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Scrap metal from the Ministry of Defense (MoD) was sold without due process

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August 13, 2018 by
Scrap metal from the Ministry of Defense (MoD) was sold without due process

Kabul, 26 May 2018

Reporter: Mujtaba Begzad

PAYK’s investigations into the procurement and property disposition activities of government has revealed that scrap metal valued at 322 million AFN from the Ministry of Defense (MoD) was sold to KHAN STEEL Company without considering any due legal and logistics processes.     

A contract for the sale of the scrap metal in the Ministry of Defense (MoD) has been given to KHAN STEEL Company without any legal or logistics process. According to a newsletter obtained from the website of MoD, the volume of the scrap metal was 32,260 tonnes and included destroyed military tanks and vehicles, etc.

Two months ago, MoD announced in the newsletter posted on its official website that the agreement was signed in order to prevent the smuggling of scrap metal and to support the private sector and domestic industry.

The newsletter further revealed that the entire haul of scrap metal was then sold to KHAN STEEL Company for the sum of 10,000 AFN even though it has been valued independently by PAYK at 322 million AFN.

According to a number of iron dealers and manufacturers contacted in Kabul, the price of one tonne of iron on the market ranges between 15,000 and 21,000 AFN. Some of these scrap metal dealers were even of the view that the total amount of the scrap related to this contract is several times more than the 32,260 tonnes mentioned in the contract.

According to Integrity Watch Afghanistan (IWA), some members of the National Council and Iron & Steel Mills Union were therefore of the view that this contract is illegal.

Unclear contract process

The National Procurement Authority (NPA) says that in accordance with the requirements of the Procurement Law, the approval and implementation of this contract is under the authority of Ministry of Defense and, therefore, is not recorded in its database.

The aforementioned newsletter of MoD posted on its official website indicates that the contract was signed and executed on the basis of the Ministry’s proposal and Decree No. 3296 dated February 13th, 2018, but none of the parties were ready to provide legal documents or information about the process of the contract.

Upon contacting them some officials of MoD spoke about an open bidding process between Iron Industries and as a result of the bidding process, KHAN STEEL Company was announced the winning company. But when PAYK correspondents requested a copy of the contract and information on how the contract was done, the spokesman for the MoD said he does not know about the process.

The official receipt of the request for information was submitted to PAYK on 9th May 2018; however, the information has not been provided by MoD officials till date. Colonel Rasul Mohammad, head of the department for Access to Information of the MoD press office said in a recent telephone conversation with PAYK correspondent:

“The information you have asked about the KHAN STEEL Company’s contract is unfortunately not ready. But you can go ahead and publish your report.”

 

KHAN STEEL & Iron Works Company started its activity in solar year 1394 with an initial capital of $25 million in Pul-e-Charkhi industrial area of Kabul. Right now there are at least 600 domestic workers and 100 Turkish, Indian and Iranian workers in this factory producing more than 200 tonnes of iron bars daily.

The company won the largest contract of MoD during a major annual summit in the presence of the president and a number of members of the cabinet.

The persons in charge at the factory says that the contract from MoD is a single source contract and claims that they have obtained this contract based on the basis of transparency, high capacity, and good tax revenue compared to other steel mills in the country. But, despite repeated requests by PAYK, they refused to provide documents on the legality of the contract.

KHAN STEEL Company’s chairman, Khan Mohammad Wardak said in an interview with the correspondent of PAYK:

“Our contract is legal and there is no intermediary or personal relationship in the award of this contract.”

However, some iron manufacturers who wish to remain anonymous are unconvinced that there has been no fraud, as there have been rumors of political and group personal relationship between the company’s officials and some senior government officials.

Abdul Rashid, the financial officer of the KARWAN FOLAD STEEL Company said to PAYK correspondent:

“KHAN STEEL Company has obtained this contract on the basis of government relations and no other company know about this and has a share…”

Naqibuallah Yousafzai, the chairman of the Iron and Steel Manufacturers Association, also emphasizes that there are more than 30 iron factories throughout the country, but the MoD has sold thousands of tonnes of scrap iron to KHAN STEEL Company without any call for auction.

Mr. Yousafzai therefore was of the view that the contract should have been awarded to the winning company through an open auction, which unfortunately did not happen.

Article 18 of the Procurement Law stipulates four different typed of procedures for contracting – taking quotation, open bidding, Restricted Tendering, and procurement from a single source. But Integrity Watch Afghanistan (IWA) insists that the procurement law explicitly opts for purchases of government institutions and that sales are made on the basis of the Auctions Law, which has been in force for over forty years.

Auctions Law, Article 5, “If the number of bidders is less than ten, the auction is not permitted.”

Article 7- Declarations of sales of Property shall be done at least three times through radio and printed publications.

Article 19- If the buyer does not transfer the property purchased from that place within the specified period (10 days mentioned in Article 18); in lieu of each day of the delay one percent of the price of the remaining property shall be acquired in the form of demurrage. “

Six months ago, the Ministry of Finance (MoF) had announced the selection of six active Iron Mill Factories for the processing of scraps from public and military institutions across the country. According to a report from the Government Media Information Center, prior to this, for the first time, 4,342 tons of scrap iron belonging to Zafar 207th Corps has been sold to KABUL FOLAD Iron Company according to decision No. 4 dated 18/06/2017 of the Supreme Economic Council, each tonne going for for 10,000 AFN, but nothing has been said about the auction and contract.

 

The price list for selling scrap irons of government agencies to the private sector based on the decision of the Supreme Economic Council
1 1 tone iron 10,000 AFN
2 1 tone Aluminum 98,000 AFN
3 1 tone Bronze 245,000 AFN
4 1 tone copper 297,000 AFN

 

The council has also determined a table of prices for the sale of scrap iron by the military and nonmilitary government agencies but did not report the total amount of these metals across the country.

The parties to the contract have not responded to PAYK with a clear answer and contradictory statements have been explained about the dual process – open bidding and single source.

While MoD has spoken about awarding this contract on the basis of an open auction, but KHAN STEEL Company says it has obtained the contract through a single source.

PAYK findings from the National Procurement Office’s data show that most of the Ministry’s contracts have been made through the “single source” method over the past three years, and some of these contracts have been approved without guarantees or legal commitment letter.  ‌

The total number of MoD projects presented in the illustrated chart of this report is from 1394 until the end of the fiscal year 1396. Based on the data, at least half of the contracts of this Ministry, which are provided through a single source, do not have a commitment letter. Further, the procurement methodology of one-fourth of the total number of MoD’s contracts is unclear.ندا

Ghulam Hussein Nasseri, a member of the House of Representatives in parliament says: “Most of the Ministry of Defense’s contracts that do not go through a single source are not free of corruption.” This claim was rejected by the National Procurement Authority (NPA) but the officials of the Ministry of Defense (MoD) did not respond at all.

However, Integrity Watch Afghanistan (IWA) and some economic experts though full of praise for the government’s new efforts to support the private sector and prevent the smuggling of iron from the country, nonetheless insist that the implementation of such contracts with steel making companies is unlawful and transparency and accountability must be the overall consideration in order to prevent corruption.

© Copyright 2018. Payk Investigative Journalism Center.