By Glenn Kessler and Andrew Higgins
Washington Post Staff Writers
Thursday, December 2, 2010; 6:10 PM
BISHKEK, KYRGYZSTAN- The United States will agree to a demand by Kyrgyz officials that their impoverished country be given a share of lucrative fuel contracts for a critical transit hub here for troops headed to Afghanistan, Secretary of State Hillary Rodham Clinton said Thursday.
Clinton's announcement, made during a five-hour visit to the fragile Central Asian democracy, appeared designed to assuage growing anger over Pentagon contracts that have been worth about $3 billion over eight years to Mina Corp. and Red Star Enterprises, a secretive business group registered in Gibraltar.
The new arrangement should also please Russia, which is expected to play a big - and profitable - role. Gazpromneft, part of Russia's state-controlled energy giant Gazprom, will probably supply much of the jet fuel.
Moscow has frequently used Gazprom to further its political and strategic goals, but the Obama administration is gambling that its efforts to "reset" relations with Russia - and the prospect of large profits for Gazprom - will help ensure that jet fuel keeps flowing to the U.S. air base in Kyrgyzstan, known as the Manas Transit Center.
Every soldier headed to or from Afghanistan passes through the base, which also houses a fleet of American air tankers that refuel U.S. warplanes in flight over the combat zone.
The Manas base has helped the Pentagon avoid dangerous supply routes through Pakistan. But it has also given rise to bitter feuding over who should profit from its jet-fuel needs. Tensions rose sharply last month when the Pentagon awarded a new contract to Mina, despite calls by Kyrgyzstan that Washington stop dealing with the company. The Kyrgyz Foreign Ministry demanded that the contract be suspended pending the result of a government corruption probe.
Standing next to Kyrgyz President Roza Otunbayeva at a news conference, Clinton said the two had "discussed" the issue "at some length." The United States would help the government "establish a Kyrgyz entity that can take over part of the base contract," she said, adding that the State Department "would work closely with the Department of Defense to expedite the process" of creating a company that would meet U.S. legal requirements.
Later, at a televised town hall meeting with students, Clinton said the new company would provide "a significant part of the fuel" for the base. U.S. officials said the Kyrgyz share of the fuel contracts could be as high as 50 percent, if a supplier can be found.The deal
In a September interview with The Washington Post, Otunbayeva said she envisioned a joint venture with Russia's Gazpromneft. She estimated that Kyrgyzstan would collect $50 million a year by cutting out the middlemen.
The Russian company used to sell fuel indirectly to the U.S. air base in Kyrgyzstan by supplying Mina and Red Star, which acted as intermediaries. But it abruptly halted deliveries early this summer. The move suggested an attempt by Moscow to squeeze supplies and pressure Washington to give a bigger and more direct slice of the business to Gazprom.
The deal that Clinton announced Thursday has been in the offing since late September, when the Pentagon, under pressure about its reliance on the group comprising Mina and Red Star, revised the terms of the jet fuel contract for the U.S. base in Kyrgyzstan.
John Lough, a spokesman for the group, said the new contract won by Mina includes a provision allowing the Pentagon to introduce an additional supplier for Manas. "Mina is ready to assist the U.S. government in making this happen," he said. But he added that the Defense Department will need to make sure that any newcomer "has a reliable fuel supply chain and appropriate financial capabilities, and can operate in a transparent and ethical way."
Congress has been investigating Mina and Red Star for more than six months and is set to release a final report soon. Otunbayeva, who has accused the firm of corruption but provided no evidence, said Thursday that a separate probe by her government has not been completed, adding, "We will make it public." Clinton said the United States would "review the results of any investigation."
Representatives of the companies have long denied wrongdoing, and no proof of any has yet emerged.'Madame President'
Last month, after a Pentagon request, the companies revealed they were owned by Delphine Le Dain, the French wife of Douglas Edelman - a California businessman who used to run a bar and hamburger joint in Kyrgyzstan - and by Erkin Bekbolotov, his 35-year-old Kyrgyz partner. The companies had operated behind a web of offshore entities and had gone to great lengths to conceal their true ownership.
The controversy over the base contracts has been a growing irritant in an increasingly important relationship. Predominantly Muslim Kyrgyzstan last month became the first Central Asian country to hold parliamentary elections judged free and fair by observers. Earlier this year, the president was ousted, and ethnic violence in the country's south in June left 400 dead.
Clinton sandwiched her visit here between stops in two autocratic Central Asian neighbors - Kazakhstan and Uzbekistan - on a long day scheduled to take her from the snowy streets of Astana to balmy Bahrain, where she was to attend a conference.
While here, Clinton lauded Kyrgyzstan for taking the initial steps toward democracy, saying the people were "pioneers" among the former Soviet republics in the region. "Parliamentary democracy can help ease tensions between different regions and different groups of people," she said at the town hall meeting. " 'Compromise' is not a dirty word in a democracy," she said.
Clinton and Otunbayeva, the first female president in the region, appeared to form a bond, with Clinton extending her visit at the presidential building for a cup of tea.
"I loved calling your president 'Madame President' today," the unsuccessful presidential aspirant told the students.
Higgins reported from Hong Kong.