignty for the new Kyrgyz government

Every Nato plane that either takes troops or runs missions into Afghanistan will leave Manas airbase, just north of the Kyrgyz capital Bishkek. In the month of March 2010 alone, the base transited more than 50,000 troops, with contracted companies supplying more than 12.5 million tonnes of fuel to the planes. Through its own tense recent history, Manas has mirrored the high geopolitical and financial stakes. In particular, contracts with two western fuel suppliers have proved so controversial that they became the subject of an investigative report by a sub-committee of the US House of Representatives. The report was published just before Christmas. 

Every NATO plane running missions into Afghanistan leaves the Manas airbase in Kyrgyzstan

The Congressional investigation had been set up to investigate allegations that the two companies — “Red Star” and “Mina” — had paid bribes to former Kyrgyz presidents in order to secure fuel contracts. In the event, neither this nor a local investigation uncovered direct evidence that either company paid bribes. It was, however, shown that the contractors had carried out secret negotiations with the President’s sons and helped manufacture a paper trail to deceive Russians (who, it appears, believed the oil was for civilian rather than military purposes).

For all the questionable activities, however, the issue of the two companies’ activities made no waves.  Kyrgyzstan continued to receive $60m a year from the US for the use of the base and further fees for allowing Nato planes to take off and land there. At different times, the US sweetened the deal with contributions to Kyrgyzstan’s development. Yet the companies and their entrepreneurs, opportunists who saw the American need for reliable supply of oil in the post 9/11 world, made much more considerable fortunes. 

The size of the contracts was large by any standards. Every year, Red Star and Mina supplied $300 million of fuel to the base, aggregating to a sum of no less than $2 billion. They also supplied oil to Afghanistan’s Bagram airbase. 

The contracts were justified on account of the high risk involved. Yet Scott Horton, a Washington-based lawyer who gave evidence to the sub-committee, dismisses this argument: “What did this company do? Where are its people? This company came from nowhere and has no experience. The Kyrgyz want to close them down and they have every right to do so”.

While no-one uncovered direct evidence of bribes — nor indeed of any substantial relationship between the companies and Presidential businesses — the smoke was regarded widely as proof that there must be fire.

As the extent of their wealth became clear,  hostility to the two companies built up inside Kyrgyzstan. It was during the latter days of the Bakiyev regime that claims circulated about the companies bribing the president and his son Maxim Bakiyev. These claims triggered the Congressional Committee investigation as well as a local Kyrgyz investigation. While neither investigation uncovered direct evidence of bribes — nor indeed of any substantial relationship between the companies and Presidential businesses — the smoke was regarded widely as proof that there must be fire. Horton says that the Congressional report leaves open the bribing issue.

Political changes following the collapse of the Bakiyev regime raised the tempo in this long-running dispute. Not only is there a new president, Roza Otunbayeva, but recent parliamentary elections have produced some nationalist politicians and businessmen ready to use the issue to political advantage. 

Otunbayeva visited President Obama recently to demand the Kyrgyz government be allowed a role in the supply of fuel to the base.  The country had its own oil company, she said, and it could handle the fuel supply just as well as Western companies.  The State oil company has connections with GazpromNeft [the oil arm of the hydrocarbon behemoth Gazprom], and its manager is a former GazpromNeft official. 

US President Obama meets Kyrgyz President Roza Otunbayeva in September. Otunbayeva, it seems, was pushing at an open door with her request the Kyrgyz State oil company share lucrative contracts to supply fuel to the Manas airbase. Yet the new arrangement, which brings into play Russian energy interests, may prove no less controversial. Photo: US Government

Otunbayeva was pushing at an open door, it seems. Pakistan, the other country used by the US to supply fuel to US operations, was looking increasingly wobbly. When Hilary Clinton visited Bishkek recently, she told the President that the country’s national oil company could work alongside Red Star and Mina, and share the fuel supply with them. The new policy was laid out in the Department of Defense’s award in November of a 12-month contract to Mina, which specified that the DOD could involve another company in the fuel supply. The western companies, whose legal entities are domiciled in Gibraltar, but whose officials live in London and Dubai, accepted the inevitable.

It seems the moment has also arrived for the Kyrgyz to push for the whole contract. Edil Baisalov, a former chief of staff to President Otunbayeva, and today an opposition politician pressed this argument with the author: “The state owned enterprise would do the business better. I don’t understand the Pentagon’s point about guarantees of uninterrupted supply. How can a Gibraltar-based offshore company guarantee more than the state of Kyrgyzstan and the state of Russia, that a trilateral agreement would provide for? The 50% arrangement with the State oil company is a foot in the door. The Americans are providing 50% of the supply, and the rest will be done by the state company. We believe this could be a great breakthrough in this trilateral settlement. 

For Baisalov, it is a matter of principle that the companies are no longer operating in Kyrgyzstan: “They are controversial, we have been very critical of them as spoiling and corrupting. They are not transparent. So we don’t want them to have anything to do on our territory”.

The message, it seems, was hammered home in late December, where Kyrgyz state tax police raided the offices of Mina in Bishkek, demanding documents. The Congressional sub-committee saw this as a matter of great concern, and included in its report the following remarkable comment:

“Within days of this agreement, Mina came under legal pressure from Kyrgyz state authorities that could indicate an attempt to shut it down entirely, thereby making the Kyrgyz/Gazprom joint venture the exclusive supplier to the base. According to Mina and Red Star, political and business interests in Kyrgyzstan are coordinating with Russian interests to shut Mina out of the fuel supply at Manas altogether. [...] Mina’s attorneys were able to forestall the raid, but they believe that, without political protection from the United States, it is only a matter of time before they are run out of business. If the companies’ fear comes true, the likely consequence would be that the Kyrgyz-Russian joint venture would control the entire Manas fuel supply.’

Reports from Bishkek suggest that the company is currently locked in battle with the Kyrgyz authorities, which is attempting to close down its operations and exclude its staff.  The scene of the action is the Hyatt Hotel, now defended like a fortress. One local observer described the atmosphere in Bishkek as very tense: “Arrests are possible. Something has to give.’

The implications of complete Russian control of oil supplies to Manas certainly gave the authors of the Congressional Report pause for thought. While they lambast the Department of Defense for not investigating Red Star and Mina’s ownership structure before giving them the initial contract, they also advise the American authorities to take some lessons from the events in Ukraine where Russian fuel suppliers used the lever of a monopoly oil supplier to force up prices. (In truth, Horton observes that the Russian Gazprom has been involved in the fuel supply since the outset of the Mina operation.)

The wider lesson to be drawn from this tense battle between Western companies and the Kyrgyz does not relate to money or contracts, but to geopolitics. Some observers say that the contract has enabled Kyrgyzstan to add flesh [and profit] to its relationship with Russia. Under former Presidents, the country looked West rather than East. Today, the Kyrgyz authorties prefer to look East.

Russia, certainly, is unlikely to attempt to cut off oil at a moment’s notice to American operations in Afghanistan. The Kremlin is too content for American money and for the US to continue fighting the Taliban. But it does mean that the Department of Defense will have to work with those whose business and political practices are no less murky than those of its former Western allies. Not for the first time, the war in Afghanistan has made strange bedfellows out of its participants.

About the author

Nick Kochan is a writer specialising in the field of finance and financial crime. His publications include Gordon Brown: The First Year in Power, a biography of Gordon Brown as Chancellor of the Exchequer and The Washing Machine, a study of international money laundering.