Black & Veatch: White Elephant in Kabul

In a secluded valley a few
miles from Kabul's international airport, Caterpillar turbines custom-built in
Germany and giant transformers flown in from Mexico hum away at a brand-new
power plant. If all goes as planned, one engineer sitting at a single computer
with four flat screens will be able to run this state-of-the-art diesel
facility built by Black & Veatch of Kansas.

The help of three U.S.
ambassadors to Afghanistan and $285 million in U.S. taxpayer dollars have
flowed into the power plant outside Tarakhil village. President Hamid Karzai
supported the project, convinced that it could help him win the August 2009 Afghan
presidential election.

Two weeks before the August
20 vote, at an opening ceremony for the unfinished plant, Karzai stood beside
Karl Eikenberry, the current U.S. ambassador, who told the assembled media:
"I would ask the citizens of Kabul when you turn on your lights at night,
remember that the United States of America stands with you - optimistic of our
combined prospects for success, and confident in you and our mission."

But much, so far, has not
gone according to plan: The $280 million-a-year cost to run the power plant
full tilt is more than a third of total tax revenues for the entire country;
the plant would supply electricity to less than 2 percent of the population;
and the plant's cost - already more than $300 million - is roughly three times
that of any similar plant in the region.

Far from the public
relations coup Karzai and Eikenberry envisioned, their shining the spotlight on
the plant exposed problems with planning, cost over-runs and alleged
corruption.

Desperate for Power

Under the spectacular
expanse of the Darul Aman mountains, tens of thousands of ethnic Hazara people
live in Dasht-e-Barchi, a poor suburb of west Kabul. They have no proper
sanitation and, without the investment of local residents, would have had no
nighttime electricity. These local entrepreneurs invested in small diesel
generators and a patchwork of low voltage electrical lines slung across the
unpaved streets and open ditches that serve as sewage culverts.

Mohammed Taleb, who hails
from Maidan Wardak, is one such entrepreneur. Out of a shopfront on
Dasht-e-Barchi's main street, he sells just enough electricity to power a
single light bulb each in 300 households. He charges 80 Afghani (US$1.60) a
month. "We have been waiting for the government to give us electricity but
we don't know when it will come," he says.

Such generators have long
been a major source of power for most citizens of Afghanistan, one of the least
developed countries in the world. Just one in seven Afghans has access to
electricity, according to USAID.

Even though Afghanistan has
tremendous hydro-power potential and modest natural gas reserves, neither the
transitional government that took over in 2001, nor the donors who supply
two-thirds of the government's annual expenditures have put serious effort into
developing these power sources. As a result, five years after the fall of the
Taliban, even the country's capital lacked a guaranteed source of basic
electricity.

Two major projects had been
in the works for a while: a $35 million project to build a 220 kilovolt power
line from Uzbekistan over the Hindu Kush, and a second $28 million power line
from Tajikistan. Each is expected to supply 300 megawatts to Kabul. Engineers
from KEC, an Indian company, have been hard at work since October 2005 on the
Uzbek project with money from the Indian government, the Asian Development
Bank, and the World Bank. The Tajik project was awarded in November 2008 with
funding from the Asian Development Bank and OPEC Fund for International
Development.

But, engineering
difficulties and cost aside, there is no political guarantee that either project
will work. Tajikistan is a failed state, and the Uzbeks, who kicked U.S. troops
out of their country in July 2005, are seen as an unreliable political partner
to the U.S.-backed Karzai regime.

In April 2006, shortly
before he left Afghanistan, U.S. ambassador Ronald Neumann dreamed up an
alternative to the Central Asian transmission lines. According to former
finance minister Anwar-ul-Haq Ahadi, Neumann asked USAID to offer the Karzai
government a 100-megawatt diesel plant. Budgeted at $120 million, it would be
able to supply 500,000 people with basic electricity. And if completed in just
over two years, before the 2009 elections, it would also allow Karzai, whose
political star was already fading fast, to claim that he had provided
electricity to Kabul.

Karzai readily agreed and
instructed the nervous Ministry of Finance to approve the scheme in early 2007,
and add $20 million of Afghan money to the U.S. contribution.

An Unwanted Gift

Juma Nawandish, the former
deputy minister of electricity, told CorpWatch that he had never asked for a
diesel power plant in the four years that he was in charge after the fall of
the Taliban. Nawandish, a trained
natural gas engineer, who now runs the Energy and Power Construction Company,
favors locally produced gas as a power source. At his office in central Kabul,
he pulls out a series of slides and engineering studies of the northern
Afghanistan Shebhergan gas fields where he once worked. "I advised USAID
to put their money here," he said. "If they had rehabilitated the gas
wells, and used our local engineers, we would have saved a lot of money."

But USAID wasn't listening.
In July 2007, the agency issued a contract to a joint venture of Louis Berger
of New Jersey and Black & Veatch of Kansas to build a 105 megawatt power
plant with the latter company in the lead. The approved price tag was $257.8
million, more than twice what USAID had initially told the Karzai government
the project would cost.

Numerous power experts from
around the region said that the price was far too high. Bikash Pal, an
engineering expert from Imperial College in London, said that the rough price
for building a 100-megawatt plant should be $100 million. Indeed, a search
online for similar projects using Caterpillar turbines in the Dominican
Republic, the Philippines and Sri Lanka, have lower price tags. Wartsila, a
Finnish company that builds more sophisticated turbines than Caterpillar, is
completing a 200-megawatt project in neighboring Pakistan for $180 million.

Abdul Ghaffar, an Afghan
engineer who runs his own power plant construction company in Dubai, says that
the Black & Veatch price is exorbitant. "I built a 22 megawatt plant
in Kandahar for $550,000 a megawatt," he scoffs. That plant was finished
in 2008 and Ghaffar did not bid on the Tarakhil project.

Asked why the price was so
high, Jack Currie, the Scottish manager of the Tarakhil project, cites: $109
million for the turbines built in record time; $22 million to transport the
turbines and transformers from Germany and Mexico under contract with Matrix, a
subsidiary of Agility of Kuwait; and $10 million for private security provided
by London-based Hart Security.

Currie's numbers did not
include $60 million for executive salaries, expatriate consultants, and
profits. The cost escalation "was because [USAID] wanted to do this in the
shortest possible time," said Deputy Minister of Energy and Water Ahmed Wali
Shairzay, in charge of the electricity sector. "It became very
uneconomical."

Even at the inflated price
tag, now heading toward $300 million, the original December 2008 deadline became
an impossible target. Ironically, the Indian engineers at KEC finished work on
the Uzbek power line months before the Americans were able to turn on just one
block of the Tarakhil plant. By January 2009, cheap power was flowing from the
north down to Kabul at 6 cents a kilowatt hour.

By contrast, USAID
estimated Tarakhil's electricity at 22 cents a kilowatt hour. Under the
agreement signed with the Karzai government, Kabul is solely responsible for
fuel and maintenance costs. When news broke at the monthly meetings of the
Inter-ministerial Commission on Energy in Kabul, that Afghanistan was expected
to pick up these costs, a number of donors and Afghan government bureaucrats
registered anger and dismay.

"The contractor was
lying to USAID. They were lying to the Afghan government. They were lying to
everybody," Shairzay told CorpWatch. "We were called into the
president's office many times to solve this problem" of getting
electricity to Kabul.

In early 2009 Black &
Veatch dismissed Tarakhil project manager Jack Currie, and it was not the first
time. Black & Veatch had previously suspended Currie as project manager for
a similar plant - a combined cycle gas turbine facility at Qudas outside of
Baghdad. A January 2006 report by the Inspector General of Iraq Reconstruction
(SIGIR) faulted planners and the contractors for supplying turbines that were
unsuitable for the available fuel supply, and for failing to provide adequate
training and maintenance for the plant.

Asked how long the Qudas
plant had functioned after he left the project, Currie replied: "Six
weeks." Currie blamed the Iraqi engineers for not maintaining the power
plant. He added that he hoped this would not be a problem at Tarakhil because
Black & Veatch expects to spend a year in Afghanistan after the power plant
is completed to avoid similar mistakes.

Too Expensive to Sustain

One of the biggest problems
with Tarakhil is that Afghanistan simply does not have the cash to pay the fuel
that will be imported from Turkmenistan. Indeed Abdul Ghaffar's modest 22-megawatt
plant in Kandahar has been mothballed for precisely that reason.

Jack Whippen, the head of
Black & Veatch's operations in Afghanistan, estimates that if diesel stays
at 80 cents a liter, it will cost $96 million to supply and $12 million to
operate the Tarakhil plant at 55 percent capacity. Extrapolating to full
capacity brings the operational costs closer to $200 million. If the price of
diesel goes up by just 25 percent to a dollar a liter, as Currie estimated, a
back-of-the-envelope calculation puts the cost at $280 million a year for full
production. Afghanistan's total tax revenue for 2008 was $800 million.

Asked if he could justify
spending this kind of money, Mohammed Khan, a member of the Afghan parliament
and chair of the energy committee, answered: "No. Not unless we have an
emergency." Khan, a Karzai supporter and trained electrical engineer,
worked in the Kabul Electricity Department for many years.

Meanwhile USAID has failed
to complete studies on a cheaper alternative to Tarakhil. In February 2008
Black & Veatch was finally tasked with figuring out how to rehabilitate the
Shebhergan gas fields. In June 2009 after spending $7.1 million, USAID
"terminated" Black & Veatch from the project for "poor
performance." Black & Veatch says it failed because of security
problems and because necessary equipment was held up at the border.

The agency maintains that
time will prove that their investment was worthwhile. "I believe that the
Tarakhil power plant contributes significantly to the overall energy project
for Afghanistan," says John Smith-Sreen, the technical representative for
energy and water for USAID in Afghanistan.

Ongoing Inspections and Investigations

Two weeks before the
election, U.S. Ambassador Eikenberry and President Karzai opened the plant - still
only a third complete - to great fanfare. Twelve days later, a team of
inspectors from the Special Inspector General for Afghanistan Reconstruction
(SIGAR) in Arlington, Virginia, arrived to determine why costs were so high and
whether operations were sustainable.

SIGAR spokesperson Susan
Phalen confirmed that the agency had "intense concerns" and that a
report on the plant was due on November 30, but refused to speculate on the
findings. "SIGAR's policy is that we do not discuss inspections that are
currently underway," she wrote in an email response.

"Their job is to look
in a manner that allows that if there was an error it not be repeated,"
says Whippen, who claims to welcome the inspection. "So I would expect
they would flash up what they considered to be weaknesses and I would hope they
would. At the same time I expect they will also flash up some strengths."

The SIGAR inspection is not
the only probe into Tarakhil. In response to a complaint about possible fraud
in Black & Veatch's sub-contract awards, Laszlo Sagi, a special agent for
USAID's Inspector General, traveled to Kabul in September to interview Ian
Cameron, who had handled the specific sub-contract for security at the plant.

Speaking for Black &
Veatch, Currie says that Cameron is currently on vacation and unable to answer
questions. Sagi refused to comment on Cameron, but acknowledged that in August
he had recommended that the District Court in Virginia issue arrest warrants
for fraud for two other individuals associated with security sub-contracts for
Black & Veatch's eastern region power contract.

Veteran political observers
including Ramzan Bashardosht, former Afghan minister of planning under Karzai,
say that the problems at Tarakhil are in no way unusual, and point to a series
of similar project failures in the past. (See Afghanistan, Inc.)

"The problem is that these contractors are
here to make money for themselves not to help us," says Bashardosht.
"We have to break up this political and economic mafia if we want to
develop."

Pratap Chatterjee is an investigative journalist and senior editor at CorpWatch. He is the author of Halliburton's Army: How A Well-Connected Texas Oil Company Revolutionized the Way America Makes War (Nation Books, 2009) and Iraq, Inc. (Seven Stories Press, 2004).

Dr Ali Safi contributed research and reporting for this article. A
video story by Chatterjee related to this one can be seen at Britain's Channel 4 News.

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