What’s To Become Of Afghanistan’s Mines?

Via Foreign Policy, a look at the future of Afghanistan’s mining sector:

Five days after Sardar Ahmad Khan, his wife, and two of their three children were murdered by teenage gunmen while having dinner in a Kabul hotel on the eve of Nowruz, the Persian new year, I visited a mutual friend, Nader Nadery, to shed tears in his memory. We were struggling to come to terms with the loss of one of the most joyful people we’d known, a journalist and businessman who believed wholeheartedly in a peaceful, modern, and democratic future for Afghanistan.

As we remembered Sardar, Nadery’s phones buzzed incessantly: Family and friends were checking that he was alive, not caught up in a suicide attack on the office of the Independent Election Commission in Kabul’s Karte-Se district that had begun minutes earlier.

Nadery is the head of Afghanistan’s Free and Fair Election Foundation, an independent watchdog group. This makes him a prime target for the Taliban as it strives to ensure that the presidential election scheduled for Saturday, April 5 does not take place, or at least is so severely disrupted that any outcome will not be credible. Violence in Kabul has reached levels not seen since 2009, the last peak in the war. Suicide attacks and targeted murders are taking place across the country daily.

Regardless of who is declared the winner of this year’s election, Afghanistan’s future is tenuous. The main source of legitimate revenue that the government and its supporters in the international community have touted as the financial bedrock of post-war development — international mining contracts — appears to have vanished.

Without an alternative to the military support and international aid that have flowed since the Taliban were ejected in 2001, Afghanistan risks becoming a failed state. Already rated by Transparency International as one of the world’s most corrupt countries, Afghanistan could see its economy controlled by warlords and its resources sold off to neighboring states, the proceeds funding terrorism.

While that scenario draws a long bow, the conditions have been set. The two major mining contracts that Afghan authorities have struck with international consortia are in question as the state-controlled China Metallurgical Group Corporation (MCC) seeks to renegotiate a $3 billion deal to mine copper. Now that the commodities boom has ended, MCC’s initial commitment no longer looks attractive. The concomitant impact is likely to be the scuppering of India’s as-yet-unsigned deal, worth more than $10 billion, to mine iron ore at Hajigak, in the central highlands of Bamian; according to Indian officials, the project was to rely on access to infrastructure that MCC no longer wants to build.

Together, these contracts represented the hope that Afghanistan would be able to bankroll post-war development once U.S. and NATO combat forces withdraw at the end of this year. Afghanistan’s roughly $1 trillion in mineral deposits was meant to largely replace the international support that has marginalized the Taliban insurgency and kept Karzai in power for more than a decade.

The MCC deal for 5.5 million tons of high-grade copper ore at Mes Aynak, southeast of Kabul in Logar province, was generous by mining industry standards. Many experts have expected the company to renege on or renegotiate many of the terms as the copper price has fallen and the Chinese economy has slowed, leaving more than 700,000 tons of copper in bonded warehouses with forward contracts still delivering.

Once the election campaign was in full swing, the Kabul government effectively ceased to function; the mining and finance ministries did not respond to requests for comment. Neither did MCC. Sources close to both ministries, and others involved in mining in Afghanistan said that MCC wants to pare the contract to the bone. Commitments to explore and extract at Mes Aynak still stand, they said, although with no time frame.

MCC no longer wishes to build power-generating or processing and refining facilities, or a railroad. It also wants to cut its $808 million bonus to the government to the $133 million already paid. An agreed royalty of 19.5 percent, about double the norm, is also in contention.

MCC officials recently visited villages near Mes Aynak, telling villagers that it wanted to employ locals to build a road so that the copper ore can be trucked to China. MCC explained the rationale for this, according to villagers at the meetings: As Afghanistan does not produce phosphate, a key ingredient in copper refining, it is more cost-efficient to ship the ore to refineries at home.

The World Bank estimated that the MCC Mes Aynak project “could create 4,500 direct, 7,600 indirect and 62,500 induced jobs and approximately $250 million in annual revenues once the operations reach projected capacity of 250,000 tons per year of copper.” The Hajigak mine, it said, “is estimated to have similar employment and fiscal impacts.” Development of mining would also “be a stimulus to much-needed social and physical infrastructure and technology transfer through the development of professional skills,” it said.

Afghanistan reportedly earns around $100 million a year from mining, though mostly from new contracts rather than royalties.

Javed Noorani, a socio-research specialist with the private think tank Integrity Watch Afghanistan, believes that localized vested interests are taking control of mineral assets, shipping ore worth hundreds of millions of dollars each year to Iran and Pakistan.

The government has neither the will nor the capacity to prevent this seizure of mineral assets, which is depriving the state of revenues and Afghans of jobs, he said. Instead, Afghanistan is seeing the creation of “a shadow state within the state that is capturing the economy, military power and the social base.”

In Kunar province, for example, the provincial branch of the Afghan Local Police, a paramilitary force set up by the Interior Ministry in 2010, has taken control of chromite supplies, shipping 2,000 tons a day to Pakistan, Noorani said. Chromite, used for chrome plating and stainless steel, fetches up to $400 per ton in Pakistan.

In a recent Integrity Watch Afghanistan report, Noorani wrote: “The ALP in the mining sector may be a recipe for a new round of protracted social conflict which may manifest into massacres, ethnic cleansing, mass migration, anarchy and local populations deprived of the economic benefits the mines can provide.”

Similar extra-legal mining activity has been cited across the country, as strongmen, oligopolies, and monopolies take control of mineral resources. As lines are drawn, some groups are likely to side with the Taliban, which could then provide the enforcing muscle for moving the assets across the country and borders, in much the same way they did for the opium lords of the southern provinces. “We will be Congo,” Noorani told me.

As I emerged from Noorani’s office on a cold but blue-sky Kabul day, I looked at the pitted roads, the open drains, and the children in filthy clothes playing by a garbage pile guarded by a mangy ginger cat. The scene raised the question, once more, of where those hundreds of billions of dollars have gone. In the distance, gunfire cracked as the Taliban siege of the Independent Election Commission office, which began hours earlier as I sat with Nader Nadery mourning our friend Sardar, went on.

This entry was posted on Wednesday, April 2nd, 2014 at 4:15 pm and is filed under Afghanistan.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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