Case study: Afghans cut a better deal on copper deposits

Unlike the Reko Diq case, Kabul made the Chinese contractor accept all its terms.

ISLAMABAD: War-torn Afghanistan cut a much better deal with a Chinese company to exploit its copper reserves than what its neighbour Pakistan could manage to pull off with respect to the Reko Diq copper-and-gold reserves.

Afghanistan floated international tenders for Aynak copper mine adjacent to Balochistan which attracted bids from 200 large companies. China Metallurgical Group Corporation eventually clinched the deal. The agreement stipulated that the refining process be carried out in Afghanistan.

The value of the agreement Kabul concluded with the Chinese company was $2.9 billion. The Afghan government set the rules of engagement when signing the agreement despite the bad law and order situation in the country. It made the Chinese firm accept all the terms to protect Afghanistan’s national interest.

On the other hand, the Balochistan government did not invite any international tenders for the high-value gold reserves nor did it demand a higher share. Instead, it agreed to all the conditions set forth by the foreign company and kept the deal under wraps.

The Afghan government invited tenders for its copper reserves in 2007 and the Chinese firm secured the deal in 2008 under which 240 million tons of unexploited copper deposits were given to it on a 30-year lease. The Chinese firm paid $880 million to the Afghan government upfront.

The conditions of the agreement included details such as how many Chinese and Afghan workers will be employed on the project. The Chinese firm has started work on the project in July last year.

A report issued in 2009 stated that only 70 Chinese engineers were working alongside 3,000 Afghan miners. The agreement clarified that the Afghan government will maintain a strict monitoring system on all exploration, mining and refining work.

According to a report, the foreign firm has been mining in Reko Diq for the last two years. The reserves of Reko Diq span over an area of 300 to 350 kilometres. Tethyan company has only explored an area of seven to eight kilometres. According to the report, the agreements made by the company in other countries are also being reviewed. It has emerged that there are big differences between the set of conditions agreed to in the contracts with other countries and the one concluded with Pakistan.

Published in The Express Tribune, January 20^th,  2011.