Afghan cash starts going to China
By Syed Fazl-e-Haider
QUETTA, Pakistan - Several hundred Chinese workers and technicians are already
sending home cash from their work on developing Afghanistan's vast Aynak copper
deposits - the world's second-largest untapped reserves - after the project got
underway in July.
Yet many analysts believe the project, backed by security from the United
States, will bring few economic gains to war-torn Afghanistan, merely an
environmental disaster and profits to the Chinese investors.
Aynak is 75%-owned by state-owned Metallurgical Corp of China (MCC), which paid
US$3.5 billion for the contract to develop the resource, and 25% by Jiangxi
Copper, China's top integrated
copper producer. Critics concerned about the value the development will bring
to Afghanistan point to MCC's involvement in the Saindak copper project in
neighboring Pakistan.
At Saindak, the company is extracting copper without any effective evaluation
and monitoring mechanism and there is still no reliable data available on
production and its environmental impact. MCC is also charged with excessive
mining at Saindak, reducing the mine's estimated lifespan.
MCC, which last May signed an exploration, exploitation, processing and
smelting contract for the Aynak copper deposit, a 28-square-kilometer field in
Logar province, south of the capital, Kabul, is expected to start production by
the end of 2011.
Already, the Chinese firms have increased the Aynak project's designed capacity
to 320,000 tonnes of copper in concentrate a year, from the planned 200,000
tonnes, according to a report published by Reuters on September 29. The project
would increase the supply of copper concentrate to Jiangxi Copper, which is
expanding capacity to 900,000 tonnes of refined copper a year in 2010, from
700,000 tonnes.
This does not surprise critics, who point to the company's development of
Saindak, a copper and gold mine in Chagai district, in the insurgency-hit
Pakistani province of Balochistan.
MCC has extracted more copper than expected from Saindak, according to a
January 2008 report by Integrity Watch Afghanistan, a European research group.
The report said the project had virtually no spillover effect on the local
economy to date. At the same time, numerous examples of toxic contamination of
surrounding areas through wastewater from copper extraction were documented,
resulting in environmental and social disasters, although solutions to curb
such contamination theoretically exist.
Saindak contains estimated copper ore reserves of 412 million tonnes. Under a
formal contract worth $350 million, MCC acquired the project on a 10-year lease
in September 2002. MRDL, a subsidiary of MCC, has operated the project, with an
initial investment of $26 million, since August 2003.
The Saindak mine has an estimated life of 19 years, but the Chinese firm is
reportedly indulging in excessive mining and higher production of blister
copper at the site. This has not only reduced the lifespan of the mine, but
also caused financial losses to Pakistan. There has so far been no effective
monitoring mechanism to check the excessive mining.
Critics in Pakistan blame the government of former president Pervez Musharraf
for signing the lease contract with MCC without adequately addressing issues
relating to excessive mining. No technical body for monitoring and evaluation
of the production and export of copper, gold and silver from the project has
yet been constituted, even after the lapse of seven years. Local analysts fear
that the higher rate of production may reduce the mine's lifespan to that of
the 10-year lease if the excessive mining goes unchecked.
Saindak is also being developed in the absence of an environmental impact
assessment. Of most concern, the absence of a surface flow of water means the
district where the mine operates faces an acute shortage of water. The mine
itself, and the high volume of water required for production of what is known
as blister copper, depends on sub-surface water, raising concern about the
impact this will have on the surrounding area over the next three years on
local supplies.
The Saindak mine draws on water resources from the Taftan-Tahlab basin. These
resources, which are shared with neighboring Iran, have not been evaluated.
The investment to mine Aynak, 60 kilometers southeast of Kabul, is considered
to be the largest in Afghanistan's history, giving MCC and Jiangxi Copper the
mining rights in the central and western mineralized zones for 30 years. Under
the deal, construction work is due to finish in less than three years. MCC will
pay the Afghan government $400 million a year to operate the mine, and provide
jobs for thousands of Afghans. This works out at $1.2 billion over 30 years.
The Chinese are also committed to complete some infrastructure projects,
including a coal-based power station, a groundwater system, roads, new homes,
hospitals and schools for mine workers, along with Afghanistan's first national
railway.
With the Aynak deposit alone, its estimated 13 million tons of copper is
forecast to be worth up to $88 billion. This could make Afghanistan one of the
world's top 15 copper producers, but the involvement of local communities and
the environmental impact have not yet been approached as a major issue.
The Integrity Watch report warned of the potential for an environmental and
social disaster if the Aynak project was not properly managed by the Chinese
firm. In particular, water consumption and wastewater management will have to
be very carefully dealt with, since mismanaging these could have potentially
disastrous consequences.
Experts, from the very beginning, expressed their concerns about the Aynak
bidding process, in which MCC was the favorite of the Afghan Ministry of Mines'
technical group. The Chinese company become the Afghan government's preferred
bidder in November 2007 after beating eight other mining groups, including
Phelps Dodge of the US, Hunter Dickinson of Canada and London-based Kazakhmys.
No economists and environmentalists were involved in the technical analysis.
Afghan expertise was not used to its fullest extent, and officials controlled
by Ibrahim Adel, the Afghan mining minister, had too much influence in the
process, said a news report published in October 2007 in Nature, the
international science journal. The report also noted the importance of the
bidders' track records, citing James Yeager, the top World Bank geological
consultant to the Afghanistan government. The report also drew attention to
MCC's poor environmental mining record outside China.
While MCC is being watched with concern at how it develops Aynak, the company
itself has other worries, notably the security threat from Taliban insurgents.
For this, at least, it at present has US armed forces as some form of
protection. About 1,500 Afghan police guard the site, subsidized by the
Japanese, and the American army's Tenth Mountain Division patrols the area,
according to The Economist magazine.
That balance of profit to China and cost of defense to the US and its allies is
drawing its own share of critics. Analysts believe that China's interests in
the 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.
"We're giving tens of billions of dollars in assistance to Afghanistan, and
we're getting no credit," NBC News last month quoted Donald Ritter, the
president of the Afghan-American Chamber of Commerce, as saying. "We need a
policy on developing mines and minerals and oil and gas in Afghanistan.
Otherwise, it will be dominated by the Chinese, who are wired to the Iranians
through their oil investments, and the Pakistanis, because of China-India
competition."
Syed Fazl-e-Haider (http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author of many books, including
The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.
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