KABUL Jul 5 Afghanistan has grand plans for a
vast rail network to attract mining investors, but experts say
the project would simply be a new target for insurgents and warn
that sovereign risk and high production costs are also deterring
With an impoverished economy ravaged by more than three
decades of war and corruption and now bank rolled by foreign
aid, Afghanistan's government has pinned its hopes of rebuilding
on untapped mineral resources of mainly iron ore and copper,
which it has said could be worth up to $3 trillion.
Afghanistan Mines Minister Wahidullah Shahrani said on
Monday that the government plans to form a railway authority to
oversee the construction of a rail network to attract mining
investors, despite an ongoing war against a Taliban-led
"Looking at the very volatile security situation in many
parts of the country, I find it unrealistic to expect that
Afghanistan will have quick (mining) returns," said Thomas
Ruttig, co-director of the Afghanistan Analysts Network.
"It will take many years before infrastructure is in place,
including a railway system. In the current state, the insurgents
will be quite happy to get a new attractive target," he said.
"The discussions of Afghanistan's mineral wealth look like a
straw one is trying to clutch in a desperate situation."
Ruttig also said that corruption meant that there was a high
risk that very little of any mineral wealth earned would trickle
down to the population.
Mainly Chinese and Indian companies have so far shown
interest in mining Afghanistan's resources.
Resource analysts said the country was unlikely to attract
top global miners such as Rio Tinto and BHP Billiton
for many years to come.
"From a sovereign risk perspective, Rio, BHP and most of the
big guys would probably steer clear of that country," said Troy
Flannery, senior resource analyst at DJ Carmichael in Australia.
China's top copper producer, Jiangxi Copper Co ,
together with China Metallurgical Group Corp, in 2007 won the
contract to develop the Aynak Copper Mine south of Kabul --
which is due to start production in 2014.
CNPC International China appeared to be the front-runner in
bidding for several oil blocks in the north of the country.
Mainly Indian companies have shown interest in the Hajigak
iron ore project, the government has said, which has deposits of
about 2 billion tonnes. Bids are due on Aug. 3 for what the
government describes as Asia's largest unmined iron deposit.
Henry Liu, regional head of commodity research at Mirae
Asset Securities in Hong Kong, said security problems were not
the only deterrent for investors.
"There is also the problem of infrastructure and potentially
high cost of shipping out iron ore because Afghanistan is a
landlocked country," he said. "If we consider all these
conditions, Afghanistan might not be a good choice."
Even in politically stable resource-rich countries like
Australia, Chinese miners are also reconsidering investment
decisions because of concerns about high production costs.
Sinosteel suspended work on its $2 billion Weld
Range iron ore mining project -- one of the largest Chinese
investments in Australian mining -- due to setbacks in
developing port and rail infrastructure. [ID: nL3E7HN0HU]
And the Philippines, which also boasts of $3 trillion in
mineral assets from copper to nickel and gold, has been slow to
attract big miners because many projects have stalled amid
opposition from the Roman Catholic church and an insurgency in
the south of the country.
In Afghanistan -- where the annual average wage according to
the World Bank is $370 -- possible mineral riches valued at up
to $3 trillion are beyond belief.
During a recent rural development meeting, President Hamid
Karzai gave a basic math lesson to highlight the importance of
resources, explaining to farmers that one thousand million makes
a billion and one thousand billion makes a trillion.
Gareth Price, a senior research fellow at Chatham House, a
London-based think-tank on international affairs, said
Afghanistan's mineral resources had emerged as the only solution
for rebuilding the country's economy.
"No one has satisfactorily answered the question 'What's the
Afghan economy going to look like? If there was peace how is the
country going to support itself?'" Price said.
But the presence of the reserves, and the need for income
sources, was leading to some wishful thinking, he said.
"The only magic bullet that seems to have been come up with
is the fact that it does have lots of mining reserves...Quite
frankly until the fighting stops nothing's going to happen."
(Additional reporting by Hamid Shalizi in KABUL and Manolo
Serapio Jr in SINGAPORE; Editing by Emma Graham-Harrison)