Afghanistan's Treasure Trove

US & Afghan Geological Surveys Indicate Diverse Mineral Deposits

Nov 12, 2009

Karzai's government invite foreign investors to bid for fuel exploration and mining contracts as the conflict rages on.

In 2007, Chinese state-backed mining company MCC out bid US, UK and Canadian companies with a $3.5 billion package for rights to mine the Aynak copper deposit in Logar Province south of Kabul. The mine will be the largest infrastructure project in Afghanistan’s history and hopes to create 10,000 jobs for Afghans. An 18 month demining project is currently under way in Aynak co-ordinated by the UN Mine Action Program of Afghanistan to improve safety for locals and to make it possible for the mining project to start construction.

The Future of Foreign Investment

The Afghan government is keen to develop foreign investment and has a host of gas producers lined up to bid for hydrocarbon exploration in the North. Any foreign investment so far has depended on a level of security provided by NATO troops, the Afghan army and nascent police force. 1,500 Afghan police are now stationed at the Aynak site and Chinese technicians are housed within a sand bag walled camp. The US Army’s 10th Mountain Division has also undertaken recent patrols due to the need for heightened security in the area because of a rise in insurgency.

MCC’s bid was state assisted in the form of foreign government aid promised to Afghanistan. During the last eight years China’s contribution to the international effort in Afghanistan has been far less than Europe or North America in terms of aid and nil militarily. But still they are very enthusiastic about getting involved in infra-structure development. A CACI Analyst report describes how the Chinese have been developing bilateral relations with Afghanistan since 2001. Chinese investment interests prior to the Aynak bid include provision of digital phone switches for 200,000 subscribers, involvement in the Parwan irrigation project, the re-building of hospitals in Kabul and Kandahar and various EU contracted construction/road-building projects.

Afghan Abundance

The Preliminary Non-Fuel Mineral Resource Assessment of Afghanistan‎ in 2007 was based on US and Afghan geological surveys and confirmed a treasure trove of minerals and precious stones.

“Afghanistan has abundant mineral resources, including known deposits of copper, iron, ‎barite, sulfur, talc, chromium, magnesium, salt, mica, marble, rubies, emerald, lapis lazuli, ‎asbestos, nickel, mercury, gold and silver, lead, zinc, fluorspar, bauxite, beryllium, and ‎lithium.”

Integrity Watch Afghanistan sponsored by the Norwegian Embassy in Afghanistan conducted a comprehensive study of the Aynak Project in 2007. Afghanistan is a nation with extraordinary resources but little experience of extracting them and IWA are worried that the tender process happened too rapidly for the project to be managed properly. The study's analysis concludes areas of high concern over the MCC development.

“The possible interactions between the Aynak water basin and Kabul water supply will require a very careful attention to avoid negative side effects. At this stage, the environment impact has been identified but not yet approached as a major issue. At this stage, the involvement of local communities has not yet been addressed seriously. “

Improper Suggestions

Said Tayeb Jawad, Afghanistan's ambassador to the United States, stated "We can't afford to give the mining rights to a company that will sit on them for the next 10 or 15 years," as the reason for going with MCC, suggesting that US company Phelps lost the bid because higher security was needed before construction started.

Ibrahim Adel, the Minister of Mines has not been personally implicated and upholds the process was entirely fair.

James Yeager a former adviser to the Ministry of Mines during the Aynak tender has concerns about the independence and transparency of the bidding process. He spent 18 months compiling a 78 page report; a detailed account of how he thinks the process was steered in favour of the Chinese bid and includes several recommendations for future tenders that will safeguard the interests of Afghan people as well as business.

"It is essential that western officials in Afghanistan understand the influence that vast monies, operating under an 'Eastern business model framework can conflict with enlightened Afghan goals for the country,"

Anti-Corruption Measures

Yeager suggests that in future the track record of companies bidding must be diligently investigated before a bid is accepted. This was not allowed by the Afghan Ministry for Mining in the Aynak bid and so MCC’s poor track record of developing a similar mining project in Pakistan was not considered. Yeager also suggests that an independent transaction adviser oversees any future bids and that local public participation must be included from start to finish.

A fundamental flaw of the Aynak bid was the World Bank’s failure to oversee the project past instigation. Any future bids should not be completed without this involvement.

Perhaps investors Chinese or otherwise should also consider the Afghan governments human rights record particularly in relation to women. International condemnation of recent laws legalising rape in marriage and age of consent passed by Karzai’s regime in April 09 have fallen on deaf ears.

Foreign investment is directly linked to progress in Afghanistan but foreign investment deals made by corrupt governments will compromise any advance and deny the Afghan people the jobs and vibrant economy they deserve.

The copyright of the article Afghanistan's Treasure Trove in International Financial Affairs is owned by Lynn Bird. Permission to republish Afghanistan's Treasure Trove in print or online must be granted by the author in writing.