VZCZCXRO3972
PP RUEHIK
DE RUEHBUL #3732/01 3241139
ZNR UUUUU ZZH
P 201139Z NOV 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 3319
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0943
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEABND/DEA HQS WASHINGTON DC
RUEHRC/USDA FAS WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 03 KABUL 003732 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: EINV EFIN ECON AF
SUBJECT: USAID MISSION DIRECTOR FREJ MEETS WITH FINANCE MINISTER 
ZAKHILWAL 
 
KABUL 00003732  001.2 OF 003 
 
 
¶1. (U) This is an action message.  See paragraph 10. 
 
¶2. (U) SUMMARY: On November 12, 2009, USAID Director Frej met 
Finance Minister Zakhilwal to discuss issues ranging from 
anti-corruption efforts to long-term economic growth issues. 
Minister Zakhilwal stressed that "the focus on corruption is 
important to us, affecting the confidence of our people and our 
relationship with the international community.  We need to get past 
the general statement of (combating) corruption into the details." 
He welcomed the pressure and the conditioning of U.S. assistance on 
what the government must deliver in terms of reform, while asking us 
to acknowledge progress made to date.  Zakhilwal also reiterated the 
importance of three ongoing initiatives in government 
reorganization: 1) the clustering of Ministries around the themes of 
Agriculture and Rural Development, Infrastructure, Human Capacity, 
and Governance; 2) strengthening the financial management, service 
delivery, and oversight of the top six ministries managing 80 
percent of the country's development assistance; and 3) pushing the 
reform agenda within these institutions to streamline procedures and 
enhance transparency, revenue generation and law enforcement 
efforts.  See action request in paragraph 10.  END SUMMARY. 
 
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INTRODUCTION 
------------ 
 
¶3. (U) Pursuant to his request to revive monthly meetings, Minister 
Zakhilwal met with USAID Director Bill Frej to review five specific 
agenda items: 1) the Sheberghan gas fields; 2) Salary and Salary 
supplements for government officials; 3) the Civilian Technical 
Assistance Plan (CTAP); 4) Economic Growth issues (Mining, Non-Tax 
Revenues, and Tax Reform); and 5) regional airports. 
 
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ON SHEBERGHAN 
------------- 
 
¶4. (U) The Sheberghan gas field project aims to attract private 
investors to develop the fields and construct and operate a 
gas-fired electricity generation plant, supplying 100 MW to 150 MW 
of power to Kabul and eastern Afghanistan, including Nangarhar 
Province.  Following serious expressions of interest from the 
private sector for this project, USAID plans to provide 
capacity-building assistance to key Afghan Ministries such as the 
Ministry of Mines (MoM), Ministry of Energy and Water (MEW), and 
DABS concerning the principles of private sector arrangements for 
gas production as well as power purchase agreements for gas fired 
Independent Power Producers.  USAID indicated that it had received 
two proposals to complete this project and has now completed the 
selection process.  USAID's Office of Acquisition and Assistance 
(OAA) is in contact with the prospective implementer at this time 
and estimates that the $6 million contract should be completed by 
November 30, 2009. 
 
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MINING SECTOR 
------------- 
 
¶5. (SBU) Finance Minister Zakhilwal said Afghanistan's mining sector 
can be a major engine of growth, generating significant investment, 
employment, and public-revenue.  He indicated that the current 
Minister of Mines would be replaced, following the President's 
inauguration.  As part of Afghanistan's eligibility in the World 
Bank's Heavily Indebted Poor Countries Initiative (HIPC) and in line 
with ANDS objectives, mining remains a key priority for the 
Government of the Islamic Republic of Afghanistan (GIRoA)Q 
¶6. (U) Mission Director Frej noted that USAID's Economic Governance 
and Growth Initiative (EGGI) project is committed to providing 
advisory support to GIRoA to improve legislation, regulations, and 
fee structures to encourage exploration and investment in mining 
projects. EGGI programs could include additional support to the 
Ministry of Mines for policy analysis, training, and mentoring. 
 
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GIROA SALARY SUPPORT 
-------------------- 
 
¶7. (U) USAID has been funding salaries and salary supplements in the 
Office of the President and Ministry of Education.  USAID Mission 
Director Frej and Minister Zakhilwal agreed to work together on a 
way forward to address the issue of funding salaries and salary 
supplements for GIRoA officials.  As a first step, Mission Director 
Frej agreed to share the lists of current USAID-funded staff with 
the Ministry of Finance to avoid duplicative payments from other 
 
KABUL 00003732  002.2 OF 003 
 
 
sources. 
 
---------------------------------------- 
CIVILIAN TECHNICAL ASSISTANCE PLAN (CTAP) 
---------------------------------------- 
 
¶8. (U) The Civilian Technical Assistance Plan (CTAP) is moving 
forward.  Specifically, the USG intends to support this multi-donor 
pilot program via direct transfer to the Ministry of Finance ($30 
million over two years).  Besides the commitments that the U.S., the 
UK, Canada, and Japan have made to support CTAP, other donors such 
as Italy have expressed interest in participating. 
 
¶9. (U) Mission Director Frej noted that no other donors but the US 
have begun negotiations with the GIRoA nor have they placed any 
advisors in the secretariat.  USAID's financial assessment of the 
Ministry of Finance, which has been shared via UNAMA, paves the way 
for many smaller donors to consider direct budget support.  Both 
parties agreed that UNAMA also needs to take a more active role in 
getting additional donors on board.  Finance Minister Zakhilwal 
indicated that he will continue to put pressure on donors to fulfill 
their commitments, and suggested a potential Joint Coordinating 
Monitoring Board meeting in mid-December as the right public forum 
to do so. 
 
¶10. (U) Action Request:  We recommend Washington, through the 
Secretary's Office of the Special Representative for Afghanistan and 
Pakistan, consider undertaking a broader diplomatic effort to 
demarche the UK, Canada, and Japan to meet their CTAP pledges and 
solicit greater support from other donors.  This initiative is 
consistent with President Obama's emphasis on greater Afghanization 
of assistance, enabling the Afghan government to take the lead in 
their own development.  End Action Request. 
 
----------------------------- 
NON-TAX REVENUES / TAX REFORM 
----------------------------- 
 
¶11. (U) Mission Director Frej noted that USAID's EGGI project 
produced an initial assessment for mobilizing non-tax revenue. 
Based on data from 1387 (FY 2008-09), total non-tax revenue 
collected was 13.5B Afs (or $270M), or 29% of all collected revenue. 
 There are over 107 different types of non-tax categories, but the 
top 20 account for 90% of non-tax revenue (conveying the rates on 
the rest are so low they are almost negligible and could be 
eliminated or that collections are a lot lower than they should be). 
 There are 47 Government Agencies that collect and deposit non-tax 
revenues, but six of them account for 96% of collections.  These 
"big six" are the Ministries of Mines, Finance, Transportation, 
Foreign Affairs, Communications, and Interior.  U.S. Treasury will 
focus its efforts on the Ministry of Transportation, while USAID 
will address the other five ministries and the issue non-tax revenue 
more broadly in cooperation with the Ministry of Finance.  As a next 
step, and with technical support from EGGI, Frej requested that the 
Ministry of Finance identify staff to support this initiative with 
other ministries. 
 
¶12. (U) In agreement with UK-DFID, USAID will explore support to the 
MOF to establish a Fiscal Policy Unit that will include a mandate 
for Tax Policy formulation, while DFID continues its focus on Tax 
Administration and expansion of large and medium tax payer offices 
to the regions, under the Deputy Minister (DM) for Revenue. Finance 
Minister Zakhilwal concurred that adjustments in the organizational 
structure of Mustufiats (MOF provincial offices) that report to the 
Deputy Minister for Administration should be adjusted to report to 
the Deputy Minister for Revenue. The Deputy Minister for Revenue is 
responsible for approximately two-thirds of all MOF staff who 
collect customs, tax, and non-tax revenue, and the Revenue 
Department should play a more prominent role in hiring, firing, 
promoting, and disciplining its staff. 
 
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REGIONAL AIRPORTS 
----------------- 
 
¶13. (U) The Afghan government requires $12 million to upgrade 
airstrips in Faryab, Badakhshan, and Chagcharan.  USAID pledged to 
match $6 million with a GIRoA or other donor contribution of an 
equal amount.  Finance Minister Zakhilwal noted that the match is 
ready. The next step is that USAID will draft a Memorandum of 
Understanding between the Ministry of Finance, Ministry of Transport 
and Civil Aviation, Asian Development Bank, World Bank, and USAID. 
 
 
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KABUL 00003732  003.2 OF 003 
 
 
COMMENT 
------- 
 
¶14. (U) Minister Zakhilwal projected the image of a Cabinet member 
who gets things done.  He displayed a detailed knowledge of a wide 
range of issues and seemed confident that his pragmatic, 
results-oriented approaches would continue in the new government. 
We believe he has the will to carry through on financial reform -- 
provided he remains as Finance Minister. 
RICCIARDONE