The Magazine — 19 September 2012

(COURTESY 4TH EDITION EFGA)

The Aynak Copper Mine project ($3.4 billion) is the biggest foreign investment project in Afghanistan so far.  It is one of the world’s richest copper reserves, and the ore it produces is unusually rich in high-grade copper. By 2012, the project was believed to be worth $4.3 billion thanks to additional infrastructure pledges.

Both the Afghans themselves and the international development specialists are concerned about the risks of potentially massive environmental degradation from open pit mining. The project, which was scheduled for completion in 2013, has been temporarily delayed by an archaeological find at the spot where the strip mining was supposed to begin. The Chinese have admitted to encountering some  “technical problems,” but insist that these will prove “insignificant” by the time the project is due to be inaugurated.

China’s exploitation of Afghanistan’s mineral resources appears to be a repeat of its highly criticized business practices in Africa, Asia and elsewhere. Deals, sweetened with kickbacks and other incentives, are made with little or no transparency, and tend to benefit government agencies, or more to the point, the officials that run them, while leaving the public to fend for itself. The Chinese are particularly interested in exploiting mineral, energy and food resources, and at least until now they seem not to be overly worried about the controversies created by the forced removal of local inhabitants, pollution of rivers or destruction of natural habitats.

In 2007, two Chinese state-owned conglomerates, China Metallurgical Group Corporation (MCC) and Jiangxi Copper Company (JCC) outbid competitors from Europe, Canada, the United States, Russia and Kazakhstan by offering $1 billion more than the others for mining rights. The deal, which is both a commercial and a long-term strategic coup, authorizes the Chinese companies to mine deposits near the village of Aynak in Loghar Province some 30 kilometres southeast of Kabul.

Over the next 25 years, the Chinese are expected to extract more than 11 million tonnes of copper, roughly equivalent to a third of China’s known copper reserves. In a single stroke, China became Afghanistan’s most powerful business partner and its largest potential source of tax revenue. China has carried off similar coups in other countries, notably Iraq, where it is now extracting more petroleum than American companies.

Copper artifacts found near Aynak pre-date Alexander the Great’s sweep through Afghanistan 2,300 years ago. During the 1930s, Polish, French and other European geologists assessed the site with an eye to commercial exploitation. There was already considerable interest in Afghanistan’s unusually rich resources in oil, natural gas, copper, iron and coal. After they invaded Afghanistan in 1979, the Soviets also tried to evaluate Afghanistan’s mineral resources, but never got around to commercial exploitation other than natural gas in the north.  Resistance from the mujahideen made the Loghar region too dangerous. Ironically, when Osama bin Laden returned to Afghanistan after the rise of the Taliban, he used Aynak as a training base.

The second big mineral project to be auctioned off was the Hajigak iron ore concession with reserves estimated at 60 billion tons. A series of rugged mountain ridges100 kilometers west of Kabul, Hajigak potentially represents the largest mining project in Afghanistan so far. The finalists in the bidding were Indian and Chinese companies, including MCC. Nevertheless, in November, 2011, President Hamid Karzai’s government offered India a new strategic role in Afghanistan by awarding the Hajigak rights to seven Indian state-run and private companies, plus one Canadian, Kilo Goldmines Ltd. (KGL). The Indian investment group, which in effect will be part of the country’s multi-billion dollar aid programme to Afghanistan, makes it – along with China – one of Kabul’s biggest foreign investors, a move that has severely upset Pakistan.

The increased involvement of India (Islamabad’s key rival), which has invested over one billion dollars in aid since 2002 includes a vow to expand its military support role once the bulk of US troops pull out in 2014. This may persuade Pakistan to undermine Afghanistan further – as it has done in the past – or to get its act together by coming up with more constructive long-term investment for its crucial neighbour.

As part of the MCC copper venture – and to appease the international community and Afghans- the Chinese have promised thousands of local jobs as well as investments worth hundreds of millions of dollars in associated infrastructure projects. A major project is a 400-megawatt power generation plant that will serve both Kabul and the Aynak copper mine. The Chinese have hired Afghan contractors to build security fences, workers’ barracks and access roads. Security will be provided by some 1,500 armed Afghans with the Chinese footing the bill. MCC will also construct a smelter to refine the copper ore and will build a railroad link to transport coal to the generators and copper to China. The Chinese have undertaken a further commitment to build a railway that will link Central Asia to the Pakistani port city of Karachi (which also serves as Afghanistan’s free port). The railway may be extended to Gwadar, a port in the Pakistani province of Baluchistan, which the Chinese are planning to expand. According to the contract, MCC will build roads, schools, clinics, and even mosques. As part of the Hajigak iron project, India has also proposed to build a power plant and a railroad. The latter option is to construct a rail link for exporting the ore to the Iranian port of Chabahar.

Unlike the Americans, who still go into villages accompanied by uniformed soldiers or armed mercenaries, the Chinese seem to have learned from the mistakes of others.  They wear civilian clothes and spend a good deal of time drinking tea with locals. The Chinese clearly want to win over the Afghans, and that includes the Taliban and other insurgents. Some EFG sources maintain that the Chinese have made payments to  guerrillas through the ISI and other Pakistani intermediaries. A precedent was set by the Unocal and Bridas oil companies when they tried to negotiate access rights for natural gas pipelines in the 1990s, and found the most profitable approach was to negotiate with all sides. (The project never came to fruition despite the involvement as Unocal consultants at the time of Hamid Karzai and former US ambassador to Afghanistan, Zalmay Khalizad).

While the Chinese ventures promise to benefit local communities, these may not result in high numbers of jobs for Afghans. The Chinese like to rely on their own workers to do both menial and high level work. Engineers, cooks and drivers tend to be Chinese, exported for the duration of the project. The murder of 11 Chinese workers on a Chinese construction project in Kunduz in 2004 was officially blamed on insurgents, but it is generally believed that the killings were carried out by local inhabitants, angry at not being offered employment. MCC insists that its Aynak project will be different and that once it has trained Afghan operational teams, only the core administrative staff will be Chinese. The Chinese embassy also suggests that other jobs may be forthcoming as Chinese entrepreneurs launch businesses ranging from restaurants to factories in Kabul.

Although the World Bank and an American consulting firm oversaw the auction  process for the Aynak project, the Washington Post reported that some sources claim  the Chinese paid over $20 million (some estimate $30 million) in bribes to Muhammad Ibrahim Adel, who was then Minister of Mines and Industries.  Adel denies the charge. Nevertheless, Karzai fired him from his job. Both World Bank and other international experts maintain that the Chinese bid was far superior to the other bids and achieved the contract on its own merits.

Although the Chinese were showing considerable zeal in moving the Aynak project forward in 2012, it was already encountering problems. Archeologists were struggling with imposed time limits to complete their work to save priceless archeological and cultural artifacts before Chinese bulldozers move in to destroy an irreplaceable heritage. Uncontrolled disposal of toxic waste was also polluting vital water sources. NGOs warned that the forced removal of villagers and attempts to underpay workers could spark riots and possibly an armed response.

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