HOW THE WEST ISN'T DONE: AMBASSADOR VISITS HERAT

C O N F I D E N T I A L SECTION 01 OF 04 KABUL 005245

SIPDIS

STATE FOR SA/FO, SA/A
NSC FOR THARRIMAN, KAMEND
TREASURY FOR APARAMESWARAN
COMMERCE FOR AADLER

E.O. 12958: DECL: 08/11/2010
TAGS: EAGR EAID ECON EFIN ETRD AF
SUBJECT: HOW THE WEST ISN'T DONE: AMBASSADOR VISITS HERAT

REF: KABUL 5185

Classified By: AMBASSADOR RONALD NEUMANN. REASONS 1.4 (B,D)

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Summary and Introduction
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1. (C) During a December 11-12 visit to Herat, Ambassador
observed many of the problems which threaten commercial
investment, provincial stability, and rule of law. Although
rightly proud of their accomplishments, Herati industrialists
face an almost insurmountable task if they are to survive.
Proactive GOA engagement is needed to reverse the poor
investment climate. Governor Anwari made a pitch for more
assistance projects for Heart, although the USG, and
particularly USAID, have already assisted Herat Province
significantly. Meanwhile, the Governor expressed his belief
that DIAG cannot work in Herat unless Herat,s largest
warlords are dealt with by Kabul. While ISAF is committed to
its Mission, ISAF assets currently are not robust enough to
keep Herat pacified. The Border Police are doing good work
but need Kabul help. Herat customs, on the other hand, are
doing terrible work and require a housecleaning. The bottom
line: the West isn,t done, just yet. End Summary


2. (SBU) During December 11-12 visit to Herat, Ambassador
received local feedback on the commercial, political, and
security situation in this important city and province. A
city of approximately one million inhabitants, Herat is
essentially the capital of western Afghanistan, the
country,s most commercially buoyant location, the gateway
for most imports and smuggled goods (and an important transit
for illicit opium,) and a key Phase One DIAG (Disarming
Illegally Armed Groups) site. Interlocutors with the
Ambassador included Herati businessmen; Provincial Governor
Anwari and senior local GOA officials; ANA 207 Corps
Commander and U.S. embedded ANA trainers; PRT, RAC and FSB
commanders; members of the assistance and development
community, and USG officials stationed in Herat.

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Plight of Herati Manufacturers
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3. (SBU) On the surface, business in Herat is booming, led
by a flood of (often poppy-financed) imported goods from
Iran. Budding Herati industrialists however ) and almost
100 manufacturing firms operate in Herat,s Industrial Zone
alone ) fear they could face extinction as they are undercut
by predatory Iranian trade policies, pervasive smuggling from
Iran, excessively high domestic costs of production, and
misguided GOA policies. Official GOA efforts to control, or
at least collect duty on, the flood of goods entering western
Afghanistan, the industrialists told the Ambassador, are both
inept and corrupt. A visit to the Herat customs house showed
that most potential revenue collections for the GOA escape
appropriate customs gleaning.


4. (SBU) Businessmen explained there are immediate steps the
GOA can take to ameliorate the uneven, unfair playing field
on which they are forced to compete. First and foremost,
they urged, is for the GOA to take control over cross border
trade and reinvigorate Afghan customs rules and tariffs.
Factory owners spoke strongly against corrupt Afghan customs
officials who, for bribes, freely allow competing, and often
allegedly inferior, Iranian products to flood Herat,s
markets. Iranian companies with the overt support of the
GOI, the manufacturers alleged, are seeking the eradication
of Afghan competition. They argued that the GOA must be firm
in its dealings with the GOI, not only in targeting GOI
subsidies and dumping practices, but also in forcing Iran to
open its market to Afghan products that might, conceivably,
be exported once the playing field was level.


5. (SBU) Herat manufacturers highlighted high electricity
costs as a major cost to operations. (Unlike most of
Afghanistan, Herat enjoys a power grid. Electricity is
imported from Iran at $.01-$.02 KWH while the Herat
municipality turns around and charges a flat $0.11 KWH to
residential and industrial users alike ) the profit margin,
supposedly, reinvested in power infrastructure.)
Manufacturers with whom the Ambassador spoke wholeheartedly
favored the idea of a multi-tier tariff structure that would
offer lower rates to industrial users, perhaps at low peak
hours. (Note: Even at one-half the current tariff, Herat
municipality would still generate much revenue.) Factory
owners also pointed to security concerns in the Herat
Industrial Zone and at nascent factories throughout the
metropolitan area. Many claimed police protection is not
being provided by provincial authorities; instead, it is
purchased through payments to the police. Access to capital,
or any banking services, is non-existent. Finally, a number
of manufacturers admitted their lack of business expertise,
particularly marketing skills, and sought guidance as to
where to turn.

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Governor Focused on Stabilization
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6. (C) In various face-to-face events with the Ambassador,
Governor Sayed Hossein Anwari pointed to Herat,s unique
dynamics, strengths, and challenges. Most Heratis, including
the province,s religious leaders, the Governor noted,
respect and support Afghanistan,s central government.
Anwari attributed occasional violence in the province to
personal and &traditional8 conflicts. Yet, the Governor
acknowledged there are security problems that defy easy
solution. While he stated his commitment to DIAG and other
GOA-supported measures aimed at stabilizing his province, he
is frustrated by the grip still held in Herat by armed
supporters of Ismael Khan (IK - current GOA Minister of
Energy) and other Herat warlords, most specifically IK rival
and counterweight, Amanullah Khan. Without Kabul engagement
in bring these two warlords to book, Anwari explained, the
DIAG process in Herat was doomed to failure.


7. (SBU) The Governor expressed his appreciation for the
lage mount of USG assistance to date to his province and
participated with the Ambassador in a CFC-A and a USAID
dedication. As might be expected, the Governor presented the
Ambassador with a wish list of additional projects for USG
support, including a new campus for Herat University (a
project many Heratis believe was &promised8 by the previous
US Ambassador to then Governor Ismael Khan.) The request also
included more secondary district roads and an additional 250
school buildings in the province due to a &desperate8
shortage of educational infrastructure, expansion of Herat,s
airport (note: the most immediate need is a new runway,) and
water projects in Herat,s outlying districts.


8. (SBU) The Ambassador presented the Governor with a list of
all U.S.-sponsored projects and programs recently completed
or currently being programmed in Herat. Additional U.S.
funding, if approved by Congress, will focus on basic
infrastructure (roads, electricity and rural agricultural
development) that are key building blocks and enablers of
self-sustaining economic growth. U.S. support for Afghan
education will continue to target primary education and
teacher training programs below the university level.
Finally, the Ambassador noted specific joint GOA and
international donor community development targets being
negotiated in the post-Bonn Afghanistan Compact that will
address many of the Governor,s development priorities.


9. (SBU) The Governor admitted &failings8 in Herat,s
judicial system, but claimed one of his administration,s
priorities was to address and correct systemic flaws. A part
of the problem, he explained, can be traced to inadequate
staffing of Herat,s police force due to inadequate salary
levels. Only 600 of 2,600 authorized police officer positions
have been filled due to a salary cap of Af 800/month (US$
16/month). &People simply won,t work for such wages,8 he
said. While PRT/ISAF support for the chief of police has
been strong, Anwari continued, additional U.S. and
international community assistance is needed to bolster
Herat,s law enforcement capabilities.


10. (SBU) Herat supports the GOA,s counter-narcotics drive,
Anwari continued, but local farmers need additional help to
adjust to a poppy-free culture. He noted that Afghan farmers
in other provinces receive USAID (Alternative Livelihoods
Program) support and Herat,s farmers need and deserve more.
Finally, the Governor asked the Ambassador to &tell8 US
companies to follow the lead of Iranian and Pakistani firms
and to invest in Herat.


11. (SBU) Ambassador described his visits earlier to
struggling Afghan industrialists. He explained that American
investors seek a welcoming investment climate and suggested
there is much that Governor Anwari could do to make Herat a
more attractive destination for foreign and domestic
investment, such as lowering electricity tariffs for
industrial wholesale users, educating the local business
community on investment incentives incorporated into
Afghanistan,s new tax code (including provisions allowing
accelerated depreciation on investment in new capital
equipment),ensuring that competitive products imported from
Iran are properly valued and pay customs duties, and
enhancing security in Herat,s industrial zone.

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Italy ) Focus on &Hearts and Minds8
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12. (SBU) The western region of Afghanistan is under ISAF
control, although there are some U.S. military assets in
Herat. The Ambassador met with the Herat Italian PRT
commander, the Regional Area Coordinator, and the Spanish
commander of the Herat Forward Supply Base (FSB),as well as
U.S. National Guard ANA embedded trainers stationed at nearby
Camp Victory. General Rossi, the Regional Area Coordinator )
West (RAC ) West),described Italian development efforts in
the province which focus on school construction, medical
equipment for hospitals, and water well drilling. Italy,
Rossi said, will shortly send a dedicated justice sector
reform export to be based at the PRT. The PRT Commander noted
that the Herat PRT currently had just one platoon for force
protection, severely limiting PRT stability projection
capabilities. It was hoped that this force would be
augmented in the future. The Colonel also noted that USG
staff at the PRT (DOS, USAID) were &very active8 and thus
placed a high level of demand on PRT force protection assets.


13. (C) A visit to the ANA 207 Corps training center (Camp
Victory) demonstrated that much progress had been made in
preparing an effective Afghan army. However, senior U.S.
officers warned that training the Afghan soldiers, including
running joint missions, is not a fast process, and there are
many skill sets particularly above the company level that
have not yet been inculcated. There also remains much room
for cooperation with Border Police who control the frontier
with Iran (Note: the ANA is proscribed from operating within
50 kilometers of the Iranian border. End Note). According to
the U.S. Commander, all Highway Police encountered in their
patrols are extorting money from travelers.

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Border Police Left Hanging
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14. (CU) The Afghan Border Police's (ABP's) embedded CFC-A
trainer explained that under the leadership of Colonel Ayub,
the ABP 6 Brigade was becoming a professional force.
However, unless financial and logistical support was
continued beyond this month, the ABP could easily and rapidly
backslide. Simple actions must be pressed such as delivery
of sufficient boots, coats, and uniforms still warehoused by
MOI in Kabul. Adequate fuel and food to maintain operations
must be delivered. And most importantly, promised pay and
stipends (USD 2/day per soldier) had to be provided (MOI had
delivered proper salary payments on only two of the last
eight months.) For more on Border Management Initiative, see
reftel.)

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While Customs Is a Disaster
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15. (SBU) Gleaning customs revenue for the GOA commensurate
with the rising flood of imports depends largely on moving
GOA customs collection to the Islam Qalah border crossing
point and eliminating opportunities for &baksheesh.8 (Note:
Herat, where most customs activities are conducted, is 120
kilometers from the Iranian border.) Herat Provincial
Customs Director Abdul Azim Rahimi told Ambassador that
although he desired to move some operations to the border,
infrastructure there was inadequate (new USG-constructed
buildings for customs at Islam Qalah remain unoccupied) and
the &corrupt8 Border Police at Islam Qala prevented customs
from doing their job (ABP and customs officials at IQ
maintain consistently to USG officials that ties between the
two agencies there are cordial.)


16. (SBU) The Ambassador emphasized the need for the GOA to
generate substantial additional customs revenues in order to
cover a greater share of its operating budget. Unthinkingly,
Rahimi commented that Herat customs was close to meeting the
Af 4 billion (USD 80 million) current year customs collection
target set by the Finance Ministry in Kabul. (Note: Various
projections suggest that substantial additional revenues
could/should be collected in Herat customs.) The Ambassador
asked Rahimi why Bearing Point-trained female customs data
input clerks had not been paid in many months and challenged
the Customs Director to explain the lethargy in moving
operations to Islam Qalah when all evidence indicates only
lack of will, and corruption, prevent the move. (FYI: In
subsequent conversation between Finance Minister Ahadi and
the Ambassador, Ahadi promised to see that the data entry
clerks are paid. End FYI).


17. (C) Rahimi deflected the Ambassador,s sharp questions
with an ill-advised request for additional USG support to
provide the Herat customs facility with a fire station, a
vehicle weight scale, a material testing laboratory, and new
office facilities at Torugundi on the Turkmenistan border.
The Ambassador suggested the first requirement was an honest
customs director.

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Comment
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18. (C) The issues in the West speak for themselves. As
noted, some industrial investment has already taken place.
But if industry is allowed to wither in Herat, prospects for
similar investment anywhere in Afghanistan are bleak. The
Governor admits he is walking a tightrope on DIAG and other
issues. If Kabul ignores his plea for decisive Kabul action
with Herat,s warlords, the DIAG process could fail in Herat,
a bad omen for the program nationally. Obviously, DIAG is
something we will be focused on intensely in the new year.
As backfill for the Coalition, ISAF admittedly is unable to
project security throughout Herat as well as it would like.
And a dysfunctional, corrupt customs in Herat is preventing
the GOA from collecting needed tariff revenues, thus, the
Embassy,s urgent request for the Border Management
Initiative (reftel) The West is not done, and is certainly
not yet won.
NEUMANN