MCC Crash and Burn Redux

I feel compelled to apologize to MCC Washington on the story regarding the Mongolian Railroad project a couple of days ago. It was not entirely their fault.

Since local - and not DC - MCC offices prepare projects under country compacts, MCC/Mongolia was at fault. Twice. The project was first tendered in July 2008 and pulled when an agreement with the railroad (read "the Russian side") could not be reached.

So, it was tendered again and DC were assured by MCA/Mongolia that the ownership of the railroad (the Mongolian and Russian governments)had bought into the project. This was decidedly not the case - with the unsurprising result.

I've also been told that the bidding contractor did not attend a bidder's meeting to ask any questions and prepared a proposal for a contract that was never going to be signed, much less implemented. They didn't attend the bidder's meeting because it was too expensive. Gentlemen - the cost to attend would have been far less than proposal preparation.

MCC needs more control over its local representative offices, the local offices need to tell the truth and bidders should perform some minimal due diligence.

Yet another election in Ukraine

I'm about to leave for Moscow where I'll be part of a group studying the progress on creating a unified land registry and cadastre. If you are in the US, you probably won't understand what this is about unless you do this sort of work. It has to do with real estate registration. Suffice it to say, I remember when a team that I led in 1994 recommended a unified system - too much politics and money involved at that time though.

Anyway, before I leave Kyiv, I can't help but comment on the chaotic political mess in Ukraine. Of course, that arguably can be considered the norm since the Orange Revolution. I'm trying to find out more about this guy and his party. The fact Yatseniuk is from Crimea, has some interesting political sympathies and is young may be promising. But then, this is Ukraine and he will be going up against some heavy hitters who don't share power easily, or at all.

The election for President will likely take place in January 2010 - if everyone in the Rada (Parliament) can agree.

Up-date: OK. Go here if you are interested. More information than I have the time to collect.

Truly Bizarre MCC Project Dies

In a bizarre report, an RFP issued by MCC for modernizing the Mongolian rail system has crashed and burned. The result should not have been a surprise - the fact that it ever even got past the drawing board (or indeed past the first snicker in the board room) is beyond the pale. To protect the innocent, I have not identified the source; but the source is very reliable.

The MCC issued an RFP to modernize the rail system for the purpose of preparing it to carry an increased load of minerals from mines, including heavy strikes of gold, copper and uranium. The rail system is owned 50% by the Mongolian government. The other 50% is owned by the Russian Federation.

What could be the problem with this? Anyone...anyone...Bueller?

To implement the project a leasing company would be established that would be wholly owned by the Mongolian government. MCC would acquire the rolling stock, signaling and track maintenance equipment, which in turn would be provided to the leasing company. The leasing company would retain title to all the equipment and lease it to the railroad.

So, what is wrong with this?

I'm glad you asked.

The leasing company, wholly owned by the Mongolian government would be leasing the equipment to the railroad - 50% of which is owned by the Russians. Did anyone at MCC pass this by the Russians even if it was a wise deal (which it was not)? Apparently, no.

On May 18 MCC cancelled the entire program. The Russians - astoundingly - would not agree to an audit of the railroad's books. That must have shocked the experts in Washington. To be fair, MCC had included the audit provision as a condition to moving ahead with the project. But...

MCC has put a bunch of people and firms to a great deal of effort and expense preparing proposals but they did not vet this first with the Russian owners? This should have been a major consideration in having the project move forward, but as is all to frequently the case, the funding agency, in this case MCC, simply made at best, a dangerous assumption or, at worst, was negligent and should pay the firms for their time and costs in developing bid proposals.

The failure by the MCC would be excused under several scenarios. First, if the MCC had revealed all the above (and I have not read the RFP)and the bidders did not ask any questions, then the bidders assumed a major risk. Second, if the railroad parties and the Mongolian government agreed to the audit, but lied, then everyone was deceived; and, third, if the bidders knew all the risks and assumed them, well - greed is not often a virtue.

The story, however, gets a little worse. The Mongolian rail system is not only 50% owned by the Russian, but it is considered "sovereign territory" and therefore exempt from Mongolian laws. So, to actually make any contracts enforceable, conditions would need to have been attached to the MCC agreement and the leasing contract that Mongolian commercial (at the least) laws would apply.

Finally, my contact said, as reported in the news, that Putin was in Mongolia last week, offering the Mongolian railroad loans to buy rolling stock from the Russians and - yes it gets worse - recommended that the rail system purchase equity stakes in the mines that they intend to serve.

What was MCC thinking? And - how would a default in the leasing agreement be handled by MCC or the leasing company (such as a repo of rolling stock). Does anyone remotely think the Russians would honor the contract?

Many thanks to my source.

MCC and Foreign Aid reform

It seems that foreign aid reform in the US will have to wait. The recently released 2010 budget does not contain any obvious sea-change in policy or structural reforms and puts an emphasis on health matters. It also strongly supports the Millennium Challenge Corporation, a Bush administration creation, which had its budget halved in 2009 and is now back to its previous level of $1.5 billion.

The failure to restructure US foreign aid should raise some concerns. President Obama's priorities based on this budget are clear - money for health programs, a commitment to MCC, and increased resources for food security. There is also a commitment of nearly $600 million to promote clean energy solutions and help countries deal with the effects of changing temperatures which is a nice change from the Bush administration's anti-science profile. But the administration does not appear to particularly interested in economic development and good governance.

USAID will also likely ramp up its hiring. Hopefully, their new hires will have significant field experience. During the past decade the organization has been hollowed out, losing many with in-depth knowledge of their respective responsibilities. The remaining staff were overworked and underpaid. USAID needs to hire people with clear, successful program implementation experience and not simply good writers or academics with little practical experience.

The numbers are likely to change as the funding program travels the corridors of Congress. I have not seen a change that supports more sustainable economic development and money spent on democracy building and governance have been left at their previous level. So, the status-quo, for the most part, will be in place at least for the next fiscal year.

That's too bad.

Nabucco moves forward?

This is interesting news and a surprise (at least to me). The pipeline would not be finished until 2014 at the earliest, but the biggest question was who would be willing to fill it. None of the Central Asian countries would likely consider agreeing to do so at this time for several reasons, it seems. The first is that they would be unwilling to irritate Russia as the pipeline is specifically designed to avoid Russia and lessen European dependence on Russian gas transit and supplies. The second reason is that it is a long way to go - crossing Iran and the mountains to Turkey - while the Caspian is a huge barrier to piping gas from Central Asia.

From a geopolitical standpoint, this announcement must be a blow to Baku which has watched Turkish negotiations with Armenia with some degree of concern. Nabucco crossing the Caspian would have needed to cross Azerbaijan, giving it some degree of leverage with Turkey and Turkey has been very cautious in dealing with Russia which is calling the shots in the South Caucuses. Iraq eliminates that problem for Turkey and gives it more room to maneuver with Azerbaijan, Armenia and Russia.

Question of the week..

Why does Qatar need 36 german main battle tanks? (Der Spiegel - no link) Can't that money be spent in more useful ways or is someone about to invade?

OK. Break's over...

I've been incredibly lazy the past two weeks in Kyiv and, except for dealing with the Russian embassy and irritatingly slow moving academics running practical programs in Ghana, have been relaxing. OK. Break's over...