As U.S. Departs, Afghan Business Dries Up



Wall Street Journal By NATHAN HODGE April 3, 2013

BAGRAM, Afghanistan - The Aria Water Plant, built in 2006 north of Kabul, is a state-of-the-art facility that can produce 100,000 cases of purified drinking water per week-an unusual success story from the decadelong American enterprise in Afghanistan.

But with U.S. military involvement in the nation winding down, Aria, like other Afghan companies that sprang up to serve the foreigners, is struggling to survive an uncertain time.

"Should I stay in Afghanistan and carry on with my business, or should I sell the company and say, 'Hasta la vista, Afghanistan?' " wonders Abdul Majeed Zhian, chief of staff of AZ Corp., Aria's parent company, which invested $17 million in the plant.

Aria's troubles are coming to a head as U.S.-Afghan relations are deteriorating. Efforts by Afghan President Hamid Karzai to assert Afghan sovereignty and curtail U.S. military operations have led to a series of confrontations with American officials, most recently when he accused the U.S. and the Taliban of colluding to perpetuate instability-a charge flatly denied by the Americans.

U.S. officials, for their part, say they are frustrated by Afghanistan's corrupt business culture, where little can be achieved, they say, without bribing officials. Mr. Karzai has blamed foreigners and their contractors for the endemic corruption.

The Aria Water Plant now finds itself in a classic Catch-22. Managers say the company might have to shut down because of what they describe as extortion demands from an Afghan general whose forces control a checkpoint on the access road and regularly block traffic to the plant, located just outside Bagram Air Field, one of the largest U.S. bases in Afghanistan.

But if Aria knuckles under and pays a bribe, it could lose the business of the U.S. government, its main customer so far. As a condition of doing business with the U.S., it cannot make illicit payments. Aria already operates under a stringent trusteeship agreement following previous management's convictions on a corruption charge brought by U.S. authorities.

According to a recent survey on corruption trends by the United Nations Office on Drugs and Crime and Afghanistan's High Office for Oversight and Anticorruption, Afghan citizens paid about $3.9 billion in bribes in 2012-double the country's domestic tax revenue. One out of every two Afghans pay bribes when requesting a public service, the report said.

The water plant's troubles show how precarious it can be to do business in Afghanistan, and how fragile the country's post-2001 economic boom, fueled by American tax dollars, has been.

With U.S. troops slated to withdraw by the end of next year, Aria is expected to lose much of its business supplying American military bases, so it is looking for new customers. The capital city of Kabul is an hour's drive from the plant, and the company hopes it can ship water to embassies, hotels or high-end grocery stores there. But what used to be the plant's primary advantage-its location right outside the fortified perimeter of Bagram Air Field on land owned by the Afghan Ministry of Defense-has turned into a curse.

Aria must truck its supplies and products through a checkpoint manned by the U.S.-funded Afghan National Army. That puts the company at the mercy of Afghan officers, who periodically shut down the road to the factory, causing costly production stoppages and cutting off Aria's access to new business.

The company says the problems began in June 2011 when Gen. Mohammad Asif Kohi, an Afghan commander who oversees government installations, paid an unexpected visit to the plant. Ezelle Santillan, the general manager from the Philippines who supervises the facility, sent an urgent message to company management.

"The general asked for anyone from main office to talk or having a meeting with him to settle issues, issues I don't understand," she wrote, according to email correspondence reviewed by The Wall Street Journal.

The general then showed up at AZ Corp.'s main office in Kabul, making remarks about "building a friendship" with him, according to company officials who say they interpreted that as a request for a bribe. After Aria didn't act on the hint, these officials say, the general's forces began to shut down the access road to the factory, causing costly production stoppages. The shutdowns continued periodically through 2011 and 2012, according to company correspondence reviewed by the Journal.

"Gen. Kohi, he's actually bothering us quite a lot," said Mr. Zhian, who runs day-to-day operations. "What he's looking for is a bribe, that we should pay him some amount of money." Mr. Zhian said a weeklong stoppage at the beginning of the year had cost Aria about $1 million because it couldn't fill a purchase order to supply water to the U.S. military's primary food supplier.

In a brief telephone conversation with the Journal, Gen. Kohi denied he had sought a bribe and said the company is at fault. AZ Corp., he said, doesn't have the right to operate on government property. He declined to provide documents from the Afghan Ministry of Defense that he said would support his assertion that the company is operating illegally.

During a subsequent phone call, Gen. Kohi yelled at a Journal reporter who tried to verify his name and position: "This is your last time calling me. If you call me again, you will see what happens."

The trustee overseeing AZ Corp., Doug O'Dell, a retired U.S. Marine Corps general, said a memorandum of agreement between the U.S. Army and AZ Corp. granted the company use of the ground on which the water plant sits-as a sublease of the master lease between the U.S. government and the Afghan Ministry of Defense for the use of Bagram.

Dawlat Waziri, an Afghan Ministry of Defense spokesman, said he is unaware of problems at the facility. He said that if Gen. Kohi was attempting to extort from the factory, the company should have made a formal complaint against him. "This isn't the way to talk about such issues-going to the media rather than filing a complaint," Mr. Waziri said.

Mr. O'Dell said AZ Corp. hasn't submitted an official complaint to the ministry because there doesn't appear to be a formal way to address such grievances. Informal appeals to the deputy Afghan minister of defense have so far succeeded in temporarily reopening the access road whenever it was shut down by Gen. Kohi, Mr. O'Dell said.

Other companies are facing different predicaments related to the planned troop withdrawals. Ghulam Rasoul Tarshi, general manager of Kabul-based United Infrastructure Projects, saw his construction business boom during the U.S. military surge. At the height of the war, his company was managing up to $300 million worth of U.S.-funded road-building projects per year, part of a military strategy to connect Afghan communities with the central government.

Now, Mr. Tarshi's asphalt plants, gravel crushers, bulldozers and concrete mixers stand idle. "There are no projects to bid," he complained. The cash-strapped Afghan government hasn't provided new orders-and even if it had, he said, requests for bribes and an impenetrable bureaucracy would have made such work unprofitable. "Working with the Afghan government, for us, it's very difficult," he said.

The Afghan government has pledged to boost transparency as a condition of continuing to receive international assistance. Afghan officials say U.S. and coalition contractors often try to avoid legitimate taxes and fees.

AZ Corp. was founded by Assad John Ramin, an Afghan immigrant who came to the U.S. as a teenager during the Soviet occupation. At first, the company trucked supplies to the U.S. military, built fortified watchtowers and converted steel shipping containers into showers and latrines at new American bases.

The water plant was its signature accomplishment. The facility is modern, and AZ Corp. took out substantial bank loans to import modern bottling equipment to meet the stringent hygiene standards of the U.S. military.

The water project enjoyed support from the highest levels of the U.S. military. The groundbreaking ceremony at Bagram was attended by the top-ranking military officers in Afghanistan at the time, including Army Lt. Gen. Karl Eikenberry, then commanding general for U.S. and coalition forces.

In 2008, Mr. Ramin and his brother, Tahir Ramin, received an invitation from the U.S. government to attend a conference in Columbus, Ohio. They were told they would be recognized for their service in Afghanistan.

It was a ruse. Tahir Ramin and two other Afghan businessmen traveling to the conference were arrested when they entered the country at Chicago's O'Hare Airport. The Ramin brothers were indicted in federal court in Chicago in connection with alleged contracting fraud at Bagram.

That indictment and a separate federal indictment in Hawaii alleged that Illinois and Hawaii National Guardsmen supervising base operations while deployed to Bagram arranged to award contracts for bunkers and barriers and asphalt-paving services in exchange for bribes. Prosecutors also alleged that contracting officials at Bagram received bribes to facilitate the award of a trucking contract to AZ Corp.

The Ramin brothers pleaded guilty in 2011 to a single count of paying an unlawful $50,000 gratuity to retired Army Sgt. Charles Finch, who pleaded guilty in 2011 to bribery and conspiracy charges for his role in accepting money for the award of a trucking contract in Afghanistan. Another defendant, Sgt. Maj. Gary Canteen, pleaded guilty in 2011 to one count of conspiracy to commit bribery and to defraud the U.S. According to court documents, the bribe was paid through a Honolulu T-shirt and souvenir shop owned by Sgt. Maj. Canteen.

The two brothers were incarcerated in a minimum-security prison in the U.S. The case ruined the Ramins financially and nearly drove the AZ Corp. into bankruptcy. The company was suspended from contracting with the U.S. government.

Before the 2008 indictment, AZ Corp. had annual revenue of $30 million and employed approximately 1,500 people. By early 2011, company officials say, it was on life support and the water plant was essentially dormant. Ms. Santillan, the Filipino general manager, stayed on at the plant, firing up the machinery once a week to keep everything in working order. The plant produced 10 or 15 pallets of bottled water a week.

Following the convictions, the U.S. Army threw the company a lifeline. U.S. officials involved in the suspension and debarment allowed AZ Corp. to resume contracting for the government-provided a trustee was appointed who would install new management independent of the imprisoned owners. The company would have to operate under stringent ethical guidelines.

Mr. O'Dell, who became AZ Corp.'s trustee, said the company had been successful enough to pay off all the Ramins' legal debts and a number of personal debts connected with their legal expenses.

"We've turned it around, and I've had the time of my life doing it," said Mr. O'Dell, who lives in the U.S. and travels occasionally to the region. "I'm as energized as I was as a 30-year-old company commander leading young Marines."

The turnaround, however, led to the recent troubles with Gen. Kohi.

Trying to solve its checkpoint problem, Aria has engaged a U.S. lawyer and proposed expanding the perimeter of Bagram Air Field to include the adjacent water plant. The U.S. is in negotiations with the Afghan government about a small, post-2014 presence, and Bagram is a candidate for one of the handful of bases that may remain.

"We would be willing to void the lease with the U.S. government and enter into a lease directly with the Ministry of Defense. But we can get nowhere in the labyrinth of Afghan government," Mr. O'Dell said.

At the same time, the company is trying to diversify its customer base to be less dependent on the military.

The U.S. military, focused on withdrawing troops and equipment ahead of next year's deadline, appears to be uninterested in getting involved in Aria's dispute.

"We are aware that Aria is currently in discussion with MoD and [the government of Afghanistan] about their concerns, which is the proper course of action to resolve their own issues," said U.S. Army Lt. Col. Paul Haverstick, a spokesman for the coalition's Bagram-based Regional Command-East.

While the water plant abuts the Bagram base, he said, it is in a separate compound that is managed and secured by Afghan security forces, which are also responsible for securing the roads in the area. "After all, such roads are theirs," he said.

The bottling company's woes, Lt. Col. Haverstick explained, didn't pose a military problem. "Aria is one of several water-distribution companies that provide bottled water to us," he said. "Rest assured we are well hydrated." -Ziaulhaq Sultani and Habib Khan Totakhil contributed to this article.