Substantial debt behind the Ministry of Defense’s request for funds from the Ministry of Finance
The Ghazanfar Group’s debt of more than $100 million has led to a budget shortfall in the Ministry of Defense. According to documents acquired by 8 Subh, officials from the Ministry of Defense have asked the Ministry of Finance for $16 million in assistance this year. The Ministry of Defense stated that the reason for this request was the Ghazanfar Group’s failure to settle amounts due. The company received $65 million from Japanese aid 12 years ago, which it was required to return to the state treasury, but after 12 years and an 18% penalty, the unpaid debt has reached more than $100 million. Also, the Ghazanfar Group and its affiliates have not paid government taxes for the past five to seven years. Officials at the company even recently tried to exchange government-related equipment for their debts, to which the Ministry of Finance has agreed. Earlier, Mohammad Yosuf Ghazanfar, the late owner of the company, sided with President Ghani in the presidential election campaigns and was appointed as the Special Representative of the President after the inauguration ceremony.
Recent documents received by 8 Subh show that the Ministry of Defense faced a budget shortage in 2020. In a letter, the ministry requested the cooperation of the Ministry of Finance, stating that the reason for the shortfall was the Ghazanfar Group’s failure to pay its debts in 2014-15. In letter no. 750 written on April 12, 2020, by the Ministry of Defense to the Ministry of Finance, the Ministry requested $16 million to purchase fuel. The letter reads: “As the esteemed Ministry of Finance is aware, the Ministry of Defense, to meet its needs in 2014 based on the stabilization plan, signed a contract with Ghazanfar Oil and Gas Limited Company for diesel fuel in two lots (first lot: the requirement for central units, second lot: the requirement for units of the 207th Zafar Corps). According to the requirements of the esteemed logistics department, about $60,997,680 was transferred to Ghazanfar Oil and Gas Limited Company’s bank account number (1002512000000) to open a letter of credit.”
The Ministry of Defense stated in the letter: “Since the Ministry of Defense did not have an additional budget of $16,101,297 for funding in the above case (purchase of fuel) in the 2020 budget, the respected Ministry of Finance would be kindly requested to finance the needed funds from the government budget to this ministry, according to its proposal and presidential decree (1613) dated September 7, 2019, and the expert procurement opinion of the Judicial and Administrative Center.” However, officials at the Ministry of Defense did not provide an answer as to why the debt of Ghazanfar Group in 2014-15 was cited as the reason for this year’s shortage in funds.
What is the truth about the Ghazanfar Group’s debt?
According to an investigative report published by 8 Subh on November 30, 2020, the Ghazanfar Group received nearly $65 million in Japanese aid from the Ministry of Finance 12 years ago (2007). Japan provided this aid to help keep oil prices stable in the Afghan market. Japan’s aid was conditional on the contract being given to the private sector to prevent possible corruption. The agreement between the Ministry of Finance and the Ghazanfar Group was that the company would buy oil for the Ministry of Defense at a cost of more than $60 million from the Ministry of Finance’s budget. Thus, the Ghazanfar Group should have returned $65 million of Japanese aid to the Ministry of Finance by 2008.
The Ghazanfar Group, headed by Mohammad Yosuf Ghazanfar, received a $65-million contract from the Ministry of Finance at the time through deception, by creating four companies, Rana Khisrao, Zmarai Sami, Ferdowsi Balkh, and Pisarli Sharafat. Letter number 329-23310 was sent on August 3, 2014, from Ahmad Shafiq Qarizada, Deputy of Policy of the Ministry of Finance, to Rana Khisrao with the subject, “Payment of $35.5 million to the special bank account of the Government of Afghanistan.” The company was given one month (from the letter’s issue) to pay its debts.
The letter reads: “As the company Rana Khisrao is fully aware, based on the non-project grants from Japan in 2010, your company was selected as the end-user. Afghan Oil Company, an oil producer selected by Japan, has delivered the last shipment of the aforementioned oil to Rana Khisrao Company in October 2012. The company Rana Khisrao must therefore transfer $35.5 million of the fuel price and additional commission according to the contract to a special bank account (27486) opened in Da Afghanistan Bank for this purpose, which has not been done yet. Therefore, the company is respectfully requested to transfer the above amount by next month and confirm the payment. In case of non-payment on time, the Ministry of Finance will take legal action per the provisions of the law.”
Furthermore, the Ghazanfar Group referred to the debt of the company Rana Khisrao in letter no. G0R-280 of March 11, 2015, addressed to the Presidency. The letter states: “According to its records, the company Rana Khisrao owes approximately $34 million to the Ministry of Finance. Based on the agreement reached with them, we have committed to pay this debt to the esteemed Ministry of Finance, which amounts to 34,969,199 USD, within two years from the beginning of 2015. So far, $575,000 has been transferred to the Ministry of Finance.” According to these documents, Ferdowsi Balkh Company owes more than $14 million, Pisarli Sharafat Company more than $1 million and Zmarai Sami Company more than $400,000, excluding fines and taxes.
However, documents recently received by 8 Subh show that out of the total debt of the Ghazanfar Group, only $38 million is owed by Rana Khisrao since based on principle, if the money is not paid on time, a fine of 0.05 Afghanis will be imposed. Thus, the amount of money due from the Rana Khisrao, which was $35.5 million, has now reached $38 million. Also, if the Ghazanfar Group’s debt is combined with its 18% fine and deductible, the company’s total debt will now reach more than $100 million.
An attempt to settle debt by selling government property to the government
Although the Ghazanfar Group has not provided details about its debt, according to documents leaked to 8 Subh, the company is trying to settle its million-dollar debt to the government with goods that are already government property. Based on this document, the Ghazanfar Group has proposed to the Ministry of Finance to deliver facilities, fuel reserves, and petroleum equipment in addition to the company’s vehicles at a reasonable rate in exchange for the company’s debt. The company wrote in a letter GK-0667 of March 18, 2019, to the Ministry of Finance: “The company management is now determined to hand over all its oil-related activities (to the Ministry of Finance) and to transfer its facilities, reserves, and petroleum processing equipment, as well as its vehicles, in exchange for a reasonable price, and after the approval of an independent domestic or foreign institution (Third Party).”
“Since the construction of reserves and facilities required for the National Oil Company is time-consuming and requires a long-term plan, the company wants to sell all reserves and facilities at a reasonable and market price and based on the pricing of independent domestic or foreign entity, accepted by both parties. The company wants to pay the proceeds to settle the accounts of Rana Khisrao, Zmarai Sami, and Ferdowsi Balkh companies, which owe about $50 million from the Japanese aid. The debtor will then settle accounts and also earn the remaining money in cash and spend it on the energy sector inside the country.”
In response to the Ghazanfar Group’s proposal, the Ministry of Finance has hired two consulting companies worth $100,000 to determine the price of the company’s facilities and oil reserves. In letter number PRO-433 issued on November 14, 2020, by the Procurement Department of the Ministry of Finance, it is stated: “As a result of the proposal of the esteemed Department of Finance, the Ministry of Finance has signed a contract worth $106,510, including tax for 3 months, from the Developmental Budget Code 200122, with companies (Consultancy Masih Haque and Cnux) to determine the reserves of tanker facilities and other Ghazanfar oil and gas accessories.”
Although attempts were made to obtain the views of the Ministry of Finance and the Ministry of Defense, neither of these two ministries were willing to provide information as of the publication of this report. These efforts are taking place at a time when, according to a reliable source, the Ghazanfar Group’s facilities and reserves are now part of the government’s property. A reliable source in the Ministry of Finance, speaking on condition of anonymity, told 8 Subh that the facilities and oil reserves were built on land leased from the government and that all these facilities and reserves were to be given to the government anyway upon the termination of the contract. Thus, the Ghazanfar Group is trying to settle its debt by selling government property to the government itself, and the Ministry of Finance has even agreed to this! The source in the Ministry of Finance says that the action of the Ghazanfar Group and the agreement of the Ministry of Finance to the sale of government property to the government has resulted in the withdrawal of another $100,000 from government coffers. On the other hand, the source said that these facilities and reserves are now impaired and would no longer benefit the government.
The Ghazanfar Group was awarded government contracts despite its failure to settle debt or pay taxes
Sources told 8 Subh that in addition to its debts, the Ghazanfar Group and its affiliated companies have not paid government taxes in recent years. A reliable source told 8 Subh that the Ghazanfar Group, Ghazanfar Oil and Gas Company, Ghazanfar Group Oil Refinery Company, Rana Khisroa Company, Zmarai Sami Company and Pisarli Sharafat and Ferdowsi Balkh Company had not paid their taxes since 2015, 2014, 2014, 2015, 2014, 2015 and 2013, respectively. Although an attempt was made to contact the Ghazanfar Group, the company’s officials refused to respond.
Meanwhile, the Ghazanfar Group continues to receive contracts from the government despite its failure to pay a 12-year-old debt. A credible source, refusing to be named, told 8 Subh that Mohammad Ibrahim Ghazanfar, chairman of Watan Gas Company, deputy director of Ghazanfar Bank, and a close associate of Mohammad Yosuf Ghazanfar, had recently received another $46-million gas transfer contract from Japan on May 22, 2020.
Contractors can dictate terms due to government corruption
Experts and members of the House of Representatives describe the reason for the inability of government institutions to collect their debts from contractors being “widespread corruption in government bodies.” According to them, the continuation of the current situation will cause the country’s economic wheel to stop spinning. In an interview with 8 Subh, Wahid Farzayi, a legal expert, said that a company can win another contract, even with its debts, unless it is deprived of the contract by the judiciary and procurement authority. He added that the Ministries of Defense and Finance could file a lawsuit against the companies affiliated with the Ghazanfar Group to the courts and the Procurement Authority to collect the debt, leading to the court issuing a debit order from the companies. After such a court ruling, the Procurement Authority could deprive these companies of receiving further contracts. Mr. Farzayi stated that if this had not been done yet, it was a sign that there still was widespread corruption in government institutions.
According to Zakaria Haidari, a university professor and economist, aid from foreign countries should be transparently recorded by the government. However, he added that due to the lack of transparency, there is a big difference between the money donated and the money spent. “How is it possible that a company owes, for example, seven billion Afghanis but the government cannot collect this amount? This money may have been used in the presidential campaign.” He added that non-payment of these debts harms the economic sector, and to prevent this, it is necessary to treat contractors equally, in addition to enforcing the constitution and establishing an organized system.
The House of Representatives is also warning the government about the aftershocks from the failure to repay debts. Gul Ahmad Norzad, a Nimroz MP, said that companies affiliated with the Ghazanfar Group had embezzled government money and that if the money was not returned to the government, the country’s economy would be challenged. According to him, the institutions involved in this matter were responsible for the return of this money from those companies to the state treasury. Mr. Norzad blamed widespread corruption in government institutions for the contractors dictating terms, adding, “In the last two decades, the ominous phenomenon of corruption has taken root in the fabric of the system, preventing honest companies from gaining access to contracts but allowing companies with ties to the government to take contracts and dictate terms.”
Ghulam Hussain Naseri, another member of the House of Representatives, stressed in an interview with 8 Subh that the government should collect its debts from companies affiliated with Mohammad Yosuf Ghazanfar and that even his death should not prevent this. Earlier, the international community had stressed the fight against corruption at the Geneva Conference, calling it one of the top ten conditions for the continuation of aid. The government, in response to the international community’s request, said it would abide by this and other conditions.
The Presidential Palace had previously responded to the issue of non-payment of taxes by the Ghazanfar Group, saying that tax collectors were obliged to collect taxes from individuals and companies and that the government had never interfered in their work.
All this has been happening while Mohammad Yosuf Ghazanfar, the owner of the Ghazanfar Group, became a senior member of the state-building team and one of the sponsors of the presidential campaign during last year’s elections. President Mohammad Ashraf Ghani, after winning the election and as soon as he was sworn in, appointed Mr. Ghazanfar as “Special Representative of the President for Economy, Trade Development and Poverty Reduction” under article 64(13) of the Constitution. However, he died in Turkey last year on July 3, due to a coronavirus infection.