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Afghanistan: China's Winning Bid For Copper Rights Includes Power Plant, Railroad

(RFE/RL) November 24, 2007 (RFE/RL) -- Afghanistan has awarded a state-owned company in China with the right to develop a large copper field to the south of Kabul, following two years of bidding.

China Metallurgical Group agreed to invest billions of dollars in the project and related infrastructure development -- including the construction of a coal-fired electrical power plant and what would be Afghanistan's first freight railway.

By the estimates of some geologists, deposits at Afghanistan's Aynak copper field in Logar Province make it the world's largest undeveloped copper field.

The deal gives China Metallurgical Group the right to extract high-quality copper from the area south of Kabul.

Developing Infrastructure

But the Aynak copper field has neither the electrical power nor access to the transportation links needed to fully develop the area as a copper mine.

Afghan Mining Minister Ibrahim Adel says the Chinese company has agreed to invest nearly $3 billion in order to set up mining operations and overcome the lack of basic infrastructure.

"With this mining project at the Aynak copper field, we will have about $2.8 billion of direct investment," Adel said. "About $500 million will be invested in building an electrical power plant. And a large amount of money also will be invested in building a railroad. This is one of the biggest foreign investment projects in the history of Afghanistan."

Khozman Ulumi, a spokesman for the Afghan Mining Ministry, told RFE/RL's Radio Free Afghanistan that preliminary plans call for a railroad link from Tajikistan to the copper field and on to Pakistan.

Ulumi said the coal-fired power plant to be built near the copper field would produce more than enough electricity to run the mine. He says excess electricity would be routed to Kabul, where most residents now have electricity for only a few hours per day -- if at all.

"They are working to generate up to 400 megawatts of electricty from coal. When this project is completed, God willing, some 5,000 people will be working at the power plant adjacent to the copper mine," Ulumi said.

Another 5,000 people -- mostly Afghan workers led by a few Chinese experts -- are expected to be employed in the mining operations and as construction workers on the railroad.

Ulumi said the Chinese firm expects to start full mining operations in about six years, after work on the power plant and railroad are completed.

Winning Bid

The Chinese offer beat out bids by four other firms that were considered finalists. They include Strikeforce -- part of Russia's Basic Element Group, the London-based Kazakhmys Consortium, Hunter Dickinson of Canada, and the U.S. copper-mining firm Phelps Dodge.

China Metallurgical Group's bid surprised many analysts in Kabul who expected the tender to be awarded for less than $2 billion.

But Adel said the latest estimates suggest there are at least 13 million tons of copper waiting to be mined from the Aynak field. He said that with further exploration, those estimates could rise to 20 million tons before full-scale mining operations begin. And at current prices, he said the value of copper at Aynak would be about $30 billion.

But industry experts say the venture could be risky for the Chinese company. 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 production goals there.

Years of war in Afghanistan have ensured that the deposit has remained largely untouched since Soviet geologists surveyed the field in 1979.

And although the mine is in a relatively secure part of Afghanistan, the railroad and electric power lines would be difficult to defend around the clock from guerrilla attacks by Taliban militants.

That makes the Aynak deal a litmus test for other possible foreign investors -- not just of about how Afghanistan deals with international investors, but also about the security that the Afghan central government can provide for high-profile foreign investment projects.

RFE/RL Afghanistan Report

RFE/RL Afghanistan Report

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