Defense

Watchdog blasts $85M loan for now-abandoned Afghan hotel, apartments

A government watchdog is blasting the U.S. agency that invests overseas development for loaning $85 million to build a hotel and an apartment building in Afghanistan that now appear to be abandoned.

{mosads}In a letter to the president and CEO of Overseas Private Investment Corporation (OPIC), the Special Inspector General for Afghanistan Reconstruction (SIGAR) also said the loans are in default.

“Both the hotel and the apartment building now appear to be abandoned empty shells, and both loans are in default, possibly as the result of fraud,” Special Inspector General John Sopko wrote to Elizabeth Littlefield in the letter released Thursday.

“While our investigation of these two projects and a third OPIC project in Afghanistan is ongoing, we believe the issues raised by these loans have broader implications which deserve your immediate attention.”

The hotel in question was meant to be 209-room, five-star accommodation, according to the letter. The developers got $57.8 million in loans and started construction in 2009.

Construction was halted in 2013 due to security concerns, according to the letter.

“Since then, the U.S. Embassy in Kabul has assumed responsibility for securing the site, at an additional, currently undisclosed cost, due to the security threat posed by the unfinished building being adjacent to the embassy compound,” the letter says.

Likewise, after the apartment-building developer was loaned $27 million, it was never finished, according to the letter.

Sopko blamed OPIC for not having on-site monitoring and relying on reports from the developers to disburse loans.

“OPIC has a long history of providing financing and insurance for successful projects in developing countries under difficult circumstances, and SIGAR believes that OPIC has a potentially valuable role to play in Afghanistan,” he wrote. “However, SIGAR’s investigation indicates that OPIC’s oversight practices for the Marriott Kabul Hotel and the adjacent apartment project in Kabul did not provide adequate assurance that OPIC’s loan funds were properly spent.”

In a written response to SIGAR, Littlefield said OPIC is working with “various parties” to address the outstanding loans and that the dearth of on-site monitor was outside of its control.

“As your letter points out, OPIC’s external project monitoring contractor could not enter the country because of restrictions imposed by private insurance providers,” she wrote. “OPIC’s internal personnel also were discouraged by the U.S. Embassy from attempting to visit the projects because of the deteriorating security situation.”

She added that she’s instructed OPIC’s monitoring group to review its policies and procedures for large-scale construction projects “with a view to ensuring that they are adequately robust.”

Sen. Chuck Grassley (R-Iowa), chairman of the Senate Judiciary Committee, said more oversight could have prevented the loans from being wasted.

“Loans that go to waste and projects that are abandoned don’t do anyone any good,” he said in a statement.

“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.”

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