Privatisation of state-owned enterprises has created a huge hole in Afghanistan’s pocket. Politically well-connected investors merrily flout the terms of agreement. An investigation by Hamid Kohistani.
(1st part) *Privatisation of state-owned enterprises has created a huge hole in Afghanistan’s pocket. Politically well-connected investors merrily flout the terms of agreement. An investigation by Hamid Kohistani.
Six years ago Ghori Cement, once the country’s biggest cement factory, was leased to Afghan Investment Company (AIC) run by Mahmud Karzai, the president’s younger brother, and Haji Hasin Fahim, the brother of Vice President Mohammad Qasim Fahim. Last year Karzai sold his AIC shares to Mirwais Azizi, CEO of Azizi Bank, to be able to fund his loan payments to the Kabul Bank, he said, raising questions about the future of Ghori Cement. The economic committee of the Afghan cabinet said the government could either withdraw the lease or find new investors.
Defaulting investors like Karzai and Fahim have become the bane of the privatisation process.
AIC which had also bought the Karkar coalmine, in Baghlan, failed to meet contract provisions for the modernisation of the cement factory which included a new power station and delivering enough coal from captive mines to operate the second cement plant, Ghori II.
Since the privatisation started, 24 public sector companies have been sold, leased or shut down.
Fudging figures
Independent research by Killid reveals the sale of property of five state-owned enterprises, including 66,000 sq metres of land, has yielded roughly 10 million USD. The money is parked in a government bank. From leasing, the government has earned a mere 3.4 million USD when in fact it should have got 30 million dollars from just Ghori Cement.
AIC was obliged under the contract provisions to pay 11 million USD annually for the cement factory after a three-year holiday (2006-09) during which time the modernisation was to have taken place.
The agreement was pushed through by then Mines Minister Muhammad Ibrahim Adel, within days of his taking over the ministry. The contract was awarded to AIC two days before the government put out a tender bid, according to former deputy Minister of Mines Gheyasi in an Afghanistan Analysts Network (AAN) blog last year.
Adel told Killid the current minister of mines should have forced AIC to pay the contracted amount as agreed upon in the agreement. He accused the mines ministry of fudging figures to show that AIC owes the government only 3 million USD for Ghor I and II, the two cement plants, and the “rent for the enterprise”.
Killid tried repeatedly to talk to officials in the Ministry of Mines to find out why AIC was allowed to get away but emails and phone calls were ignored. The ministry spokesman Jawad Omar said in a phone conversation that he had not received questions that were emailed to him.
Engineer Kareem Farookh, director of Ghori Cement, was candid. He told Killid the lease deed was signed in a hurry, and it was only later that AIC realised many of the terms were “not practical” including the agreement to pay 11 million USD every year. AIC has been requesting for amendments to the agreement since 2007, he claims.
Policy review
Has privatisation benefited state-owned companies?
Aziz Shams, spokesman for the Ministry of Finance, said the government had no other way than privatisation to raise funds for the modernisation of public enterprises. He acknowledged that in most instances private investors have grabbed the properties owned by the state-owned companies instead of sinking in money to upgrade and revive enterprises. Yet he insists privatisation may have saved many from being taken over illegally. “At least the government has earned something,” he rationalises.
Hameedullah Farooqi, a former minister of civil transport and aviation, is of the opinion that privatisation cannot work in a situation like Afghanistan’s where corruption is widespread and the free market in its infancy. Here the groundwork is laid for mismanagement by the private sector, he says.
Former minister of commerce and industry, Mohammad Amin Farhang, is also a critic. He thinks “lack of coordination between governmental departments, lack of preparedness, weakness of private sector and lack of trust by donor countries have brought the privatisation policy of the government to its knee”. He claims, rather sweepingly, that Afghanistan’s supporters have “never trusted governmental institutions and never co-operated with the government.” According to Farhang, donors finance projects they want; it is for the government to get the money for projects that they want to see funded.
Ex-mines minister Adel describes privatisation as “due to external pressure”. He says he was under pressure “through different channels” to privatise Ghori Cement and two mines, Karkar and Doodkash. He says he resisted the move, and opted for lease agreements as a way to encourage growth in the industry.
Engineer Fareed Sherzoy, head of the department of oil, who has been resisting moves to privatise the oil sector, accuses the mafia of grabbing prime land belonging to the state-owned companies. Engineer Sherzoy asks, “The oil sector turns a profit every year. Where is the need to privatise?”
(*) The 2nd part of this report will focus on the reasons supporting privatisations.
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