Thursday, 14 August 2014
Economic commentators discussed the issues confronted by development projects such as the Ainak Copper Mine and the Hajigak Iron Mine, stating that foreign investors have backed out of honoring their initial commitments.
In addition, they asserted that since the projects are under the supervision of foreign companies, the government cannot interfere or cancel the contracts.
China's largest equipment manufacturing company, Metallurgical Corporation of China (MCC), is responsible for the Ainak Copper Mine project includes the establishment of a railway track and a power generating firm, but reports indicate that MCC has amended the existing contract ignoring its previous commitments to provide benefits to the Afghan government.
Furthermore, the Indian consortium responsible for the extraction of the Hajigak Iron mine announced that the investment money would be half of what they had initially agreed on. Analysts emphasized that investments on mines were crucial in meeting the country's national budget from the domestic sources in the upcoming years. They add that mismanagement, malformed contracts and insecurity have posed major threats to the country's mining businesses.
"We have not received any benefits from the Ainak Copper Mine yet," economic analyst Syed Masoud said. "Everything is in the hands of the foreign companies. Foreign companies such as MCC would do anything to keep the projects." The Ministry of Interior (MoI) has also stated that insecurity is one of the major barriers that can hinder the progress of the projects.
"Among other factors, insecurity is arguably a big challenge in obstructing the flow of the projects," MoI Deputy Spokesman Najibullah Danish said. "But the projects will be back on track once the election results and the overall situation in the country are clear." Syed Masoud urged the government to put further emphasis on the development projects.
"The government cannot cancel the project because the MCC has paid the Afghan government millions of dollars. Canceling the project would mean repaying all money. The MCC has not honored its commitments because of the government's negligence."
The inefficiency of the development projects in Afghanistan's natural resources raises concerns as deficiency of the government, absence of experts during the contracts, insecurity, and lack of transparency on the contracts have given full control of the country's resources to foreign companies.
Foreign Policy SEPTEMBER 3, 2014
After years of delay, Afghanistan's parliament finally passed a new mining law, the Law on Mining 2014. On Aug. 16, Afghan President Hamid Karzai signed the law into being. Yet experts say the law lacks safeguards against corruption and is likely to facilitate the creeping control of the sector by armed groups, oligarchs, and monopolies that could threaten the state.
According to Afghan, American, and Soviet-era geological studies, Afghanistan has $3 trillion worth of natural resources: petrochemicals account for two-thirds of that total, while minerals, including gold, silver, copper, iron ore, a range of minor metals, and rare earths, marble, and gems account for $1 trillion.
The sector has long been promoted as the government's future revenue stream, and the United States has been touting it for years as the obvious replacement for the military and foreign aid that poured into the country after 2001.
At a self-congratulatory ceremony at Kabul's Intercontinental Hotel the day after Karzai signed the law, ministers lined up to tell assembled guests -- including ambassadors and representatives of donor countries -- that Afghanistan now has a mining law that conforms to international best practices. Following the lead of the minister for mines and petroleum, Mohammad Akbar Barakzai, they praised its emphasis on transparency, accountability, security, and governance; its respect for the environment and indigenous people. Potential investors, national and international, could have confidence in the efficacy of the law, they said.
While the Karzai administration celebrated the law, others expressed concern. The dissenting voice, according to a record of the speeches that I saw, came from a representative of the Extractive Industries Transparency Initiative (EITI), who bravely raised the negative aspects of the new law, including secrecy of contracts.
Stephen Carter of Global Witness, a mining industry standards advocacy group, echoed this criticism, telling me that: "Transparency over contracts and ownership, strong rules for open and fair bidding, and complaint mechanisms that local communities can actually use are [...] the first things that should have been included in the law if the Afghan government and its international partners are serious about avoiding the very real threat of natural resources fuelling conflict and corruption."
This issue raised alarm bells when the law was in draft form, prompting groups such as EITI, Integrity Watch Afghanistan (IWA), and Global Witness to lobby ministers for changes that would bring the legislation in line with international standards.
Global Witness even commissioned a comprehensive study of the draft law, and engaged industry experts to pinpoint weaknesses and make specific recommendations. Transparency, security, and beneficial ownership were among the many areas the ensuing report highlighted as problematic.
"The law is silent on security issues, but there is a real danger of mining supporting illegal armed groups," it said. In a reference to IWA research that found the Afghan Local Police (ALP) in Khas Kunar, in the eastern border province of Kunar, were making millions from smuggling chromite -- used in steel making -- into Pakistan, the report noted: "The danger in Afghanistan is clear from examples like the illegal mining carried out by Afghan Local Police forces in Khas Kunar -- forces which have been accused of human rights abuses and which have created tensions between local communities."
A lack of transparency, allowing details of ownership and involvement of public servants in mining contracts to remain confidential was also a problem, it said. "The law [...] would be greatly strengthened if it required publication of contracts and of the true, ‘beneficial' ownership of a license holder or applicant -- two basic and vital measures against corruption."
For some, it appears that the international community has used the potential for natural resources revenues as a justification for setting a deadline for withdrawal from Afghanistan. One source with long diplomatic and bureaucratic experience in Kabul, said: "It's a case of any law will do as long as it's a law. Then they can tick that box and go; job done."
It is not so clear, however, that Afghanistan can afford to simply tick that box.
The Taliban already supplement the tens of millions of dollars they earn annually from opium production with income from illegal marble mining. A report by the U.N. Security Council in June said that Taliban control of onyx marble mining in Helmand province alone earned it at least $10 million a year. Illegal mining in Helmand and Kandahar was enabling some Taliban outfits to become independent of the central command, it said, highlighting a dangerous development.
IWA also found that cross-border mafias are thriving as militias such as the ALP -- set up in 2010 to fight the Taliban in remote regions -- take control of various mines. These groups are expected to soon begin fighting each other to consolidate their positions.
This battle for control "may consign the country to a prolonged war," Javed Noorani, formerly of IWA and an expert on the resources sector, told me recently.
With the withdrawal of U.S. combat troops scheduled for December 31, and a drastic drawdown in external development aid, Noorani believes Afghanistan is transitioning not from war to peace, but "from military conflict to resources conflict." "The Taliban are not spectators to the sector but finance their war from revenues from the sector," he said. He believes illegal mining will allow non-state groups like the Taliban to consolidate and emerge to threaten the governments of Afghanistan and its neighbors, telling me that: "Their footprints are already here."
The security situation has already scuppered a $3 billion deal with a Chinese state consortium to exploit a huge copper mine at Mes Aynak, near Kabul. Insurgent attacks forced the company, MCC, to pull its people out more than a year ago, and the contract has been renegotiated to scale down the company's infrastructure obligations.
A $10.8 billion Indian deal to mine iron ore at Hajigak, in Bamiyan province, has not yet been signed as the Steel Authority of India-led group was waiting for the law to pass before finalizing the details. Now it seems as tenuous as the MCC deal. The fate of both contracts shines a light on the fundamental conditions any international miner must consider before entering the Afghan minerals sector: There's a war on. And there's no infrastructure.
So why, Noorani says he wants to know, did the international community back a law that will only benefit a "mining mafia" at a time when Afghanistan is in such desperate need of rule of law and revenues to fund its post-war development?
August 9, 2014
The approval of the new Afghan mining law has paved the way for the resumption of negotiations by the Steel Authority of India Ltd-led Afghan Iron and Steel Consortium (AIFSCO) for the set up of $1.14 billion steel plant in Afghanistan.
According to the officials aware of the development, AFISCO will soon re-commence negotiations with the Afghan government to set up a plant with a capacity of 1.5 million tonnes per annum. The officials further added that final agreement will take place once the law is passed by the Afghan president, as per the constitution of Afghanistan.
The mining law of Afghanistan was approved by the parliament of Afghanistan around two months ago, and is currently pending the signing of the Afghan president. In the meantime, officials in India-led steel consortium – SAIL, have said that they will resume negotiations once the law is cleared.
AIFSCO is comprised of public sector firms SAIL, RINL and NMDC, which is holding a combined 56 per cent stake, while other private players such as JSW, JSPL and Monnet Ispat & Energy are holding the remaining share of the iron mines.
AIFSCO following the award of three iron ore mines at Hajigak by the government of Afghanistan in November 2011, had announced to invest $10.8 billion to set up a 6.1 mtpa steel plant in two equal phases along with a 800 MW power plant, besides creating necessary infrastructure.
However, later it decided to scale down the original plan by around 75 per cent, with consortium members deciding to set up a steel plant of 1.25 million tonne per annum (mtpa) and a 120 MW captive power plant with $2.9 billion investment.
Afghanistan is going through a fragile moment. It has already been more than 15 weeks since the first round of the presidential elections and it is likely that it will take another five or six weeks to declare the next president of Afghanistan. The Afghans' excitement about the election has dissipated and in its place is nationwide chaos and a volatile situation following the second round of voting.
How important is the financial support warning from the US?
Afghanistan has become economically dependent because of poverty and the disintegration of political cohesion following the US-led invasion of 2001. The economic situation is partly the result of insecurity and instability in the country. The economic and security problems of this war-ravaged country have grown into a “cause and effect” relationship especially in the last five years.
Both the economy and the security situation of Afghanistan have slightly improved. One of the most important factors in Afghanistan's economic recovery is the ever-increasing inflow of international aid. The international community pledged more than $67 billion between 2003 and 2010. The growth of the service and agricultural sectors has also had a positive impact on the economy. However, the living conditions of the Afghan people remain among the worst in the world.
The unemployment rate increased sharply from 9 percent in 2009 to 15 percent in 2011 according to Gallup records. Yet the most recent poll from the CIA World Factbook shows that the unemployment rate in Afghanistan was 35 percent in 2008.
The Afghan economy is much stronger today than it was in 2009. Afghanistan's purchasing power parity (PPP) for 2013 was estimated to be $45.3 billion by the CIA. According to the Asian Development Bank, real gross domestic product (GDP) growth increased from 7.2 percent in 2011 to 11.9 percent in 2012. With the population increasing and many Afghans returning to their country, the total workforce has increased from 10 to 15 million people over the past decade.
Despite the fact that the Afghan economy has developed at a remarkable rate since the collapse of the Taliban in 2001, the growth is largely due to the inflow of international aid and donor-led development projects. In fact, Afghanistan is still exceedingly depraved and the Afghan economy is at a crucial point where any decrease in aid could jeopardize the achievements of the last 10 years.
Under today's conditions, Afghanistan may need more than $12 billion, since the salaries of Afghan police and soldiers alone will cost more than $6 billion after 2014. Despite the billions of dollars of aid over the last decade the Afghan government cannot offer a minimum standard of living to its people. In order to achieve the most important goal, which is to render the Afghan state and the economy self-sufficient by the end of the Transformation Decade in 2024, the international community, the Afghan government and the Afghan people have a lot to do. There is no doubt that international aid will remain central for all the stakeholders to succeed in Afghanistan.
This is why the US brought out the “financial support card” when it saw the potential for democracy to deteriorate with the presidential elections. The level of international aid pledged for Afghanistan is critical and its influence on the quality of an ordinary Afghan's daily life is so vital that no one, especially the next leader of Afghan politics, would dare risk it.
Washington Times, July 24, 2014
Despite clear evidence that Afghanistan’s arid soil was a bad place to grow soybeans, the U.S. Department of Agriculture spent $34.4 million trying to establish the crop in that country, according to the Special Inspector General for Afghanistan Reconstruction.
The money was routed to a trade group, the American Soybean Association, as part of a humanitarian effort to improve food security and reduce dependence on food imports, but federal watchdogs found the idea was poorly conceived however well-intentioned.
Of most concern, the federal agency apparently ignored studies by the United Kingdom’s Department for International Development that concluded soybeans were inappropriate for conditions and farming practices in Afghanistan. Furthermore, there isn’t a significant demand for soybean products in Afghanistan, according to SIGAR’s analysis. In its response to Mr. Sopko’s letter, the USDA acknowledged that the program’s success was uncertain.
According to the SIGAR report, the program’s main processing plant could produce soy products such as animal feed, oil and flour. The plant needed to produce mostly soy flour to remain economically profitable, the report said. For the main soybean processing facility to operate at full capacity, farmers need to harvest 5,000 to 5,500 tons of soybeans. In the 2013 harvest season, farmers were able to produce only 177 tons, according to the American Soybean Association’s midterm report released in February.
To make up for the deficiency in Afghan soy, 4,400 tons of American soy were flown to Afghanistan at a cost of $2 million. As of March 2013, the U.S. had spent about $92 billion on reconstruction, agriculture and other development projects, according to SIGAR.