Tuesday, February 2, 2016

A $43 million gas station in Afghanistan? Not so fast

 
“We built a $43 million gas station in Afghanistan and it doesn’t even sell the right gas.”
—Donald Trump, rally in Meza, Ariz., Dec. 16, 2015
Sometimes a news report generates big headlines at first, but the corrective follow-up weeks or months later generates barely a ripple — or is ignored altogether. This is a good example of this unfortunate phenomenon.
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We often catch Trump making wild exaggerations. But in this case, he is summarizing a story that was widely covered in November. Here are some of the headlines:
The stories were all based on a report issued by the Special Inspector General for Afghanistan Reconstruction (SIGAR) concerning the construction of a compressed natural gas (CNG) station in Afghanistan as part of project to promote business opportunities in the war-torn nation. The report made a number of assertions, such as the fact that the $43 million cost appeared to be 140 times the amount needed to build a similar facility in neighboring Pakistan.
It certainly sounds like a monumental waste of taxpayer money. But new information has emerged to call into question SIGAR’s claims. Let’s take a look.

The Facts

The project was initiated by the Task Force for Business and Stability Operations (TFBSO), a Defense Department effort to identify new business opportunities first in Iraq and then, after 2009, in Afghanistan. The group focused on promoting mining operations, light industries, agribusiness and other areas, but by most accounts, the $800 million effort did not get very far before it was essentially disbanded a few years later. SIGAR has been investigating allegations of profligate spending and mismanagement by TFBSO.
SIGAR and DOD have been engaged in a bureaucratic knife fight over TFBSO, with SIGAR claiming it has been not been given unfettered access to key documents and DOD accusing SIGAR of improperly providing private information to the media. The allegations that DOD spent $43 million on a gas station are best understood in that context. Ultimately, as a result of congressional outrage over the gas station report, DOD recently agreed to give SIGAR the access to the documents it had sought.
But that does not mean that the $43 million figure is correct.
DOD built the station to help generate a domestic fuel capacity for Afghanistan, as CNG is used throughout South and Central Asia. The station, constructed in the northern Afghanistan city of Sheberghan, was intended to be a pilot project, with a compression station, pipeline extension from the gas grid, vehicle conversion kits, and so forth.
DOD documents, given to SIGAR, show that the budget in 2011 for the CNG station was $2.9 million.  Another $2.1 million was spent in 2012 to construct an office building, a car conversion facility (essentially a garage) and in particular to fund the conversion to CNG of two generators that power Interior Ministry bases. This is also shown in the same document, embedded below:

SIGAR, in audit documents in April 2015 and January 2016, also referenced this $5 million figure as the cost of the overall project.
So the baseline cost of the gas filling station was $2.9 million. In its report, SIGAR quoted from a 2010 publication of International Energy Association that the “the range of investment for a public [CNG] station serving an economically feasible amount of vehicles varies from $200,000 to $500,000.” It also cited a 2005 feasibility study in Pakistan that a station would costs $306,000. “In short, at $43 million, the TFBSO filling station cost 140 times as much as a CNG station in Pakistan,” the report said.
The comparison to Pakistan is actually apples and oranges. Pakistan is the number one country in the world for using CNG, with at least 70 percent of its vehicles running on it. There are already more than 3,000 stations, meaning the incremental costs of adding a station are relatively small, experts said. By contrast, the TFBSO project was the first such station in Afghanistan.
Rob Adams, who has helped build approximately 200 CNG fueling stations as principal of Marathon Technical Services, said it generally takes about $2 million to $4 million to build a fueling station with two to three compressors, a standby generator, storage, multiple dispensers and significant site improvements. Lower estimates generally reflect a basic station with very limited site improvement and perhaps without a redundant compressor or standby generator, he said.
David Perry, business manager of NGV Global, one of the sources for the IEA report, said that currently a new modest public greenfield site costs between $1.5 million and $2 million, while a new fueling facility added to an existing conventional fuel site can cost between $1.2 million and $1.6 million.  “It is important to note there are many variables in both these scenarios including size of station, number of compressors, requirements of the customer, etc.” he said.
In short, the $2.9 million budget for the Sherberghan station is not out of line, given it was the first of its kind in a country with little manufacturing or technical expertise.
So how did this get blown up to $43 million?
The SIGAR report mentions there was a contract “awarded to Central Asian Engineering to construct the station was for just under $3 million.” But then it relies on a single line on a page in a consultant’s 2014 report, which assessed the impact of the TFBSO projects on the gross domestic product of Afghanistan: “The Task Force spent $42,718,739 between 2011 and 2014 to fund the construction and to supervise the initial operation of the CNG station (approximately $12.3 [million] in direct costs and $30.0 [million] in overhead costs),” said Vestige Consulting. Here’s a copy of the page in question:
The Vestige report was not designed to do a financial analysis. The $30 million for “overhead” is rather vague and undefined. But SIGAR took that number and built its report around it.
In January, Vestige wrote the Senate Armed Services Committee and took back the estimate. Much of the $43 million came from misallocating overhead and other costs from other TFBSO programs to the filling station. The gas station received 47 percent of all of the overhead for TFBSO, while subject-matter labor costs were split equally across five energy projects, even though the others were much larger.
The actual construction costs for just the filling station were confirmed at $2.9 million.
“It has become apparent to all that the CNG Gas Station construction project involved a significantly lower level of SME effort and corresponding overhead than other energy projects (ie: four large tender support projects),” said the letter from Vestige chief executive Robert Schraven. “A more accurate allocation is closer to 2%-4% versus 20%.   This would put the total CNG station costs at well under $10M.”

Schraven’s letter noted that the numbers included in the economic impact analysis were based on “TFBSO guidance.” In other words, that’s what the Pentagon suggested when Vestige was doing its report. But as we noted, the original Vestige report was not designed to do financial accounting of TFBSO, but to evaluate if the projects had an real impact. (Vestige calculated the projects would add nearly $55 billion to Afghanistan’s gross domestic product by 2025.)
SIGAR also points the finger at the Pentagon for the overhead numbers. SIGAR spokesman Alex Bronstein-Moffly said that when officials first saw the Vestige report, “We had the same reaction, this is insane.”
But he said the Pentagon has been stonewalling for months on the issue, all but ignoring a May letter that asked about the $43 million figure and offering no substantive comment before publication of the October report. (The Pentagon asserted that since the task force has been abandoned, there was no one available who could explain the math.) “We don’t withhold reports just because DOD doesn’t answer questions,” he said.
Bronstein-Moffly said Pentagon officials did not supply the necessary documents until just before a Senate hearing was held on the matter on Jan. 20.
“We are doing a review and if we are presented with the evidence that the numbers that DOD calculated was wrong, we are happy to issue an updated report,” Bronstein-Moffly said. “As of right now, all of the available evidence is the $43 million figure is the best available number.”
He also noted, with some irritation, that SIGAR has never been given the updated Vestige report, even though The Fact Checker obtained it.
Whether the investment was worth it is unclear. A just-published report by Rand on TFBSO, citing documents not available to the public, said the “Sheberghan pilot facility opened in May 2012 and, as of September 2013, had converted 120 cars to CNG and taken in a total revenue of 7,375,313 afghanis, or approximately $132,000.” In a statement to the Senate, Pentagon official Brian McKeon said that as of Nov. 15, “the operator indicated that the station was working normally, that 230 cars had been converted, and that every day approximately 160 cars obtain fuel from the station.” That indicates the revenue so far totals at least $250,000.
Vestige, in its original report, concluded the project would have a negligible impact on Afghanistan’s GDP but could generate growth in the natural gas industry.

The Pinocchio Test

If something sounds too fantastic to be true, it probably is. But for an agency famous for a $600 hammer, who would doubt a $43 million gas station?
Trouble is, the $600 hammer was a myth. It was $15 hammer that, for strange accounting purposes, had $420 of research and development overhead randomly assigned to it. (News media reports then rounded up to $600.)
Here again, we have an example of “overhead” apparently randomly assigned to a project, without much rhyme or reason. While SIGAR did point out, on Page 5 of the report, that a substantial part of this figure was overhead, its report overall treated the $43 million figure as an established fact, mentioning it seven times, including in the title. The report then further emphasized that figure by making the unwarranted comparison that this was 140 times more than an equivalent station in Pakistan.
The Pentagon, of course, did itself no favors by refusing to cooperate with SIGAR. It certainly took the massive dose of bad publicity for officials to provide more clarity on these numbers — and for SIGAR to obtain the documents it claimed it needed.
In terms of the Pinocchio Test, we are left with a conundrum. The $43 million figure was widely reported, and there have only been scattered reports about information that emerged at the recent Senate hearing. SIGAR, for its part, is sticking with its initial report, blaming the Pentagon for the figures — even though the Pentagon now says the numbers are wrong.
There’s enough blame to go around — Pentagon officials who gave figures to a consultant without enough due diligence, SIGAR officials eager for a flashy headline, and an overly credulous news media — that we will leave this unrated. But politicians are on notice that the story of “the $43 million gas station” should be treated with deep skepticism.
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