Chinese Energy Explorations in Afghanistan: A Case Study

10 Mar, 2014    ·   4330

Madhavi Chakravarti traces the Chinese investments in Afghanistan, and analyse the potential fates and implications of the same.

Madhavi Chakravarti
Madhavi Chakravarti
Research Intern

China’s energy demand has increased manifold in the past decade. The US Energy Information Administration (EIA) predicts that in the coming years, China will account for one-third of the world’s energy consumption. This quest for energy resources to meet its growing demand motivates Beijing towards Afghanistan’s untapped reserves of minerals, and oil and natural gas.

The Mines Project
In 2007, two Chinese state-owned companies – the China Metallurgical group Corporation (MCC) and the Jiangxi Copper Company – signed a 30-year deal with the Afghan government to mine copper in the eastern region of the country. This reserve, with an estimated 240 million metric tonnes of ore, pegged at $88 billion, is believed to be the world’s second-largest unexplored copper cache. China’s $3.5 billion-worth investment in the Mes Aynak copper mines located in Logar province has been the largest foreign direct investment in the Afghan history. Initially, this copper mine project included the construction of a 400 megawatt power plant, a copper smelter, and a railway line.

However, this ambitious project has since been plagued by delays. First, unstable security situation resultant of the ongoing insurgency has made this site vulnerable to attacks. Ever since the MCC undertook this project, rampant looting and rocket-attacks have targeted the site, with 19 attacks in 2013 alone. Furthermore, abduction threats aimed at the staff have compelled the employees to pull out of the project.

Second, Mes Aynak is home to an archeological site as well. Following the discovery of the historical site, international archeologists and organizations began campaigning and undertaking efforts to save the relics and artifacts.

Six years since the signing of the deal, the Chinese have not been able to extract even a single gram of copper from this mine; and, now Beijing wants to renegotiate the deal that would cut their royalties towards the Afghan government, and postpone the construction of the railway line, the power plant and the smelter. This alteration in the plan has the potential to negatively affect any future foreign investment in Afghanistan.

Although the probability of China pulling out of this project is low, in an event of a Chinese pullout, India can fill in.

The Oil and Natural Gas Project
Chinese investment in the oil and natural gas sector came from the state-owned the China National Petroleum Corporation (CNPC), and Watan Energy, a local Afghan company. In 2011, they signed a $700 million agreement with the Afghan government – that allows the CNPC to drill for oil in the Amu Darya Basin, located in the Sar-e-Pol and Faryab provinces of northern Afghanistan. According to the US geological survey, Afghanistan has 1.9 billion barrels of crude oil reserves. According to the World Bank, Amu Darya Basin has the capacity to produce 250,000 barrel per day (bpd) of crude oil. While the drilling has been stalled now, the oil wells are ready (though for a lesser production capacity) for production.

The main challenge for the project lies in the logistics. Transporting the extracted oil from the Amu Darya In this regard, there is a likelihood of China to link the southern Afghan provinces of Kandahar and Helmand to Pakistan’s Gwadar port. China has already developed a road links from Gwadar port to its own Xinjiang province.    

Potential Implications
Mines, and oil and natural gas projects have serious environmental and ecological implications such as ground water pollution, air pollution and soil pollution, and migration/death of animals and birds. Copper-mining is involves extensive water-absorbing techniques, and can lead to water shortage and contamination, particularly in Logar and Kabul regions. This will have an indirect ramification on the country’s agriculture sector – which 60% of the Afghans depend on, for their livelihood.

Furthermore, there is a possibility of an expansion of Kabul city that has been facing rapid population growth and water shortage. Owing to droughts and inoperable wells, access to clean water for the residents is already difficult,and this project will only add to their woes.  This mining project could also result in the destruction of the rich cultural heritage of Mes Aynak. If developed properly, it can be a great tourism destination in the future. 

In conclusion, although there are several challenges for Chinese investment in Afghanistan, there is less probability that China will withdraw its investment from the country.