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Afghanistan to start oil-licensing round

LONDON (Reuters) - Afghanistan will begin an oil tender process in July or August in a move it hopes will lure foreign investors and help revamp the war-ravaged country’s economy, its mines minister said on Monday.

Oil production in the country has all but ceased due mostly to security concerns, and an earlier bidding round came to nothing.

But Wahidullah Shahrani, who took over as minister in January, is hoping to attract risk-taking bidders by offering a new legal framework and plans to build infrastructure.

Shahrani estimated the country has 1.6 billion barrels of oil reserves, which if proven would be more than Colombia’s, according to the latest data from BP for end-2009.

Shahrani is meeting with oil companies in London this week to discuss the tender process.

“We are going to tender the Kashkari oil block in the north-west either in July or August,” he said at an industry workshop. “After that, next year we will tender a large oil block in the Afghan Tajik basin, which is much bigger.”

Afghanistan has some unofficial small-scale domestic production at the Amu Darya field in the north, while its Afghan Tajik basin is untapped.

Shahrani took over the mines portfolio, which includes oil and gas, after the Afghan parliament approved his transfer from the commerce ministry.

“Afghanistan is entering onto the world stage with regards to hydrocarbon extraction, and the major players are taking notice,” he said, adding the country had 16 trillion cubic feet of gas reserves and 600 million barrels of condensate.

Last year, the ministry put the Kashkari oil block and two gas blocks up for tender, but the process was later abandoned, partly due to a shortage of bidders.

The first licensing round required a minimum market capitalisation of $100 million, and French oil major TotalTOTF.PA and China's Sinochem were among companies that expressed initial interest.

Shahrani, who adopted a vigorous privatisation campaign during his tenure as head of the Ministry of Commerce, where he doggedly rooted out corruption, said he is proposing reforms to the 2009 hydrocarbon law to make it more transparent and accessible to foreign companies.

“Many changes are being proposed to the hydrocarbon law as it stands now to make it even more transparent and market friendly,” he said in a speech.


Security concerns in Afghanistan have deterred large-scale investment in its hydrocarbon sector, and the country currently has no official oil production.

But Shahrani said safety in the mountainous north, where the bulk of known oil and gas reserves are located, is much better than in other areas of the country.

“The security situation is pretty good,” he said of the region.

Poor infrastructure has also stymied investor interest, and Shahrani said there were plans to build a railway north to the Uzbekistan border to improve export prospects.

A gas pipeline valued at $4 billion linking Turkmenistan, Afghanistan, Pakistan and India has long been discussed, but construction has not yet begun, partly due to security concerns in Afghanistan.

Shahrani said he expected the oil tenders to lead to further investment in the downstream sector.

“We will package our (tender) documents to pave the way for the development of oil refineries in the country,” he said, adding the country now spends $2.5 billion a year importing petroleum products such as diesel for cars.

Gas fields will later be offered to investors through tenders and used to make liquefied petroleum gas used for heating and to fuel a 150 megawatt power plant, said Shahrani.

News of the new licensing rounds follows estimates from a 2007 U.S. Geological Survey that the country’s mineral wealth is between $1 trillion and $3 trillion, and comes ahead of a roadshow in London this week aimed at boosting interest in Afghanistan’s major iron ore deposit and other minerals.

Shahrani repeated the U.S. figure in his speech on Monday but gave no timeline for future mineral tenders.

Reporting by Emma Farge; Editing by Jane Baird