Context & Culture

Guest Blog: Ghori Cement – A loss-making goldmine


Under pressure to repay his loans to Kabul Bank, the president’s brother, Mahmud Karzai, has sold his shares in the Afghan Investment Company. This could open a new future for the country’s biggest cement factory, Ghori Cement in Baghlan, that has so far been plagued by nepotism, reports Mir Sediq Zaliq*, an Afghan journalist working for the Afghanistan Today project.

Five years ago, the Ghori cement factory in Baghlan turned into a symbol of corruption, when the lease for the formerly state-run enterprise was granted to the Afghan Investment Company (AIC) run by Mahmud Karzai, a brother of the president.

But recently, Karzai sold his AIC shares, raising questions about the future of this nationally important asset. ‘I had to sell my shares at the AIC, because I had to pay money to Kabul Bank,’ Mahmud Karzai told Afghanistan Today. The president’s brother had come under pressure from the government to repay millions of dollars in loans when the dubious lending practices of the country’s biggest financial institution became public and plunged the bank into crisis.

Karzai’s shares were bought by Mirwais Azizi, the CEO of Azizi Bank, who thereby increased his AIC investment. ‘He bought them only recently, there have not been any changes in the strategy, yet. But maybe there will be plans in future’, said Muhammad Munir, the managing director of AIC’s coal mining section. Azizi could not be reached for comment.

While no change can be felt in the northern province of Baghlan yet, Karzai’s exit seems to have caused some movement in Kabul. The economic committee of the Afghan cabinet recently discussed the possibility of withdrawing the lease or finding additional investors, says Commerce Minister Anwar ul-Haq Ahady. The spokesman of the Ministry of Mines, Jawad Omar, says his ministry has been instructed by the committee to establish a commission on the future of the factory. Omar declined to give details, but said: ‘When something is addressed in the economic committee, there are definitely some problems.’

AIC stands accused of not having met contract provisions for the modernization of the factory and the appendant four coal mines that provide the coal needed for firing the kilns. A planned new power station was never built, and the run-down mines cannot deliver enough coal to operate the second cement plant, Ghori II, according to mines director Munir. Let alone a third plant that was supposed to be active by last year but was never built. “The Afghan Investment Company promised that they will invest millions to equip the coal mines and Ghori Cement Factory with modern technology. But still they have not done that,” says former deputy minister of mines, Mohammad Akram Gheyasi.

The lease contract, seen by Afghanistan Today, requires modernization to take place within three years, which did not happen. However, there is one problem: The contract does not include any provisions for the case of non-compliance. The ministry declined to comment.

‘They couldn’t raise the funds, that’s why they failed.’ Former minister of finance Ahady
Karzai leaves behind a loss-making enterprise, although Ghori is the only active cement factory in Afghanistan and despite a huge demand for cement in the country that is so far met through imports from Pakistan. The modernization of Ghori never materialized as AIC did not secure the necessary funds. ‘They asked us (the ministry of finance) to help them to ask the Chinese and the Indians to lend them money,’ says former finance minister and current minister of commerce, Ahady. ‘The Indians were ready, but they wanted a government guarantee. I wasn’t willing to give that guarantee. (…) They couldn’t raise the funds, that’s why they failed.’

Mahmud Karzai blames the government for lack of support in attracting foreign investors, while Afghan businessmen invested 35 million US dollars in AIC. According to Abdul Ghafar Dawi, a former AIC investor who sold his shares last year, 200 million dollars were needed to implement the planned modernization.

Dawi says that major shareholders lost interest in Ghori years ago when they found more promising investment opportunities in the Dubai real estate market that has since crashed. ‘The growing prices of property attracted those shareholders who were also Kabul Bank executives to invest the money that was allocated for the renovation of the factory in Dubai real estate.’

According to Dawi, Mahmud Karzai complained repeatedly that shareholders were not loyal to their investment promises. He says that there were conflicts on this issue between Karzai and Sher Khan Farnud, the former head of Kabul Bank, who left AIC in 2009.

Apart from lack of funds, Karzai and Dawi blame unfair competition from the major cement supplier Pakistan for the failure of Ghori. According to Karzai, Pakistan subsidizes exporters who sell a ton of cement in Afghanistan for 46 US dollars while the same ton in Pakistan costs 76 US dollars: ‘Pakistan says 46 dollars only if you export it to Afghanistan.’ The volume of Pakistani cement exports to Afghanistan and Tajikistan amounts to 800 million dollars a year, said Karzai. Dawi added that Pakistan did not allow new machinery for the factory in Baghlan to transit its territory, rendering shipment via Iran, Russia and Uzbekistan costly and time-consuming.

Five years after privatization, the workforce in Baghlan is frustrated about the broken promises. When AIC took over, its CEO Mahmud Karzai promised workers a better life as the private sector would supposedly turn the loss-making state enterprise into a thriving business. In 2008, the managers of Ghori were still painting a rosy picture. Everything was on track to meet the planned production increases, Abdul Karim Farokh, managing director of Ghori I, told media. Thousands of jobs would be created in the near future, he added, according to a report in Hewadnewspaper. The lease contract ensures fair salaries, housing, a kindergarten, a school, playgrounds and sport facilities for the workers.

‘We first thought that working for the private sector would improve our lives,’ says 40-year old coal miner Ghulam Faruq. ‘But now I know that we had a better life when we used to work for the government. We don’t get paid on time, our salaries haven’t been increased and our retirement is also not assured.’

In recent years, the workers in Baghlan have frequently gone on strike and demonstrated against their working conditions and late payments. But former investor Dawi insists that salaries have been raised and housing has been provided. ‘Some of their houses had been taken by powerful people, but we gave them back to their owners.’ Karzai says the government has forced AIC to keep more labourers in the job than the company needs. ‘The government is against the private sector. Government officials always try to damage the private sector in any way they can,’ the president’s brother said.

A report of the McClatchy newspapers last year raised serious doubts about the way the lease was granted to AIC, whose 34 politically well-connected shareholders included Karzai and Abdul Qasim Fahim, a brother of the vice-president. The report says that the then minister of mines, Mir Muhammad Sediq, rebuffed the AIC bid and was fired shortly afterwards. His successor, Muhammad Ibrahim Adel, decided to award the lease ‘within days’ after he took office. Former deputy minister of mines Gheyasi claims the contract was awarded to AIC two days before the government put out a tender ad.

Former AIC investor Dawi says the president himself was involved in the decision-making. Mahmud Karzai talked to the president and they agreed to give this contract to the Afghan Investment Company,’ Dawi says, adding that this was to ensure that it would go to an Afghan-owned company to support the private sector and economic growth in the country. According to him, competing companies like the firm Aria Zamin owned by the former minister of agriculture, Obaidullah Ramin, agreed to buy shares of AIC and withdraw their bids. In contrast to this, the then minister of mines Ibrahim Adel told media at the time that Aria Zamin had put in a bid but did not meet the criteria.

Since its establishment in 1962, Ghori Cement Factory has always been an important asset and a major employer in the region. In the middle of the war against the Soviets, the state borrowed 42 million dollars from the Czechoslovakia to build a second plant next door: Ghori II. But when construction was almost complete, the fighting moved to the North, preventing the plant from operating.

According to AIC-plans that are still posted on the website of the company, Ghori II was supposed to start production in 2009. Now, Mahmud Karzai says the plant will start operation in the coming weeks. But Muhammad Munir, the managing director of AIC’s mining section, says the company cannot extract enough coal to run both sections of the factory.

The anger about the failed privatization is palpable in Baghlan.’The investors of this factory are not honest and don’t care about its future,’ says the head of the provincial council Muhammad Rassul Mohseni. ‘Ghori will end up the same way as Kabul Bank.’

 

(*) This article was published here. We re-publish it with the kind permission of the Afghanistan Today project.

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Thematic Category: Context & Culture, Political Landscape, Tajikstan, Uzbekistan