China and Afghanistan remain deadlocked over a stalled US$3 billion copper mine five months after Beijing demanded that royalties be slashed by almost half, underlining Kabul’s struggles to support itself as foreign aid dries up.
The copper, lying beneath the ruins of an ancient Buddhist city, is one of the world’s largest untapped deposits.
However, the project at Mes Aynak has been mired in delays since state-run China Metallurgical Group Corp (MCC, 中冶集團) won the contract to develop it in 2007.
Tapping Afghanistan’s estimated US$1 trillion mineral resources is a top priority for Afghan President Ashraf Ghani, who needs to fund the budget as billions of dollars in foreign aid taper off over the next few years.
However, China’s tough message when he visited Beijing in October last year reflects the daunting challenge of developing large industry in war-ravaged Afghanistan.
There is no railway to get metal out of the landlocked country, roads are dangerous for travel and copper prices have fallen 40 percent since 2011.
“So far there is no agreement. We have our position. They have their position,” Afghan Minister of Mines and Petroleum Daud Saba said in a recent interview, describing the stalemate on the Aynak project, although he added: “I think most of the problems are solvable.”
Afghan Ministry of Mines and Petroleum officials said this week that the situation remained unchanged.
Resurgent Taliban insurgents have tightened control over the area around Aynak, and after threats, rocket attacks and the risk of land mines, MCC withdrew its Chinese workers from the heavily guarded copper camp last year.
And then there are the Buddhist ruins. Archeological work to preserve treasures from the crumbling monasteries and stupas is dangerous and slow, and must be finished before mining can begin.
The difficult negotiations over the Aynak deposit, an hour’s drive from the capital, highlight the commercial bent to China’s growing role in Afghan affairs as it seeks to broker peace talks between the government and Taliban militants.
During Ghani’s visit, Beijing asked him to slash the top royalty rate on the mine to about 10 percent from 19.5 percent, Saba said.
China’s demands, details of which have not been previously reported, could amount to US$114 million in lost revenue for the Afghan government per year at today’s prices once the mine is producing at its initial capacity of 197,000 tonnes annually.
MCC forecasts the mine could eventually produce up to 343,000 tonnes of copper a year, indirectly creating tens of thousands of jobs. The company has the rights to the minerals for 30 years, and with few alternatives and keen to draw in more Chinese investment, Ghani is unlikely to scrap the deal.
Some progress has been made on the mine. Late last year, MCC produced a feasibility study after a three-year delay.
On the advice of the World Bank, Afghanistan asked for improvements, including a better environmental impact study. Afghanistan is waiting for the revised feasibility study to come back, Saba said.
China has presented a list of reasons the project has stalled, including a lack of coal to power the mine, insufficient phosphate to purify metal and the cost of building a smelter and railway, according to a briefing note of Ghani’s talks in Beijing.
Along with danger, the top reason cited by MCC for delays was the archeological work.
Foreign and Afghan archeologists who rushed to excavate Mes Aynak before the mine opened have now mostly left, following a series of attacks that reflect a rise in militant violence across Afghanistan now that NATO combat troops have left.
In June last year, gunmen executed eight workers clearing land mines around Aynak left from the Soviet invasion of Afghanistan.
Security has since been stepped up at the archeological site and copper camp. Afghan forces guard dozens of checkpoints, at least one armed with a long artillery cannon, and a high sandbag wall and perimeter fence curve around the area.
Underlining how much rides on the project, Ghani made a surprise visit to Aynak in February.
During his trip to China, he agreed to raise the number of police guarding the site to 1,750 and vowed that major relics would be moved by summer, according to the briefing note. After visiting Aynak, he ordered even greater security.
Aziz Wafa, who leads a small team of Afghan archeologists willing to brave the dangers, pushes ahead with excavations.
“For the Chinese, [violence] is a problem, but not for the Afghans. I was born in a war, I grew up in a war and I will die in a war,” he said at a site piled high with statues and stupas.
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