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Huge losses at the Ministry of Mines and Petroleum due to Inefficiency and Corruption

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August 12, 2018 by
Huge losses at the Ministry of Mines and Petroleum due to Inefficiency and Corruption

21 march 2017

The previous two ministers, 46 employees and many contractor companies have been found to be responsible for the losses at the Ministry of Mines and Petroleum

 

The Ministry of Mines and Petroleum is the governmental body responsible for the extractives and natural resource industry of Afghanistan. This ministry is tasked with ensuring that as much income is generated from this significant sector as possible, to support the national budget. However, due to rampant bad management within the leadership of the ministry, even the debt owed by mines contractors goes uncollected.   

A survey of Afghanistan by the United States Geological Survey revealed that the country’s rich mineral deposits of oil, gasoline, gemstones, copper, iron, gold, should fetch an estimate of more than 1 trillion USD revenue in total from only the copper, gold, iron and lithium deposits – a substantial income for Afghanistan.

However, PAYK Investigative Journalism Center has found that the Ministry collected and deposited in the state treasury less than 7% of the debt owed by mines contractors.

 

Key findings:

  • More than 90% of debt owed from individuals, businesses and contractors over the past three years has not been collected till now.
  • Out of the more than 58 million USD total debt, only about 7.3 million USD is recoverable, and the rest is considered bad debt.
  • Misuse of funds for personal needs by former ministers, overpayment in salaries to certain employees, non-collection of revenue, land rent and fines from contractors, and the failure of the contractor for Amu Darya Basin project to produce the quota of hydrocarbons, has all caused the huge loss to the treasury of the Afghan government in the past three years;

 

The Debtors of the Ministry of Mines and Petroleum

The findings of this report show that the former Ministers of Mines and Petroleum, a number of employees and some companies and mining contractors have not paid their debts of several years into the treasury of government yet.  

 

Some hundred of cases of debtors were listed in a Supreme Audit Office report of 1393 obtained by PAYK.

“If the contractor fails to pay the required amount of money according to the law or provisions of this contract, including the price of hydrocarbon in the time specified by the Ministry of Mines and Petroleum; The Ministry has the right to terminate its contract.” – Article 25, first clause of contract

 

The largest of these losses is of more than 45 million USD due in royalties from the Amu Darya Basin’s hydrocarbon production project. The contracting companies on the project – CNP and CIW – have failed to produce the estimated 3.9 million barrels of hydrocarbon within the first three years, as indicated in the contract.

Some officials of the Supreme Audit Office (SAO) who responded to enquiries from PAYK, said more than 7.9 million USD worth of liabilities have not been recovered, and therefore the contracts of the affected companies under the Amu Darya Basin hydrocarbon project should be terminated accordingly.

However, after more than three years of failure on the part of the local and Chinese companies CNP and CIW to fulfill the terms of contract, the Ministry of Mines and Petroleum reported their suspension three months ago, but made no comments about the termination of the contracts or the recovery of debts.

PAYK’s efforts to get the reactions from these companies were unsuccessful. For example, the contact details provided on the website CIW, were found to be wrong. However, some other companies when contacted disputed or denied these assertions. Companies such as Afghan Coal, Afghan Cement – some of the biggest debtors to the Ministry of Mines and Petroleum claim that they do not owe any money.

Islamuddin Ahmadi, the Finance and Admin director of Afghan Cement Company, backed by documents provided to PAYK maintained, that in accordance with the decision of the primary business court of Kabul, they are not supposed to pay any rent for the use of land which is unrelated to their core work, and called on the Ministry to review the contract. Nonetheless, SAO maintained in a written submission to PAYK, that more than 3.9 million USD from the rent of the land is recoverable from Afghan Coal and Afghan Cement companies.

Ms. Shahla Farid, a lawyer who offered her views on the issue, said that if the SAO and the Ministry have documentary evidence, which shows that the Afghan Coal and Afghan Cement companies must pay the rent of the land, they should submit this to the court, otherwise the court’s decision is binding.

 

Liability of the former ministers

The misuse of funds for personal needs by some former Ministers of Mines and Petroleum, worth more than 58.7 thousand USD  from the regular budget of the Ministry is another reason for the losses to government revenue – and amount which according to SAO reports, is still outstanding.

“No person shall, without lawful authority, under the name of authorized official or official positions, own or receive public properties, including state-owned property.” Article 10, paragraph 2 of the Financial Management and Public Expenditure Law.

 

Based on the findings of this report, Mohammad Akbar Barekzai and Wahidullah Shahrani, the former Ministers of in question, have spent not less than 36.6 thousand USD and more than 14.6 thousand USD respectively from the regular budget of the Ministry for their personal needs, such as purchase of kitchenware and construction of concrete walls for their residential houses. SAO says the purchase of goods from the regular budget of the Ministry of Mines and Petroleum for personal use of former Ministers are contrary to the Financial Management and Public Expenditure law.

Some officials at the Ministry, when contacted refused to speak with PAYK on the grounds that they did not have authorization to do so. But Zabihullah Sarwari, spokesperson of the Ministry, who is authorized to do so, only responded that “Former ministers must respond in this regard.”

Wahidullah Shahrani, one of the named former ministers, in a telephone call to PAYK expressed ignorance about the purchase of 96 items worth more than 17.6 thousands USD for his residential house, claiming that he knew nothing about the issue and directed PAYK reporters to the head of Finance and Administration instead, and thereafter ignored all calls and written correspondence.

Mohammad Akbar Barekzai, the other former minister in question, maintained that the SAO’s report is incorrect but admitted that some concrete walls and barbed wire are still available in his house.

Mr. Barekzai says: “I have not asked anyone to install concrete barriers/walls and barbed wire in my house and no one to date has asked me what has happened to these barriers and barbed wire …” 

Apart from these two, other former high-ranking officials are among the list of debtors, with items including overpayment of allowances, in particular travel.

 

Overpayment of employee salaries

According to the SAO report, more than 33.7 thousand USD were overpaid in the monthly salaries of some 46 contract staff in years 1391 to 1393 (of the Afghan calendar).

The employees, who were named in the report received between 70 USD  to 140 USD in their monthly salaries, in contravention of the regulations governing the implementation of the budget.

The report revealed that poor supervision and internal control systems in the interpretation of Article 36 of the Law for the implementation of the budget, are the main causes for this overpayment.

“According to the Decree No. 45 of the President and pursuant to the deficit in the budget, the monthly salaries of all contract employees, if not exceed the ceiling of 50 thousand AFN, shall decrease to 10%. Also, the salaries of the project should not exceed the ceiling of 250 AFN per month.” – Article 36, Law on the implementation of budget.

 

 

The SAO report also established that the answer provided by the Ministry of Mines and Petroleum about the inaction on the deduction of 10 percent of the salaries of its employees, in excess of 734 USD, was not acceptable because it was not backed by official document from the Ministry of Finance, allowing them to do so.

 

Arrears of warehouse keepers and difference in retail purchases

More findings from the report showed that in addition to all these losses listed above, there were additional losses accrued due to the the differences in the prices the Ministry paid for items for the official use, and the actual prices on the market, as well as some arrears from mismanagement by the Ministry’s warehouse keepers.

The SAO requires that, goods that cost more than 7339 USD per year, such as paper, printers, tea and coffee, and vehicles and machine parts, should be provided through supply contracts in order to ensure transparency in the procurement process. However, this was not complied with.

However, officials of the Ministry, responding to these allegations of differences in retail prices between what is available on the market and what they purchased, maintained that the procurement was done according to the law. According to Mr. Sarwari, spokesperson for the Ministry, the difference in prices was mostly attributed to having to make hasty purchases, but the process was not illegal.

According to the report, the Ministry in the in 1393 alone, processed more than 400 retail purchase worth 293,586 USD. Three times in that year, a total of 17.6 thousand USD AFN was spent towards the purchase of tea and chocolate.

In addition to this, the SAO also reported to PAYK, the cases of four warehouse keepers of the Ministry, but without naming them. Officials of the Ministry admitted to these arrears by the four in question, but maintained that the debt is recoverable because each of these keepers had large guarantees for these arrears.

 

 

Acquisition of debts

Only 600,000 USD from the total liabilities due to the Ministry of Mines and Petroleum have been deposited in the State treasury in the past three years, which shows an acquisition rate of only 7%.

 

 

 

While all evidence obtained show a total of more than 4 billion AFN owed to the state treasury, the SAO, in a written communication obtained by PAYK, indicated that only about 540 million AFN is obtainable from the debtors of the Ministry of Mines and Petroleum – the rest of it is considered lost revenue.

Further, it was revealed that only eight contractors and one employee of the Ministry have paid part of their debts and the exact figure is over 600,000 USD 41.2 million AFN. In effect, from 1393 to date, only 7% of the total due amount was deposited into the state treasury.

The spokesperson for the Ministry mentioned the creation of a joint commission with the composition of officials from the Ministries of Finance, and of Mines and Petroleum aimed at recovering these arrears, but he could not say anything about what was the status of this commission and its work.

Integrity Watch Afghanistan (IWA) has also emphasized the creation of a joint mechanism for the on-time collection of revenue from contracting companies and sharing its information with the public. But Asadullah Zemarai, Program Manager of IWA says performances of officials of the Ministry of Mines and Petroleum in the collection of revenue from individuals and contractors remains poor, noting: “The failure of the government in monitoring and managing mines will result in a dangerous crisis.”

 

Factors of loss and failure

SAO believes that weak management and monitoring in many financial and technical aspects and contracts of development projects in this Ministry have caused huge losses to government revenue.

The failure of contracted companies to meet anticipated production ceilings, and the inability of the Ministry of Mines and Petroleum to collect of revenues from contracting companies are other factors that according to the SAO report has brought huge losses to government revenue, in the past three years.

IWA believes, from its 10 years of experience in the country, that the lack of security in many parts of the country, and the inability to control powerful local individuals and senior officials presiding over the mines in most parts of the country, are the main causes of the failure of the government to invest properly and have a proper and transparent management system.

IWA’s Zemarai, without naming anyone, said to PAYK, that personal relations and political influences are the main reasons why these companies and mining contractors, remain protected against the law, despite contravening the regulations and provisions of their respective contracts. Directorate of Cadaster and Audit Departments of the Ministry of Mines and Petroleum, which are responsible for the assessment and collection of revenues such as royalties, fines, and land rent, in many cases, failed to fulfill their responsibilities properly. However, officials from these departments could not speak to PAYK, as they were not authorized to do so.

One official, who did, on the condition of anonymity said:

“With the establishment of the Department of Petroleum in 1392, between 70 and 80 contract employees were recruited with enormous monthly salaries of $20,000 to $30,000 set by the Minister. These employees, however did nothing all year, which constitutes a major loss to the government – but nobody has been questioned yet.”

The official added that though he tried many times to prevent illegal contracts and illegal works in some functions and leadership of the Ministry, his efforts did not yield any results, and he rather suffered personal losses, though he did not elaborate on what these were.

Conclusions and solutions

The 58.7 million USD that was lost to the state treasury by actions at the Ministry of Mines and Petroleum, is the only part of the SAO’s 97-page report that was researched for this story – which seeks to question and challenge the system of governance and government leaders.

The above findings, which show a debt recovery rate of only 7% leads us to question exactly what will be the fate of the country’s mining industry given the governments track record on stemming corruption and improving overall governance of state assets. Has the realization of revenue from mining totally failed? Will the sector be completely destroyed, or will it ever be self-sufficient?

IWA believes that the law and regulations on mines must also provide for have penalties for those individuals and companies who act illegally, or do not pay royalties, rent, taxes and fines, to ensure there are no more losses of revenue to irresponsible individuals or groups, so that Afghanistan will not become a second Congo.

© Copyright 2018. Payk Investigative Journalism Center.