By Mirwais Harooni
KABUL (Reuters) - The Afghan government has canceled a multimillion dollar real estate contract with the former head of the failed Kabul Bank, who was sentenced to 15 years in jail for embezzlement last year, after an outcry over his involvement in the project.
The involvement of former Kabul Bank Chief Executive Khalil Ferozi in the $900 million "Smart City Township", a flagship housing project in the Afghan capital, drew fierce criticism of the government of President Ashraf Ghani when it was revealed earlier this week.
The arrangement was intended to enable Ferozi to pay back hundreds of millions of dollars he still owed to the government after it rescued the bank from collapse in 2010. But it was widely seen as undermining the fight against corruption.
Kabul Bank had to be bailed out by the government in 2010 after racking up losses of almost $1 billion in a scandal that shook confidence in Afghanistan's financial system and exposed widespread corruption among the country's business elite.
Along with Kabul Bank founder Sher Khan, Ferozi was sentenced in November last year to 15 years in prison for embezzling more than $800 million from the bank.
A government official, speaking on condition of anonymity, said Ferozi had been allowed to work during the day to be able to pay off his debts while serving his prison sentence at night.
Ghani said in a statement that the Smart City deal with Ferozi had been canceled, while the sentence against him and others in the Kabul Bank case would be enforced in full. The status of some 34 acres of land he had put up for the project has also been put under review, he said.
Speaking by telephone from jail, Ferozi said the project had already raised $14 million in debt repayments and, if it went ahead, would raise $75 million for the government.
"The land belongs to me but if the government wants to sell it, they have the authority. But if they let the company build the township, from the money I earn, I will pay Kabul Bank's loan back," he told Reuters.
Ferozi's involvement in Smart City Township was branded "outrageous" by Integrity Watch Afghanistan, an anti-corruption watchdog.
"Allowing a convicted criminal to take part in a huge investment project brings Afghan government's commitment to fight corruption under serious question," the group's Executive Director Sayed Ikram Afzali said in a statement this week.
After the government bailout, Kabul Bank was renamed New Kabul Bank and authorities have invited bids for privatization of the new entity.
(Reporting by Mirwais Harooni, writing by James Mackenzie; Editing by Hugh Lawson)