Aynak Copper Mine: Case Study of Sino-Afghan Dreams, Interrupted

For China watchers peering westward, there is a tangible feeling in the air that Chinese relations with Central Asia and the Middle East is the way of the future. I am a participant in conjuring up such dreams. But is it that simple? The cards are in Beijing’s favor: massive monetary reserves, the desire to project soft power, friendly relations with Central Asian governments, the Shanghai Cooperation Organization (SCO), and state-directed investments that can withstand high risk if political capital is forthcoming. To extend the metaphor, I want to look at a wild card--Afghanistan’s Aynak copper mine--as a case study of the limits of Chinese engagement in Central Asia.

Aynak is a copper resource in Afghanistan’s Logar province, located southeast of Kabul. One of the largest copper deposits in the world, Aynak copper is trumpeted as a future bedrock of Afghanistan’s new economy. Aynak requires $2-3 billion to develop the mine and another $2-3 billion to build ancillary infrastructure. The benefits of such an investment are significant. According to the World Bank, a low-range estimate for Aynak is 4,500 direct, 7,600 indirect, and 62,500 induced jobs and $250 million annually for 250,000 tons of copper per year. MCC claims that it will train Afghan teams to operate the mine, leaving the core administrative staff jobs to Chinese nationals. Such investment in Afghanistan’s mining sector also promises “much-needed social and physical infrastructure and technology transfer through the development of professional skills.”

In 2007, with much fanfare and publicity, the Afghan government announced that the China Metallurgical Group Corporation (MCC) and Jiangxi Copper Company outbidded other foreign competitors for a 30-year lease of the resource in exchange for $3 billion and additional deal-sweeteners--a railroad, a 400-megawatt power plant, a smelter, and a coal mine. Once production is full swing, the Afghan government will receive between $250-$500 million royalty payment per year. The lease covers exploration, submission of a feasibility study and environmental social impact assessment, and the subsequent construction of a copper mine.

In 2008, MCC took control of the copper resource site. Mining operations were set to begin in 2013, but it looks increasingly unlikely. The mine is estimated to be five years behind schedule and is allegedly trying to renegotiate the agreement terms.

“Little Copper Wall”

Mes Aynak (Dari for “little copper wall”) is a Buddhist archeological site sitting on the copper deposit. The site contains a monastic complex, temples, a city, hundreds of sculptures (photos here). The history of the site is also quite old, stretching back to the Bronze Age with continued development up until the 8th century AD. There is evidence of rampant looting from 2001-2007, which has already damaged the historical treasures. Since MCC took control of the mine, international archeologists have descended on the site. Initially given three years (2010-2012) to salvage as much as possible. The December 31 deadline triggered a rush of activity to rescue the most important objects, but half of the three-year window was spent raising the funds, obtaining equipment, and relocating experts. In January 2013 the Afghanistan Ministry of Mines extended the conservation work indefinitely, arguing that archeological efforts could be conducted side-by-side with preparation for the copper mine.

The archaeological excavations are the most publicized source of the delay. The are reportedly 400 local workers on the excavation team, underwritten by the World Bank. But it could take up to 30 years to adequately remove this wealth of cultural artifacts. An international campaign to save the Mes Aynak relics and artifacts has gained traction and has funded a documentary titled “The Buddhas of Mes Aynak.” Much of MCC’s preparation remains unfinished. The planned railway and power station remain ideas with no ground broken.

Piecing Together China’s Investment Puzzle

In addition to the Mes Aynak excavation, the MCC has cited a number of other issues causing delay. Land mines from the Soviet occupation and a lack of phosphates deposits for the smelting process are both reported reasons used by the MCC. Other problems emerged, such as the threat of riots for forcing villagers to move and underpaying workers as well as the potential of water contamination due to improper disposal of chemical waste.

There is almost certainly contract renegotiations on the table. In April 2013, the Ministry of Mines claimed that canceling the contract with MCC was an option, but it seems unlikely. More likely, there will be a push-and-pull on the contract terms where the Chinese promises will be upheld, but delayed. But what is the reason for the delay?

The MCC could easily push forward with the work and destroy a portion of the artifacts, after allowing for major excavations over the last few years. Chinese state-owned enterprises have faced worse international backlash. The excuse of land mines holds little water with analysts. The phosphate deposit issue, admittedly, is real.

The delays in bringing this paraded Aynak copper mine plan to full fruition are two-fold, both of which should temper any overly positive assessments of China’s future in Greater Central Asia in the short term.

Realities on the Ground

Naturally, there are limitations that come with the turf. This is evident in the Aynak mine problem. While China is welcomed with open arms to many of the Central Asian economies, this does not preclude unforeseen constraints, such as the archaeological crusade and the phosphate deposits.

China is Willing to Wait

Despite delays, MCC remains in the (relatively) good graces of the Afghan government because the government seeks highest royalties, making state-owned enterprises such as MCC more competitive since they can choose to shrink profit margins. No doubt the Ministry of Mines is placing pressure on the company, but the MCC has the wherewithal to hold out.

MCC does not have to pay royalties until the mining actually starts. While Chinese companies have been depicted as tolerant of high risk, risk will not be taken for risk’s sake. There is economic wisdom in finding ways to delay work until the post-2014 environment is better understood. In August 2012, a Taliban rocket attack sent workers running for cover while the archaeologists bravely carried on. MCC has already won the contract and given an initial signing bonus of $808 million. It will wait until the time is right.

In the case of Aynak, waiting is a win-win. MCC wins by waiting to get a clearer picture of the political situation, but also wins in terms of soft power. By using the excuse of the archaeological site, Beijing projects an interest in preserving Afghanistan’s cultural heritage, not to mention the cross-cultural links of Buddhism.

A Portrait of Cautious China

The takeaway is that China is more cautious than the United States may desire, and more cautious than what excited analyses may portray. It’s easy to see the fascinating potential of a China stabilizing the region and pumping investments, but this must be tempered with the reality on the ground and Beijing’s strategic calculus. The Aynak copper mine is a useful reality check, even for myself.

This was originally published at Registan here.


AnalysisKendrick Kuo