Dubai property bubble: This time its a different con

Government of Dubai (GoD) through various media mouthpieces keeps announcing that Dubai real estate has bounced back and is on an upward trajectory while the signals out of property markets of rest of the world economies can be described as mixed at best, with certain regions experiencing slight gains in real estate values and others still stuck at the bottom.

Dubai Government : Hype creator
No one would believe if the UAE papers report that real estate market is rebounding because they had continued carrying news items about increasing prices Dubai even as the bubble was bursting in late 2008/early 2009. So rather than forcing papers to report false property indicators, Dubai government decided to take matters in its owns hands.

On Nov 24, GoD announced building of a new city  to be known as Mohammed Bin Rashid City (MBR City) which like all landmark projects in Dubai, will comprise of bigger than this or taller than that developments. The press releases are reported by local news agencies as news  which are then picked up by international news agencies and reported as such. Most of GoD’s projects are so fantastic and are to be delivered so far in future that such news items (a press release should be a more appropriate classification) are always thin on details as no spadework has been done except for probably a pre-feasibility study by one of the myriad renowned real estate agencies who are keen to get their fingers in the pie. The press releases are accompanied by artist’s impression of the completed project but they are more suited for science fiction websites as concept art.

Emaar : Usual Suspect
Three weeks after the above announcement was made, Emaar (one of the two major real estate development arms of UAE government mainly responsible for the bubble last time, the other being Nakheel) announced a project known as Dubai Hills in MBR City which was a press release on Emaar’s website but was again reported as news by local news media:

Emaar Properties and Dubai Holding…unveiled Dubai Hills, the first project in the new ‘city within the city’ development….The new gated community will provide ultra-luxury residences, designed to the bespoke considerations of the owners. The exclusive gated community is designed around a new 18-hole championship golf course to be developed by world-renowned golf course experts, with the villas to overlook the rolling greens and fairways. Each villa will be set on spacious plots of 20,000 to 30,000 sq ft, giving customers the option to develop mansions of their choice in the heart of the city. 

Such news items (or press releases) may make enthusiastic ripples in the region but the ground reality in Dubai is very sombre. One has to realize the far-fetchedness of the above project. It is a “city within the city”. Will the inner city be built first and outer city will grow around it or infrastructure and master plan of outer city will be laid out first and then inner city be built on one portion of it. This being Dubai, details are not available.

Projects around golf courses announced with much fanfare pre-crisis are still stagnant or have yet to translate from the drawing board into anything on the ground such as  Jumeirah Gardens, Juneriah Golf Estates, City of Arabia etc. Not to mention that much heralded and completed Montgomerie Golf course designed by “world famous golf course expert” Colin Montgomerie is suffering because of recent budget cuts and mismanagement. Managed by Emaar and Troon Golf, it can easily be classified as world class facility in third class condition.

Residential projects around golf courses and greens were not the only bubble. The number of theme parks announced in a city of size of Dubai just boggles the mind. All of them are stalled. (Click on this link to take you the list of the theme parks announced by Dubai). Yet again we read this:

Ten years after the launch of Dubailand on the outskirts of the emirate, big-ticket tourist attractions are moving back to the city centre.

“Dubailand was intended to include a number of theme parks not dissimilar from the ones it announced last year to be developed in Jebel Ali, and now proposals for the world’s largest Ferris wheel, which was originally planned to be built in Dubailand, are being brushed down and moved to JBR.”

The announcement follows news last November that Meraas would develop five theme parks at Jebel Ali at a total value of Dh10bn. The project will start with the Dubai Adventure Studios park, which is scheduled to be completed next year.

Why can’t they just start with one project and once it is finished, start another one? Why do they have to have four or five or ten landmark projects under construction at the same time?

The Off-plan Con
The property bubble last time was marked by a long line outside Emaar and other developer offices in Dubai the day sales of “off-plan” properties were announced (off plan means properties that exist only on paper as “concept art”) and used to be all sold out same day. Many of those properties never got built.

A similar scene was witnessed outside Emaar sales office in late January this year (this year being 2013) on the announcement of sale of Emaar’s latest off-plan development Fountain View. The process to buy the property is that you have to register your interest at Emaar’s website. Then you are informed that you have been fortunate enough to be allotted a token. You have to stand in a queue outside the sales office on the appointed day with your token in hand wherein units will be sold on first come first serve basis. The news papers and press releases carry tentative prices and final price is announced on the day of sales. You are supposed to bring your cheque book and submit a 10-20% down payment in form of cash/cheque there and then.

People start standing in queue from 6.30 AM. They may be standing for hours as the queue moves slowly and may hear the announcement that all units have been sold and people who didn’t get in can go home empty handed. The problem is that Emaar allocates much more tokens than there are actual units. They do it purposefully to create the demand of the property as well as allowing the media to hype it up by showing pictures of people standing in line.

Moreover they are tight lipped on how many of the announced units were actually up for sale. In the absence of such information, the impression is always that there was such huge demand that all the announced units were sold. The closest any paper has ever come to highlighting this issue was for another recent hyped up and sold out project Sky View sales of which took place last week (last week being late Feb 2013). The paper Emirates 24/7 stated

He added: “We were told that all the units in the project released in Dubai had been sold out.”

Another investor, who wished not to be named, said he had also been told by the company sales staff that all units released had been sold out.

Emirates 24|7 could not be confirm how many units were released for investors in Dubai.

Money Laundering
With mortgage market still relatively tight and effectively weak UAE anti money-laundering laws, majority of current real estate transactions are based on cash/cheque for full amount. (Businessweek covered this story here). There is huge influx of money in the form of cash-in-suitcases (literally) from Iran, Russia and countries affected any civil wars/ Arab spring.

Whereas expatriates living in Dubai had burnt their hands severely in the last bubble and wary of any new real estate adventures as they have yet to see any signs of development of the last “off plan” property they bought, most current investors are people running from economic or political unrest and are falling over each other for signing up for these castles in the air.

The risk here is that many of these buyers are criminals or are running/hiding from regimes back home and are not looking to acquire these properties to live in rather use them as investments to “flip” or park their ill-gotten gains and in some cases to launder their wealth. As such, the demand for these properties is not permanent or genuine and can vanish quickly if prosecutors back home try to claw back the money.

News Media and International Real Estate Agencies : Accomplices
There is no independent media or research agency in Dubai inquiring whether there is a genuine demand for such high profile projects, does the government have the funds, who are the buyers etc. Even the world renowned real estate agencies are in on the game as frankly they get revenue when sales of projects takes place even if the project is never translated from artist’s impression of the completed project to ground breaking of the site. News media specially print media gets full page glossy ads about these projects.

If one reads the various press releases (most of the time reported as news) by internationally renowned real estate agencies operating in Dubai, the real estate prices in Dubai are always either flat or rising (they never fall).  It was widely reported in media that real estate agency Hamptons MENA says villa prices increased in Dubai by 30%. No one mentioned the fact Hamptons MENA is owned by Emaar, a fact that could have been easily verified from the agency’s website.

If one tallies the price increase in Dubai property prices as reported in media over the last few years, the prices should have risen to multiples of pre-crisis levels as price increase in Dubai has never been in single digit percentage points. Its always an increase of 20% or 30% and sometimes even 40%. Below is the news from most recent report by Knight Frank:

Luxury property in Dubai recorded the world’s second highest price increase last year, according to international property consultancy group Knight Frank.

The value of top end homes in the emirate rose 20 percent, equal to the island of Bali and behind only the Indonesian capital, Jakarta, which saw luxury property prices increase by 38.1 percent.

Central Bank : Weak regulator
Recently, UAE central bank proposed new mortgage laws that required expatriates to put down 50% equity to qualify for mortgage. The purpose was to partly deflate the bubble that the central bank believes was developing in the real estate market. However, the Emirates Banks Association (EBA), representative body of banking sector, opposed the move and as such central bank has retracted the proposal saying a new proposal would be put in place in 6 to 9 months after consultation with commercial banks. Commercial banks still hold lot of real estate assets in their books and are fearful the proposed law may result in decrease in price of properties thus forcing them to take more provisions. On the other hand, when most of transactions taking place are in cash, the introduction of law wouldn’t have caused much dent in the prices.

Few sane voices
National Bank of Kuwait is reported to have said in their recent note that property prices are 45% down from their peak of 4 years ago which means that on overall level, prices haven’t risen much from the bottom that they touched. However, such  voices are drowned by “apparently” respectable personalities. Around same time chairman of Emirates Banks Association Abdul Aziz Al Ghurair claims that “UAE property values have returned to their pre-crisis levels and in many cases have climbed higher”.

I don’t know how confident one can be of buying a property when told that the prices are at peak bubble level.

To cut through the bullshit, one need only read this as reported via Reuters:

An official at a top construction firm in Dubai, speaking on
condition of anonymity because of the commercial sensitivity of
his remarks, said concrete construction plans had not yet been
made for any of the recently announced projects.

“It will be a while before all this translates into work for
us or anything starts, if at all,” he said.

My two paisas : Caveat Emptor

Iranian nuclear program and role of A.Q. Khan network in it

Iran’s nuclear aspirations had deep roots. They predated the 1979 Iranian Revolution that brought the current theocratic government to power, originating in the critical period of the mid-1970s. Flush with oil money, the Shah of Iran publicly declared that he wanted to move forward with an ambitious nuclear energy program. In 1976 Iran signed a deal with a Ger- man company to build nuclear reactors at Bushehr, on a sandy peninsula in the South East of Iran, on the coast of the Persian Gulf. Though the plant in Bushehr would ostensibly be devoted to nuclear power, U.S. intelligence suspected that the Shah also had a modest clandestine weapons development program or was at least keeping that option open through research work. As the same enrichment plants and reactors can be used for either purpose, it is difficult to tell whether facilities are for civilian purposes or for nuclear weapons. For the Shah, as with Iranian leaders decades later, nuclear technology was not just a means of delivering security but also a matter of prestige, a means of restoring status to the proud Persian people who had once ruled an empire.

Whatever the Shah’s real intent, his decision in turn led Saddam Hussein in Iraq to press his own officials to move forward with a nuclear program to balance that of neighboring Iran, a typical domino effect created by nuclear ambitions. Iran’s move was a “triggering factor,” explains Iraqi nuclear chief Jafar Dhia Jafar as Saddam purchased a reactor from France.1 Iran and Iraq were conscious of living in a dangerous neighborhood and were wary of each other’s ambitions. Each was fearful of being outpaced by the other. The smallest suspicion of a nuclear program on the part of a neighbor was enough to drive the other forward. Each would maintain the story that it was only nuclear power they were after not the bomb, but both knew that the same technology could easily be used for both.

From 1984 nuclear research in Iran had begun to pick up under the Speaker of Parliament (and later President) Hashemi Rafsanjani. Rafsanjani was a wily, enigmatic politician who would become a key proponent of developing Iranian nuclear capability. His task would not be easy: the 1979 revolution had left Iran with a paltry scientific and technological base with which to develop its own program. Thousands of students were sent abroad again and Iran even tried to lure former scientists back to the country but this was largely unsuccessful.5

China’s cooperation with Iran began in the mid-1980s in the field of missile technology. The first nuclear agreement came in 1989. In 1991 a major nuclear deal was signed when a senior Chinese official visited Iran, touring around facilities near the ancient city of Esfahan, one of Iran’s most historic sites situated south of Tehran. Secretly that year, China provided Iran with three cylinders, one large and two small, containing 1.8 tons of Uranium ore, a deal that Iran did not report to the IAEA. This allowed the Iranians to carry out experiments in the 1990s without the IAEA noticing any diversion of existing material that the agency had been monitoring. China also agreed to build the Iranians a complete uranium conversion plant at Isfahan. As the decade wore on, China grew warier of Iran’s intentions and the United States began to exert more and more pressure on China to halt its support. Eventually, a 1997 deal with the United States led China to cut off remaining assistance. But Iran already had the plans and continued to build the conversion facility at Esfahan using the Chinese designs.

Through the 1990s as China’s support waned, Russia was perceived as the main facilitator of any Iranian nuclear program.

The United States put in enormous amounts of diplomatic time and energy during the 1990s to try and prevent Russia and China from passing on technology to Iran in the field of both missile and nuclear technology. But while Russian and Chinese help was useful to the Iranians, there was another secret partner. Iran, just like Pakistan in the 1970s, had realized that the plutonium reprocessing route to the bomb was highly visible and thus subject to diplomatic pressure, but enrichment could be much easier to conceal. It was to be the enrichment route pioneered in Pakistan by A. Q. Khan and then exported to Iran that would bring Iran closest to the bomb. In many ways, the Iranian path would be a close parallel to that of Pakistan.

In 1985 the Iranian leadership made the decision to begin work on its own enrichment program. Researchers were told to scour through publicly available technical literature for any clues on how to master the complex technology. But the Iranians would find that it was far easier to buy in outside help than do all the difficult research themselves. They knew that Pakistan was developing the bomb and that Khan was the man who was working on it and so discreet inquiries began. It was under President Zia’s watch that the first contacts were made between Pakistan and Iran in the nuclear field and these were on an official state-to-state level.

Even though they were secret, some of the contacts were at the highest level between the two states. Iran-Pakistan relations had been difficult in the early 1980s as Pakistan was closer to Saudi Arabia who in turn was backing Iran’s enemy in its war, Iraq. But relations began to improve from around 1983. By 1986 economic and technical cooperation was increasing as Pakistan began importing Iranian oil. The Iranian president, Ali Khamenei, who would later become the country’s supreme leader, was a long-time proponent of the nuclear option and paid a visit to Pakistan in February 1986.

Iran signed up for a package from the Khan network comprising of P-1 designs, five hundred components for P-1 machines, as well as drawings for the more advanced P-2 centrifuge. The first deal provided designs and a shopping list, but this time the Iranians were getting more centrifuges and components, as well as designs for a much more efficient machine with which to enrich uranium. Following payment, these parts were delivered to Iran in two more consignments in late 1994 and early 1995. Tahir personally arranged for the transhipment of two containers of parts via Dubai using a merchant ship owned by an Iranian front company. Some components were shipped from storage in Dubai before payment was received, an unusual occurrence, making it possible that the network wanted to clear out the parts in a hurry from the ware- house in Dubai where they were stored, perhaps because they feared someone was on to them.

The centrifuges and components that Khan provided were secondhand cast-offs from the Pakistan program. It some ways, the deal looks almost like a “clear-out” sale from the warehouse run by the Khan network, offloading the bits and pieces no longer required that were stored in Dubai. This seems to be the case as there were odd numbers of components rather than a coherent set with the same quantities of each different part. It also explains why some of the material was shipped even before payment. Khan had been busy from the mid-1980s updating the centrifuges at Kahuta from the P-1 with its aluminium rotor to the more efficient P-2, which used maraging steel, leaving used machines and surplus components that could be sold.24 These were supposed to be sent to a company in Pakistan to be scrapped and destroyed. Instead, they appear to have been sold in a hurry on this occasion.

It is clear that Khan’s support was critical to Iran’s nuclear program and that Khan helped Iran overcome major technical hurdles. Both in the 1980s and 1990s, Khan helped jump start the Iranian program, allowing them to move much faster by providing plans, blueprints, technology, and advice.

But slowly Iran began to master the complex technology. By 2000 Iran was ready to begin the construction of the two enrichment facilities at Natanz: the smaller pilot plant was to have one thousand centrifuges, the larger fifty thousand. This would provide the capacity to produce highly enriched uranium for twenty to thirty nuclear weapons each year. Natanz was carefully built with deep bunkers reinforced by triple layers or con- crete and then covered with earth to hide their existence and to provide protection against any possible air strikes. A dummy building covered the vehicle entrance ramp and power lines were hidden. A building that housed the power supply was made to look like a cafeteria.

Analysts believe Iran could be pursuing is creating a secret parallel program, for a so-called “sneak out” capacity. A large declared facility makes it much easier to run a parallel undeclared facility since it provides cover for research and procurement activities. The fear is that Iran may have pursued such an option based around the P-2 information (and possibly material) it received from Khan.

The problem was that the scale and persistence of the contacts between Khan and Iran and particularly the large mid-1990s deals were missed (there were some rumors but no more). In the mid-1990s, just as the Iranian program was actually picking up a gear and becoming more secret, the expansion was missed, a failure that would have major consequences. U.S. intelligence on Iran became weaker with fewer sources. It was only at the end of the 1990s that there would be some signs of renewed Iranian activity. This was based around procurement patterns as European states began to report that dual-use technology, in other words technology that could be used for civilian or military purposes, was being sent to Tehran. British and American intelligence officials following Iran’s program had been aware that Iran was conducting research in both enrichment and reprocessing and was trying to buy components and materials. In the late 1990s some technical analysts in Britain warned that if Iran had enough fissile material, they judged the country would be able to build a bomb, perhaps, even a relatively advanced implosion device. However, at the time policymakers were trying to take advantage of the election of the moderate Mohammed Khatami as Iranian president in 1997, and there was resistance in pushing such views higher up the intelligence chain. Around 2000 the CIA also tried to pass on flawed information on the triggering mechanism for a nuclear weapon to the Iranians through a Russian agent, an- other indicator of the level of awareness and concern over the Iranian program long before it became public.47 The Iranians may have uncovered that operation but U.S. and Israeli intelligence are also believed to have tried to pass other flawed machinery and equipment to Iran to disrupt its program and cause technical difficulties.

Beginning in 2000 intelligence analysts in London and Washington watched Natanz being built. Every day they scoured satellite photography of the site they noted how the Iranians were clearly aware of the points at which satellites were not overhead to carry out certain work, leaving dis- crepancies between sequences of images (a trick they had apparently learned from the Indians in their 1998 test). The evidence of what was going on at the site was limited and no one was sure what was going on inside. There was some debate over what to do with the knowledge. Should it be made public? Should it be provided to the IAEA? But it was pointed out that building an enrichment site secretly did not actually break any of Iran’s international agreements, only the introduction of uranium and the carrying out of enrichment without notification would violate agreements and there was no proof yet of this kind of activity.

Every site that was revealed by the Iranian opposition in 2002 was already known to the British and American intelligence, but they had chosen not to show their hand. “It was not publicly known as it was secret information but it was shared among the close allies that work on this issue,” says Gary Samore who was in charge of non-proliferation in the White House until the start of 2001.48 But it was not appreciated just how far the Iranians had gone. Nor was Khan’s pivotal role in the Iranian program appreciated until it was too late. It was only after February 2003 when Olli Heinonen and the IAEA entered Natanz that a more complete picture began to emerge and with it the evidence of just how central Khan had been and how he had helped the Iranians move far faster than anyone suspected. Even now, much is still unknown about the scale of his assistance.

Excerpted from “Shopping for Bombs: Nuclear Proliferation, Global Insecurity, and the Rise and Fall of the A.Q. Khan Network

AQ Khan and Nuclear Bomb : Part IX : Kahuta explodes on world stage, China becomes our friend and US tries to push us back

On 4 April 1978, Khan revealed to Henny over dinner that he had something extraordinary to share with her. A world-class secret in fact. He had fed a sample of UF6 through his P-1 centrifuge and produced enriched uranium. “I can say with complete confidence that I was among the very first who knew that Pakistan had broken the monopoly of the Western world,” Henny remembered.The following day, Khan sent an official memo to his patrons, Ghulam Ishaq Khan, by now the finance minister, and Agha Shahi, the foreign minister.4 But by the time they received this news, Zia had usurped their authority over the nuclear program, appointing a general to run it.

Zulfikar Ali Bhutto had always been wary of the military getting their hands on the nuclear trigger. No military officers were invited to the Multan conference of 1972, and the military’s only connection to Kahuta was organizing its building and security while the ISI prowled Europe for components. But within weeks of Bhutto’s conviction, Zia disbanded the civilian committee, and placed General Khalid Mahmud Arif, his chief of staff, in charge. Everything that Khan would do from now on came under the military’s purview.

[trying to bring expatriate trained pakistanis back home] Again, Khan asked Aziz to come back to Pakistan, but Aziz could not be prised from Montreal, and so many others proved intransigent that Khan asked General Zia to sanction a series of advertisements to lure them back. Carried in newspapers around the world, they promised large salaries and new homes in Islamabad. Applicants were told to contact their local Pakistan embassy and say they were applying for work at the Institute of Industrial Automation (IIA) in Islamabad, the same address used by Khan for component deliveries. “Mention that this is a government department and this is to encourage the industrial progress,” Khan advised prospective employees.16 In his letters to Aziz he asked him to recommend other expatriate Pakistanis, and Aziz duly sent back lists of delegates from conferences he had attended in the US and Canada. Peter Griffin recalled Khan’s staffing crisis. “He could only ever offer a meager government salary, but he’d tempt people by saying we’ll build you a house that will be yours forever, a pension and travel all paid. Khan fought a continual battle against mediocrity, even among his most senior aides.”

But Khan would soon face a more pressing problem. On 8 October 1978 he wrote to Aziz: “Perhaps you must have read in some newspapers that the English government is objecting about the inverters. Work is progressing but the frustration is increasing. It is just like a man who has waited 30 years but cannot wait for a few hours after the marriage ceremony.” The British government had finally tripped over Khan’s network, but not through diligence. It was envy that exposed the Pakistan connection. Having sent a shipment of twenty inverters to Pakistan, Ernst Piffl had lost the contract after A. Q. Khan suspected he was being cheated on the price. The contract went to Peter Griffin in Swansea, and Piffl blew the whistle, tipping off Frank Allaun, Labor MP for Salford East in northwest England, claiming that the components were being exported to Pakistan’s nuclear weapons industry. When Allaun, who was also a renowned peace campaigner, began asking questions in the House of Commons in July 1978, Tony Benn, the minister for energy, announced an inquiry. He froze all further shipments to Pakistan, trapping Khan’s inverters in the UK.

The House of Commons inquiry found that the previous December, Piffl had ordered twenty inverters from Emerson Industrial Controls which had been shipped from its factory in Swindon to the Special Works Organization in Rawalpindi. A former former Emerson engineer told the inquiry that everyone at the Swindon plant had suspected the inverters were for uranium enrichment but nobody had bothered to stop the shipment as “they were convinced that the Pakistanis would never know how to operate such sophisticated equipment, and that the inverters would all sit in their packing cases until they rusted away.” Only after the first boxes reached Kahuta in August 1978 and Khan’s technicians sent a telex requesting sophisticated modifications did Emerson realize it had underestimated its customers.

The export control amendments would make it far harder for anyone to trade with Khan from the UK. Peter Griffin, who had made inquiries with Emerson about two more shipments of inverters after he won the contract off Piffl, was refused an export license under the new legislation. “It was now impossible to do business without being hassled,” Griffin recalled. “I would get my usual telex from Khan and the next day a telex from UK Customs with lists of all the new things going onto the export control list, which coincidentally were all the things Khan had just asked for. Customs started causing me endless headaches. I told the tax and customs people that I was never curious and never asked questions. I did everything within export control legislation. I was a businessman. I never sold a bullet, never sold anything that would kill anyone. When the Brits tried to appeal to my better nature and said, ‘This is nuclear stuff that you’re contributing to,’ I said, ‘As far as I am concerned A. Q. Khan’s work is for peaceful purposes only and I believe that all countries have an unalienable right to pursue nuclear technology for peaceful purposes. I’ll stop just as soon as you stop selling small arms, handcuffs and torture equipment to African countries.’ ” From now on this would be Griffin’s justification for all the work he would do for Khan.

Things were so hot in Britain that Griffin and Abdus Salam decided to move, not just out of their old neighborhoods, but out of Europe. “Salam said to me, let’s go to Dubai, a free-trade zone,” remembered Griffin. “UK exports to Dubai were not so heavily watched and from there could go anywhere. Salam said he would do it only if he could go to Dubai first, leaving me in the UK to arrange stuff.”

Later Khan revealed another sensational breakthrough: he was attempting to link several centrifuges together for the first time, creating a mini-cascade, a gateway to increasing the enrichment of uranium towards weapons grade. Work on the big plant was also speeding up, with the main laboratory buildings, centrifuge hall B-1 and administration block almost finished. “We hope by April many groups [of centrifuges] would be transferred there,” he wrote, if he could get more staff. “It is the bad luck of this country that people do not want to stay here. When one leaves he does not want to come back.”

By the end of March, his centrifuge cascades up and running, Khan was desperate for a regular supply of UF6. Referring to the German uranium conversion plant that would guarantee this, but still had not arrived, Khan wrote, using his unsubtle “Operation Butter Factory” code: “By the end of the year the factory should start working, and should start providing ‘cake and bread.’ Here there is a shortage of ‘food’ and we need these things very badly.” On 28 March 1979, Khan enjoyed the last day of his life that he would spend in relative obscurity. That night Zweites Deutsches Fernsehen (ZDF), a West German television channel, broadcast a documentary unmasking Abdul Qadeer Khan as the head of Pakistan’s nuclear weapons program, which was being built using centrifuge blueprints stolen from a Dutch plant at Almelo. The story exploded in Europe and North America, forcing the Dutch government to launch an investigation.

The BVD informed ministers that Khan had been stealing data for months before he left Holland in December 1975 and had probably obtained all the designs for both the CNOR and the G-2 centrifuges. This inquiry also revealed one more disaster, which until then had not been known by anyone outside the consortium: that URENCO scientists had been working on a successor to the sophisticated G-2, a super-centrifuge known as the 4-M, and that its blueprint was also likely to be in Pakistan.

Britain and Germany, Holland’s partners in the URENCO consortium, were livid. Both wanted to know why The Hague had not alerted them in 1975 when suspicions had first been raised by Frits Veerman, or in 1976 when Khan had written to FDO staff for technical information, or in 1977 when FDO contractors in Holland were known to have sold Khan components for the discontinued CNOR. Israel, too, demanded answers.

In Islamabad the furor had done little to slow down Kahuta’s progress. In late March 1979, Khan was called to brief Zia and brought with him a ten-page letter in which he argued that Zia should commute Bhutto’s death sentence. He had stayed up half the previous night preparing it.

China

The man who had negotiated Pakistan’s special relationship with China was diplomat Agha Shahi. He confirmed that Saxena’s deduction was correct: “1965 was critical for us,” he recalled. “We made a pact with Beijing that ushered in decades of assistance we could not have got elsewhere.” In 1971, Pakistan and China became even closer when Shahi led calls for the People’s Republic to win a seat at the UN Security Council, where Chiang Kai-shek was the US-backed sitting representative of the Chinese people even though he had been exiled to Taiwan. Shahi, then Pakistan’s ambassador to the United Nations, said: “We formed a steering committee of thirteen countries. On the eve of the debate George H. W. Bush, who was US ambassador to the UN, came to me and said, ‘Agha, don’t kick out Chiang Kai-shek.’ I sent a cable to our ambassador in Beijing, saying, ‘Look, it’s touch and go, some people are recognizing the People’s Republic, some are sticking with Taiwan. Tell the Beijing delegates to step up the diplomatic lobby.’ ” The following day Shahi’s side won the vote and the People’s Republic of China joined the UN for the first time.

General K. M. Arif also recalled the special relationship.47 “Outwardly we are very different. They are a godless society with no free market or elections. But I cannot think of a single incident over the last fifty years where China interfered in the internal politics of Pakistan or vice versa. China gave freely with no strings. No money was paid for this assistance until President Zia went to China in 1977 and said, ‘We are grateful but we should be charged.’ China said, ‘No, Mr. President, we cannot forget the assistance you gave us when we were out of the UN. We were alone and you helped us.’ ”

British and American suppliers had cancelled contracts and the US Congress had reimposed sanctions on Pakistan two days after Bhutto was hanged, finally triggering the Symington amendment which barred aid to countries illicitly enriching uranium. “We are sorry because we needed only six more months,” wrote Khan, feeling the pinch.

But Khan had a plan B. Sensing a time when foreign parts would dry up altogether, he had been ingenious, fitting out machine shops at Kahuta to reverse-engineer centrifuge components based on the ones he had already bought in Europe, using design molds provided by his European contractors. Although China could help with raw materials, bomb and missile designs, its uranium enrichment program was based on diffusion, completely different from centrifuge technology, in which it had no expertise. Khan was already on the road to self-sufficiency with a state-of-the-art centrifuge production line and looking forward to the time when Pakistan could even become a supplier. “Afterwards we will sell these things to [North America] and will also obtain your services and will earn the foreign exchange because our price will be half the price from your side,” he wrote to Aziz.

Khan had done it so quickly that everyone was trying to catch up,” remembered Gallucci. “I first heard of Pakistan enrichment in January 1978 when I became a division chief at the State Department’s Bureau of Intelligence and Research. By the time I moved down the corridor to policy planning the following year, Khan was virtually self-sufficient.”

Gallucci was asked to put together a color-coded diagram showing what a Pakistani centrifuge looked like and where each part had come from. “The levels of collusion and professed ignorance among European companies was staggering. Some even had staff based at Kahuta.” Even while the Dutch inter-ministerial inquiry had been under way, the Pakistanis had continued placing orders for Dutch components, including steel tubing from Van Doorne Transmissie, which attempted to export the shipment in July 1979.

Within weeks, Kahuta was front-page news anyway, after two Western diplomats were beaten up for straying too close to the enrichment plant. Pol le Gourrierec, the French ambassador, and Jean Forlot, his first secretary, had decided to follow Gallucci’s lead and take a look for themselves. This time the Pakistani security guards had not reacted so politely. For twenty-four hours General Zia said nothing, before contacting the French government and wryly advising them that “the incident might not have taken place had the ambassador been flying the French flag from the bonnet of the car.” Exasperated, the French responded pettily by refusing to invite Zia to a forthcoming Bastille Day celebration, and as a sign of solidarity the Yugoslav ambassador protested “by taking his official car—flying the flag—up the Kahuta road and driving extremely slowly past the wall protecting the large construction site.” The score-settling theatricals belied the scale of the unfolding crisis.

All imports now ceased. “They are even stopping nails and screws,” wrote a frustrated Khan to Aziz. But thanks to Khan’s ingenuity, it did not matter much as “we are making the inverters and transformers ourselves.” Having been identified as the ringmaster in Pakistan’s nuclear operation, Khan also resumed his habit of writing angry letters to European newspapers and magazines. “I want to question the bloody holier-than-thou attitudes of the Americans and the British,” he railed in one. “These bastards are God-appointed guardians of the world to stockpile hundreds of thousands of nuclear warheads and have the God-given authority of carrying out explosions every month. But if we start a modest program, we are the Satans, the devils.”

Although no decision was taken, when the New York Times quoted a White House official as saying that sabotage or a commando raid were being considered as options to prevent Pakistan from exploding a bomb, Pakistan air force MiG-19 and Mirage fighters were scrambled over Islamabad, while Kahuta was ringed with French-supplied Crotale missiles and anti-aircraft guns. Days later, on 14 August, Aziz wrote to Khan from Montreal to report another debacle. Pakistani scientists living in the US and Canada had been accused of supplying materials to Khan and were under investigation.

US’s diplomatic offensive

In October 1979, Gerard Smith called for one last diplomatic offensive. Pakistan’s foreign minister, Agha Shahi, and General K. M. Arif had been invited to Washington and Smith proposed to sandbag them. Agha Shahi was expecting a warm welcome, convinced that the Afghan coup and the fall of the shah had increased Pakistan’s leverage. But as soon as he and Arif arrived, he realized that all the Americans wanted to talk about was Pakistan’s nuclear program.

Shahi met first with President Carter and then with Carter’s hard-nosed national security adviser, Zbigniew Brzezinski. “I said to him, you are so against proliferation and India has blown up the bomb, so why not give a guarantee to non-nuclear states that they would be subject to a Security Council nuclear umbrella?” Shahi recalled. It was the same request Kissinger had refused point-blank in 1974, and Shahi fared no better. “So, then we had the big meeting,” Shahi said. “On one side of the table there was me, General Arif, Sahabzada Yaqub Khan, our Washington ambassador, and General Jilani, our secretary general for defense. On the US side was Cyrus Vance, the secretary of state, Warren Christopher, his deputy, and more than ten CIA people. I turned to Yaqub Khan and said, ‘They must think we are the Soviet Union.’ ”

Christopher did most of the talking, Shahi recalled. “He told me he wanted Pakistan to sign the NPT [Nuclear Non-Proliferation Treaty]. I said we would sign gladly if India signed. He said, ‘You must sign anyway.’ I said, ‘No. India poses a nuclear and conventional threat to us.’ Christopher said, ‘We want you to give a commitment that you will not transfer this technology to another country.’ I said, ‘We can give this guarantee.’ He said, ‘You must commit not to carry out a nuclear explosion.’ I said, ‘To be frank we have not reached that state of capability but if and when we do, we will consider the pros and cons.’ ”

Cyrus Vance stood and led Shahi into a side room, where he was introduced to Gerard Smith. “I was totally shocked. He was the most formidable US negotiator. Smith said to me, ‘You think you are improving your security but you have no idea how far ahead the Indians are. They can utterly destroy you. Do you know you are entering the valley of death?’ I was taken aback. I said, ‘Mr. Smith, I am at a great disadvantage talking to you, as you are the foremost expert on nuclear weapons. But it seems to me you don’t have to be a nuclear weapons expert to understand the strategic importance of having one. The value lies in its possession, sir, and not in its use.’ ” A terrible silence descended upon the room.

Gordon Corera, “Shopping for Bombs: Nuclear Proliferation, Global Insecurity, and the Rise and Fall of the A.Q. Khan Network”

AQ Khan and Nuclear Bomb : Part VIII : Kahuta Nuclear Plant aka Butter Factory aka Project 706

On 31 July 1976 they gave A. Q. Khan the authorization to construct his own enrichment facility, the Engineering Research Laboratories. They also gave it a codename: Project 706.

Khan set himself a seven-year deadline to build a bomb. To meet it, he sought out the brightest technicians, physicists and engineers in Pakistan and ripped apart the scientific establishment to get them, offering unheard-of salaries, perks, pensions and government bungalows. “Some of the heads of the organizations made such a hue and cry [about losing their employees] that it seemed as if the heavens would fall in,” he wrote. Among those he employed were Dr. Farooq Hashmi, a metallurgist trained at Southampton University, who became his deputy director, Dr. Alam, a British-educated computer programmer and mathematician, and Brigadier General Anis Ali Syed, on secondment from the Pakistan army, who became the head of the Special Works Organization, a military unit created to procure equipment for Project 706. Khan often used his hotline to the prime minister to ensure he got the last word, and by the autumn of 1976 the message had got through: Khan was not to be tangled with.

All elements of Project 706 started simultaneously: the building of the main plant at Kahuta, the procurement of essential equipment and materials from Europe, the manufacture of the first prototypes, the establishment of a pilot plant in which to test them, even a weapons design center. Khan had calculated he would need at least ten thousand centrifuges to supply a viable bomb program. He had plumped for the CNOR prototype as it was simpler to build, and since it had been abandoned by URENCO in favor of the G-2 there were dozens of suppliers with vast stockpiles of unwanted components they were desperate to sell. But the CNOR had a design flaw that URENCO had never completely resolved: its bottom bearing, a tiny ball stuck onto a needle and attached to the base plate of the machine’s rotor. The needle supported the weight of the rotor as it spun at up to 70,000 rpm, and to counter the friction a spiral groove, virtually invisible to the human eye, was etched on to the underside of the bearing, which sat in a tiny cup of lubricant. High-definition computer-driven lathes had to etch this groove onto the underside of the bearing, and even a minute irregularity would cause the rotor to tilt and the machine to crash. The exact dimensions of the bearing and its spiral groove had been among the most highly classified secrets at the Almelo plant, and it was clear from letters that Khan now sent to former colleagues at URENCO that he had been unable to obtain these specifications.

It was just another problem on a long list of challenges to surmount. “It was an uphill task with every step being marred by a new set of intricate problems … A country which could not make sewing needles, good bicycles or even durable metalled roads was embarking on one of the latest and most difficult technologies,” he wrote.

A small power station was also constructed to make Kahuta independent of Pakistan’s grid, which was so unstable and overdrawn that during the summer large sections of Rawalpindi and Islamabad were plunged into darkness. Khan also insisted that Project 706 aim to become self-sufficient in manufacturing components, and Brigadier Sajawal was ordered to build machine-tool workshops, ready to house state-of-the-art European equipment capable of reverse-engineering centrifuge parts. Aside from the technical sections, Kahuta also needed guard towers, alarm systems, a paved road wide enough for trucks, communications, staff facilities, guest houses for visiting scientists. Brigadier Sajawal estimated that the basic infrastructure alone would take three years to finish. So, while his men bulldozed, Khan and his small team of scientists worked on designing a Pakistani prototype centrifuge (which they called the P-1)

Griffin, who would become inseparable from Khan, supplying machines, parts and tools to him for two decades, recounted how, in the summer of 1976, when he was a young sales manager at a Swansea-based machine-tool supplier called Scimitar, he received a phone call that would change his life. For Abdus Salam, the Pakistani-born businessman on the other end of the line, it was a misdial. He had been looking for the British office of US machine-tool giant Rockwell International, which helped make NASA’s space shuttle, but instead got the UK agent of its power-tool division in Wales. Nevertheless, the conversation that followed led to an introduction to Khan. Griffin said: “Salam wanted £1 million in Rockwell power tools. Top-of-the-range, US-made equipment. One million pounds of it. Of course I could do the deal even though I was not Rockwell. We agreed to meet in London.” There, Salam revealed that the equipment was for a “brilliant young Pakistani scientist” called Abdul Qadeer Khan, who was “trying to help his country industrialize and enter the modern age.”

There were often loyalties at play beyond Griffin’s comprehension. Once, when he tried to convince Khan to stop buying laser rangefinders from China which were actually manufactured by Israel and would have been far cheaper sourced directly from there, Khan had refused. “No, we import them from the Chinese,” he said. “The Chinese are our friends.”

The Pakistanis sometimes referred to their burgeoning network as “Operation Butter Factory,” a name that harked back to the 1960s when Albrecht Migule had built a margarine factory for the son of General Ayub Khan. Khan, Butt, ul-Haq and other ISI agents mentioned this in-joke in their correspondence, describing enriched uranium as “cake,” “sweets” or “biscuits,” the end product produced from the “butter” or UF6 that Migule had helpfully provided by building the fluorine and uranium conversion plants. But on the ground, Khan’s men made very little attempt to cover their tracks, preparing contracts that stipulated delivery directly to the Director General, Special Works Organization, Rawalpindi, and handing out checks from government accounts held at the National Bank of Pakistan.

One reason for this openness was that Khan knew that Europe had no idea what he was up to. Because centrifuge technology was so new and poorly understood, the checks and balances that should have been triggered by the trade failed. Most of the components Khan requested were not on any IAEA list of nuclear-sensitive equipment and were not subject to any European export controls. Even though some of the components were vast, among them a complete gasification and solidification unit (to feed UF6 gas into the centrifuges and then transform it back into a solid form) which required three Hercules C-130 transport planes to get it to Pakistan, most sales were vetted and approved by Europe’s governments.

Greed, lax custom inspections, an overly bureaucratic IAEA, governments’ pursuit of their national interests, and antiquated legislation were all being exploited ruthlessly, and clearly Western governments and suppliers underestimated Pakistan. Dr. Shafiq, whose father was busy building centrifuge halls as components came flooding in, reflected: “Everything came from the UK, Germany and France and was openly transacted. The companies would tell their governments, ‘These silly buggers in Pakistan want to spend billions’ and their governments would say, ‘If these silly buggers have got the cash then let them have it.’ We would say vacuum pumps; we need them for oil and gas, etc. But it was all going to Kahuta.” Later, when he had all he needed, Khan openly agreed: “The Western world was sure that an underdeveloped country like Pakistan could never master this technology”

In Pakistan, things appeared to be going so well that in 1976 prime minister Bhutto ordered test tunnels to be constructed at two locations in western Balochistan, five in the Ras Koh range on the Balochistan plateau, and one beneath the sands of the Kharan Desert, a hundred miles to the west. Brigadier Muhammed Sarfaraz, chief of staff at 5 Corps, oversaw the building work along with Brigadier Sajawal. At Kharan, they constructed a vertical shaft 300 foot deep with a 700-foot horizontal tunnel leading off the bottom. In Ras Koh, five horizontal tunnels were bored directly into the side of a mountain. The tunnels were designed in the shape of a double “S” so that if a bomb was detonated, the explosion would move the mountain outwards and the tunnel would collapse inwards. Each one was capable of withstanding a 20-kiloton explosion explosion, the same magnitude as the bomb dropped on Nagasaki. Completed in 1980, the tunnels would be sealed until Pakistan was ready.

Despite all the activity at Kahuta and Ras Koh, the international community was oblivious to Pakistan’s uranium enrichment plans, going all out, instead, to block its ongoing deal with France on the reprocessing plant, which it viewed as a prelude to the production of a plutonium bomb. Straining to see what Pakistan was up to, the State Department put Robert Gallucci, a young official in the Bureau of Non-Proliferation, on to the case. He rummaged around in all the classified material he had access to and concluded that “Pakistan’s nuclear industry is not particularly worrisome now” as the Islamic Republic was “at the beginning of its nuclear development.”

US secretary of state Henry Kissinger had tried to head Bhutto’s nuclear ambitions off course during a meeting in New York in 1976, offering him a strange deal. Bhutto was to terminate his reprocessing project in favor of a US-supplied facility that would be located in Iran and be made available to all countries in the region. But Bhutto rejected the offer and, fearing that Pakistan was about to proceed to the next stage of plutonium production, the US Senate proposed an amendment to the 1961 Foreign Assistance Act to block economic and military aid, threatening to cut off Pakistan’s annual $162 million US aid package. Bhutto was not rattled. The noise from the US Congress suited him fine, as he had no intention of going ahead with the costly reprocessing plant and was concentrating his energies on Project 706. “Bhutto himself was of the view that the work at Kahuta laboratories should be kept concealed from the world by focusing attention on the purchase of the reprocessing plant,” recalled Kauser Niazi, his information minister.60 Always on the lookout for cost efficiencies, Bhutto also hoped that if Pakistan was seen to abandon its reprocessing plans under American pressure it would not have to compensate the French when it finally pulled out of the deal.

[while Bhutto was under incarceration after Zia’s coup] Somehow, the exasperating CNOR centrifuge whose exacting design had made it so difficult to reconstruct in Pakistan was now up and running at the Sihala pilot plant. Khan was even preparing to introduce UF6 gas into the centrifuge chamber and to attempt, for the very first time, to enrich uranium. It was remarkably rapid progress for a man who just two years before had been a translator at the FDO lab in Amsterdam, and a solace for Bhutto as he awaited his fate.

Excerpted from “Shopping for Bombs: Nuclear Proliferation, Global Insecurity, and the Rise and Fall of the A.Q. Khan Network

AQ Khan and Nuclear Bomb : Part VII : Abdul Qadeer Khan enters the picture

In 1965, [Abdul Qadeer] Khan scored his first lucky break when Delft accepted him for a master’s program in metallurgy. Professor Dr. W. G. Burgers, an internationally respected theoretical nuclear physicist, was assigned as Khan’s tutor. With his patronage, Khan mounted a series of small research projects, every one of them later documented by the ISI in search of the real Khan. He did not shine. But he did not fail. Above everything else, Khan was thoroughly charming.

He also took it upon himself to defend Pakistan. The ISI found scores of letters written by him to European newspapers and magazines that he felt had misrepresented the Islamic Republic. In reality he was desperate to go home, and in September 1965 he returned to look for work at the newly opened People’s Steel Mill in Karachi. [However] Khan’s application was rejected.

The couple returned to Europe and in 1968 he won a research scholarship to the Catholic University of Leuven in Flanders, Dutch-speaking northern Belgium. Brabers remembered Khan being particularly disturbed by the 1971 war over East Pakistan, which he followed obsessively on television news. However, despite making many applications, Khan still found that no work was forthcoming from Pakistan.

His luck changed in March 1972 when FDO, a Dutch engineering firm based in Amsterdam, contacted Professor Brabers, looking for a metallurgist-cum-technical translator. Leuven’s metallurgy department was well hooked into the European scientific community and Brabers was frequently called upon to match promising young graduates to specialist jobs. This time he thought of Khan. A job that required superficial scientific knowledge but a linguist’s brilliance played to Khan’s strengths, and Henny pressed her husband to take it. In fact, FDO supplied parts and expertise to Ultra Centrifuge Nederland (UCN), the Dutch partner in the URENCO uranium-enrichment consortium. UCN’s plant in Almelo, an unprepossessing town on the Dutch–German border, was running one of the most secretive projects in Europe.

First, Khan had to get through the security screening. An expatriate Muslim from a South Asian country known to be in pursuit of a bomb, Khan should have stuck out like a sore thumb. However, the BVD, the Dutch security service, was bombarded with positive testimonies. Professor Brabers praised his student. The head of FDO’s metallurgy department, who had studied with Khan at Delft, provided a glowing reference which noted Khan had been in the West for eleven years, had two young children and planned to settle permanently in Holland with his Dutch wife. According to extracts from the BVD report, the original of which vanished in 2006, Khan’s former student colleagues telephoned FDO officials to assure them that he was intent on becoming a naturalized citizen.

Even though the BVD ran a background check, it failed to discover that Henny, whose Dutch nationality was used to back Khan’s naturalization claim, was not Dutch at all. She was a Dutch-speaking South African with a British passport, which should have disqualified her as his referee. After FDO assured the BVD that Khan would be working only in low-security departments at their Amsterdam headquarters and not at the top-secret centrifuge project in Almelo, the intelligence service approved limited clearance, rubber-stamped by the Dutch ministry of internal affairs. The Khan family moved into a house at Badhoevedorp, in Amsterdam’s southwestern suburbs, in May 1972.

However, within one week of starting work, FDO disregarded the clearance levels awarded Khan and sent him on a two-day visit to the Almelo plant to “familiarize himself with general procedures.” Khan later told friends he found the scientists there operated in a decidedly “free atmosphere.” The centrifuge hall was housed in the same building as the staff toilets and the coffee shop. As Khan chatted with scientists on 8 and 9 May 1972 he learned exactly what they were doing.

Only four countries, China, Russia, France and the US, were then able to enrich uranium. They did it through diffusion, an expensive and complicated process involving highly corrosive substances and a sophisticated facility, where all the pipes and pumps had to be manufactured from nickel and aluminum alloys, and the entire installation kept free from grease and oil, so as to avoid undesirable chemical reactions.However, at Almelo, scientists had invented the first working prototype for gravitational or centrifuge separation of uranium isotopes. Known as the CNOR, this centrifuge had achieved enrichment levels of 3 percent, enough to fuel a commercial nuclear power plant. This was the same level as was produced by diffusion, but for a fraction of the cost. Although URENCO scientists had never tried it, they calculated that if enriched uranium-235 from the first centrifuge was fed into another, and then into a third, moving on through an entire cascade of interconnected centrifuges, it would eventually be possible to enrich it to the critical mass needed for a bomb.

Khan could barely believe what he was hearing. Returning to FDO’s offices in Amsterdam, he began corresponding with Almelo’s scientists on a weekly basis—chatty, friendly letters that sought, and found, common ground. Within months, they were telling him of their problems with the CNOR’s rotors. The metal arms bent backwards as the centrifuges picked up speed, puncturing the skin of the centrifuge casing, sending shards of metal flying, destroying all around it. Khan suggested that research he had conducted at Leuven into the stresses absorbed by hardened steels was exactly the kind of expertise they needed.He made himself appear invaluable and soon found himself conducting metallurgical research on the Dutch prototype (even though he was barely qualified). The Almelo scientists sent Khan classified design plans and lists of the specialist firms supplying the components. Khan had eased his way into one of Europe’s most closely guarded secrets.

He tried to tip off the Pakistan government. Late in 1972 he approached two Pakistani scientists who were visiting FDO, ostensibly to buy a wind tunnel. They exchanged a few pleasantries but Khan was unable to get them alone. Unbeknown to Khan, the two men were on a mission of their own which involved them having to steer clear of all other Pakistani nationals: shopping on behalf of the Multan project, sourcing parts for a plutonium bomb. Uranium was not on the agenda as far as they or Bhutto was concerned. Khan would have to think again.

He bided his time and mined more information. Then, eighteen months later, in May 1974, he saw footage of the Indian nuclear tests on television. Incensed by the West’s reluctance to come to Pakistan’s aid, Khan immediately wrote his fateful letter to the prime minister, and to his surprise received word back in September that Bhutto wanted his help. Despite being called home, a canny Khan suppressed his excitement and insisted on allaying suspicion by staying put until Christmas, when all of FDO’s staff took annual leave.

Over  the next three months he used his time wisely. Khan learned that a new project was under way that had so thrilled the URENCO directors that all available personnel personnel had been diverted to work on it. German scientists had made a major breakthrough with a prototype centrifuge, the G-2. It was far more sophisticated than the CNOR, could spin faster and for longer, and the blueprints and technical data had been sent over to Almelo for assessment. Such were the expectations for this new centrifuge that the CNOR prototype which had caused so many problems had been ditched altogether. Khan was determined to get his hands on the G-2 material.

To steal blueprints for such a sensitive scientific breakthrough should have required an audacious act of industrial espionage—if it were possible at all. But it turned out to be easier than Khan expected. The G-2 data had arrived written in German and most of the Almelo scientists could only read Dutch and English. As a technical translator with fluent German, Dutch and English, Khan volunteered his services. Anticipating espionage, the Germans had separated the G-2 report into twelve sections, with instructions that they be distributed to staff on a need-to-know basis and in pieces so that no one person saw everything. Khan was given the two least sensitive sections to translate, the “G-2 working instructions.”

Khan managed to persuade his colleagues that he should transfer to Almelo so that he could query anything he did not understand. Space was tight, but in October 1974 Khan was given a desk in Almelo’s final planning and design work section, a temporary building set aside from the centrifuge facility. Among UCN scientists the section was known as the “brain-box” and everyone working there assumed that everyone else had top-secret clearances. “A number of security measures were of course in operation, such as the locking of doors and desks and the need-to-know principle, but among staff members concerned there was an open atmosphere, since the problems on which they were working were all interrelated,” a subsequent inquiry concluded. Khan shared an office with someone who was translating the pages of the classified G-2 report that preceded his own. This man later admitted to investigators that he was away from his desk for long periods of time, giving anyone in the room ample time to read the material he had left on his desk.

Over the course of three weeks, Khan scribbled away in a small black notebook, copying down secrets. He need not have bothered, because eventually he was able to read the whole report. He learned that it was being sent to FDO’s offices in Amsterdam for typing, since “there was only one typist available to the staff of the brain-box” and she did not have the time to do the job.Khan, who had already charmed the FDO typists by regularly bringing them boxes of sweets and cakes, returned to Amsterdam, talked them into handing it over, and copied it all down.

In December 1974, Dr. Abdul Qadeer Khan, Henny and their two children left for Karachi—as he had advised the Pakistani government he would.He patiently explained to Bhutto how centrifuge technology could be developed at twice the speed of the existing plutonium program being run by PAEC. It was also much cheaper. India’s nuclear budget in 1974 was $130 million, and to date New Delhi had spent $1 billion on its plutonium program. Khan presented a back-of-the-envelope calculation. Using the CNOR or G-2 prototype, the blueprints for both of which he had managed to copy, 180 kg of natural uranium was needed to produce 1 kg of uranium-235 enriched to more than 90 percent. URENCO scientists were feeding UF6 through the centrifuges twelve to fifteen times in order to achieve 3 percent enrichment. Khan estimated that if the same UF6 were to be reintroduced into the centrifuges sixty-five or seventy times it would be possible to reach 90 percent enrichment in fifteen days. Each nuclear weapon typically contained about 15 kg of highly enriched uranium, which meant that at a market price of $22 per kg for raw uranium it would cost Pakistan only $60,000 to manufacture enough fissile material for a bomb.

Bhutto was staggered. But the real beauty of Khan’s plan was that Pakistan would not even need to source raw uranium oxide on the open market, since Khalid Aslam, a geologist at PAEC, had discovered a vein in the foothills of Pakistan’s Suleiman mountain range in 1963 and the country had an enormous stockpile.

Bhutto was sold on the plan but also asked his chief scientific advisers to check out Khan’s claims. Bhutto had read the ISI report and could see that Khan was a man capable of credible fabrication. He instructed PAEC chairman Munir Ahmed Khan to interview A. Q. Khan, who informed him about the correct method of procuring nuclear technology. The meeting went badly. Munir Ahmed Khan was not accustomed to being lectured by anyone, especially a forty-year-old expatriate with scant scientific qualifications. According to friends and colleagues, this first discussion set the tone for a rivalry that would span both their careers. And when A. Q. Khan was called back for a second meeting with his prime minister he did his best to undermine the PAEC program.

The plutonium route might take more than two decades, A. Q. Khan told Bhutto, describing the PAEC project as a “white elephant.” Bhutto was already aware of how difficult and costly it had been for Pakistan to negotiate the purchase of a reprocessing plant from France (that was still ongoing). Playing on these fears, Khan warned that even if they got the plant, it would be snarled up in IAEA inspections. Centrifuges, however, could be constructed, unobserved, with components available on the open market. No one outside Pakistan need know. Khan piled on the pressure and he did it in a ruthless fashion. He told his prime minister: “Munir and his people are liars and cheats. They have no love for the country. They are not even faithful to you. They have told you a pack of lies.”

Bhutto could deal with Khan’s ambition and his aggression, he thought. The prime minister concluded after this second meeting: “Khan is the only man who can fulfil my dream of making Pakistan an atomic power.” Khan was instructed to take his family back to Holland and keep his head down. He was told to gather all he could about the German breakthrough in centrifuge design, while Munir Ahmed Khan was asked to begin researching the building of a uranium enrichment plant.

Excerpted from “Shopping for Bombs: Nuclear Proliferation, Global Insecurity, and the Rise and Fall of the A.Q. Khan Network

AQ Khan and Nuclear Bomb : Part VI : Some Background

In the 1960s Pakistan had regarded itself as Washington’s “most allied ally” as a result of a trick of geography. [Whenever Pakistani military is at the helm, Pakistan ends up being a dog of US _  “most allied ally”]  Pakistan had forged numerous military pacts with a US that feared Soviet expansion in the Middle East and Asia.  However, in recent years the US–Pakistan relationship had become strained. Washington had grown to doubt Islamabad’s sincerity. A classified memo written for the director of the CIA had catalogued a list of complaints. “Over the past several years the government of Pakistan has taken a long series of actions that have been counter to US interest,” it bemoaned. Islamabad had failed to honor America’s request to send troops into Laos in 1962 and also had declined to “give good publicity to US military exercises” in 1963. The US also suspected Pakistan of making “secret understandings” with the Chinese premier, Chou En-lai, in 1963 and 1964.

On 18 May 1974, India had conducted an unauthorized nuclear test deep below the western deserts of Rajasthan. It had done so by betraying the trust of its sponsors in the West and the East. New Delhi had secretly designed and armed its bomb using technologies sold it by the world’s established nuclear powers (the United States, United Kingdom, France, China and the Soviet Union) on condition that this knowledge was shared only to meet India’s energy needs.

Pakistan felt as if it been duped, as well as eclipsed, outwitted and shamed, by an action that seemed to prime minister Bhutto to confirm India’s claim to regional supremacy. Islamabad had to reply. But the science was far beyond Pakistan’s capabilities and the trade in the components required to put a nuclear program together would now be policed with extra vigilance by the four nuclear states that were signatories to the 1968 Nuclear Non-Proliferation Treaty (the US, UK, France and the USSR), which forbade the sale of nuclear weapons technology. Anticipating a nuclear arms race in South Asia, the United Nations’ nuclear watchdog, the International Atomic Energy Agency (IAEA), based in Vienna, would redouble its efforts, making Pakistan’s task that much harder.

Bhutto sought a diplomatic solution, sending Sahabzada Yaqub Khan, Pakistan’s ambassador in Washington, to lobby for a nuclear umbrella—reassurances from the US that it would act as Pakistan’s security guarantor against at attack. As predicted, secretary of state Henry Kissinger was cold to Bhutto’s request. Kissinger argued that if the US gathered up Pakistan in its nuclear folds, it would have had to do the same for other countries in the region, some of whom were far less desirable allies, such as North Korea. Kissinger told Yaqub Khan that India’s bomb test was “a fait accompli and that Pakistan would have to learn to live with it.”

Pakistan’s nuclear project consisted of the grand-sounding Pakistan Atomic Energy Commission (PAEC) and was run by Dr. Nazir Ahmed, a scientist who had previously worked in the country’s cotton industry. However, it took Bhutto some time to locate Ahmed, whose operation was in reality nothing more than a small office on the top floor of the main post office in downtown Karachi. By 1958, the only thing PAEC had achieved was to open a high-energy physics lab at Karachi’s West Wharf, where ten scientists conducted random experiments the purpose and results of which remained obscure. It was “no more than a signboard on an office. It was only a name,” Bhutto moaned.

He began transforming PAEC, “with granite determination,” sending hundreds of Pakistani scientists to the US for training under an Atoms for Peace exchange. He also brought into the program Dr. Ishrat Usmani, an atomic physicist who, together with Bhutto, set out to buy all that America had to offer, using US aid money to fund the purchases—a plan that would be mirrored many times over in the years to come. By 1961, PAEC had a nuclear research center, in Lahore. Two years later it assembled a 5 MW research reactor at Nilore, near Islamabad.

On 20 January 1972, several weeks after Pakistan’s humiliating defeat at the hands of the Indian army in Dacca, Bhutto called together his most eminent scientists. They convened in Multan, a city of shrines and saints in the southern Punjab, and sat shaded from the winter sun by a shamiana, a multicolored canvas awning, in the gardens of the home of Nawab Sadiq Hussain Qureshi, a wealthy landowner close to Bhutto. Agha Shahi, who was then Pakistan’s ambassador to China, recalled: “The meeting was shrouded in secrecy…”

One of those invited to attend was Samar Mubarakmand, a junior scientist who would go on to play a crucial role in Pakistan’s nuclear test twenty-six years later. He remembered being held rapt by the prime minister, who vowed to restore Pakistan’s pride. Bhutto told them that fate had placed him in a position where he could make decisions that would lead the country into the nuclear arms race. “Can you give it to me?” he asked, referring to the bomb. Mubarakmand recalled the shocked silence: “We were absolutely dumbfounded.” According to most estimates Pakistan was at least twenty years behind India, and Dr. Ishrat Usmani, the PAEC chairman, remembered inserting a note of caution: “Pakistan just didn’t have the infrastructure for that kind of program. I’m not talking about the ability to get 10 kg of plutonium. I’m talking about the real infrastructure. Pakistan totally lacked a metallurgy industry. But if you’re playing political poker and have no cards, you have to go on betting.”

Bhutto repeated his question: “Can you give it to me?” Some of the younger scientists jumped to their feet, tired of the ponderousness of their older colleagues. “Yes, it would be possible,” one of them, Sultan Bashiruddin Mahmood, shouted. He would go on to dedicate his career to working on Pakistan’s nuclear weapons program with a zealotry that would eventually bring him close to Osama bin Laden and into collision with the US. Bhutto fired back: “But how long will it take to build a bomb?” When Bashiruddin mumbled, “Maybe five years,” Bhutto thrust three fingers into the air. “Three years,” he said. “I want it in three.”

Others tried to introduce a note of caution. “It isn’t like making firecrackers, you know,” one scientist piped up. “We don’t know how long it will take. It’s all nonsense. It cannot be done that way.” But the younger and more idealistic in the gathering joined in a chorus of “Anybody can make a bomb.” One of those leading the clamor for a nuclear device was Sulfikar Ahmed Butt, who within a few years would become procurement manager in Europe for the as yet unknown A. Q. Khan. Butt shouted out: “It can be done in three years.”

Bhutto smiled. “Well, much as I admire your enthusiasm, this is a very serious political decision, which Pakistan must make, and perhaps all Third World countries must make one day, because it is coming. So can you do it?” Everybody present agreed to agree that Pakistan could do it, given sufficient resources and facilities. Mubarakmand remembered: “At that conference we really swore to make nuclear weapons. We knew it would be a great odyssey as at the time of partition from India there were hardly any scientists or engineers in our country … At that time we lived under embargoes. No one would give us literature, hardware, components, technology. For everything we had to struggle. We had to work under adverse circumstances and we took it up as a challenge. We thought, ‘OK, you cannot do it for us, we shall show you how to do it.’ ”

Bhutto brought the meeting to a close. Just hours later, he left on a whirlwind tour of Islamic countries that Pakistan intended to ally itself with, including Iran, Saudi Arabia and Libya.32 Bhutto was keen to create some distance from the “super-power shikaris” (big-game hunters), as he described Pakistan’s backers in the West. On tour, with his hat out for cash, he landed in Tripoli where he met Colonel Muammar Gaddafi. What struck Bhutto, after all the cold political maneuvering of the Americans, was the spontaneity of the greeting from the Libyan leader, who planted a kiss on both his cheeks as they stood on the tarmac. Gaddafi promised to give Bhutto whatever he needed to develop the bomb, before Pakistan’s prime minister carried on to tour the Middle East, where yet more sponsors were procured. At the end of the trip he called on Chairman Mao in Beijing, whom he had been wooing since the early 1960s. The friendships forged on this tour would be critical in rewriting Pakistan’s strategic partnerships, and from these alliances would emerge sponsors in the nuclear weapons field and also, in time, a ready market.

However, more than two years on, nothing had been achieved on the nuclear front. A team at PAEC had pursued the plutonium route and got nowhere with it, and was still arguing with the international community over terms for the purchase of a French reprocessing plant.

Excerpted from “Shopping for Bombs: Nuclear Proliferation, Global Insecurity, and the Rise and Fall of the A.Q. Khan Network

AQ Khan and Nuclear Bomb : Part V : The Malaysian Connection

Reads as if right out of Frederick Forsyth novel.

In London, the intelligence community’s concerns about A. Q. Khan were so intense by 2002 that he became the topic of discussion at a Wednesday afternoon meeting of the joint intelligence committee (JIC) at the Cabinet Office in Whitehall, the forum in which the combined British intelligence services met to discuss the most pressing threats to the UK. In March 2002, the British intelligence community was asked to provide a detailed assessment of everything it knew about Khan and Pakistan’s proliferation activities. It was two years since the JIC had last discussed the subject. Having decided to do nothing in 2000, what was then an “incomplete picture of the supply of uranium enrichment equipment to at least one customer in the Middle East, thought to be Libya,” had evolved by 2002, on Musharraf’s watch, into a “widespread network” based in Dubai and assisted by “certain African governments”—the ones Khan had visited in 1998, 1999 and 2000 under the guise of fixing up the Hendrina Khan Hotel. Khan had also “established his own production facilities in Malaysia,” which were being run by “a network of associates and suppliers,” led by B. S. A A. Tahir, Khan’s Sri Lankan protégé.

Calling in intelligence from abroad, the JIC found that Khan had made forty-four visits to Dubai since Tahir’s wedding in June 1998, an event at which, the British officials were informed, Khan had fixed his plan to move out of Pakistan, to Dubai, Southeast Asia and Africa. In fact, as Peter Griffin recalled, Khan had been in Dubai since the 1970s, and what the British had spotted was simply an intensification of his activities there. Although the British were still unclear as to the range of customers being supported through this newly revived network, several of Khan’s original suppliers were being followed by the security services, including Peter Griffin, a Dubai resident since 1997, where he had established Gulf Technical Industries (GTI) to import and export engineering parts and machine tools.

By 2002, Griffin knew he was being trailed, but claimed his business with Khan had all but ceased. “They were following the wrong man,” recalled Griffin. “It was Tahir who was up to his neck in it.” Tahir had come a long way from sleeping on the floor of his uncle Farouq’s apartment, helping run the family fruit and vegetable business in a corrugated hut behind Dubai’s Nasser Square. By 2002 his firm, SMB Computers, was booming, with more than 200 employees, and the day-to-day business was being run by his brother Saeed Buhary, while Tahir used SMB as a cover to supply Khan’s proliferation operations in Libya, Iran and North Korea.He also had a new manufacturing base.

Tahir’s relationship with and subsequent marriage to Nazimah Syed Majid, a Malaysian diplomat’s daughter, had brought him influence, respectability and permanent residency in Malaysia. The year before they married she had introduced him to Kamal Abdullah, the son of Malaysia’s future prime minister, Abdullah Badawi. Kamal owned SCOMI, an up-and-coming petroleum and gas company which had yet to find its feet, and in 1997 Tahir helped SCOMI rise, buying a 25 percent stake as a silent partner. In December 2000, Kamal asked Tahir to join his venture capital business, Kaspadu. All the while the patient Tahir was edging closer to his real goal, establishing a manufacturing front in Malaysia. Tahir and Kamal had much in common. After thirteen years in Dubai, Tahir had learned a lot about the oil and gas industry, and by 2000 SCOMI was riding high on the Malaysian stock exchange, and looking for new investment opportunities. Tahir had a few ideas—that would work for him and also for his mentor in Pakistan.

Khan needed to supply Libya, Iran and North Korea with nuclear-related components which were increasingly difficult to source in the West, where customs authorities immediately investigated any shipments connected to KRL and Pakistan. He could make most of these things at the KRL workshops, but getting them out of Pakistan was also problematic. Malaysia was virgin territory. With no nuclear program, it was ignored by the IAEA and had virtually no laws against the manufacture and export of dual-use components that could be deployed in a nuclear program. Malaysian engineers were adaptable and had a reputation for being able to copy anything cheaply and reliably. Shoes, Sony Walkmans, or centrifuges, it was all the same to them. It was the perfect location for the kind of low-key operation that Khan needed.

In December 2001, Tahir approached SCOMI with a formal business plan, a precision-engineering plant to manufacture aluminum components for oil and gas producers in Dubai. Tahir had identified a disused plant in Shah Alam, an industrial town fifteen miles north of Kuala Lumpur, where skilled labor was cheap and space was plentiful. Engineers from Europe were ready to fit it out and Tahir had negotiated for a German company, Bikar Metal, to supply top-grade aluminum. The plant would produce fourteen components to European standard but for a much cheaper price. Tahir had negotiated with two companies to handle the export side of the business. The Aryash Trading Company would dispatch goods from Malaysia and Gulf Technical Industries (GTI), Peter Griffin’s company, would receive them in Dubai, something Griffin said he knew nothing about.

In December 2001, Tahir established SCOMI Precision Engineering (SCOPE), in which Kamal Abdullah, the deputy prime minister’s son, was a partner. Tahir brought in Urs Tinner, a Swiss technical consultant and son of Friedrich “Fred” Tinner, the former export manager of a Swiss firm that had supplied vacuum pumps for Khan’s uranium enrichment plant as far back as 1977. Urs Tinner went to work fitting out the new Shah Alam factory, importing precision-engineering equipment from the UK, USA and Taiwan through Traco, Switzerland, a company owned by his brother, Marco Tinner.

Urs Tinner also brought with him European blueprints for the aluminum components the factory was to produce. Workers at the plant noted that he was always careful to take back the technical drawings once they had copied them down. But no one was suspicious, as they were told the factory was manufacturing components for the petroleum industry in Dubai and Tinner was only advocating caution to protect European patents. But unbeknown to the manufacturing line in Shah Alam, to Kamal Abdullah and the upper echelons of Kuala Lumpur society, Tahir was producing dual-use components for the illicit nuclear weapons industry. With Malaysia as the point of production, Swiss engineers running the factory, German and Swiss companies supplying the raw materials, and not a Pakistani name in sight, it was invisible to the intelligence community.

Tahir was prescient. He had shifted to Malaysia just in time. In October 2001 the British courts moved against his UK business partner Abu Bakr Siddiqui, prosecuting him for evading export restrictions and shipping nuclear-related equipment to Pakistan. Bakr was sentenced to a twelve-month suspended sentence with a £6000 fine; SMB Europe was dissolved and Tahir turned his back on the UK.

Excerpted from “Shopping for Bombs: Nuclear Proliferation, Global Insecurity, and the Rise and Fall of the A.Q. Khan Network