Kyrgyz contracts fly under the radar

By Andrew Higgins
Washington Post Staff Writer
Monday, November 1, 2010; 5:37 PM

IN 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 said the meeting was first suggested by a Kyrgyz government official and described it 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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