Landmark Chinese copper deal with Afghanistan at risk

A consortium of Chinese investors has demanded a review of a landmark $3-billion deal to produce copper in Afghanistan, the Ministry of Mines said on Monday, putting at risk one of Kabul's greatest hopes for economic independence.

It said China Metallurgical Group (MCC) and Jiangxi Copper wanted new terms that would cut their royalties to the government, release them from building a power plant and copper smelter, and postpone the laying of a railway.

"The Afghan government is trying its best ... to negotiate with the company but contract conditions are clear and previously both sides have agreed about it," a ministry spokesman said.

An independent anti-corruption monitor, Integrity Watch Afghanistan (IWA), said the Chinese venture also wanted to delay the start of production by five years to 2019.

The Chinese consortium confirmed that talks to amend the contract were underway and said the project faced "economic and security problems".

In an e-mail, it said, "The topics being talked about include the scope of the contract, the products plan, the economy of the project, security measures and conditions for construction to start."

The copper deposit is among the world's largest but is situated in a dangerous province and the site has often come under attack by insurgents, who have succeed in halting work on the mine by forcing workers to flee.

Donors hope the largest foreign investment project in Afghan history will help wean the country off international aid, which is expected to fall short of the amount needed to pay for its security forces and sustain economic growth.

IWA said that renegotiating the deal, which was agreed in 2007, would dramatically reduce the benefit to Afghanistan and set a bad precedent for others seeking to invest in the already unpredictable country.

"The terms of the contract they want to renegotiate were the terms that made them the winners in the bidding process," said Javed Noorani of IWA.

Noorani said the Chinese investors were seeking to cut royalty payments to the government by almost half, to 10 percent, as well as delay production to 2019.

The Afghan president is expected to travel to China with the minister of mines to discuss salvaging the project. The government was split between accommodating Chinese demands and cancelling the contract.

"Others for strategic reasons want it to happen ... so China remains committed to helping Afghanistan when the money dries up in this country," Noorani continued.

Once production starts, the mine will generate a quarter of a billion dollars a year and create around 75,000 jobs, according to a "low-impact" scenario by the World Bank. (Additional reporting by Mirwais Harooni; Editing by John Chalmers, William Hardy and Clarence Fernandez)