Afghanistan: Hyped Expectations, Fraud, Waste, and Abuse

Published on Sunday, October 25, 2009 by McClatchy Newspapers

Costs for US Project in Afghanistan Balloon, Benefit Hyped

by Marisa Taylor

KABUL, Afghanistan - Flipping a switch on one of Afghanistan's long-awaited electrical power plants in August, U.S. Ambassador Karl Eikenberry urged Afghans to think of U.S. taxpayers' support when they turn their lights on at night.

President Hamid Karzai opened the first 35MW block of a 100 MW diesel power plant in Kabul August 5, 2009, significantly expanding power to the capital and surrounding area.

Only about 6 percent of Afghans are estimated to have electricity, and in his appearance with President Hamid Karzai east of Kabul, Eikenberry hailed the project as part of the country's emergence out of the "darkness" of oppression and isolation.

To some U.S. experts, however, the project is the latest example of exaggerated political expectations and wasted American taxpayers' dollars in the effort to rebuild Afghanistan.

Plagued by delays and rising costs, the project reveals how the U.S. government continues to ignore the hard lessons of Iraq, critics say, where contractors received billions of dollars with little oversight and inspectors have found rampant waste, fraud and abuse.

Far from representing Afghanistan's budding energy independence, the project also demonstrates how dependent the country remains on its neighbors and the U.S.

The Afghan government is expected to need up to $70 million in aid a year to truck in diesel fuel for the plant and at least another $60 million to maintain and repair it. U.S. officials who once envisioned the project as a major supplier of electricity in the region now describe it as an expensive backup system.

"It's a sophisticated power plant," said Guy Sands, an assistant inspector general who's overseeing an inspection of the plant for the special inspector general for Afghanistan reconstruction that's due out soon. "But the reality is that it's totally dependent on diesel fuel, which comes from outside sources."

Meanwhile, the plant's construction costs have ballooned from about $240 million to $310 million, according to U.S. officials. Eikenberry's visit marked the completion of only the project's first phase, which was supposed to have been completed last December.

In a written response to questions posed by McClatchy, the plant's two contractors, the Louis Berger Group of New Jersey and Black & Veatch of Kansas, said the price tag would be only $15 million more than expected, not $70 million. The companies acknowledged delays, however.

"The original target dates were a 'best case' schedule," the statement said.

Critics say that the U.S. Agency for International Development, the government organization that's overseeing the project, should have foreseen many of the power plant's setbacks, but instead made matters worse by setting an unrealistic deadline from the outset, requiring the first phase to be done in five months.

Among Afghans, the power plant became known as "Karzai's winter coat" -- designed to keep him comfortably in power through the winter of 2009 -- and also a project that the Bush administration could hold up as a success before George W. Bush left office -- an achievement needed to counter reports of cost overruns and delays.

A U.S. official with knowledge of the project said Afghan officials privately complained that they hadn't been part of the decision to construct the project. "They said, 'This is not something we asked for; this is not something we want,'" said the official, who spoke only on the condition of anonymity because of the political sensitivity of the project.

However, one high-level Afghan official told McClatchy that his government thinks that the region eventually will benefit from the power plant despite the high cost of the electricity.

Kohestani Hamayoon, technical deputy at Afghanistan's Ministry of Energy and Water, said a diesel-fueled plant had appeared to be the only alternative at the time because hydropower would have taken seven years to develop. It was only later that another option emerged: importing electricity from neighboring Tajikistan, which now provides cheaper power to Afghanistan than the plant does.

"It is an urgent need for Kabul city, and the cost of the power is funded through international money," Hamayoon said.

The new plant will use about half as much fuel to produce electricity as an older 45-megawatt facility in Kabul does, Hamayoon said. The Afghan engineer said it wasn't backup power but provided both summer and winter power.

He declined to comment on the quality and cost of the two companies' work overall, however, referring a reporter to the U.S. government. "It is difficult for us to assess how they have done their work, good or bad."

The plant, near a sprawling industrial park, is part of a five-year, $1.4 billion contract to build many of the roads and energy projects that now are under way in Afghanistan. The USAID awarded it jointly to the two U.S.-based companies in 2006.

Like Halliburton, which by some estimates took in more than $10 billion in Iraq reconstruction contracts, Louis Berger/Black & Veatch received a so-called "cost plus contract," which reimburses costs and pays a percentage of those expenses as a fee.

At the time, U.S. officials thought that cost-plus was the best way to encourage two major companies to take on the risks of overseeing a wide range of complex projects in a region in which expenses -- and security -- are difficult to predict.

Carl Petz, Black & Veatch's associate vice president for strategic marketing and communications, said the two companies worked closely with the USAID to manage the contracts, despite challenges that were "inevitable and often unpredictable" because of the serious and ongoing security problems in the war-torn country.

Even so, cost-plus contracts can encourage waste and overbilling, experts said. Auditors and investigators who scrutinized Halliburton's contracts over several years in Iraq, for instance, found millions of dollars in double-billing and inflated costs.

Republican Sen. Tom Coburn of Oklahoma, who's called for ending cost-plus contracts and has been critical of U.S. oversight of them, describes cost-plus contracts as "an open invitation to contractors to rip off the government."

"By allowing contractors to not have any skin in the game, we allow for billions of dollars to be wasted, because all the risk is born by the U.S. taxpayer," he told McClatchy.

According to U.S. government estimates, fraud and corruption result in losses of up to 6 percent in government contracts.

"When we're talking about numbers as high as $50 billion in contracts like we are in Afghanistan, we're talking about significant amounts of money," said Ray DiNunzio, the assistant inspector general for investigations for the special inspector general for Afghanistan reconstruction. "We're seeing fraud not only within U.S. contractor companies, but within government agencies that are responsible for overseeing the contracts, and even on a larger scale among Afghan nationals who are being awarded some of the contracts."

Making matters worse, U.S. officials and lawmakers describe the USAID as overwhelmed and in the dark when it comes to tracking the details of ongoing projects. Some U.S. officials have questioned how Louis Berger won the contract in the first place, given a troubled history in Afghanistan.

The company was accused of overseeing poorly constructed roads, medical clinics and schools. Because of lackluster monitoring by the USAID and the company, a highway from Kabul to Kandahar required major reconstruction, according to the USAID's inspector general. The road is now virtually unusable because the Taliban have made it unsafe by using it to stage attacks.

"Yet this was the (Bush) administration's big, big project," the U.S. official said. "They took money out that was slated for other sectors, including humanitarian, and pumped that money back into that road to make up for all the mistakes."

The two companies called the criticism of Louis Berger's projects inaccurate, pointing to the USAID's rating of their work as excellent.

So far, the U.S. government has paid Louis Berger $700 million for the previous contract.

According to Louis Berger/Black & Veatch's estimates, the companies have billed the U.S. government $549 million so far for their joint contract.

According to the USAID, Louis Berger/Black & Veatch have completed six projects three years into the joint contract, at a total of almost $54 million, or less than 5 percent of the total contract's value.

Projects in the contract overseen by the companies, according to the USAID, include:

-- A $11.9 million study of the viability of using a natural gas field to fuel a 100-megawatt power plant, which was canceled in June because of "poor performance" by the subcontractor, according to the USAID, after the government had paid $7 million. The two companies disputed the allegation that the study was canceled for poor performance, saying the government acted for "its own convenience" and not for cause.

-- A $50 million restoration of the Kajaki dam, which was built more than 50 years ago in Helmand province. It initially was subcontracted to China Machine-Building International, which abandoned the project last November, citing major security problems, the USAID said. Intended to generate 100 megawatts to provide electricity to hundreds of thousands of people after it was restored, the dam so far generates 33 megawatts at a cost of $48 million. The companies said the dam's generating capacity was limited because the power lines, which weren't its responsibility, couldn't carry more. The USAID is coming up with a strategy to bring the dam up to 51.5 megawatts.

In its response to McClatchy's questions about its projects, Louis Berger/Black & Veatch said it planned to complete the projects required under the five-year contract.

However, the companies said that major security problems had understandably and severely hampered several of their projects. Since Louis Berger began its work in the region, 200 workers have been killed and 300 wounded, a vast majority of them security subcontractors.

"The Taliban and insurgents have made significant efforts to put an end to our projects, and we continue to make progress throughout Afghanistan," the companies said.

They blamed the power plant delays on the subcontractor, which they contended failed "to adhere to its contractual obligations."

Symbion Power, the subcontractor, denies being responsible. R. Scott Greathead, a lawyer for the U.S.-based company, accused Louis Berger/Black & Veatch of "serious" management mistakes.

The Office of the Special Inspector General for Afghanistan Reconstruction, which lawmakers have criticized as not being aggressive enough in going after waste, plans to come up with its own assessment of the plant soon. The agency also has launched an audit of the major U.S-funded energy projects in the country.

Separately, the special inspector general's office, an independent government watchdog that was set up a year ago to monitor contracts in Afghanistan for waste and fraud, is ramping up its ability to pursue criminal allegations.

DiNunzio, a 24-year FBI agent and certified public accountant, is overseeing the hiring of 12 additional criminal investigators by the end of the year. The 10 agents currently assigned to criminal investigations have about 40 investigations ongoing.

Louis Berger/Black & Veatch said they were working with U.S. investigators to root out waste. The companies were alerted to allegations of corruption in their own ranks by a subcontractor and tipped off investigators.

Scott "Max" Anthony Walker, who worked for the companies as a security coordinator until he was fired in June, is charged with soliciting at least $250,000 in kickbacks along with Bryan Lee Burrows, a Kabul-based consultant and major in the U.S. Army Reserve.

In a Skype chat, Burrows told the subcontractor that he could help it win a security contract, according to court records. "I have a good friend on the inside on the committee that can swing this whole thing your way," the federal criminal complaint says Burrows told the subcontractor.

Burrows also told the subcontractor that his friend wanted 1.5 percent of the contract's value in order to steer the deal, the complaint says. He added, "As you know, everything in Afghanistan comes at a price," according to the complaint.

Burrows has pleaded guilty. Walker hasn't yet appeared in court.

Taylor reported from Washington. Hal Bernton, of The Seattle Times, in Kabul and Tish Wells in Washington contributed to this article.

McClatchy Newspapers 2009