(source; Down to Earth)
International aid has supported the economy of Afghanistan for 12 years. With aid flow gradually declining, the war-torn country will now have to find its own source of revenue. The government pins its hope on the mineral wealth, worth US $1 trillion, underneath the country’s soil. But it has faltered in its first mining project. The minerals can revive the economy only if the government brings transparency into the system and puts robust regulations in place. Arnab Pratim Dutta travels to Kabul to understand the country’s latest struggle to stand on its own two feet
Courtesy: IASF Media
Kabul no longer resembles a city ravaged by three decades of war, civil strife and insurgency. A few minutes after leaving the airport complex as one enters the streets of Afghanistan’s capital city, any notion of the war-torn country begins to fade away. Plush yet Bohemian-styled marriage halls, perhaps inspired by the casinos of Las Vegas, glitzy shopping malls and busy markets greet the curious eyes. What happened to the bullet-ridden mud walls or the shell- punctured roofs, one might ask. The first impression of Kabul has none of that to offer.
As the city begins to introduce itself, it becomes evident that time has healed its wounds. Pul-e Khishti, Kabul’s biggest open-air market, bustles with shoppers and itinerant vendors. Kiosks selling burger and Doner kebab have popped up next to traditional Afghan eateries. Driving with office-goers would mean getting caught up in hours-long traffic snarls.
“Abhi to koi mushkil nehi hain (There is no trouble right now),” Nadim, a taxi driver, remarks in broken Urdu. Nadim is, however, scared to think about the future. Over the next few years, Afghanistan will undergo a couple of momentous transitions. The first is a security transition. Since 2001, after ousting the extremist Taliban insurgents, US forces, supported by the United Nations Security Council, have been maintaining public security and stability for the country’s democratically elected government of President Hamid Karzai. Towards the end of 2014, most foreign troops will pull out of Afghanistan, leaving the law and order and security measures to the US-trained Afghan police and army.
The second is an economic transition. Beyond 2016-17, the government could face massive economic constriction. Being one of the 10 poorest countries, Afghanistan is heavily dependent on foreign donations not just to balance the budget but also to grow the economy. The World Bank estimates that between 2002 and 2010 the country on an average received US $6 billion a year in civilian aid. This is 40 per cent of its GDP, which was $15.94 billion in 2010. Only a few other territories like Liberia, West Bank and Gaza have received more aid per capita than Afghanistan on a few occasions (see
‘Aid flow...’).
A big chunk of the aid goes into rebuilding the war-torn country. In 2011, about $252 million of foreign aid was pumped into developing Kabul. Most of the glitter that one sees in Kabul is built on an economy generated by such aid. But the days of handholding are coming to an end.
The fear is once foreign troops have exited Afghanistan funds for development projects might fall in the wrong hands or be siphoned off. After all, corruption is rampant in the country. According to the 2012 corruption perception index of Transparency International, a global civil society organisation, Afghanistan is among the 10 most corrupt countries. Such is its disrepute that at a conference in Tokyo in July 2012, about 70 countries and donor agencies agreed to make $16 billion available to Afghanistan until 2016-2017 only after the government pledged that it would ensure greater accountability and transparency. Since 80 per cent of the aid would be aligned with the National Priority Programs (NPP), the government had to promise to follow NPP “with a focus on economic growth, revenue generation, jobs and human development”.
Dwindling aid will hit the government finances the most. Most of the foreign aid does not come directly to the government but is spent through implementing partners, such as contractors or civil society organisations. Even this aid does not entirely benefit the country. Much of the aid money goes into the payment of foreigners working in the country or contractors and for outward remittance. In 2010-11, Afghanistan received $15.7 billion in foreign aid, of which the government received only 12 per cent—about $1.2 billion. This constituted 41 per cent of the government’s budget. That year, the government spent about 20 per cent of its budget, or $950 million, for public welfare.
The World Bank reports that “development progress since 2001 has been mixed… Key social indicators, including life expectancy and maternal mortality, have improved markedly (admittedly from an extremely low base), and women are participating more in the economy.” If foreign spending dries up, one of the first things that could be hit is public spending on development projects.
Afghanistan’s mines minister Wahidullah Shahrani is, however, optimistic about the country’s future. In an interview with Down To Earth, Shahrani says mining could be pivotal in turning around Afghanistan’s economy (see ‘Mining’s share...’). He expects that by 2024, monies from mining alone would account for 50 per cent of the country’s total GDP. The government insists that underneath Afghanistan’s soil lie $3 trillion worth of minerals.
Money spinner?
The fact that Afghanistan is rich in minerals is known for about 40 years now. In the 1970s, Russian’s geological survey team for the first time prepared a mineral map of the country. But they never got on to extraction. After the fall of the Taliban, the United States Geological Survey (USGS) sent a team to survey these minerals. An old British bomber aircraft fitted with 3-D mapping capabilities made sorties over areas with mineral deposits in 2007 and prepared a detailed 3-D profile of the reserves. The 3-D profile was ready by 2009 and the following year, USGS announced that Afghanistan’s mineral wealth is worth $1trillion. The list of minerals is exhaustive and includes copper, iron ore, rare earth minerals, gold, oil and natural gas (see map
‘Chock-a-block...’).
Afghanistan now wants the extractive industry to become a substantial revenue generator. It plans 14 major mining projects by 2016 that will generate about $1.5 billion a year. More than 50 per cent of this revenue will come from four projects—copper mines at Mes-Aynak, iron ore mine at Hajigak, oil and natural gas reserves at Amu Dariya and Afghan-Tajik Basin. The Ministry of Mines hopes each of these four projects will generate $200 million or more revenue per year. If everything goes as planned, the country will earn $4 billion per year by 2030, show ministry documents.
The ball was set rolling by a Chinese consortium, Metallurgical Corporation of China (MCC). The Afghan government signed the first mine lease with this company for the Mes-Aynak copper mines in Logar province, about 35 kilometres south of Kabul. This was even before the USGS estimates were known. MCC made big promises. The contract says MCC will build a railway line between the northern and the eastern borders of Afghanistan. It promised $808 million of premium payment even before production starts. It also promised setting up a 405 MW thermal power plant along with a copper smelting unit. As an icing on the cake, company was willing to pay 19.5 per cent as royalty if the international prices of copper stayed high.
Mining would generate close to 500,000 jobs, Shahrani told Down To Earth. “For every direct employment, three others are indirectly employed,” says an official from the ministry. According to statistics released by the Afghanistan’s Ministry of Economy, close to 500,000 employment seekers go without jobs every year. Only 48 per cent of the one-million work-force gets seasonal employment.
The dazzle of revenues has left everybody pushing for mining as a panacea for an economic revival. The government has made it the mascot for the economic growth. Javed Noorani, an extractive industry researcher with non-profit Integrity Watch Afghanistan, says everybody in the country, especially due to media publicity, now thinks that a lot of cash is coming their way through mining. Everybody from politicians to warlords are trying to invest in mining directly or through their cronies. Mining can also bring economic and social benefit to the cash-starved country.
But is that the case?
Hostage to uncertainty
Afghanistan’s first mining project at mes-aynak has set a bad precedent. Will it affect the others?
Mes-Aynak copper mining site holds top-class reserve (Courtesy: Jerome Starkey)
Philippe Marquis and his team of archaeologists are racing against time to salvage and relocate a Buddhist settlement that dates back about 2,100 years. The ancient monastery complex in Logar province spans four square kilometres. Its economy was, perhaps, based on mining and trading copper. “The monastery is surrounded by copper mines. Copper coins found during excavation could suggest whether it was an important trading point along the Silk Route,” says Marquis of DAFA, the French archaeological mission to Afghanistan. His team is salvaging the artefacts and trying to preserve it elsewhere.
Archaeologists believe that the site is the second most important Buddhist site in Afghanistan after the Bamiyan Buddhas, which were destroyed by the Taliban in 2001. But the artefacts will disappear unless Marquis’ team acts fast. The resource that the Buddhist monks exploited to prosper between the 1st century BC and the 8th century AD has been leased to Metallurgical Corporation of China (MCC). The Afghan government hopes to earn $300 million a year as revenue from this reserve, known as Mes-Aynak.
The Ministry of Mines says Mes-Aynak is a top-class copper reserve. It contains more than 240 million tonnes of ore with 2.8 per cent copper content and is valued at $46 billion. MCC’s plan is to extract 60,000 tonnes of ore a day or close to 20 million tonnes a year. But revenues are yet to start flowing into the government coffers. For the past few years the project seems to be going nowhere. It has rather run into controversy.
A mess called Mes-Aynak
In August 2006, the Afghan government invited expressions of interest from international companies for developing Mes-Aynak. By the end of the year, nine companies were selected for bidding. MCC, which promised to invest $3.4 billion in the country, won the bid in November 2007 and inked a deal with the government the following May. Everything seemed to have gone well, but soon allegations of corruption and favouritism towards MCC began surfacing. Mohammad Ibrahim Adel, then mines minister who oversaw the bidding, was accused of accepting $30 million in bribes from MCC during a trip to Dubai in 2007. Mining officials who worked alongside Adel accused him of favouring MCC during bidding. In 2009, President Hamid Karzai replaced Adel, but did not cancel the contract of MCC.
The contract notes that the lease can be called off if mining does not begin within 60 months of signing the deal. MCC missed the deadline in June 2013, but the ministry is yet to act against it.
 There was no transparency in awarding tender forMes-Aynak Mine. Its contract draft is yet to be made public. |
— NIAMATULLAH IBRAHIMI,
AFGHANISTAN WATCH |
 People are afraid that mesaynak- like situation may arise atHajigak Iron Ore mine |
| — SHAIKHZADA, MEMBER, BAMIYAN HAJIGAK SHURA, A COMMUNITY COUNCIL |
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Senior ministry officials confide that the Chinese consortium is now renegotiating the contract. It wants to do away with the promised copper smelter, 400-km railway line and $808 million premium to the government. “It is using lack of phosphate reserves—an essential ingredient in copper smelting—in Afghanistan as an excuse for junking the smelter. It just wants to mine ore and transport it to a smelter plant in Pakistan. This is not acceptable to Afghanistan,” says an official. A senior ministry official has a different explanation for the delay. He told Down To Earth that the contract signed between MCC and the government was only for mining and processing the ore. Since March, the government has been pressuring MCC to deliver on its commitments.
The country’s civil society is not willing to buy any of the arguments put forward by the government. They consider Mes-Aynak as a landmark project, which can make or break mining in the country. And hence, they grouse about the secrecy behind its deal. “There was no transparency in awarding tender for the Mes-Aynak mine,” says Niamatullah Ibrahimi of Afghanistan Watch, a non-profit promoting accountability in the country. “Although it was the first deal signed by the government, the contract draft is yet to be made public,” he adds. Since 2012, the Ministry of Mines has published 200-odd contracts on its website to increase transparency. But Mes-Aynak contract does not figure on the website. Most contracts put up on the website are only related to small mines.
Noorani of Integrity Watch Afghanistan says the Chinese consortium has signed contracts for all projects it had promised while bagging the Mes-Aynak bid. But it has barred the government from publishing the contract drafts, Noorani alleges.
Global Witness, a UK-based non-profit, which managed to get its hands on the draft contract, critiqued it in a report Copper Bottomed? Bolstering the Aynak contract: Afghanistan’s first major mining deal, published in 2012. The report says there is “no provision for information sharing of this contract with the local communities. There is also no provision within the contract for sub-contracts or supply contracts negotiated by the consortium to be made public, nor for the beneficial ownership of companies awarded such contracts to be published. Understanding what all projects agreements say and who benefits from them are prerequisite to guarding against corruption.”
Small wonder that people living in the vicinity of the mines had no inkling of the project before they were evicted. Residents of Logar are not against mining. In fact, they want mining because it helps national and regional development, says Mussa Mahmoodi of Logar Civil Society Organization. People are angry because they were not consulted before eviction or about compensation. “About 120 families from four villages around the mining site have been displaced without proper compensation,” says Mahmoodi (see ‘Entangled in compensation’).
| Entangled in compensation
Government documents seen by Down To Earth mention that land from nine villages in Logar province has been acquired for Mes-Aynak copper mines. People have been displaced from two of these villages. According to the documents, 82 families lived in Wali Killai and Kooz Chinarai villages. Another 59 families owned properties in the villages but live elsewhere. Three other villages, Adam Qillai, Bar Chinaria and Siso Tanga, were uninhabited but there were records of property owners. Only agricultural land was acquired from the remaining five villages— Zahidabad, Gumran, Kalia Anwar and Damaran Khel.
The government claims to have disbursed Afs 8.47 million (about $180,000) to the provincial councils to be paid to the 101 families who have been displaced or have lost properties. Apart from monetary compensation, the displaced were to be given 250 sq m of plot nearby Ashab Baba mines in Pul-e-Qandhari in Muhammad Agha district. So far, residents of Wali Killai have handed over their land, note the documents. But residents of Wali Killai claim that they were evicted from their ancestral land in 2009. “We were told that a township would be built for us at Ashab Baba. But when we went to see the site, there was no water supply or a mosque or a burial ground,” says an elderly woman from Walli Qillai who now lives in a slum in Kabul.
Mussa Mahmoodi of Logar Civil Society Organization says most Walli Qillai residents have migrated to Kabul or Muhammad Agha district. Monetary compensation for the displaced was fixed at Afs 3,00,000 ($5,300) per jerib (one-fifth of a hectare) but the displaced residents received between Afs 50,000 ($877) and Afs 200,000 ($3,500). Mahmoodi says the government’s head count of number of people affected by the project is far less. The government had promised these families land for land, a city and money to construct houses. But now they have nothing.
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People who followed the tendering process say the bid by Kazakhstan-based Kazakhmys came very close to the Chinese bid. The Kazak company promised a slightly smaller power plant at 350 MW and a copper smelter within the country. In terms of mining royalty, both the companies were evenly matched. MCC offered 3.5 per cent if prices came below $1 a pound of copper in the London Metal Exchange and 19.5 per cent if it stayed over $2.5. The Kazaks offered a flat 18.1 per cent. “The promise of a railroad and $808 million of premium to the government was what swung the deal in the favour of MCC,” says Noorani.
The contract says MCC would pay $808 million premium in three instalments before it begins mining. The first tranche of $80.8 million was to be paid after signing the deal. The second instalment of $161.6 million was to be paid after the government approves the feasibility study. The remaining $565.6 million, or 70 per cent, was to be transferred once mining began. But it did not pay any of the instalments. MCC has asked the government to do away with the premium. Many within the government now believe that it would have been wiser if MCC was kept out of the deal.
Security concerns
Even as stalemate continues over mining at Mes-Aynak, the project has suffered another setback. Logar, although a traditional Taliban stronghold, was relatively calm before MCC began construction work at the mine site, says Mahmoodi.
 People want mining. They are angry because they were Not Consultedbefore eviction or about compensation |
| — M MAHMOODI, LOGAR CIVIL SOCIETY ORGANIZATION |
 People haveHigh Hopesfrom the indian consortium that has bagged the lease to mine hajigak |
— JAVED NOORANI,
INTEGRITY WATCH AFGHANISTAN |
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In August 2012, the mine site faced a rocket attack by the Taliban, forcing the Chinese staff to vacate the mining site. Since then there have been several instances of beheading aid workers and attacks on the police and workers employed by the US military base. A resident of Logar, who does not wish to be named, says insurgent groups pay local people to keep them informed about movement of foreigners in the province. Sometimes residents are paid up to $50,000 for kidnapping foreigners and handing them over to the Taliban.
An area commander of the Taliban who identified himself as Maulavi Abdul Jamal says the only interest of countries such as China, Pakistan, India and those in Central Asia in Afghanistan is to make money. “The current political climate does not allow mining to take place as minerals are the resource of the Afghans. Besides, the government in Kabul does not have control over 70 per cent of Afghanistan,” he says.
Mahmoodi blames the heavy handedness of the government for the recent spurt in violence in Logar. “The population of the area have been denied their right to prosper,” he says. This is bound to lead to conflicts.
Buddhas of Bamiyan were destroyed by the Taliban in 2001. Archaeologists have discovered another Buddhist site at Mes-Aynak, which will be mined soon (Source: James Gordon Losangel)
Ibrahimi of Afghanistan Watch says insurgency increases in a province soon after mining is announced there. “Since the announcement of Hajigak Iron Ore mines, the Bamiyan province, considered the safest in Afghanistan, has witnessed a spurt in insurgency,” says Ibrahimi. While the government has control over province-headquarters, its machinery fails to reach rural areas.
Analysts fear that the security situation could deteriorate after the international forces leave the country in 2014. Though the Afghan army and police have received extensive training, they are still disorganised. The government hopes that some US troops remain in Afghanistan till 2024.
Uneasy silence at Hajigak
Hajigak iron ore mine is the second largest mineral reserve in Afghanistan in terms of revenue. The Ministry of Mines reports that the site holds 1,800 tonnes of iron ore worth $340 billion. It is divided in four blocks that span two provinces, Bamiyan and Maidan Wardak. In 2011, three of these blocks were allocated to Afghan Iron and Steel Consortium made up of seven Indian companies. The fourth block went to Canada’s KiloGold. Together, these projects are expected to employ about 20,000 people.
“Though contracts for the projects are yet to be signed, people are afraid that Mes-Aynak-like situation may arise in Hajigak,” says Shaikhzada, member of Bamiyan Hajigak Shura (community council). The council has thus set down a few conditions for allowing mining in the region. “We need land for land and a township for the displaced, employment, schools and medical facilities. People of the area should be made responsible for security of the mines,” Shaikzada says.
Despite worries, residents of the provinces have high expectations from Indian companies for a better life.
Mining’s share will be 50% of GDP’
Wahidullah Shahrani is in the hot seat. if his plans work well, it would offer a big bonanza for the country. Down To Earth catches up with the mines minister in Kabul. edited excerpts
Wahidullah ShahraniOn contribution of mining to the economy of Afghanistan
Over the past 11 or 12 years we have heavily depended on international aid. It has played a key role in almost all our achievements that you see today. But the current situation will not continue for long. In 2010 huge deposits of iron ore, copper, gold, lithium, rare earth, coal, oil and gas have been identified. We will develop these mines. The government’s role will be limited to a facilitator and regulator of the mining industry. By 2019, we expect that mining will contribute 20-25 per cent of the country’s GDP from three per cent now. By 2024, foreign aid will decline significantly. By then, even by conservative estimates, mining would be contributing about 50 per cent of GDP. The revenue of the government at that time would be about $4 billion a year. Mining will also create half a million jobs, and each job will last for 30-90 years.
On hurdles ahead
Afghanistan has emerged from deep conflicts that continued for 23 long years. We do not deny the prevailing corruption and infrastructural challenges in the country. Yet, the improvement in governance and reforms is significant. But the international media have been ignoring this achievement. We have placed a lot of emphasis on transparency in mining deals to ensure that deals are structured and conducted according to the international best practices. But lack of skilled human resource within the ministry is a big challenge.
Thousands of second- and third-level managers, technical people will be required once these mining projects are launched. The other major challenge is that Afghanistan is landlocked and does not have adequate infrastructure to transport minerals. Mining of iron ore, copper and other base metals cannot be properly developed unless there is infrastructure to tap potential markets in the region.
On the new mining law
Parliament is debating a new mining law. The bill has been developed on the lines of international best practices. It has provisions that are investor-friendly and take care of concerns of the community and environment. It also puts a lot of emphasis on transparency and clarity in mining deals. We are committed to the International Extractive Industry Transparency Initiative and are, thus, publishing all the oil and gas contracts on our website. We are maintaining a clean and transparent revenue flow.
On criticism about shortcomings in the law
No law in any country is perfect or comprehensive. That is the reason, countries amend their regulations and upgrade policies every five, 10 or 15 years. We could not have drafted a better mining law in the prevailing situation. It is a positive change from the current law. In a democratic country we are well aware of the importance of civil society. But we are unable to figure out which organisation or collective is the true representative of civil society. We have documents of the long consultations we had with civil society.
Their understanding about mining is vague, basic and inadequate. After these discussions we submitted the draft legislation to the Cabinet for detailed discussion. Now that the bill is with Parliament, some so-called civil society representatives are making a lot of noise about it (see Needed, a robust law’ on p32). Recently we issued a press release detailing all the consultative sessions we had with civil society on the bill.
On delays of the Mes-Aynak copper mining project
Development of the Mes-Aynak project has a number of dimensions. Other than developing the mine, it involves setting up infrastructure and a power plant. Initially, the project faced some problems like security. But those issues have been resolved. The government also did not have managerial capacity to support the project. But now we have managed to move many villages in consultation with the residents. There were delays because of the cultural relics we found there, which took two years to be removed.
Now, the delay is mainly on the part of the developer, Metallurgical Corporation of China (MCC). It says some of the conditions in the mutually agreed contract are not economically viable. These were the conditions, which made the developer get this contract. We are addressing this with the top management of MCC and have told them that they must deliver on their commitments.
Needed, a robust law
Civil society and parliamentarians oppose a new mining bill that aims to boost investment. What’s the way ahead?
Illustration: Ajit Bajaj
Afghanistan’s dream of earning substantial revenue from mining may not come true anytime soon. The government is already struggling to overcome hurdles like security concerns and inadequate infrastructure. But the biggest hurdle for it is a bill to promote and regulate mining.
The draft Minerals Law introduced by the Ministry of Mines in 2012 is caught in the eye of a storm. While mining companies welcome the bill, parliamentarians and civil society oppose it.
Mines minister Wahidullah Shahrani says the bill is based on international best practices, has investor-friendly provisions and takes care of community and environmental concerns. But Afghanistan’s Parliament along with civil society is not convinced yet. They want major changes in the draft bill.
If passed, the bill will replace a 2009 law. A senior ministry official says the new law will expedite investments in the mining sector. Under the existing law, a company must obtain separate approvals for exploration and exploitation. The bill will allow the company that discovers the minerals to also mine it.
The bill faced the first hurdle in the Cabinet. In a meeting on July 2012, the Cabinet rejected it, saying its provisions were against the interest of the country. President Hamid Karzai, after the meeting, supported the Cabinet and said Afghanistan’s interests required better protection. But in February 2013, the Cabinet gave its go ahead to the bill. It was introduced in the lower house of Parliament in July this year.
Mariam Kosha of non-profit Integrity Watch says parliamentarians are unhappy with the bill because it gives too much power to the Ministry of Mines and makes it the sole authority to clear all mining projects.
An important provision in the existing law is that contracts of all major mining projects go through an inter-ministerial committee and Parliament. The provision gives Parliament limited powers and says it cannot delay the project for more than a month after which it is deemed cleared. The industry is not happy with even such limited power to Parliament. An official of the Indian team negotiating the Hajigak mining contract said under the existing law a company has to lobby with a lot of powerful people before getting the contract approved. “We will proceed only after the new law is enacted,” he says.
While Mes-Aynak project escaped this provision because the contract was signed before the existing mining law was enacted in 2009, developers of several large-scale mining projects, including two gold mines in Zarkahan and Badakshan provinces, have deferred their deals and are waiting for the passage of the new law.
Chances are slim that the bill will be cleared anytime soon. On September 22, civil society groups met a group of parliamentarians, including powerful MPs like Gul Pacha Majeedi from Paktia province and Obaidullah Ramin from Baghlan province, which has significant reserves of iron ore and barite. The activists apprised the parliamentarians of lacunae in the draft law.
One of the key demands of civil society is that a percentage of the profit earned from mining should be earmarked for community development. “We want at least five per cent of the profits to be shared with the community,” says Wadood Pedram, executive director of non-profit Human Rights and Eradication of Violence Organization. “We also want issues like displacement and community development at project sites to be incorporated into the draft,” Pedram says, adding that the government should not pass the bill without consulting civil society.
People present at the meeting say even the MPs are in no mood to pass the bill in its current form. It seems Afghanistan will have to wait for sometime to reap benefits from its mineral wealth.
