Daily Archives: May 11, 2011
Hezbollah Considered To Be More Advanced Than Al-Qaida
San Diego News
“They are recognized by many experts as the ‘A’ team of Muslim terrorist organizations,” a former U.S. intelligence agent told 10News.
The former agent, referring to Shi’a Muslim terrorist group Hezbollah, added, “They certainly have had successes in big-ticket bombings.”
Some of the group’s bombings include the U.S. embassy in Beirut and Israeli embassy in Argentina.
However, the group is now active much closer to San Diego.
“We are looking at 15 or 20 years that Hezbollah has been setting up shop in Mexico,” the agent told 10News.
Since the Sept. 11, 2001, terrorist attacks, U.S. policy has focused on al-Qaida and its offshoots.
“They are more shooters than thinkers … it’s a lot of muscles, courage, desire but not a lot of training,” the agent said, referring to al-Qaida.
Hezbollah, he said, is far more advanced.
“Their operators are far more skilled … they are the equals of Russians, Chinese or Cubans,” he said. “I consider Hezbollah much more dangerous in that sense because of strategic thinking; they think more long-term.”
Hezbolah has operated in South America for decades and then Central America, along with their sometime rival, sometime ally Hamas.
Now, the group is blending into Shi’a Muslim communities in Mexico, including Tijuana. Other pockets along the U.S.-Mexico border region remain largely unidentified as U.S. intelligence agencies are focused on the drug trade.
“They have had clandestine training in how to live in foreign hostile territories,” the agent said.
The agent, who has spent years deep undercover in Mexico, said Hezbollah is partnering with drug organizations, but which ones is not clear at this time.
He told 10News the group receives cartel cash and protection in exchange for Hezbollah expertise.
“From money laundering to firearms training and explosives training,” the agent said.
For example, he tracked, along with Mexican intelligence, two Hezbollah operatives in safe houses in Tijuana and Durango
“I confirmed the participation of cartel members as well as other Hezbollah individuals living and operating out of there,” he said.
Tunnels the cartels have built that cross from Mexico into the U.S. have grown increasingly sophisticated. It is a learned skill, the agent said points to Hezbollah’s involvement.
“Where are the knowledgeable tunnel builders? Certainly in the Middle East,” he said.
Why have Americans not heard more about Hezbollah’s activities happening so close to the border?
“If they really wanted to start blowing stuff up, they could do it,” the agent said.
According to the agent, the organization sees the U.S. as their “cash cow,” with illegal drug and immigration operations. Many senior Hezbollah leaders are wealthy businessmen, the agent said.
“The money they are sending back to Lebanon is too important right now to jeopardize those operations,” he said.
The agent said the real concern is the group’s long-term goal of radicalizing Muslim communities.
“They’re focusing on developing … infiltrating communities within North America,” the agent told 10News.
Published on May 11, 2011 by Nicolas Loris
The bipartisan New Alternative Transportation to Give Americans Solutions (NATGAS) Act provides preferential tax treatment to subsidize the production, use, and purchase of natural gas vehicles (NGVs). Supporters argue that it promotes transportation fuel competition and reduces foreign oil dependence and greenhouse gas emissions.
In reality, the NATGAS Act simply transfers a portion of the actual costs of using and producing NGVs to taxpayers. Special tax credits create the perception that NGVs are more competitive than they actually are by artificially reducing their price for consumers. Rather than increase competition, this artificial market distortion gives NGVs an unfair price advantage over other technologies.
Unfortunately, this shortcut to market viability does not work. Indeed, Washington has an abysmal record of picking energy winners and losers. Instead of adding more market distortions to the energy sector, Congress should remove energy subsidies and increase access to America’s resources.
The Market Is Already Working
The legislation creates, expands, or extends tax credits that subsidize NGVs. Supporters argue that the legislation would help NGV vehicle and infrastructure producers overcome investment obstacles and begin introducing new technologies to the marketplace. The truth, however, is that NGVs are already available, and nothing is stopping the market from expanding. The notion that no alternative fuels compete with gasoline is just not true. Consumers can choose vehicles that are powered by electricity, natural gas, or biofuels, as well as hybrid vehicles.
In fact, the trade group Natural Gas Vehicles for America claims that the United States has 110,000 NGVs and that more than 12 million NGVs are on the roads worldwide. Billionaire investor T. Boone Pickens, a supporter of the bill, boasted in a recent speech that he owns a Honda Civic GX that he fuels with natural gas for less than $1 per gallon. At a UPS facility, President Obama challenged transportation fleets to switch their vehicles to natural gas because it would be good for their bottom lines. But if natural gas vehicles are economically competitive, vehicle manufacturers will make them and consumers will switch over without market manipulation from Washington.
A full-fledged competitive NGV fleet may eventually emerge. Rising gas prices make alternatives like NGVs more economically inviting, which should move investment to those technologies. That happens most efficiently when it is the result of a market-based response as opposed to government intervention. Indeed, government intervention to promote one technology over another only interferes in the process and creates another set of government-picked, taxpayer-funded winners and losers.
Reducing Foreign Dependence No Excuse for Bad Policy
The focus on decreasing energy dependence through government intervention and market distortion is folly. Policies that maximize access to a broad array of energy sources, domestic and foreign, will best serve Americans. A market-based approach would ensure that every American has access to affordable energy by putting a premium on sound economics through competition and choice.
This is not the approach of the NATGAS Act, which would make America economically weaker. When the government artificially lowers the cost of production, manufacturers must forgo the value of the goods they might have produced had they allocated their time, effort, and other resources in alternative ways. In this case, the NATGAS Act uses tax credits to create the perception of lower costs. This will fool consumers into purchasing more of these vehicles. Further, those hidden costs now have to be paid by someone else—the taxpayer. This leaves fewer resources for more productive activities.
A better approach to decreasing energy dependence is for the federal government to remove unnecessary rules and regulations that restrict access to all types of energy sources.
Reducing Greenhouse Gas Emissions No Excuse for Bad Policy
Reducing greenhouse gas (GHG) emissions is another dubious policy goal. Years of pressure from political leaders has forced significant changes in much of the business community. Energy producers became vested stakeholders and lobbied for handouts to produce what Congress determined to be cleaner energy. If these sources can compete without help from the government, the consumer will benefit through increased competition and lower costs. But creating an artificial market to reduce GHG emissions ignores both consumer preferences and economic fundamentals.
Moreover, Congress continues to ignore the vigorous disagreement within the scientific community concerning the effects of anthropogenic global warming. Policy should never rest on a shaky set of assumptions, particularly when it can have far-reaching implications for American businesses and everyday Americans and could therefore fundamentally alter decisions in ways that harm America’s productive system of free enterprise.
Subsidies Do Not Work
Proponents of NGVs argue that because other alternative transportation technologies receive preferential treatment, so should natural gas. The problem is that government subsidies have a proven track record of not working. Congress should therefore remove subsidies from the transportation fuel market, not increase them.
Subsidies centralize power in Washington and allow lobbyists and politicians to decide which companies will produce. The more concentrated the subsidy or preferential treatment, the worse the policy is because the crowding-out effect is larger.
The NATGAS Act is a perfect example. Soon after its introduction, the National Propane Gas Association understandably voiced its opposition to the bill because the tax credits do not include propane gas. And that is just one problem with such bills: They distort the competitive process that so capably yields affordable and viable products, moving the decision-making process from the marketplace to Washington. Consumers, not Washington, should decide whether NGVs are better than propane.
Furthermore, subsidies funnel money toward projects that have little market support and offset the private-sector costs for investment that would have been made either way. This creates industry complacency and perpetuates economic inefficiency by disconnecting market success from production costs. By artificially lowering the cost of investment, subsidies take resources away from more competitive projects. The fact that other transportation fuels receive government support is not a good reason to continue or expand special treatment for natural gas. It is a good reason to remove those subsidies.
More Handouts, No Solutions
Pieces of legislation like the NATGAS Act will not be a quick fix for high gas prices and are not the way to reduce either America’s dependence on foreign oil or GHG emissions. They provide special benefits to one industry, distorting the market and misallocating resources away from potentially more economically viable alternatives.
If Congress truly wants to promote NGVs, it should eliminate subsidies in the transportation industry and consider other market-oriented policies—such as full expensing, lowering corporate tax rates, and removing barriers to drilling—that would incentivize the production of profitable endeavors and ultimately lower prices through competition.
Nicolas D. Loris is a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Even former President Clinton calls the Obama administration’s deep water drilling policy ‘ridiculous.’
When President Obama introduced his energy plan in March, he pointed out that the U.S. keeps going “from shock to trance on the issue of energy security, rushing to propose action when gas prices rise, then hitting the snooze button when they fall again.”
It’s true that since the Nixon administration U.S. leaders have all made the same commitment to cutting our reliance on foreign oil, finding reliable sources of clean energy, and keeping energy prices low. Yet Americans keep hearing only short-term solutions and narrowly focused rules and regulations. The U.S. still imports more than half its oil, gasoline prices are at historic highs, and consumers are paying the price.
One bipartisan policy tradition is to deny Americans the use of our own resources. President George H.W. Bush took aggressive steps to keep off-limits vast supplies of oil and gas along the coasts of California and Florida. Since then, the build-up of restrictions, limitations and bans on drilling (onshore and off) have cost the U.S. economy billions of dollars while increasing our dependence on foreign sources of energy.
In the year since the Deepwater Horizon spill, the Obama administration has put in place what is effectively a permanent moratorium on deep water drilling. It stretched out the approval process for some Gulf-region drilling permits to more than nine months, lengths that former President Bill Clinton has called “ridiculous.”
Then there’s tax policy. Why, when gas prices are climbing, would any elected official call for new taxes on energy? And characterizing legitimate tax credits as “subsidies” or “loopholes” only distracts from substantive treatment of these issues. Lawmakers misrepresent the facts when they call the manufacturing deduction known as Section 199—passed by Congress in 2004 to spur domestic job growth—a “subsidy” for oil and gas firms. The truth is that all U.S. manufacturers, from software producers to filmmakers and coffee roasters, are eligible for this deduction.
We won’t achieve energy security by restricting our own companies from drilling or singling them out for punitive taxes. We’re talking about an industry that provides millions of jobs and, for the foreseeable future, the power for our economic growth.
So our focus right now has to be to find ways to encourage domestic energy supplies, even while we encourage new sources of energy. President Obama is right that this isn’t a long-term solution. But we can’t lose sight of what the country needs today.
Here are a few steps to take:
- First, let’s conduct a comprehensive review of existing policies, rules and restrictions and root out any that needlessly hamper energy production at home. Do the existing environmental rules, for example, accurately reflect the industry’s technological advancements in the ability to safely recover oil and gas supplies?
- Second, let’s develop the skills we need to find new and better ways to recover domestic supplies of energy—and to develop next-generation fuels to secure the future. That means encouraging more students to study math, science and other disciplines this industry needs.
- And third, let’s stop demonizing Big Oil to score political points. It does nothing to encourage the new talent, new ideas, and new entrepreneurs who are most likely to make breakthroughs in new sources of energy.
The kickoff of the presidential campaign season and the spike in fuel prices offer an opportunity to constructively debate a comprehensive national energy strategy. Effective policies will ensure sufficient domestic production and the healthy operation of U.S. companies abroad, which together will provide the secure, affordable energy supply that Americans need.
Federal Court’s Summary Judgment Compels Obama Administration to Act on Deepwater Drilling Permits (…Again)
Posted by: Jim Adams on Tuesday May 10, 2011, 16:34
“Although the government has begun to issue some permit applications, plainly because of this lawsuit, the future of drilling in the Gulf of Mexico remains elusive; plaintiffs’ other long-pending permit applications speak loudly to this,” Judge Feldman wrote in his ruling. “Moreover, the government’s conduct of delay in deepwater drilling in the Gulf dramatically presents far more than the mere possibility of persistent and repetitious intentional delays in processing . . . permit applications.”
The judge added: “The government has presented no credible assurances that the permitting process will return to one marked by predictability and certainty. Processing a scant few applications is at best a tactical ploy in a real world setting.”
We could not have said it better. For months, the Obama administration has aggressively dug in its heels to maintain its de facto moratorium on oil drilling. We’ve only seen the administration move – reluctantly – when shoved.
Fortunately, there are some leaders willing to give the administration a firm push. Today, the House is voting on H.R. 1229, which would require the Interior Secretary to decide on a drilling permit within 30 days of receiving an application.
Clearly, a lot of folks think the Obama administration needs a kick in the pants – whether in the form of a court order or an act of Congress — to do its job.
Americans don’t expect government to solve our problems. But we do hope our government won’t be the cause of our problems. Right now, the Obama administration is not only causing problems – unemployment, higher gas prices, more dependence on foreign oil – but it’s standing in the way of a solution.
It’s time that Gulf workers got back to work exploring for domestic oil. Americans want it, Congressional leaders are demanding it, and a federal judge has ordered it. What more does the Obama administration need to do its job?
Jim Adams is the President of the Offshore Marine Service Association. OMSA represents the owners and operators of U.S. flag offshore service vessels and the shipyards and other businesses that support that industry.
Brazil had another reason to celebrate its May 1 national Labor Day bash. The new reason was the start-up of first oil at the mega Tupi field in the Santos basin. This first extended well test (EWT) of the subsalt formations began producing at a rate of 14,000 b/d of oil and should peak around 30,000 b/d, operator Petrobras says.
Petrobras has not reckoned the size of the BM-S-11 reserves beyond its initial estimates of 5-8 Bbbl of recoverable light oil. The amount, however, was considered staggering enough to inspire President Luiz Inacio Lula da Silva to declare that “God is Brazilian.”
…with a seven-year offshore drilling ban in effect off of both coasts, on Alaska’s continental shelf and in much of the Gulf of Mexico — and a de facto moratorium covering the rest — Obama tells the Brazilians:
“We want to help you with the technology and support to develop these oil reserves safely. And when you’re ready to start selling, we want to be one of your best customers.”
Obama wants to develop Brazilian offshore oil to help the Brazilian economy create jobs for Brazilian workers while Americans are left unemployed in the face of skyrocketing energy prices by an administration that despises fossil fuels as a threat to the environment and wants to increase our dependency on foreign oil.
We have a lot of oil off our shores, too. The politically correct position goes something like this: sure, we’ve got huge reserves. But we have no idea if we have enough to make a difference.
But as the Brazillians have taught us, you don’t know for sure until you drill. Meanwhile:
Americans have weathered one economic storm after another over the last few years. Yet, time and again, Washington policies have only made our families’ woes worse. From a failed trillion dollar stimulus to a healthcare overhaul that costs jobs and makes healthcare more expensive, Washington policies keep making it harder when Americans need the help most.
The latest: gas. Just as our economy is showing signs of recovery, gas prices are skyrocketing. In Chicagoland, a gallon of gas already costs over $4.50. That means pain for family budgets and employers trying to control costs and hire new workers. But smart federal policies can help. If we choose wisely, we can help lower energy costs for families with an all-of-the-above energy approach.
Taking advantage of America’s natural resources is a commonsense way to lower gas prices, reduce our dependence on foreign oil, and create jobs here. Unfortunately, many refuse to listen to commonsense.
By actively blocking and delaying American energy production, the White House’s energy policy has caused gas prices to spike, jobs to be lost, and made the U.S. more reliant on unstable foreign energy.
So far, 10% of the oil rigs in the Gulf of Mexico have been moved to foreign production. Each rig supports hundreds, even thousands, of jobs – jobs that may never return again. According to the U.S. Energy Information Administration, oil production in the Gulf has declined by almost 300,000 barrels per day since April 2010, and domestic oil production will fall by a full 13% this year. That’s strong proof that these policies decrease the production of domestic energy, destroying jobs and increasing the cost of gas.
What’s worse, Illinois already suffers from the third highest gas taxes in the entire nation. Sixty-nine cents of the cost of every gallon of gas in the Land of Lincoln is taxes.
House Republicans, however, are taking action to ease the pain of high gas prices.
Last week, a bill that resumes offshore lease sales off the coast of Virginia and in the Gulf of Mexico that have been delayed or cancelled by the Obama Administration passed the House of Representatives with strong bipartisan support. It directly addresses policies that have caused that drop in production in the Gulf of Mexico.
Over the next week, House Republicans will pass two more bills that would further boost American energy production. The first, requiring the Secretary of the Interior to act on Gulf drilling permit applications within 30 days, would end the uncertainty causing rigs to leave and energy companies to close. The second, compelling the White House to establish a five year offshore lease plan, would hopefully result in the additional production of three millions barrels a day within 16 years.
These are steps that would increase energy production, decrease gas prices, and create more jobs.
These initiatives and more are being advocated for by the House Energy Action Team (H.E.A.T.) – a group of Members of Congress working to lower gas prices, make America energy independent, and create jobs.
Surely these bills won’t cure every problem – but they are an important first step in reducing costs and making us more energy independent. The only way we can achieve that is through an all-of-the-above energy approach, including utilizing resources here.
Washington has an opportunity to do the sensible thing with energy policy. We need Democrats to join us and the American people. Let’s make energy policy the exception to the rule of Washington’s missteps the last few years.
A team of bankers starts to tap the country’s vast mineral riches, with help from the Pentagon.By James Bandler, editor-at-large May 11, 2011: 5:00 AM ET
FORTUNE — Qara Zaghan, Afghanistan: The four Black Hawk helicopters sweep down on this remote river valley, flying fast and single file. Snow covers the mountains’ peaks, but the lower slopes look like rust — dry, rocky, and bare. As we bank around the river bend, we see our first flash of green in the fields below and then the rectangular mud huts of the village, where hundreds of Afghans mass to greet us.
“That’s the mine over there,” one of my companions says, pointing to the cliffs rising above the village.
That’s it? That’s the gold mine? It doesn’t look all that different from the forbidding country we’ve been traversing: just another pile of rocks and scree. The jet-lagged man in the seat across from me knows better. His sleepy eyes are suddenly alert. If anyone can wrest a fortune from Afghanistan’s rubble, it is this man, Ian Hannam.
Arriving in a developing nation with his iPad and his enigmatic smile, Hannam personifies the soft side of Western power. He doesn’t bend people to his will with weapons or threats. But there is no mistaking the dealmaker’s impact: In his wake, mountains are razed, villages electrified, schools built, and fortunes made.
To Hannam, chairman of J.P. Morgan Capital Markets, Afghanistan represents a gigantic, untapped opportunity — one of the last great natural-resource frontiers. Landlocked and pinioned by imperial invaders, Afghanistan has been cursed by its geography for thousands of years. Now, for the first time, Hannam believes, that geography could be an asset. The two most resource-starved nations on the planet, China and India, sit next door to Afghanistan, where, according to Pentagon estimates, minerals worth nearly $1 trillion lie buried. True, there is a war under way. And it’s unclear how the death of Osama bin Laden will impact the country’s political and economic environment. But Hannam is not your usual investment banker: A former soldier, he has done business in plenty of strife-torn countries. So have all the members of his team, two of them former special forces soldiers who have fought here.
As he flies to the mine for the ribbon-cutting ceremony, Hannam thinks back over the past 12 months. This little mine, where operations have yet to commence, is puny by J.P. Morgan’s (JPM) standards, but he knows it might be the project for which he is remembered. A lot of powerful people, including the commander of U.S. forces in Afghanistan, Gen. David Petraeus, are counting on him to demonstrate that the country is safe for foreign investors. Hannam has chafed at times under the pressure from the Pentagon, and the cold-eyed realist in him wonders whether unrealistic expectations are being placed on this business venture.
Hannam ducks his head and climbs out of the chopper, necktie flapping in the prop wash. As he trudges up the hill, even the jaded, 55-year-old banker seems swept away by the pageantry of the moment: the village elder in a ceremonial robe, the silhouettes of women watching from the ridges, the saluting Afghan soldier. Hannam is enveloped in a crush of local tribesmen chattering excitedly in Dari. One of them puts a garland around his neck. Another hands him a Ziploc bag containing a chunk of Afghan gold. A mullah utters prayers. Afghanistan’s minister of mining gives a long speech.
Hannam and his local partner, Sadat Naderi, walk up the hill to pose for photographs. Naderi points to a narrow band of quartz that runs in an east-west line across the cliff side. It shimmers in the sun. That is the treasure, he says.
“Unless,” Hannam mutters, “it’s fool’s gold.”
Absurd risks vs. amazing rewards
Investing in conflict zones is often thrilling, but the great commodities rush that J.P. Morgan and the Pentagon are trying to spark in Afghanistan creates a risk/reward equation of a different magnitude. It’s extreme at both ends.
When J.P. Morgan launched its Afghan initiative in 2010, violence was at its worst since the American-led occupation began in 2001. The Taliban have made a point of killing Westerners and have specifically said they would attack any companies involved in mining. Before our trip to the mine was done, our group would get a taste of the insurgents’ ability to strike violently and unpredictably.
Then there’s the Afghan infrastructure — or rather, there isn’t. Big mines need power, lots of it. Outside of cities, only 15% of Afghanistan is electrified. The mountain roads — ungraded and often without guardrails — are perilous, I learned the hard way, particularly in winter. Seat belts? No one bothers. You crash, you die.
If the brutal war and roads don’t give a businessperson pause, the country’s governance and corruption problems should. Massive fraud marred recent elections. Transparency International rates Afghanistan as the second most corrupt country on earth after Somalia. The last minister of mining was identified in a Washington Post report as the recipient of a massive bribe, an allegation he denied to Fortune. The current minister, who had been widely described as an honest reformer, has recently had his integrity questioned in State Department cables released by WikiLeaks. He, too, told Fortune he has done nothing improper.
But if the risks are absurd, the potential rewards are off the charts. Hundreds of billions of dollars’ worth of iron, copper, rare earth metals, and, yes, gold are buried beneath Afghanistan’s deserts and mountains. This wealth has lain there mainly undisturbed for thousands of years as armies of Persians, Greeks, Mongols, Britons, Russians, and now Americans tramped above. Invaders have dreamed of exploiting it since the time of Alexander the Great, but no one has yet succeeded on a large scale.
In an 1841 article in a journal of Asiatic studies, Capt. Henry Drummond, a member of the British 3rd Bengal Light Cavalry, described his rambles through the wildest parts of Afghanistan to conduct the first Western mineral survey of the country. He found “abundant green stains” of copper, some of which rivaled the deposits of Chile, and veins of iron ore that “might no doubt be obtained equal to the Swedish.” While many of his countrymen viewed Afghanistan as an untamable place, where a man could not stray many yards from his home or tent without risk of being murdered, Drummond was smitten. Mining, he felt — not the gun — offered the best hope to pacify the territory and win over Afghans.
“Give them, however, but constant employment, with good wages and regular payment; encourage a spirit of industry, both by precept and example; let strict justice be dealt out to them without respect of persons; and we shall shortly see their swords changed into plowshares, industry take place of licentiousness, and these people be converted into peaceable and useful subjects,” Drummond wrote. But the Afghans weren’t keen on the idea of handing over their minerals to occupiers, or on the British occupation itself, for that matter. A year later they massacred the entire British army, save one English survivor, at Gandamak.
During the Cold War, both Soviet and U.S. geologists conducted surveys. The Russians bored thousands of test holes and identified big deposits of copper, zinc, mercury, tin, fluorite, potash, talc, asbestos, and magnesium. But instability in the countryside put an end to serious mining exploration.
After the toppling of the Taliban by the U.S.-led coalition, the Afghan government, with financial assistance from the U.S. Agency for International Development, commissioned new, high-tech aerial surveys of Afghanistan. The results were stunning: The U.S. Geological Survey identified huge veins of copper, iron, lithium, gold, and silver. The Afghan government solicited bids for one of the biggest of the copper deposits, a site south of Kabul that had been identified by both Drummond and the Soviets. China, offering a rich price, won the bid in 2007, beating out four other mining companies. But the Chinese mining company has yet to extract any copper from the site because of delays clearing land mines from the area, and the discovery of archeological relics.
Then, in 2009, mining in Afghanistan got the push it needed — from the U.S. military. Petraeus had been appointed commander of U.S. Central Command, which had ultimate authority over Afghanistan. He realized that a U.S. exit from Afghanistan depended on getting the country’s economy running. Up to 60% of Afghanistan’s $15 billion GDP comes from foreign aid, according to Pentagon estimates, and another 20% comes from the illicit drug trade — poppies. What Afghanistan needed was the real hope that it might achieve economic sovereignty. “I’m an old economist,” the general says in an interview at his headquarters in Kabul. “And at the end of the day this is about progress for the [Afghan] people and giving them the prospect for a much brighter future for them and their families. That’s what persuades the citizenry to support the government rather than support the Taliban.”
Realizing that conventional foreign-aid organizations weren’t getting the job done, Petraeus moved a crack economic stabilization team from Iraq into Afghanistan. That team quickly realized that mining would be key.
Enter Ian Hannam.
“This is the time in Afghanistan for the adventure venture capitalists — for those who can do business in tough places in the world,” Petraeus says.
From special forces to making billionaires
Ian Charles Hannam seemed bound for a swashbuckling career at an early age. Raised in a working-class neighborhood in South London, the son of a council worker who oversaw a housing and street-repair crew, Hannam grew up knowing that nothing would ever be handed to him. He joined the Territorial Special Air Service at age 17, one of the younger men to pass the service’s grueling selection process.
Hannam’s unit, the Artists Rifles, was a part-time regiment akin to a U.S. National Guard special forces unit. The Artists Rifles had a storied past and a reputation for attracting adventure seekers from all social classes. Since then, Hannam has counted his old SAS cronies as his closest friends, often calling on them to help him in the world’s tougher places.
While serving in the Artists Rifles, Hannam pursued a degree in civil engineering from England’s top school in that field, Imperial College. Upon graduation in 1977, he took a job with Taylor Woodrow, a large British construction firm. His first assignment was to build roads, radar stations, and airstrips in Oman for the SAS, which was in the final stages of crushing a Marxist-led insurgency that had been boiling in the Dhofar region for more than a decade. The experience convinced Hannam that revolts could be beaten with a counterinsurgency program that emphasized developing a country’s infrastructure and natural resources.
Still working for Taylor Woodrow, Hannam went to Nigeria and then back to Oman. Living in a tent, he could not help noticing how well oil-company executives lived. That’s when he decided to go to business school and become rich.
After graduating from the London Business School, Hannam got a job in 1984 in the training program at Salomon Brothers in New York. At the airport on his way home to London for Christmas that year, he was detained by immigration officials because he had no U.S. entry stamp on his passport. The reason: He had parachuted into the U.S. with an SAS unit that was training with American special forces, and then traveled to New York to start the training program.
With a work ethic that former colleagues describe as ferocious and an engineer’s taste for understanding complex financial mechanisms, Hannam was fast-tracked to the bank’s vaunted debt syndicate desk. “His embrace of complexity and change, his indifference to organizational hierarchy and abundant self-confidence born of experience set him apart,” recalls Terry Fitzgerald, founder of Longbow Capital Partners, who was at Salomon with Hannam.
When Salomon was hired to advise media baron Robert Maxwell’s Mirror Group during its public offering, Hannam was one of Salomon’s lead bankers charged with marketing the IPO. Salomon lost money on the deal. Months later Maxwell died and Mirror Group collapsed amid investigations into accounting fraud and raids on its pension fund.
Hannam left Salomon soon after the fiasco and was hired by merchant bank Robert Fleming, a Scottish firm founded by the grandfather of James Bond creator Ian Fleming. By 2000, Hannam was the highest-paid employee at Fleming, making more than the CEO. After the bank was acquired by J.P. Morgan, much of Fleming’s staff was laid off. Not Hannam. He helped engineer a joint venture with, and eventual takeover of, venerated British banking house Cazenove.
Among the old guard at Cazenove — which was subsumed by J.P. Morgan, though the British franchise still bears its name — Hannam was regarded as a bit of a barbarian. He bragged about his wealth. He had appalling table manners. “I’ve got more degrees than I can count, but I still talk like I’m illiterate, and my colleagues hate me for it,” he’d say.
From Congo to Colombia, from Iraq to Sierra Leone, Hannam and his small team of soldiers-turned-bankers and advisers did business with oligarchs, gem dealers, and former mercenaries. He could be bracingly direct. When he landed in Baghdad for a meeting with Iraq’s oil minister, the minister asked, “What are you here for?”
“I’m here to make five new Iraqi billionaires every year for the next 10 years,” Hannam said with a twinkle in his eyes. It was an effective icebreaker, recalled his friend Richard Williams, a former SAS commander who is now CEO of the Afghan gold mine. “They’re all thinking, ‘How can I be one of those?’ Which is not a question that a minister should be thinking.” However crude, Hannam’s point — it would be Iraqis, not Westerners, who were getting rich — worked.
Over the years Hannam had starring roles in a string of huge deals, including the combination of BHP and Billiton (BHP) and its listing on the London exchange, the creation of mining group Xstrata, and the formation of Kazakh commodities giant Kazakhmys. In 2007, Hannam’s appetite for risk and intrigue nearly sank him. A group of Omani investors had hired him to explore the possibility of a leveraged buyout and breakup of Dow Chemical. Hannam and another top J.P. Morgan executive held clandestine meetings with two Dow Chemical executives at the Compleat Angler, a luxury hotel on the bank of the Thames.
The only problem: Dow’s CEO had no idea that the meeting was taking place. The scandal attracted front-page notice around the world.
In 2008, Hannam was passed over for the top job at Cazenove in favor of an outsider. Hannam flew to New Zealand for two weeks, turned off the phone, and brooded. But he decided to stay at the bank, and soon he was doing multibillion-dollar deals again, including lead work on the recapitalization of HSBC. With a job that paid bonuses as high as 10 million pounds, Hannam had come a long way from his boyhood in Bermondsey. He had a wife and three children, a townhouse in Notting Hill, a wild game preserve in the Stormberg mountains of South Africa, and a 230-acre estate in Vermont. But the council worker’s son was hungry for something bigger.
In 2009, at a dinner in Baghdad, he met the man who would give him his chance. The name of their meeting place was fitting for a rendezvous that would help touch off a 21st-century version of the Great Game: the Baghdad Hunting Club.
Hannam was at the banquet hall for a reception thrown by the Trade Bank of Iraq to honor J.P. Morgan. Also at the reception was Paul Brinkley, a deputy under secretary of defense charged with jump-starting Iraq’s stalled economy. A former tech company executive, Brinkley served as a matchmaker of sorts between Iraqi entrepreneurs and foreign businessmen. With the blessing of Defense Secretary Robert Gates, he operated outside normal bureaucratic channels, eschewing the bulletproof vests and helmets his civilian colleagues wore in combat zones. In three years he had secured some $8 billion in private investment contracts for Iraq, helping start textile mills, cement factories, and electronics companies. Hannam and Brinkley had heard about each other’s work. J.P. Morgan had been one of the first Western companies to plant the flag in Iraq, overseeing the country’s currency and setting up a big oil project in Iraqi Kurdistan. Hannam and Brinkley fell into conversation about Afghanistan, which was to be Brinkley’s next posting.
“I’ve got a problem in Afghanistan,” Hannam remembers Brinkley saying. Brinkley was talking to the right man.
Soon they were having more meetings, in New York and Washington. Brinkley wanted to know what it would take to get the big international mining companies into Afghanistan. Hannam said it was too early. The giants weren’t likely to leap into Afghanistan until smaller, wildcat operators went first. Copper and iron-ore mines were complicated and required huge infrastructure investments: railroads, roads, power plants, and smelters. Hannam said the first project should be less ambitious. A gold or lithium mine would be perfect. These materials could be transported by helicopter or trucked out by road. Hannam and Brinkley agreed that any such project should be led by an Afghan, lest it be seen as part of a resource grab by foreigners. Hannam pledged to bring entrepreneurial support, technical expertise, and capital. “And I’ll make some Afghans very rich, by the way,” he added.
In February 2010, Hannam flew to Kabul to see the situation on the ground. Brinkley took him to a reception at the American ambassador’s home. There, Hannam met an Afghan businessman named Sadat Naderi. British educated, smooth, and brimming with energy and ambition, Naderi ran a diversified company that included insurance, logistics, and supermarkets. There was one other thing, he said: “I’m one of the first Afghans that has actually won a gold license.”
Hannam’s eyes lit up. Naderi, it turned out, already had a little gold mine in Baghlan province. His family had run a tiny artisanal operation there, even minting some coins, for years. He had won the legal rights to it in formal bidding in 2008. To develop it, he needed technical advice, equipment, and capital.
Naderi was an Ismaili, a member of a Shiite sect. That was a good thing in Hannam’s eyes. Progressive in their views toward women and education, Ismailis are renowned businessmen. The Ismailis’ religious leader, the Aga Khan, presides over a vast charitable and business network that includes the Serena Hotel chain. The sect has a long-standing relationship with the British, dating back to the 1840s, when Ismailis provided British armies in Afghanistan with cavalry and intelligence.
Naderi’s father was the religious leader of all the Ismailis in Afghanistan. The family has several mansions and a palace in their home village, Kayan, which has athletic facilities and a train, and once had a zoo. Naderi’s brother Jafar had been a militia commander during the last days of Soviet occupation, with a 12,000-member private army. A documentary film titled The Warlord of Kayan had shown Jafar fishing with a grenade, riding his motorcycle, and blasting AC/DC. During the Taliban era, the Naderis had fled for their lives, and Osama bin Laden briefly occupied their palace in Kayan.
Sadat Naderi, not surprisingly, was happy to contemplate an investment of working capital raised by J.P. Morgan and backed up by the Pentagon. “The sooner we stand on our own feet, the better it is for us Afghans,” Naderi says. “You cannot be a beggar nation forever.”
“Don’t fall behind.”
Naderi’s gold mine, in Baghlan province, is only 50 miles from Kabul as the crow flies. During winter months it might as well be on the moon. To get there by road you must traverse the dangerous Salang Pass, which cuts through the towering Hindu Kush range. In 2010, in the same month that the J.P. Morgan team first arrived in Afghanistan, 180 travelers were killed on the pass in an avalanche.
I had my own taste of winter travel over the 11,000-foot-high pass when I set out with a convoy led by Richard Williams, the mining company’s CEO. Garrulous, self-deprecating, and brimming with insights about the Muslim world, Williams could be mistaken for an Oxford don. But he remains the hard-charging individual depicted in Mark Urban’s book Task Force Black, which describes Williams’ exploits in Iraq as the leader of an SAS team charged with capturing and killing Hussein loyalists and al Qaeda members. “Richard is a buccaneer, a pirate,” Urban quoted one of Williams’ former associates as saying. “He goes for the opportunities and adrenalin every time.”
It was snowing when we left Kabul early one morning, and by the time we reached the start of the climb, the weather had turned so nasty that police had halted traffic up the road. Nonetheless, our party of VIPs received permission to proceed with a police escort.
Williams and his group were in armored, four-wheel-drive vehicles. There was no room in the caravan for me, a translator, and a photographer, so we hired a driver and a Toyota Corolla. The front-wheel-drive car was soon laboring in the heavy snow. Our chains kept slipping off the tires. The radiator overheated, belching coolant into the snow. When it became apparent that we might not keep up, Williams’ group put a policeman in our car, and then proceeded on ahead without us. Visibility was terrible; the only way our driver could navigate was to crane his neck out a side window. After we passed the summit, the driver lost control of the car, which skidded and spun 180 degrees into a snowbank. Hands trembling, I lit my first cigarette in decades, wheezing on the first puff.
The next day, after spending the night in a hut, we set off on the return trip to Kabul. I begged Williams and his group not to abandon us. But when one of our party was stricken by a stomach ailment and we pulled over to let him relieve himself, the convoy swept on without us. We spun out again, narrowly missing a head-on collision with a truck.
When we caught up with Williams’ convoy near Kabul, we were too furious to wave. “I thought the SAS motto was similar to that of the U.S. Army [Rangers]: ‘Leave no man behind,’ ” I complained to one of Hannam’s soldiers-turned-bankers afterward.
“Leave no man behind?” He laughed. “Where did you get that idea? It’s ‘Don’t fall behind.’ And ‘Don’t forget your Imodium!’ ”
A deal too important to die
Of all the obtacles that could have wrecked the mining project — the murderous roads, the Taliban, the corrupt government — the one that nearly killed it was the most predictable: the profit margin.
In late September, J.P. Morgan CEO Jamie Dimon, Brinkley, and Mining Minister Wahidullah Shahrani met at J.P. Morgan’s headquarters in Manhattan. Dimon pledged J.P. Morgan’s support. On the way down in the elevator, Dimon told Shahrani, “You’re in good hands with Ian. He’s eccentric, but he gets things done.”
But soon Brinkley’s team was wondering. On the day the deal signing was to take place, Hannam’s team stopped acting like former warriors and began behaving like, well, nervous investment bankers. Hannam, after talking about how rich he was going to make his clients, suddenly began to complain that there was no way to make a profit. The 26% royalty rate for the mine, his team claimed, was way too high. Mining Minister Shahrani was bewildered — the rate had been agreed upon years before, when the Naderi family had first bid for the mine. Nothing had changed.
Brinkley’s Pentagon team was deeply frustrated. They felt the bankers had pulled a fast one. Had Hannam’s group not done its homework? Or were they just being bankers, trying to squeeze more money out of the deal with some 11th-hour brinkmanship?
Brinkley lit into the J.P. Morgan group: “When are you going to get this done? You’ve told people you’re going to do it!” The bankers, in turn, felt they were being unfairly pressured by the government, which seemed desperate to get the deal done even if it was uneconomical.
Everyone recognized, though, that the deal was too important to die. Naderi and Hannam’s team worked out an arrangement with the Ministry of Mines in which the royalty would be deducted from the corporate tax, as it is in many other countries. Soon, helped by rising gold prices, the deal was back on track. J.P. Morgan says it is not charging its usual advisory fees. While Hannam has described his work on the mine as a charitable endeavor, he says he expects a big payoff down the road for clients who invest in it.
J.P. Morgan says it isn’t putting any of its own money into the project. Hannam secured $40 million from investors in the U.S., Asia, and Europe. They included Enso Capital founder Joshua Fink, son of BlackRock’s Larry Fink; British mining titan Peter Hambro; and Thai businessman Pairoj Piempongsant. Hannam created an investment vehicle, Central Asian Resources, to enter into a joint venture with Naderi’s new mining company, Afghan Gold. Sadat Naderi was made chairman of Afghan Gold, and Richard Williams CEO. Their goal is to pull 5.4 metric tons of gold from the mine during the first phase of operation. After that the plan is to go after five other gold sites, and then bid for the rights to other minerals, including copper and rare earths.
This past December, an ecstatic minister of mines announced the deal. Petraeus congratulated President Karzai on the news. “Wonderful,” Petraeus remembers Karzai saying.
“It’s big,” Petraeus told me of the gold mine deal. “It’s very big. I mean, everyone knows who J.P. Morgan is, and what that represents. That’s substantial. It gives real encouragement to our Afghan partners.”
A deceptive peace
After the ceremony to inaugurate the mine in Qara Zaghan, the barren valley rang with a merry hubbub. Hannam’s close friend, Murad Megalli, responsible for J.P. Morgan’s investment banking practice in Central Asia and the Middle East, made portraits of the villagers with a Leica film camera. The minister of mines was exultant. Naderi spoke optimistically of “partnership” with his new investors. Everything seemed to be going right.
Then it wasn’t. At a military base on our way back to Kabul, our BlackBerrys started buzzing with news of a Taliban attack in the capital. Militants had struck one of Naderi’s supermarkets, called Finest, with guns and a bomb, killing eight people. Naderi at first didn’t understand what I was saying when I told him the news of the attacks. “The Finest got hit,” I said. “Hit?” Naderi said. “Finest hit?” He turned ashen.
Megalli and Hannam sat on a bench trying to digest what had happened. Hannam was at first convinced the attack was linked to J.P. Morgan’s presence in the country. It wasn’t. (The Taliban later claimed they were trying to kill an American mercenary who they erroneously claimed was at the store.) Then, Hannam immediately put his banker hat back on. At least the deal was done, he said, and the money was in.
Megalli was struck by how fast things could spiral out of control. “The peace here is so deceptive,” Megalli said. “It is so fragile.”
A week later I returned to my Kabul hotel room to receive this e-mail from Hannam about his colleague and friend: “Murad died in plane in Kurdistan yesterday. Any good photos I can give family?”
Murad Megalli and Hannam had flown out of Afghanistan on a private plane, and then gone their separate ways. Megalli had taken the plane to Kurdistan. The plane crashed in a snowstorm, and Megalli and another J.P. Morgan banker were killed. Hannam was devastated. From the meeting with Brinkley at the Baghdad Hunting Club, Megalli had been a champion of the Afghan venture. He had believed mining could make a difference for the country. His death, and the attack on Naderi’s supermarket, were sobering reminders of the personal risks of frontier capitalism.
Other storm clouds hover over the enterprise. Corruption allegations swirl around several key backers of the mining project in the Karzai government. Paul Brinkley’s Pentagon team, which energized the Afghan mining sector and also put hundreds of Afghans to work in manufacturing technology and agriculture, is being disbanded, a casualty of interagency warfare. In April, after the burning of a Koran in Gainesville, Fla., mobs rioted in Afghanistan. The UN compound in Mazar-i-Sharif – a city that is to play a key role in the shipment of gold from the Baghlan mine — was attacked, and 12 people were killed.
The spark that Brinkley and Hannam struck, however, continues to burn. Six major minerals sites are due to be auctioned by the Afghan government over the next year. SRK, a major mining-consulting firm, will advise the Afghan government. Bankers from Morgan Stanley (MS) and executives from Chevron (CVX) have been scouting Afghan natural-resource prospects.
And next January the bulldozers and crushing machines are set to start working in the remote valley where Hannam’s investors have staked their claim. It remains to be seen whether the J.P. Morgan adventure will leave any more indelible a mark on Afghanistan than did Capt. Drummond of the Bengal Light Cavalry 170 years ago. But at least someone will have begun releasing the wealth trapped in Afghanistan’s stones.
–Doris Burke and Ali Safi contributed to this article.
- A Top London Banker at JPMorgan Chase Resigns (dealbook.nytimes.com)