AFGHANISTAN - AHADY CONSIDERS A/S SULLIVAN LETTER ON AFGHAN

UNCLAS SECTION 01 OF 02 KABUL 001934 SIPDIS SENSITIVE SIPDIS DEPT FOR SCA/FO, SCA/RA, AND SCA/A DEPT PASS AID/ANE DEPT PASS USTR FOR GERBER AND KLEIN DEPT PASS OPIC FOR ZAHNISER DEPT PASS TDA FOR STEIN AND GREENIP CENTCOM FOR CG CFC-A NSC FOR AHARRIMAN TREASURY FOR LMCDONALD, ABAUKOL, AND JCIORCIARI OSD FOR SHIVERS COMMERCE FOR DEES, CHOPPIN, AND FONOVICH E.O. 12958 N/A TAGS: EFIN KCOR KPRV EINV EAID ECON PREL PGOV AF SUBJECT: AFGHANISTAN - AHADY CONSIDERS A/S SULLIVAN LETTER ON AFGHAN ANTI-CORRUPTION STRATEGY AND HESITATES ON PRIVATIZATION REF: STATE 69427 (U) This message contains SENSITIVE BUT UNCLASSIFIED information. Please protect accordingly. 1.(SBU) SUMMARY: Finance Minister Ahady is reviewing anti-corruption proposals for his own ministry, including recommendations for the customs department and to set up a ministry "hot line." He expressed appreciation for EB Assistant Secretary Dan Sullivan's letter and indicated that he would review the road map again before responding. Ahady complained again about an Attorney General investigation of the Roshan tax rationalization agreement that Ahady claims increased government revenue from the telecommunications sector, even though the Attorney General has said that particular investigation has been suspended. (NOTE: Despite these assurances, the MOF Director General of Revenue and an advisor to Minister Ahady both insist that the investigation into this case is ongoing. We will try to clarify. END NOTE.) Ahady worried that reduction of staff in the tax department could prevent the government from meeting its IMF revenue targets. Ahady advised that under these circumstances he would be very hesitant to sign privatization orders. If Ahady signs one such order on his desk, it would put in motion negotiations that should allow Caterpillar's local agent to expand its operations at a time that we expect significant growth in the construction equipment sector. END SUMMARY. 2.(SBU) On May 26, ECON Counselor delivered reftel letter to Minister of Finance Ahady. He indicated his thanks for A/S Sullivan's interest in the topic and commented that he had just received a paper from his USAID-funded advisor containing recommendations on some steps he could take to address corruption issues inside the ministry. Without going into details, Ahady advised that one recommendation was directed at the customs department and the second was to establish an anti-corruption hot line inside the ministry. Ahady thought the latter was a good idea, but he expressed concern that it could be abused. ECON Counselor suggested that if such a hot-line proved successful for the Finance Ministry, the initiative could spread to the rest of the government. 3.(SBU) Ahady said that he had reviewed elements of the road map related to public finance, but wanted to go through the document another time before responding to the letter. He noted that Afghanistan's real corruption problem was government officials taking payment for delivering services. As examples, he cited bribery for issuance of passports and to negotiate reduction or elimination of electricity bills, as well as payments to tellers to process bank transactions. 4.(SBU) Once again, Ahady complained about harassment by the Attorney General's office debilitating his taxation department. Prosecutors, he said, had camped out in taxation department offices for five months investigating the Roshan tax rationalization agreement that Ahady claims increased revenue from the telecommunications sector. (NOTE: Roshan is Afghanistan's largest taxpayer. END NOTE.) Ahady said that due to fear of prosecution, office employment had dropped from 35 to 14 employees. Ahady again stressed his worries that the "interference" by the AG's office would prevent the finance ministry from meeting the IMF revenue targets for this coming year. 5.(SBU) Post's ROL Coordinator brought this concern to the attention of the Attorney General, who responded that this particular investigation has been discontinued. In addition, the Attorney General advised ROL Coordinator that the General KABUL 00001934 002 OF 002 Independent Administration Against Corruption, led by convicted U.S. felon Ezatullah Wasifi, has referred several other cases to the AG charging corruption in the MOF, including allegations of malfeasance at the highest levels of the ministry. 6.(SBU) Ahady stated that he had a number of privatization orders on his desk that he had no intention of signing because he feared that the Attorney General might investigate him if a privatization auction produced less money than the estimated value of the enterprise. Ahady added that he planned to ask President Karzai for authorization to sign the orders or some form of protection against possible prosecution. He speculated that the government would only privatize five state-owned enterprises this year instead of 15. 7.(SBU) ECON Counselor pressed Ahady to sign the privatization order for the moribund state-owned wool weaving company. Allied, Caterpillar's distributor in Afghanistan, leases land from the wool weaving company. The MOF and Allied have negotiated terms under which the lease would be transferred to the finance ministry upon signature of the privatization order, and the lease would be extended to a 20-year duration. This would give Allied the time and space it needs to expand. In response, Ahady said the Allied situation may need to be handled at the highest level. Allied has estimated that this would pave the way for an additional $2.5 million investment (the company's current investment is estimated at about 7.5 million, including equipment inventories). 8.(SBU) COMMENT: Ahady's policy paralysis on privatization and other issues is cause for concern. At the macro level, the situation has implications for revenue collection, budget sustainability, and Afghan ability to pay ANA salaries as recruitment levels rise. At the micro level, Ahady's expressed unwillingness to lead is holding up the expansion of Caterpillar's agent in Afghanistan at a time when the construction equipment market appears set to experience significant growth. WOOD