$85 Million OPIC-Financed Hotel in Afghanistan Was Never Completed

The Overseas Private Investment Corp., the U.S. government’s capital-mobilizing agency aimed at developing nations, financed an $85 million hotel and apartment complex in Kabul, Afghanistan, that never opened, a watchdog reported on Thursday.

“The $85 million is gone, the buildings were never completed and are uninhabitable, and the U.S. Embassy is now forced to provide security for the site at additional cost to U.S. taxpayers,” wrote John Sopko, Special Inspector General for Afghanistan Reconstruction, in a letter containing color photos to OPIC’s president and CEO Elizabeth Littlefield. “Both buildings now appear to be abandoned empty shells, and both loans are in default, possibly as the result of fraud.”

Inspector general auditors who visited the sites in August and October 2016 concluded that “because OPIC did not have an on-site supervisory or monitoring presence at either construction project, OPIC had to rely almost exclusively on representations made by the loan recipients regarding the status of the projects and how the disbursed loan proceeds were spent.”  (A subcontractor OPIC hired to monitor the apartment project also failed to visit the site, SIGAR said.)

Sopko told the OPIC chief that the unfruitful loans have broader implications. “The failure to properly manage and oversee these loans may indicate systemic problems in the management and oversight of OPIC loans for other projects in Afghanistan and elsewhere around the world, putting additional millions of dollars at risk,” he said.

The projects in the capital of war-torn Afghanistan go back to 2006, when OPIC approved a proposed loan for $60 million for the so-called Marriott Kabul Hotel applied for by Fathi Taher, a Jordanian citizen, and his U.S. sponsor, General Systems International LLC, the letter noted.

That project called for the construction of “a 209-room, five-star hotel... that [would] provide accommodation for foreign investors, an important boost to reconstruction efforts in the country, and a gateway for returning Afghan citizens who have spent time outside of their homeland.”

OPIC also touted the foreign exchange benefits to the official government. In 2010, Taher’s Tayl Investors Group, and his United States sponsor, Apus Apartments LLC, proposed that OPIC finance construction of an apartment building next to the hotel, called the “Kabul Grand Residences.” It was aimed at providing secure housing for locals under constant threat of violence.

But recent SIGAR inspections of the hotel made it “clear that the assurances made by the loan recipient to obtain the final loan disbursement were false and misleading,” the letter said. Auditors found “structural cracks in the walls and roof; damaged fireproofing on steel beams and columns; demolished wall sections; incomplete electrical, elevator, communications, fire prevention/suppression, sewer, heating, ventilation, and air conditioning systems; unfinished concrete masonry units; uninstalled doors and windows; and, many other problems,” the letter said.

Although OPIC’s website still lists the apartment building, the Kabul Grand Residences, as a project under the year 2011 (status unclear), OPIC officials told SIGAR that, following the final disbursement, the loan recipients notified OPIC that they were stopping all work on the project. “The failure to properly manage and oversee these loans,” Sopko wrote, “may indicate systemic problems in the management and oversight of OPIC loans for other projects in Afghanistan and elsewhere around the world, putting additional millions of dollars at risk.”

Sopko recommended that OPIC pursue “more robust” oversight practices and seek to recover the loans.

In a Nov. 16 letter responding, Littlefield said OPIC ordinarily does site visits but that the Afghanistan security situation, and insurance requirements, prevented it from doing so. She stressed that her agency was aware of the problems—rare among agency projects-- but opted to let the loan recipient seek solutions. She accepted SIGAR’s recommendation for more robust oversight methods

Littlefield’s spokeswoman, Sandra Niedzwiecki, added in a statement to Government Executive a reminder that OPIC works on a self-sustaining basis, at no net cost to American taxpayers. “When OPIC started work on this project, the U.S. government was focused on economic development in Afghanistan to advance both its foreign policy and national security objectives,” she said via email. “The hotel and residences projects were intended to host business leaders, foreign ministers and investors seeking to improve the long-term success of Afghanistan’s economy. …Since OPIC supports American investors operating in the world’s toughest markets, at times it must work with borrowers to navigate unique challenges. This project is no exception. OPIC continues to work to bring resolution to this project.”

Sen. Chuck Grassley, R-Iowa, issued a critical statement: “Loans that go to waste and projects that are abandoned don’t do anyone any good,” he said. “With more oversight, the bad loans here possibly could have been prevented, and the loans could have gone to more worthwhile projects.  The USAID Office of Inspector General should step up its oversight of Overseas Private Investment Corporation projects to be sure the organization’s loans are achieving their goals, not wasted with little to show for the effort.”