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UPDATE 1-Missing refinery deal halts landmark China-Afghan oil project

* Chinese staff temporarily sent home to save money

* Refinery deal with Uzbek government under discussion

* Landmark project had reassured other foreign investors (Adds context, detail)

KABUL, Aug 18 (Reuters) - Afghanistan’s landmark oil project has ground to a halt and most Chinese staff have left less than a year after production started because there is still no transit agreement in place to refine the oil, an employee and a government official said on Sunday.

The venture between China National Petroleum Corporation (CNPC) International and its Afghan partner, Watan Oil and Gas, began producing oil in the Amu Darya basin in the north in October, providing a much needed confidence boost to investors eyeing the country’s vast oil and mineral wealth.

But equipment at the site had now been locked up and about 16 Chinese workers had left, an employee at the project said on condition of anonymity as he is not authorised to speak to the media.

The removal of staff was only a temporary measure to save money, according to Jalil Jumriany, policy director at the Ministry of Mines in Kabul. He said an agreement to refine the oil over the border in Uzbekistan was being negotiated.

“We are waiting for a transit agreement with the Uzbek government,” he said.

Jumriany said a team would travel to meet the Uzbeks next week and was hopeful a deal could be reached.

CNPC said it had no knowledge of problems or delays affecting the project when asked early last week.

Landlocked Afghanistan lacks the capacity to refine the oil it can produce and until an adequate refinery is built will remain reliant on trade agreements with its neighbours.

The joint project launched in December 2011, the first international oil production agreement reached by the Afghan government for several decades, had been expected to earn the war-torn state billions of dollars over two decades.

TOUGH CONDITIONS

The Amu Darya venture was disrupted in June last year when Chinese engineers came under attack by men loyal to army chief of staff and Uzbek warlord General Abdul Rashid Dostum, according to Afghan government officials at the time.

Later in the year, China agreed to train 300 Afghan policemen to safeguard the site, estimated to hold over 80 million barrels of crude oil reserves.

Both Amu Darya and another Chinese-operated site, a giant copper mine at Aynak, have been targeted by insurgents aiming to destabilise government revenues and frighten off fresh investment ahead of a pullout by most NATO combat troops in 2014.

Despite considerable disruptions affecting the first projects seeking to exploit the country’s vast oil and mineral wealth, estimated at $1 trillion, Chinese and Indian firms have scrambled to secure their share.

Afghanistan’s unruly territory holds large deposits of gold, copper, iron ore and oil, as well as lithium and rare earths used in high-tech manufacturing.

Since the Amu Darya project was launched, three international firms have bid for a larger, six-block oil concession known as Afghan-Tajik in the north of Afghanistan.

Work at the site, with an estimated 1.9 billion barrels worth of reserves, has yet to begin as details of the venture are still being finalised. (Editing by Nick Macfie)

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