By Javed Noorani
The China Metallurgical Corporation of China (MCC) received applause for its valor to come and invest in Aynak Copper mine while insecurity warded off other foreign private investors. It was the first major investment in Afghanistan’s mining sector that even charmed the western countries, though the secrecy in the bid evaluation process and contract led to suspicions among civil society in Afghanistan.
The contract concession despite shrouded in secrecy, was deemed as a good one simply because the state constantly fed its disillusioned and suspicious public with the peak royalty rate of 19.3 on finished copper while smartly avoiding any mention of the 3% which is part of the contract. There are many areas in the contract that are not conducive for the Afghans , i.e MCC is given free access to coal deposit, both surface and underground water and lime, while based on the water assessment done by the World Bank ,Aynak is water deficient itself. The MCC committed to build a longer railway to edge the Kazak Company that wanted to build 300 km railway without any condition of feasibility. The Kazak Company had proposed a fixed royalty of 18% while MCC offered progressive royalty starting at 3 % when the copper price is low internationally with maximum of 19.5%. The Chinese state owned company also committed itself to produce finished copper in Afghanistan and employ over 4000 Afghans though the fact that MCC has only trained 30-40 local people in the past 4 years.[1]
The Aynak Copper Contract was signed during Ibrahim Adel’s tenure as a minister. The Minister of Mine on several occasion said that he inherited Aynak from the past minister. The current team in the ministry thinks the contracts could have been garnished with better terms. The ministry is confident if the railway built copper will be produced in Afghanistan. Minister Shahrani has confirmed this lack of certainty during consultation meeting with civil society early in October 2012. He said that the railway will be built if feasible and copper will be produced in this location if Phosphate[2]can be found in Afghanistan. To this date Afghanistan has not identified any phosphate deposit yet and its rocky terrain is not going to make the railway line feasible. According to a recent report by the Wall Street Journal, “Getting iron ore out of the country would require construction of up to 3,000 miles of track through 16,000-foot mountain ranges that, in some places, would need a large number of bridges and tunnels.”[3]
The Department of Defense’s railway feasibility study tagged 80 billion dollars price for building railway network in Afghanistan to facilitate its connection to the world. This gives sharper teeth to the MCC’s arguments to withdraw itself from their railway commitment. The traverse questions are: why did the MCC commit to building a rail way in first place without studying the terrain? Why did Afghan negotiator not make the railway line mandatory for the company to build in the light of the offer made by the Kazak Company? Did the “If feasible” clause come into the contract after the contract was finalized. Why the current set up in the Ministry of Mines is silent about the weaknesses in the contract? And the fact the contract is still frozen in unjustified secrecy.
The recent increase in mines and rocket attacks on the police protecting the Aynak Copper Mine has led to Chinese with drawal[4]. The Chinese wants the Afghan government to compensate people for the loss of their land, remove the cultural heritage rather faster and increase security. The security can be tackled in a better way because the mine is stationary, good intelligence and police can secure the site. The cultural heritage cannot and should not be destroyed just because the MCC thinks it delays their project. The value of cultural heritage is way more than the entire copper deposit.The site has points which have no historical left out and the MCC can start copper extraction there. The Afghan government together with MCC must compensate the local people through a mutually agreed frame work[5].
However, some sources allege that the MCC has been using the service of the officials of the ministry of mines to provide evidence to justify the delay in the project. There are also allegations saying MCC does not want to exploit now but capture the mine.Market for copper as for many other metals, is down internationally. Jimmy Wilson, the president of BHP's iron-ore division, this week told staff that rising costs and falling prices had prompted a review of "the sequence and pace" of growth projects”.[6] The slowdown in demand for metals has impacted copper and other metals too. The Chinese are waiting for the result of the next Afghan election and see if they can re-negotiate the contract. It seems that MCC wants to delay the project and set the tone for re-negotiation. The tone by some state officials is setting the space for compromise on our collective interest.
Afghans must demand for transparency in discussion with the company and the government must share this to the public. I think the ministry of mine and set of government officials are not allowed to decide on the project exclusively. There ought to be a multi-stakeholder approach to be followed to make inclusive decision considering larger social value. The government must seek compensation from MCC for the delay in project implementation, enforce the contract and seeking royalty on the use of water and coal besides making the company build the railway because the MCC got higher score for commitment to railway line. Some says silence is golden but to the Afghan this silence means a loss.
The China Metallurgical Corporation of China (MCC) received applause for its valor to come and invest in Aynak Copper mine while insecurity warded off other foreign private investors. It was the first major investment in Afghanistan’s mining sector that even charmed the western countries, though the secrecy in the bid evaluation process and contract led to suspicions among civil society in Afghanistan.
The contract concession despite shrouded in secrecy, was deemed as a good one simply because the state constantly fed its disillusioned and suspicious public with the peak royalty rate of 19.3 on finished copper while smartly avoiding any mention of the 3% which is part of the contract. There are many areas in the contract that are not conducive for the Afghans , i.e MCC is given free access to coal deposit, both surface and underground water and lime, while based on the water assessment done by the World Bank ,Aynak is water deficient itself. The MCC committed to build a longer railway to edge the Kazak Company that wanted to build 300 km railway without any condition of feasibility. The Kazak Company had proposed a fixed royalty of 18% while MCC offered progressive royalty starting at 3 % when the copper price is low internationally with maximum of 19.5%. The Chinese state owned company also committed itself to produce finished copper in Afghanistan and employ over 4000 Afghans though the fact that MCC has only trained 30-40 local people in the past 4 years.[1]
The Aynak Copper Contract was signed during Ibrahim Adel’s tenure as a minister. The Minister of Mine on several occasion said that he inherited Aynak from the past minister. The current team in the ministry thinks the contracts could have been garnished with better terms. The ministry is confident if the railway built copper will be produced in Afghanistan. Minister Shahrani has confirmed this lack of certainty during consultation meeting with civil society early in October 2012. He said that the railway will be built if feasible and copper will be produced in this location if Phosphate[2]can be found in Afghanistan. To this date Afghanistan has not identified any phosphate deposit yet and its rocky terrain is not going to make the railway line feasible. According to a recent report by the Wall Street Journal, “Getting iron ore out of the country would require construction of up to 3,000 miles of track through 16,000-foot mountain ranges that, in some places, would need a large number of bridges and tunnels.”[3]
The Department of Defense’s railway feasibility study tagged 80 billion dollars price for building railway network in Afghanistan to facilitate its connection to the world. This gives sharper teeth to the MCC’s arguments to withdraw itself from their railway commitment. The traverse questions are: why did the MCC commit to building a rail way in first place without studying the terrain? Why did Afghan negotiator not make the railway line mandatory for the company to build in the light of the offer made by the Kazak Company? Did the “If feasible” clause come into the contract after the contract was finalized. Why the current set up in the Ministry of Mines is silent about the weaknesses in the contract? And the fact the contract is still frozen in unjustified secrecy.
The recent increase in mines and rocket attacks on the police protecting the Aynak Copper Mine has led to Chinese with drawal[4]. The Chinese wants the Afghan government to compensate people for the loss of their land, remove the cultural heritage rather faster and increase security. The security can be tackled in a better way because the mine is stationary, good intelligence and police can secure the site. The cultural heritage cannot and should not be destroyed just because the MCC thinks it delays their project. The value of cultural heritage is way more than the entire copper deposit.The site has points which have no historical left out and the MCC can start copper extraction there. The Afghan government together with MCC must compensate the local people through a mutually agreed frame work[5].
However, some sources allege that the MCC has been using the service of the officials of the ministry of mines to provide evidence to justify the delay in the project. There are also allegations saying MCC does not want to exploit now but capture the mine.Market for copper as for many other metals, is down internationally. Jimmy Wilson, the president of BHP's iron-ore division, this week told staff that rising costs and falling prices had prompted a review of "the sequence and pace" of growth projects”.[6] The slowdown in demand for metals has impacted copper and other metals too. The Chinese are waiting for the result of the next Afghan election and see if they can re-negotiate the contract. It seems that MCC wants to delay the project and set the tone for re-negotiation. The tone by some state officials is setting the space for compromise on our collective interest.
Afghans must demand for transparency in discussion with the company and the government must share this to the public. I think the ministry of mine and set of government officials are not allowed to decide on the project exclusively. There ought to be a multi-stakeholder approach to be followed to make inclusive decision considering larger social value. The government must seek compensation from MCC for the delay in project implementation, enforce the contract and seeking royalty on the use of water and coal besides making the company build the railway because the MCC got higher score for commitment to railway line. Some says silence is golden but to the Afghan this silence means a loss.
[1] Author interview with a local resident who has been working with the MCC in Aynak, dated Oct 9th, 2012
[2] Phosphate is an element used in the processing of copper.
[3]Nissenbum, Dion, 2012, ‘Doubt Cast on Afghan Mining, The Wall Street Journal’ Oct 3rd, 2012
[2] Phosphate is an element used in the processing of copper.
[3]Nissenbum, Dion, 2012, ‘Doubt Cast on Afghan Mining, The Wall Street Journal’ Oct 3rd, 2012
[4] Author’s interview with a local elder Aynak who sought anonymity, dated Sept. 10th 2012
[5] The framework should be agreed upon the international best practices for compensation in the mining sector. The framework should give equal right to the communities are going to be affected by mine.
[6] Pleven and Millar, 2012, With Demand Sputtering, Miners Pause Big Projects, The Wall Street Journal’ August 3rd, 2012
[7] photo from, http://www.wadsam.com/armed-groups-disrupting-aynak-copper-work9687
[5] The framework should be agreed upon the international best practices for compensation in the mining sector. The framework should give equal right to the communities are going to be affected by mine.
[6] Pleven and Millar, 2012, With Demand Sputtering, Miners Pause Big Projects, The Wall Street Journal’ August 3rd, 2012
[7] photo from, http://www.wadsam.com/armed-groups-disrupting-aynak-copper-work9687
