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Could mineral wealth transform Afghan economy?

in Afghan Business

Could mineral wealth transform Afghan economy?

ghori cementBBC News-Three international energy firms have been shortlisted to develop lucrative oil deposits in northern Afghanistan. It is hoped such deals could reduce dependency on foreign aid. BBC reporters visited three key industrial projects to see whether the hopes are justified.

It is estimated that Afghanistan’s deposits of metals, hydrocarbons and rare earth minerals could be worth at least $1tn (£630bn).

But experts are warning that mishandling of the deals and security factors could undermine these projects, as international troops prepare to pull out in 2014.

In the 1970s the Ghori cement works in northern Baghlan province was one of Afghanistan’s most successful companies, employing hundreds of people and churning out thousands of tonnes of high-grade cement for export to the USSR.

Although 30 years of civil war took a huge toll on the plant, its new owners are hoping to take advantage of the country’s construction boom to turn the factory’s fortunes round.

Walking around the plant, the scale of the challenge is obvious.

Manager Eslamuddin Ahmadi points out that the 50-year old Soviet-made equipment is still in operation on the factory floor. It is still possible to see signs in Russian on the ageing and rusting machinery.

But a lack of basic infrastructure is holding things back.

“There’s a big demand for our cement,” says Mr Ahmadi, “but we can’t increase output until our power supply problems are sorted out.”

Although the raw materials the plant needs – limestone, and coal for power generation – are both available nearby, the electricity shortages will not be dealt with until plans to build a new generating plant become a reality.

The Ghori factory currently meets about 60% of northern Afghanistan’s cement needs. Local traders say it is cheaper and better than the Pakistan-produced alternative which has to be laboriously trucked in.

But the plant is still not operating anywhere near full capacity, only paying its work force a minimal wage – something that has caused big disappointment locally.

Many of the 600 workers at the plant insist their wages are not enough to live on.

Fuelling the sense of resentment is the perception that while the workforce might be living in poverty, someone else is making money from the plant.

Ghori Cement was privatised in 2006 in a controversial deal which Mining and Industry Minister Wahidullah Sharani has heavily criticised.

Mr Sharani said the 30-year contract – which saw the plant taken over a by a consortium including President Karzai’s brother, Mahmoud – was only four pages long and full of “financial, legal and technical flaws”.

Mahmoud Karzai sold his shares in the company managing Ghori in 2011 and is no longer connected with the enterprise, but in an interview with the BBC he hit back at the criticisms.

“It’s not the length of a contract that’s important, it’s what in it,” he said.

Mr Karzai said the contract had obliged his company to maintain two obsolete blocs at Ghori rather than focussing on building a new modern plant.

He also accused the government of failing to support his attempts to negotiate multi-million dollar loans from foreign banks to rebuild Ghori and to build a power plant at the site.

“There is zero interest in public-private partnership in Afghanistan,” he said.

Questions have also been raised about the terms of another high profile deal billed as a potential game-changer for the Afghan economy – the concession to mine the massive Aynak copper deposit mine in Logar province near Kabul.

In 2007 a Chinese company called the China Metallurgical Group Corporation was awarded the contract to mine the deposit, but details of the deal have still not been made public, fuelling rumours of bribery and kick-backs.

A report by the campaign group Global Witness says that the lack of openness surrounding the project could threaten its longer term prospects.

“It’s a massive shortcoming,” says Juman Kubba of Global Witness.

“Already from the local community we are hearing that they see it as a secret deal. It builds a situation of mistrust, and that in turn can lead to violence and is a very negative thing for the project and for the mining sector in general.”

Afghan officials, however, are optimistic that the country could earn up to $400m (£248m) every year from Aynak, and the deposits could generate thousands of new jobs.

But looking at the site today, it is clear that there is a very long way to go.

The Chinese are currently carrying out a survey, and once that is complete they will need to build proper roads and a railway line to the site.

There is also the problem of landmines. The mining ministry has signed a contract for mine-clearing work at Aynak – it will take nearly two years and more than eight million square metres of land will need to be made safe.

And then there is the added complication of history. Copper mining at Aynak goes back to the Buddhist era, 2,000 years ago, and before any new work can be carried out archaeologists need to complete a full excavation of the site.

Archaeologists there told the BBC that more time is needed to complete the painstaking task of moving everything they have found to a new place. But according to the contract, if the work is not completed by the end of the year penalties will have to be paid.

But a more fundamental problem is security and how to prevent such an important site from becoming a target for Taliban attacks.

US-based Afghan expert Anthony Cordesman says that this is an issue which is often overlooked by economic assessments of the country’s potential mineral wealth.

“Nobody can provide security,” he told the BBC. “And you not only need security for the facility, you have to be able to move the output. You have to create the processing facilities and you need power and security for those facilities.”

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