China: Afghan Investment Reveals Larger Strategy

By Ron Synovitz
Radio Free Europe / Radio Liberty

May 29, 2008

China has won a $3.5 billion contract to develop Afghanistan's Aynak copper field, the largest foreign direct investment project in the history of Afghanistan.

The size of the bid -- almost double the expected amount -- surprised other potential foreign investors.

By some estimates, the 28-square-kilometer copper field in Logar Province could contain up to $88 billion worth of ore. But there is no power plant in the area that can generate enough electricity for the mining and extraction operations. And Afghanistan has never had the kind of railroad needed to haul away the tons of copper that could be extracted.

That is why a large part of the Chinese bid includes the cost of building a 400-megawatt, coal-fired power plant and a freight railroad passing from western China through Tajikistan and Afghanistan to Pakistan.

Indeed, the cost of building so much infrastructure in a volatile security environment like Afghanistan is prohibitive for many private firms. But Niklas Norling, an expert on China and Central Asia at the Stockholm-based Institute for Security and Development, says the price tag is tolerable for a Chinese state firm because the project contributes to Beijing's plans for the development of western China and its regional trade links.

"You have to see this in the context of China's great western development program, which has led to major investment into the western provinces [of China] and, of course, also crossborder connections to Central Asia, South Asia, and Iran," Norling says. "In order to develop the west [of China], they need energy resources, and they need other resource materials. So far, Afghanistan has remained virtually untouched by Beijing's concerns, in contrast to China's involvement in Central Asia, Pakistan, and Iran.

"The past few years have seen investments into the Karakorum Highway in Pakistan, the Gwadar port [in Karachi], [and] a multibillion-dollar pipeline from Kazakhstan to Xinjiang [Uyghur Autonomous Region]. China has signed a $100 billion, 25-year energy contract with Iran. And so on and so on," Norling continues. "So, of course, this forms part of a greater strategy."

China In Competition

Norling says the Aynak copper mine also should be seen in terms of China's competition with countries like Russia and the United States for economic influence in the region.

"All states [in this part of Asia] basically are swing states whose geopolitical alignments could tilt either way during the next decade -- including Afghanistan, Pakistan, Iran perhaps also, and the Central Asian republics," Norling says. "The state that manages to acquire the most influence will, of course, tie these states into their orbit. And I think China is progressing well to do this."

Industry experts say the venture could be risky for the Chinese company, China Metallurgical Group. They say the same obstacles that prevented Anyak from being developed during the last 30 years also could prevent China Metallurgical Group from meeting its goals there.

Years of war and factional fighting in Afghanistan have ensured that the Aynak deposit has remained largely untouched since Soviet geologists surveyed the area in the 1970s. And although the copper field is in a relatively secure part of Afghanistan, the railroad and power lines would be difficult to defend against attacks by militants.

Safety Of Local Residents

Another important factor would be keeping the local population happy about the venture. For now, many residents in the area say they support the project because of the thousands of jobs Afghan officials have promised it will create. But with corruption in Afghanistan running high, and with billions of dollars at stake, some residents are concerned their safety may be neglected.

"The extraction and production of copper begins with explosives. Then it is processed in a way that produces [toxic] dust and dangerous gasses -- affecting areas near and far," says local resident Abdul Wasi Ahmadzai. "So we want to be sure that the government pays close attention to these issues."

Concerns also have been expressed about the need for the Chinese firm to prevent toxins from seeping into the underground water table. The fear is that drinking-water supplies could be contaminated for people as far away as Kabul.

Fazlullah, a legislator in the upper chamber of parliament from Logar Province, says maintaining support for the project from Logar residents requires proper monitoring of issues such as environmental protection, as well as the private property rights of those who say parts of the copper field are on their land.

"The humanitarian and citizenship rights of our people whose lives are threatened by this project are not being mentioned -- the people who will be losing their homes, stocks, and farms," Fazlullah says. "They must decide about the fate of the villages which will be destroyed by this project. The environmental effects of this project undermine the villages of Surkhab and Mosaayee."

'High Environmental Standards'

Afghan Minister of Mines and Industry Ibrahim Adel tells RFE/RL's Radio Free Afghanistan that there are no villages in the area that is to be mined. He also says the Chinese firm is obliged to compensate residents who will lose their property as a result of the project.

"Regarding the environment, both sides have accepted that the best standards will be enforced. Those are the [international] standards of 'equator principles' and the World Bank," Adel says. "So Aynak will be one of the world's most unique mines, with high environmental standards."

The Afghan government is eager for China's involvement. China has proven in other developing countries that it is an efficient partner and that the projects it initiates are usually realized. But Norling is more cautious, considering the scale and location of the Aynak project.

“These plans are still ideas. It will be seen in the next six years whether this will actually materialize," Norling says. "If the security situation does not improve, or if it even gets worse, it might jeopardize this project. Time will tell. I think the first step will be to see how the security situation turns out in the next one or two years."

With new geological studies revealing other potentially lucrative mineral fields across Afghanistan, the Aynak deal is seen by other would-be foreign investors as a litmus test -- on how Afghanistan deals with international investors, on the level of corruption, and on whether security can be provided for such high-profile, foreign-funded projects.

Radio Free Afghanistan correspondent Sultan Sarwar contributed to this story from Prague and Logar Province.