China, Not U.S., Likely to Benefit from Afghanistan's Mineral Riches

China, Not U.S., Likely to Benefit from Afghanistan's Mineral Riches
China, Not U.S., Likely to Benefit from Afghanistan's Mineral Riches

Although the U.S. government has spent more than $940 billion on the conflict in Afghanistan since 2001, a treasure trove of mineral deposits, including vast quantities of industrial metals such as lithium, gold, cobalt, copper and iron, are likely to wind up going to Russia and China instead of American firms.

The New York Times reported Monday that U.S. officials and American geologists have found an estimated $1 trillion worth of mineral deposits that have yet to be exploited in the country. The paper said a Pentagon report called Afghanistan potentially "the Saudi Arabia of lithium," a key component in batteries for cellphones, laptop computers and eventually, a plug-in fleet of electric cars.

But while the United States and other North Atlantic Treaty Organization countries are providing the bulk of the security for Afghanistan -- U.S. troop levels are set to rise to 100,000 by year's end -- the firms that are profiting from the resource boom are primarily Chinese, and to a lesser extent, Russian.

"China has an absolute advantage in Afghanistan as far as resource development goes," says James R. Yeager, a Tucson, Ariz., consultant who worked as an adviser to the Afghan Ministry of Mines.

Murky Deals, Bribes and State Support

In December, 2007, China's state-owned China Metallurgical Group Corp. (MCC) signed a $2.9 billion agreement with the Kabul government to extract copper from the Aynak deposit, one of the world's largest unexploited copper deposits with an estimated 240 million tons of ore.

The Washington Post, quoting a U.S. intelligence official, reported that the Afghan minister of mines was accused of taking approximately $30 million in bribes from the Chinese company in exchange for the contract. The minister denied the charge and said the Chinese firm had offered the best deal.

Yeager produced a 78-page investigation into the Aynak deal, which he described as a "murky and insufficient tender process." He said a number of sources have come forward since the report was written to confirm that bribes were paid to Afghan officials at clandestine meetings in Dubai in the Aynak tender process.

Yeager says that transparency may no longer be such a big problem because a new minister of mines has taken office and has vowed to clean up the systematic corruption. Now the problem is the way the Kabul government interprets the mining laws.

The law says that if you buy land and acquire exploration rights, then you can go right into a mining license," Yeager says. " But the government of Afghanistan says if you go out and explore and find something, you can give it back to us and we'll tender it. No one will put up their risk capital just to turn the deposit over to the Chinese."

Chinese, Russian Firms Don't Explore

Yeager also said the cozy relationship between the Russian and Chinese governments and Russian and Chinese mining firms gave them a major advantage over Western firms in winning mining licenses.

MCC, for example, is 44% owned by the Chinese government. When MCC entered into negotiations with the government of Afghan President Hamid Karzai, it offered substantial aid for resource development as part of the package, Yeager says. The United States, on the other hand, has no program to support U.S. mining companies with development assistance or other aid.

The irony is that it is U.S. government geologists and Western companies that are locating the vast mineral deposits that the Chinese and Russians are exploiting in Afghanistan.

"The problem with the Chinese is that they are developers of resources and not explorers of resources," Yeager says. "They will look at projects where they already have a reserve in place and then go out and buy it. They don't spend the risk capital and the exploration dollars."

According to Yeager, the countries that are doing the most exploration are Australia and Canada. But they also don't pay bribes to local officials or provide vast amounts of state aid to the government in return for valuable mining licenses.