Afghanistan is looking to establish itself as responsible developing nation in the post- 2014 period after the ‘drawdown’ of NATO forces is completed from the country. Getting its economy and development programmes on track by exploiting its rich deposits of iron, gold, copper and oil is a step in that direction. The revenue from the country’s minerals is key to its financial sustainability and independence as it seeks do without external aid. Many observers believe if the expected revenue streams from mining are delayed or not maximised, Afghanistan’s dependence on foreign aid may continue.
The Ministry of Mines of Afghanistan, after successfully allotting concessions of its copper and iron deposits at Aynak and Hajigak respectively, recently floated bids for exploration and exploitation of Badakhshan (gold), Zarkashan (copper/gold), Balkhab and Shaida (both copper) deposits. Of these, Shaida copper is a single license for an area of 250 square kms in Adraskan district of the Herat province, which borders Iran. Shaida was initially prospected by the Soviets in 1971-72 and is located 65km south-west of the city of Herat. The deadline for submission of bids for the Shaida mineral tender was 06 August 2012.
A consortium of six Indian companies, which includes four state-run companies (Hindustan Copper, Steel Authority of India Ltd, National Aluminium Co. and Mineral Exploration Corp) and two from private sector( Monnet Ispat & Energy Ltd and Jindal Steel & Power Ltd), have bid for the Shaida project. SAIL leads the consortium with 26 per cent stake followed by Hindustan Copper. This bid comes in after three of the four blocks of mining rights of Hajigak iron deposits, were awarded to AFISCO (Afghan Iron and Steel Consortium), a consortium led by the Steel Authority of India (SAIL) in November 2011.The Ministry of Mines announced on 07 August that submitted bids for the exploration and subsequent exploitation of the Shaida copper project have been opened and the preferred bidder is likely to be announced soon.
The Indian preference for the Shaida project appears to be due to its location and planned connectivity. The Shaida deposits are located 50km south-west of the city of Gozareh near Herat .The Afghan government expects Gozareh to function as the ‘logistics city’ for the project where a railroad terminus station is planned as part of the Afghanistan Railway Development Scheme.
On the other hand Iran is constructing a railway line from its city of Khaf to Herat. The portion of this railway line falling in Iran has already been completed, while the124 Km under-construction portion in Afghanistan has two sections. Construction of one section, closer to the Iranian border, is being financed by Iran ($75m) and the second (Ghorian-Herat) is managed by the CAREC/ADB programme. Afghanistan Deputy Minister of Public Works Wali Mohammad Rassouli announced in Kabul that the 62km long section being financed by Iran will be completed by March 2013. The Indian consortium is looking at this rail link to move the mined copper ore to the Iranian port of Chabahar.
On 26 August 2012, Deputy Foreign Ministers of India, Afghanistan and Iran met ahead of NAM Summit in Tehran to discuss the utilization of Iran’s Chabahar port by the Indian consortium bidding for Shaida Copper mine. The under-construction rail link to Herat would pass some 12 kilometers from the Shaida copper mine. The trilateral meeting ended with an agreement to establish a joint working group and hold a meeting in Chabahar within the next three months.
These developments indicate how India wishes to position itself strategically in Afghanistan and the importance of its relations with Iran with regard to access to both Afghanistan and Central Asia.
Another related area of interest to the Indian industry is the proposed amendment to the Minerals Law of 2008, which regulates the mining sector in Afghanistan. Under current legislation, formulated with World Bank assistance, any company that explores an area for minerals is not automatically granted an operational license, which is contrary to the normal practice in most parts of the world. In Afghanistan the government offers the development license out to open competition. This creates a possibility where one company makes a sizeable investment in mineral exploration in an area only to be outbid by a rival when it comes to mining it. Afghanistan is reforming its mining laws to boost investor confidence in the sector.
The new draft law is currently going through the legislative process and will give the mineral rights holder the automatic ability to transfer an exploration license to a development license, provided the licensee fulfills their legal obligations. The license holders will also have the right to transfer their license to another eligible company. At the same time the revised law also has the provision of setting royalty rates at globally competitive levels, therefore making investment in Afghanistan’s mining industry more attractive. The new law was initially expected to be effective in late 2011, but was taken up for approval only in August this year.
However, the proposed amendments ran into turbulence after a group of Afghan cabinet ministers and senior officials objected to the draft legislation as kowtowing to foreign mining interests at the cost of the nation’s own. “A balance has to be struck so we can make sure that our patrimony does not become a pot of porridge for others,” according to Ashraf Ghani, a senior adviser to President Karzai.
The opposition to the draft legislation, besides the issue of having sufficient safeguards to protect national interests, is the question as to why mining cannot be carried by Afghan companies. It was also felt that care needs to be taken to ensure that mining and oil concessions did not become a fresh source of conflict in the country. The Cabinet meeting reviewing the amendments, chaired by President Karzai, decided that all relevant entities will work further on the Draft Mining Law and recommended that “it should go through all legal stages for further enrichment.” A vote on the same is expected by November this year.
The immediate concern raised on the deferment was that the ongoing bidding for the five open tenders (Four gold and copper concessions and one oil and gas project) could attract far less valuations than expected if Afghanistan’s laws are not soon brought in sync with global norms. It is also believed that the United States, Germany, Japan, among others had factored in the approval of the draft mining law and future mining revenues when they made $16 billion in aid commitments to Afghanistan for the coming four years at Tokyo this year. India too, having sizeable investments at stake, is watching this space.
This article first appeared in the South Asia Monitor and is reprinted with permission.