Kyrgyzstan Deals Cloaked in Mystery

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The Washington Post

Kyrgyzstan Deals Cloaked in Mystery

by
Andrew Higgins

BISHKEK, KYRGYZSTAN -- When U.S. troops moved into Afghanistan
in 2001, Douglas Edelman already had a foothold in Central Asia. He'd
opened a bar and hamburger joint here in the capital of Kyrgyzstan, the
crumbling, outer rim of the former Soviet empire.

Today, his fortunes turbo-charged by war, the 58-year-old Californian,
along with a young Kyrgyz partner, controls a multinational jet fuel
business that has received Pentagon contracts worth nearly $3 billion,
according to current and former employees.

The contracts have kept U.S. warplanes flying over Afghanistan and
helped the Pentagon skirt increasingly hazardous supply routes through Pakistan.
But nurtured by retired U.S. military and intelligence officers, the
jet fuel deals have generated a thick fog of mystery that has flummoxed
competitors, and the White House.

Congressional investigators have spent six months digging into
single-source Pentagon contracts, the possibly illegal diversion of
Russian fuel and Kyrgyz claims of backroom deals, which have soured ties
with a crucial U.S. ally.

The below-the-radar rise of Mina Corp. and Red Star Enterprises - whose
ownership, operations and even office locations are shrouded in secrecy -
shows how nearly a decade of war has not only boosted the bottom line
of corporate behemoths but also enriched unknown upstarts.

In just eight years, Mina and Red Star - both registered in Gibraltar
and run by the same people - have come from nowhere to become a key link
in the U.S. military's supply chain. They have beaten out established
rivals to supply nearly a billion gallons of jet fuel to a U.S. Air
Force base here in Kyrgyzstan, a vital staging post for the Afghan
conflict, and also to American warplanes at Bagram air base in
Afghanistan.

Without their supplies, the U.S. war effort would quickly grind to a
halt. All American troops enter and leave Afghanistan on U.S. transport
planes fueled by Mina in Kyrgyzstan. The firm also provides jet fuel for
a fleet of C-135 aero-tankers that perform more than a third of all
in-flight refueling operations over Afghanistan. Vast underground
storage tanks built by Red Star at Bagram hold five Olympic-size
swimming pools worth of jet fuel, the biggest such facility by far in
the war zone.

The companies themselves, however, are largely invisible. In dealings
with the Pentagon, they have used addresses in Toronto, London and
Gibraltar, each apparently little more than a mail drop. Edelman, the
former bar owner, who now lives in London, is so elusive that even
congressional investigators probing the jet fuel deals have not managed
to talk to him. He did not comply with a July subpoena from the House
Subcommittee on National Security and Foreign Affairs, according to
people close to the probe.

Contract flaws

Keeping a low profile, said Edelman's 35-year-old Kyrgyz partner, Erkin
Bekbolotov, in his first media interview, is "the key to success in
countries where there is hostility to the U.S." Mina and Red Star, said
Bekbolotov, who did meet with the subcommittee, "have done a fantastic
job."

He declined to comment on ownership or earnings, saying only that the
companies make "a reasonable profit." Edelman, he added, is merely a
"part-time adviser."

Yet people familiar with the business say Edelman, originally from
Stockton, Calif., has a controlling interest in at least half of Mina
and Red Star. Bekbolotov owns the rest. The companies said Edelman was
not available for an interview.

Bewildered - and also jealous - competitors whisper that the companies
are perhaps the Afghan conflict's version of Air America, a nominally
private airline run covertly by the Central Intelligence Agency during
the Vietnam War.

"Everyone thinks I'm CIA," said Bekbolotov, noting that "this image has
been very helpful" as it curbs "harassment by Kyrgyz officials or people
close to them." But Bekbolotov insists it is not true.

"I'd like this image to continue," he said, "but attention is so intense we need to dispel the myth."

After poring over 250,000 pages of e-mails, contracts and other
documents relating to the jet fuel deals, congressional investigators
have not uncovered credible evidence of CIA skullduggery or corruption.
But they have found serious flaws in a Pentagon contracting system that -
tightly focused on keeping jet engines burning - pays little heed to
potentially damaging diplomatic and strategic blowback.

"The Pentagon and State Department ignored widespread Kyrgyz public
perceptions of contract corruption engendered by a fundamental lack of
transparency," said Rep. John Tierney, a Massachusetts Democrat and
chairman of the subcommittee that conducted the probe. "Supplying vast
quantities of fuel is an extremely sensitive endeavor with significant
political, diplomatic, and geopolitical ramifications. It is not merely a
logistics matter."

The White House, alarmed by the unintended consequences of the fuel
deals, is pushing for greater transparency, said a senior administration
official. "There has been a giant fight with [U.S. Central Command]
over this," said the official, who asked not to be named because of the
sensitivity of the matter.

When Kyrgyzstan's authoritarian president, Kurmanbek Bakiyev, was
overthrown in April, U.S. officials who rushed to Bishkek to show
support for his successor received a tongue-lashing from the new Kyrgyz
government, which claimed that opaque jet fuel deals had enriched the
deposed regime. Kyrgyzstan has oscillated over whether to kick the
Americans off its base, and officials there say the behavior of Red Star
and Mina has done nothing to help the U.S. cause.

Speaking in an interview shortly before a September meeting with
President Obama, new Kyrgyz president Roza Otunbayeva demanded that the
Pentagon stop using private contractors and work through a state-run
Kyrgyz venture instead. Mina and Red Star, she said, have "put a lot of
bad things into our tragedy."

Accusations of wrongdoing, said Chuck Squires, a retired U.S. military
intelligence officer and director of operations for the business, "are
all garbage. This is a legitimate company. Always has been."

'Lack of transparency'

Over the years, the business has recruited several ex-military men,
including veterans of Army intelligence and U.S. Special Forces, and
developed unusually close ties to the Pentagon.

When the Defense Logistics Agency last year needed a contractor to
supply more than 100 million gallons of jet fuel over 12 months to the
U.S. Air Force base outside Bishkek, it ditched the customary bidding
process for what the Pentagon termed "reasons of national security."
Those reasons are classified. The contract went to Mina.

At the center of Mina and Red Star's dealings with the Pentagon is
Squires, a genial Russian-speaking retired lieutenant colonel who spent
27 years in the U.S. Army, mostly in intelligence. He ended his career
as a Central Asia adviser to Central Command, which now runs U.S.
military operations in Afghanistan and also Kyrgyzstan.

Stationed in Bishkek from 1997 to 1999 as U.S. military attache, Squires
got to know Edelman at the American Bar and Grill, the Californian's
best-known venture until he began selling jet fuel to the Pentagon.

Hired by Red Star in 2003, Squires has played a central role in building
up the firm. When the Defense Logistics Agency sought a jet fuel
contractor in 2008 for Bagram, it stipulated that delivery be made by
pipeline. Squires had persuaded the military to let Red Star build a
private pipeline the year before, and it was the only company that had
one. Red Star won the contract.

The pipeline deal, said Ron Uscher, a Washington lawyer acting for a
rival, International Oil Trading Company, gave "Red Star a
non-competitive sole source monopoly."

Squires denied the companies received any special favors: "We saw an
opportunity. We took risks. They liked it. We liked it." Noting that a
"truck full of fuel is a potential bomb," he said the pipeline had cut
traffic into the base and thus boosted security. "There is no special
relationship. It is a professional relationship."

The Pentagon declined to make officials involved in the jet fuel
contracts available for interviews. But in written replies to questions,
it lauded the companies' performance, saying that Mina and Red Star
"have successfully performed their contracts since 2003." The Pentagon
has cooperated with the congressional probe.

To keep U.S. troops flowing into Afghanistan and U.S. warplanes flying
there, the Pentagon has to fill what look like 18 gigantic waterbeds on
an American air base near Bishkek that the military calls "Freedom's
Frontier." The big rubber sacks hold 3.6 million gallons of jet fuel and
are replenished each day by Mina.

Col. David R. Zorzi, the officer in charge, said he knows nothing about a
long chain of intermediaries who buy the fuel and deliver it to the
base. "That is the beautiful thing," he said. "We don't worry about
politics."

Secrecy at the office

Mina and Red Star have little of the visible infrastructure usually
associated with an enterprise handling billions of dollars of business.
At an address in Gibraltar used by both Red Star and Mina is a law firm
that specializes in "virtual office services." Mina's London office
consists of a small glassed-in cubicle. An address in Toronto that Red
Star used to win its first Pentagon contract turns out to be a business
center in a high-rise tower.

Bekbolotov, Mina and Red Star's general manager, said the two companies
have other offices and a total staff of about 450. He wouldn't detail
where they are, citing security concerns.

Bekbolotov said the companies are creating a management structure "along
standard lines," centered on a Dubai office that opened in January
under the name Mina Petroleum. A woman who answered the door there,
however, denied working for Mina and said she knew nothing about the
company.

Mina and Red Star do much of the work buying, transporting and storing
jet fuel through a web of nominally independent but intimately linked
satellite firms.

Elusive entrepreneur

People who have known Edelman for years, including his former wife,
Rebecca Tassi, say they are puzzled by the secrecy. They describe
Edelman as personable, casual and forever looking for a new business
venture. In the 1980s, Edelman lived for a time in Spain where,
according to his ex-wife, he traded "everything from linen and oranges
to steel."

In the early 1990s, Edelman started doing business in the former Soviet
Union. He spent time in Moscow, working with a trading company called
First Leader, said a former colleague, and later moved to Bishkek, where
he opened the American Bar and Grill. "It was the hottest spot in
Bishkek," recalled Bekbolotov, who at the time had a small oil trading
company. Edelman also got into the energy business, providing jet fuel
to civilian aircraft at Bishkek airport.

Wealthy by Kyrgyz standards, Edelman lived in a house with a pool and a
black dog and, according to family friends, drove a bulletproof
Chevrolet Suburban.

Red Star won an initial contract to supply fuel at the U.S. Air Force
base in Kyrgyzstan in December 2002, not long after the company's
founding. To deliver on the deal, Red Star teamed with two local Kyrgyz
companies, Manas International Services and Aalam Services, both of
which were controlled by relatives of the president at the time, Askar
Akayev, according to Kyrgyz prosecutors.

Bekbolotov, Edelman's partner, said there was no choice because the
Pentagon stipulated Red Star must have access to the airport, something
only the Akayev-controlled companies could provide.

In Afghanistan, Red Star won its first contract to supply jet fuel to
Bagram in 2004, after Squires persuaded the Defense Logistics Agency
that deliveries could be routed through former Soviet territory to the
north. This new channel, built largely around fuel from Russia, provided a badly needed alternative to the violence-plagued Pakistan route.

But much of the Russian jet fuel delivered by Red Star to U.S. forces in
Afghanistan, Kyrgyz officials allege, was falsely certified by the
Kyrgyz civil aviation authority as being for civilian domestic use. This
meant the fuel avoided Russian export duties but should have stayed in
Kyrgyzstan for non-military purposes.

Temir Sariyev, Kyrgyz finance minister in the government that took power
this April, described the re-exports to Afghanistan as a "scam" that
violated the customs accord between Russia and Kyrgyzstan. Payment of
Russian tariffs would have increased the cost of using Russian supplies
by as much as a third.

In 2008, Bazarbai Mambetov, head of the Kyrgyz Oil Traders Association,
wrote letters to the U.S. Embassy in Bishkek, the Kyrgyz government and
also Red Star to complain about what he says was an illegal re-export
ruse. The only response, he said, were calls from Kyrgyz officials
telling him to drop the matter. Earlier this year, Russia's main jet
fuel supplier turned off the tap on deliveries to Kyrgyzstan.

The Pentagon, in a written response to questions, said the Defense
Logistics Agency "is not aware of any violation of Russian laws and
regulations." Squires, the operations director, said Mina and Red Star
did nothing wrong and were "always above board."

Congressional investigators are due to issue a full report on this and other questions in November.

'Social discontent'

Meanwhile, Kyrgyzstan has been convulsed by political turmoil, fueled in
part by public anger over alleged jet fuel graft. When President Akayev
fled the country after a 2005 uprising, a new government headed by
Kurmanbek Bakiyev launched an investigation into the jet fuel contracts.

In September that year, the new Kyrgyz prosecutor general wrote to
Defense Secretary Donald H. Rumsfeld to complain about Red Star's
dealings with the previous regime. The jet fuel deals, he wrote, have
"created serious social discontent."

At the same time, a Washington law firm hired by the new Kyrgyz
government to investigate sent a report to Bishkek: "The DoD originally
agreed to cooperate with our investigation but. . . quickly stopped
cooperating."

When Otunbayeva, the current president, came to power in April this year
after another round of violent protests, her government started its own
investigation. Mina, alarmed by what it viewed as mischief-making by
business rivals, lobbied hard for a meeting with the new president.
Otunbayeva rejected the overture.

Mina then tried another approach: In July, Bekbolotov, Edelman's
partner, held a secret meeting in Istanbul with Otunbayeva's 28-year-old
son, Atai Sadybakasov, who had no official post and no experience in
the jet fuel business.

Asked about this, Bekbolotov said he met with Otunbayeva's son only
because "we couldn't get in the door with the president's office" to
explain the business. He described the Istanbul meeting as "absolutely
useless."

Otunbayeva's son, reached by telephone, declined to comment. His mother,
the president, said she knew nothing of the encounter in Istanbul: "I
was not told and I never heard about this." She added: "The corruption
is endless. All these dark corners. It is like trying to clean the
Augean Stables."

While producing no evidence to support her accusations, she added that
she had asked her son to leave Kyrgyzstan for a while to prevent him
from getting involved with "jackals."

"I'm trying to pull him out," she said.

The Pentagon, however, shows little sign of pulling out. It will soon
announce a new jet fuel contract for the base outside Bishkek. Mina is
the front-runner to win.

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