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A loss-making cash cow

Mir Sediq Zaliq
Under pressure to repay his loans to Kabul Bank, the president’s brother, Mahmoud Karzai, has sold his shares in the Afghan Investment Company. Could this herald a new future for the country’s biggest cement…
6.07.2011  |  Kabul
Ghori I is the only active cement factory in Afghanistan despite the lucrative market in the country. (Photos: Nasrat Parsa)
Ghori I is the only active cement factory in Afghanistan despite the lucrative market in the country. (Photos: Nasrat Parsa)

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, according 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 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 far 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 modernisation 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.

"They couldn’t raise the funds, that’s why they failed." Former minister of finance Ahady

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 money 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.    

“The investors of this factory are not honest and don’t care about its future.” Head of Baghlan's  provincial council

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 Zameen 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 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 privatisation 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.”

(Nasrat Parsa from Baghlan contributed to this article.)