Karzai Bros. Afghan Investment Company _AIC_ - Ronna

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					7 Jul 2011
Tolo News
Karzai Bros. Afghan Investment Company (AIC) Scandal Afghanistan
by Mir Sediq Zaliq

Five years ago, the Ghori cement factory in Baghlan became a symbol of corruption, when the
lease for this former state-run enterprise was granted to the Afghan Investment Company (AIC)
run by Mahmoud Karzai, a brother of the president.

But now Karzai has sold his AIC shares, raising questions about the future of this nationally
important asset. “I had to sell my shares at the AIC, because I had to pay money to Kabul
Bank,” Mahmoud Karzai told Afghanistan Today. The president’s brother had come under
pressure from the government to repay millions of dollars in loans when the dubious lending
practices of the country’s biggest financial institution became public and plunged the bank into
crisis.

Karzai’s shares were bought by Mirwais Azizi, the CEO of Azizi Bank, who thereby increased
his AIC investment. “He bought them only recently, there have not been any changes in the
strategy, yet. But maybe there will be plans in future”, said Mohammad Muneer, the managing
director of AIC’s coal mining section. Azizi could not be reached for comment.

Discussion in the cabinet about Ghori

While no change has been felt in the northern province of Baghlan yet, Karzai’s departure
seems to have caused some developments in Kabul. The economic committee of the Afghan
cabinet recently discussed the possibility of withdrawing the lease or finding additional investors,
accroding to Commerce Minister Anwar ul-Haq Ahady. The spokesman for the Ministry of
Mines, Jawad Omar, says his ministry has been instructed by the committee to establish a
commission on the future of the factory. Omar declined to give details, but said: “When
something is addressed in the economic committee, there are definitely some problems.”

AIC stands accused of not having met its contractual provisions to modernise of the factory and
the appendant four coal mines that provide the coal needed for firing the kilns. A planned new
power station was never built, and the run-down mines cannot deliver enough coal to operate
the second cement plant, Ghori II, according to mines director Muneer. Let alone a third plant
that was supposed to be active by last year but was never built. “The Afghan Investment
Company promised that they will invest millions to equip the coal mines and Ghori Cement
Factory with modern technology. But so farl they have not done that,” says former deputy
minister of mines, Mohammad Akram Gheyasi.

No provisions in case of contract violations

The lease contract, seen by Afghanistan Today, requires modernization to take place within
three years, which did not happen. However, there is one problem: The contract does not
include any provisions for the case of non-compliance. The ministry declined to comment.

Karzai leaves behind a loss-making enterprise, although Ghori is the only active cement factory
in Afghanistan and despite a huge demand for cement in the country - most of it met by imports
from Pakistan. The modernisation of Ghori never materialised as AIC did not secure the
necessary funds. “They asked us (the ministry of finance) to help them ask the Chinese and the
Indians to lend them money,“ says former finance minister and current minister of commerce,
Ahady. "The Indians were prepared to do so, but they wanted a government guarantee. I wasn’t
willing to give that guarantee. They couldn’t raise the funds, that’s why they failed."

Mahmoud Karzai blames the government for lack of support in attracting foreign investors, while
Afghan businessmen invested 35 million US dollars in AIC. According to Abdul Ghafar Dawee, a
former AIC investor who sold his shares last year, 200 million dollars were needed to implement
the planned modernisation.

Investors lost interest

Moreover, Dawee says that major shareholders lost interest in Ghori years ago when they found
more promising investment opportunities in the Dubai real estate market that has since crashed.
“The growing prices of property attracted those shareholders, who were also Kabul Bank
executives, to invest in Dubai real estate, that was originally allocated for the renovation of the
factory .”

According to Dawee, Mahmoud Karzai complained repeatedly that shareholders did not stick to
their investment promises. He says that there were disagreements over this issue between
Karzai and Sher Khan Farnood, the former head of Kabul Bank, who left AIC in 2009.

Karzai: Pakistani dumping policy caused Ghori failure

Apart from a lack of funds, Karzai and Dawee blame unfair competition from the major cement
supplier Pakistan for the failure of Ghori. According to Karzai, Pakistan subsidizes exporters
who sell a ton of cement in Afghanistan for 46 US dollars while the same ton in Pakistan costs
76 US dollars: “Pakistan says 46 dollars only if you export it to Afghanistan.” The volume of
Pakistani cement exports to Afghanistan and Tajikistan amounts to 800 million dollars a year,
said Karzai. Dawee added that Pakistan did not allow new machinery for the factory in Baghlan
to transit its territory, rendering shipment via Iran, Russia and Uzbekistan costly and time-
consuming.

Five years after privatisation, the workforce in Baghlan is frustrated about all the broken
promises. When AIC took over, its CEO Mahmoud Karzai promised workers a better life, saying
the private sector would turn the loss-making state enterprise into a thriving business. In 2008,
the managers of Ghori were still painting a rosy picture. Everything was on track to meet the
planned production increases, Abdul Karim Farokh, managing director of Ghori I, told media.
Thousands of jobs would be created in the near future, he added, according to a report in
Hewad newspaper. The lease contract ensures fair salaries, housing, a kindergarten, a school,
playgrounds and sport facilities for the workers.

Workers disillusioned

“We first thought that working for the private sector would improve our lives,” says 40-year old
coal miner Ghulam Farouq. “But now I know that we had a better life when we used to work for
the government. We don’t get paid on time, our salaries haven’t been increased and our
retirement is also not assured.”

In recent years, the workers in Baghlan have frequently gone on strike and demonstrated
against their working conditions and late payments. But former investor Dawee insists that
salaries have been raised and housing has been provided. “Some of their houses had been
taken by powerful people, but we gave them back to their owners.” Karzai says the government
has forced AIC to keep more labourers in the job than the company needs. “The government is
against the private sector. Government officials always try to damage the private sector in any
way they can,” the president’s brother said.

Doubtful tender process

A report of the McClatchy newspapers last year raised serious doubts about the way the lease
was granted to AIC, whose 34 politically well-connected shareholders included Karzai and
Abdul Qasim Fahim, a brother of the vice-president. The report says that the then minister of
mines, Mir Mohammad Sediq, rebuffed the AIC bid and was fired shortly afterwards. His
successor, Mohammad Ibrahim Adel, decided to award the lease “within days” of taking office.
Former deputy minister of mines Gheyasi claims the contract was awarded to AIC two days
before the government put it out to tender.

Former AIC investor Dawee says the president himself was involved in the decision-making.
“Mahmoud Karzai talked to the president and they agreed to give this contract to the Afghan
Investment Company,” Dawee says, adding that this was to ensure that it would go to an
Afghan-owned company to support the private sector and economic growth in the country.
According to him, competing companies like the firm Aria Zameen owned by the former minister
of agriculture, Obaidullah Ramin, agreed to buy shares of AIC and withdraw their bids. In
contrast to this, the then minister of mines Ibrahim Adel told media at the time that Aria Zameed
had put in a bid but did not meet the criteria.

Ghori II still not operating

Since its establishment in 1962, Ghori Cement Factory has always been an important asset and
a major employer in the region. In the middle of the war against the Soviets, the state borrowed
42 million dollars from the Czechoslovakia to build a second plant next door: Ghori II. But when
construction was almost complete, the fighting moved to the North, preventing the plant from
operating.

According to AIC-plans that are still posted on the website of the company, Ghori II was
supposed to start production in 2009. Now, Mahmoud Karzai says the plant will start operation
in the coming weeks. But Mohammad Muneer, the managing director of AIC’s mining section,
says the company cannot extract enough coal to run both sections of the factory.

The anger about the failed privatization is palpable in Baghlan. “The investors of this factory are
not honest and don’t care about its future,” says the head of the provincial council Mohammad
Rasoul Mohseni. “Ghori will end up the same way as Kabul Bank.”

				
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