CHINA'S INTERESTS IN AFPAK REGION
Jan 18 - 24, 2010
With the multibillion-dollar Chinese investment in Afghanistan's Aynak copper project after Saindak copper project in neighboring Pakistan, China has increased her economic presence in the AfPak region. The Chinese investment in Aynak project is considered to be the largest in Afghanistan's history, particularly at a time when the country faces gravest security threat from Taliban and Al-Qaeda militants.
After winning Aynak contract, China is well positioned to become the dominant force in Afghanistan's mineral sector that has the potential to quench China's thirst for acquisition of strategic mineral deposits like copper for its growing economy. China's interests in Aynak and Saindak copper projects coincide with its plans for the development of western China, its regional trade links and expansion of economic influence in the region. Some observers see China's growing interests as the indications of copper politics, which is brewing up in AfPak region
Metallurgical Corp of China (MCC) has set a production target by the end of 2011 from its Afghanistan Aynak copper mining project. China is poised to exploit one of the world's largest unexploited deposits of copper at Aynak, earn tens of billions of dollars and feed its voracious appetite for raw materials to feed its rapid economic growth and energy demands.
There are huge security risks attached to copper project at Aynak in Afghanistan. Some analysts argue that the track record of western companies most of the times has been that they do not invest or quit a project on security concerns. They contend that on the basis of track record of American, Canadian and British firms on the question of security in areas of conflict, Afghan government had actually rejected them and preferred a Chinese firm to start the Aynak project. On the other hand, Chinese take risk to start a project in volatile regions.
Chinese are operating Saindak mine in Balochistan where many Chinese engineers had been killed and attacked in near past. MCC is also engaged in other mining projects in the insurgency-hit Pakistani province. Chinese are however still committed to complete their all projects in Pakistan.
James R. Yeager, a US geologist who recently distributed a 78-page report on the Aynak contract, rejected such security risk perception about the western companies in areas of conflict in an e-mail to this scribe.
Yeager said, "The best case in point is Freeport MacMoran's position in the Congo where it has spent over 1.8 billion in development in a country that is rated at higher risk than Afghanistan. All mining companies whether, Chinese, Russian, Canadian, or American are risk takers." "No Chinese troops are committed to provide security in Afghanistan. It is the blood and treasure of the US, Canadian, British, German and other ISAF troops that are at risk," he added.
Commenting on Saindak copper project in Pakistani province of Balochistan, Yeager said that MCC has over produced copper and has not provided the proper royalty to Pakistan as per the contract. Additionally, it has been noted that the spill over, that is the jobs to the local community, is less than expected because all ancillary services such as drill parts, truck parts etc. are all supplied from China and not supplied through local businesses.
The promise of a bright future at Aynak, however, cannot conceal the troubling reality of how business is often done in Afghanistan, according to report published by AP on November 1. The bidding process unfairly favored China and epitomized the back-room deals and abuse of power that has turned Afghans against their government and undercut the U.S. military effort there. Corruption and graft long have been ingrained in Afghanistan's public institutions. Yet the extent of this corrosion has taken on new significance as the White House considers expanding the U.S. commitment to a war unsupported by a growing number of Americans.
To a question, should Afghanistan have adopted a policy of "wait and see" for a project which has the potential to generate revenue and employ thousands of Afghans? Yeager said, "Neither Freeport (Phelps Dodge) nor Hunter Dickenson nor any of the other companies had a "wait and see" attitude. All the bidders would take on the project with security as it is. While there has been violence in Logar Province, it is not violent enough to deter mine development. It is simply a way of attempting to discredit Freeport and myself and justify the acceptance of the bid of MCC."
Yeager said, "In fact, MCC offered more in two categories: it paid a much hire up front payment than any other company and it offered a higher royalty rate. The Chinese also offered to build a railroad and power plant. The railroad was to be a link from China to Afghanistan. All companies had to build some kind of a power plant since large scale mining operations consume up to 300 MW of power. One can only speculate that the money offered trumped all other considerations even though the monetary offer was only to provide 25% of the evaluation criteria."
Defending mineral development by Western firms, the Yeager said that Western firms would have a lot more benefits for Afghanistan in terms of governance and nation building. The Canadian firm, Hunter Dickenson, offered to establish an educational system similar to the British Columbia Institute of Technology in Logar Province. This would provide technical training not only to those at the mine site but to anyone else that desired training for the skills needed in the mining industry.
He said, "Western companies comply with third party transparency requirements such as those directed by the International Committee on Mining and Metals. In order to get third party financing, the mining companies must commit to the principles of sustainable development. Chinese would not have to comply, as they are not accountable to any third party. They would only comply when they are internally financed by the Government of China since MCC is 44% owned by the government of China."
Mohammad Ibrahim Adel, Afghanistan's minister of mines, and his associates are blamed for giving MCC special treatment on the Aynak bidding process and shutting out legal, financial and technical experts who could have helped them on the decision.
The Afghan minister of mines accepted a bribe of about $30 million to award the country's largest development project to a Chinese mining firm, according to a report published in the Star Tribune in Minneapolis, Minnesota on November 17. The alleged payment to the minister Ibrahim Adel was made in Dubai, United Arab Emirates, within a month of December 2007, when the state-run China' MCC received the contract for a $2.9 billion project to extract copper from the Aynak deposit in Logar Province, the report claimed citing a U.S official who is familiar with military intelligence reports.
Mining is a high risk business that requires considerable capital investment and regularized scrutiny of inordinate environmental aspects that include toxic waste, water, land, and air pollution, says Yeager's recent report on Aynak contract. The Afghan government was not prepared to implement the tender to ensure a transparent outcome or to monitor the outcome as the project is implemented. The Ministry of Mines, specifically the Minister, firmly controlled the tender process for Aynak and continues to hold grasp as contract and investment requirements are being developed. Roles for other government agencies such as environment and finance, the local Logar community and ancillary business opportunities remain undefined.