Wavering Investors, Legal Uncertainty Threaten Afghan Mining Sector’s Potential

Wavering Investors, Legal Uncertainty Threaten Afghan Mining Sector’s Potential

The Afghan government and its international supporters have long viewed the estimated $1 trillion to $3 trillion worth of natural resources thought to lie beneath Afghanistan’s rugged landscape as being among the country’s best prospects for economic independence. But hopes of developing Afghanistan’s extravagant array of natural resources—including world class deposits of iron, gold, copper, lithium and lucrative rare earth metals—are in serious jeopardy. Wavering international investors, Afghanistan’s unresolved and contested new draft law concerning resource extraction and the political uncertainty associated with next year’s presidential elections and substantial NATO drawdown risk dashing efforts to transform Afghanistan into an economically stable and self-sustaining state.

On Aug. 22, Wahidullah Shahrani, the Afghan minister of mines, claimed that the China Metallurgical Group Corporation (MCC) had requested a comprehensive review of its $3 billion contract with the Afghan government. The contract, originally signed in 2007, gives MCC a 30-year lease to the Mes Aynak copper mine project in Logar province, a mineral-rich valley some 25 miles from Afghanistan’s capital that reportedly contains the second-richest unexploited copper deposit in the world. MCC is planning to meet with senior Afghan officials in late-September in an effort to amend the contract and thus negate previous commitments by the firm to develop the areas around the mine, including the construction of a 400 megawatt (MW) power plant and the building of a railway line to transport extracted copper. MCC is also seeking to renegotiate its obligation to pay the Afghan government a charge of $808 million, another stipulation outlined in the original 2007 contract.

This news came the same week that China National Petroleum Corporation International (CNPC) halted its oil and gas extraction activities in the Amu Darya basin, located in Afghanistan’s largely stable northern region. CNPC’s activities had been complicated by an unresolved negotiation to refine the oil over the border in Uzbekistan as well as delays in concluding a transit agreement with the Uzbek government.

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