2 August 2012 - The vast reserves of minerals buried throughout Afghanistan, including large deposits of copper, gold, and gas could greatly improve the country’s economy and provide funds to develop the country for years to come. But all that wealth might also create a crisis. While some estimates put Afghanistan’s mineral wealth at about US$ 1 trillion, for these minerals to be extracted in a way that benefits all Afghans and promotes sustainable development the industry needs to be managed transparently.
That was the key message at a conference recently held in Kabul to coincide with the release of a report called the Afghanistan Extractive Industries Transparency Initiative (AEITI). The report contains details of all payments of taxes, royalties and fees the Afghan Government has received from companies operating in the extractive sector. The report equally publishes details of payments made by mining companies to the Afghan Government in order ensure transparency.
“The Afghan Government is committed to share publicly all the information related to the extractive sector in the country,” said Dr. Omar Zakhilwal Zakhilwal, Afghanistan’s Finance Minister.
This kind of transparency is important because sudden new wealth from mining and gas have had a way of undermining many economies. Rather than using that wealth as a blessing that can improve the lives of citizens and improve a country’s infrastructure, it can cause Afghanistan’s currency to appreciate and lead to increased corruption. This well-studied phenomenon is called the “resource curse”, whereby countries with vast oil and mineral wealth don’t see an improvement in the living standards of citizens. For instance Nigeria, which has one of the world’s largest oil reserves, has seen no improvement in its real gross domestic product per person in 30 years. The GDP per capita of Venezuela, another mineral rich country, is lower today than it was in 1977.
Afghanistan joined the Extractive Industries Transparency Initiative (EITI) in 2010 to help beat the “resource curse”. That Initiative sets international standards for good governance and has established accountability mechanisms for the extractive industries sector. Before a country can join the EITI it has to has to agree to some governance and transparency indicators.
With funds from the World Bank and the Harakat-Afghanistan Investment Climate Facility Organization (HAICFO), the Ministry of Finance established a secretariat for Afghanistan Extractive Industries Transparency Initiative (AEITI) to take lead of EITI implementation in Afghanistan.
Speaking at the conference, the Minister for Mines, Waheedullah Shahrani said the government has devised effective policies to better allocate royalties and taxes collected from this industry to make sure that industry can thrive.
“Transparency means that the process is clean, defendable and the information from the process of negotiation up to awarding contracts and exploration and exploitation of mineral resources are shared publically,” said Shahrani.
Shahrani said oil production from Afghanistan’s first ever oil extraction contract at the Amu-River basin will start soon. This will generate US$ 400 - US$ 500 million in revenue for the Afghan Government each year.
Also underway is the Hajigak Iron project, which is already the biggest project in the history of Afghanistan not just from economic perspective but also from the scale of its operations. Hajigak will produce approximately 25 to 30 million tons of iron annually.
Proposals to develop five other mines, of gold and copper, have been tendered. Evaluations of these proposals are underway.
Eight renowned international companies have expressed interest in investing in oil extraction in Tajik-Afghan basins and currently work is in progress on preparing financial model of this project.
The Afghan government is also bringing reforms in the Mining Law of the country to make it more in line with international standards for broader investment attraction.
“Afghanistan’s commitment to EITI for transparency will be integrated into the law and licensing system will be simplified along with ensuring a legal framework for protection of the rights of investors,” said Waheedullah Shahrani.
Minister Shahrani hoped that mining sector will constitute 45 to 50 per cent of Afghan economy by 2024.
The Director of World Bank in Afghanistan, Bob Sam said AEITI is an important tool to increase knowledge and information about Afghanistan’s natural resources and help increase accountability and transparency.
“The AEITI is moving ahead well; specifically it is reaching out towards the producer regions where people who are directly affected by mining activities live. It is essential that this initiative is not only supported by Ministry of Finance and Ministry of Mines but also by the grassroots movements across the country and private sector,” said Bob Sam.