Will China’s latest investment in Afghanistan actually work? | Business and Economy

Taliban-run Afghanistan made its first significant foreign investment last month when a Chinese firm signed a 25-year, multimillion-dollar oil exploration deal. Experts are cautiously optimistic that the project could bring jobs and income despite China’s patchy record of doing business.

On January 6, the Taliban signed a deal with the Xinjiang Central Asia Petroleum and Gas Company (CAPEIC), a subsidiary of the state-owned China National Petroleum Company (CNPC), to extract oil from the Amu Darya Basin, which stretches between Central Asia countries and Afghanistan, where it covers about 4.5 square kilometers (1.73 sq mi). The deal calls for an investment of $150 million in Afghanistan in the first year and $540 million over the next three years, a Taliban spokesman said Twitter.

“The daily rate of oil production will be between 1,000 and 20,000 tons,” spokesman Zabihullah Mujahid said in a tweet, adding that the Taliban will be a 20 percent partner in the deal, which will later be expanded to 75 percent.

Abdul Jalil Jumrainy, an industry expert and former director-general of the Afghan Petroleum Authority at the Ministry of Mines and Petroleum, is one of many following the development with some hope.

“If you look at the situation now, how our people are fighting, I think that [project] can be a source of revenue that brings economic relief – an opportunity for Afghans to capitalize on their resources,” Jumrainy said. “Even if a large part of it goes to the government, jobs will be created and some Afghan expertise will be used, and that’s a good thing,” he said.

Although “it all depends on how it’s implemented,” he added.

fleeting past

While the announcement brought initial cheer to the struggling country, Afghan veterans are cautious in their optimism, not just because China has yet to see through any of its investments in the country’s mining sector, but because this particular deal sounds exactly the same as the previous one Afghan government canceled due to corruption.

This exploration and production sharing agreement was signed in 2011 under the former Afghan government between China’s state-owned CNPC and an Afghan company called Watan Group for the “Kashkari Block”, one of the three blocks now part of the recent Amu Darya tender.

“It was a big win for the government because CNPC is a very big company and China is currently the largest oil and gas buyer in the region,” Jumrainy recalled.

China imports gas from Turkmenistan through four pipelines, three through Uzbekistan and one through Tajikistan. Afghanistan was offered the opportunity to be part of the fourth pipeline.

The Afghan government at the time asked CNPC to participate in the bidding process, which they declined. It was a great opportunity for Afghanistan to develop its oil sector if the Chinese agreed to a fair bidding process,” Jumrainy said.

The previous deal, also for 25 years, would have seen a potential initial investment of $400 million to produce 87 million barrels of oil, ultimately generating at least $7 billion in revenue for Afghanistan.

Afghanistan has significant oil and gas potential, Jumrainy said. “Afghanistan was among the most important exporters via Turkmenistan to the Soviet Union. However, there has not been sufficient exploration in recent decades, requiring billions of dollars in investments,” he said.

The previous government had hoped that China would be a major investor in Afghanistan’s commodity sectors, including copper, oil and gas, but very little materialized.

“There were certain regulatory and budgetary concerns about CNPC’s spending at Amu Darya EPSC and when the government asked questions and hired independent auditors, CNPC closed the field and its staff left the country. Spending was higher and contracts were awarded to Chinese companies without following proper sourcing rules,” he recalled.

The Afghan government made several other attempts to revive the deal, but negotiations failed. “When we visited China to ask CNPC to go ahead with the deal, they asked to be the sole source for the agreements of the entire Amu Darya Basin, which includes 10 blocks. But the government decided against it and instead put the potential gas block up for tender. We offered them to participate in the bidding process, but they were not interested,” Jumrainy said, adding that CNPC’s local Afghan partners had similar concerns, leading to disputes between the two sides.

Jumrainy speculated that the earlier controversies with CNPC could be the reason the deal with the Taliban was made through a subsidiary rather than the state entity itself.

Then there is the case of the Mes Aynak mines, one of the largest undeveloped copper deposits in the world, 40 km (25 miles) southeast of Kabul.

In 2008, a Chinese company leased the Mes Aynak mines for 30 years to produce nearly 11.08 million tonnes of copper. Now, more than halfway through the lease, the company has yet to develop the mines. “Until the concrete investments are actually made on the ground, I would be skeptical about taking the numbers or targets announced as anything more than declarative ambitions,” Zhou said.

In a sign that the Taliban are aware of China’s neglectful performance, the Taliban spokesman said that under the Amu Darya contract, “if the named company fails to perform all the materials and items specified in the notification within one year, the contract will be automatic.” ended is ended.”

political significance

Still, the deal has some political significance given the Taliban government’s status as a pariah state, said Jiayi Zhou, a researcher at SIPRI, an independent conflict research institute based in Sweden that specializes in China’s geopolitics. “But it’s also not entirely surprising: Chinese companies have been in public contact with the Taliban for the past year to renegotiate and restart previous mining and oil deals dating back to 2008 and 2011. This agreement is essentially the result of those talks,” she said.

Zhou also pointed out that the Taliban have also been negotiating with several other neighbors to resume economic cooperation projects.

“There is a broad consensus among Afghanistan’s neighbors that there is no alternative to any form of engagement with the Taliban, if only for the sake of ensuring regional stability and security,” she said, noting that such Channels of economic interaction between Afghanistan and its neighbors have remained open. “I would at least partially contextualize Chinese investments as part of this bigger picture,” Zhou added.

Omar Sadr, an Afghan academic and former professor at the American University of Afghanistan, told Al Jazeera that China’s involvement with the Taliban is based on security interests rather than economic ones.

“Chinese interest in Afghanistan is driven by two main factors: preventing the Eastern Turkistan Islamic Movement (ETIM) from taking root and the US returning to the region,” Sadr said.

ETIM is an al-Qaeda-affiliated armed group that has conducted attacks on China in pursuit of the creation of “East Turkestan” in mainland China. It is in China’s interest to stabilize the Taliban government, Sadr told Al Jazeera.

“Both interests are historically embedded in Chinese engagement over the past 10 years. Any form of economic interest would be secondary to the security interest,” he added.

China’s renewed interest in Afghanistan came after the fall of the US-backed Afghan government. Independent Chinese investors are invading Taliban-controlled Afghanistan, albeit weak and futile attempts. This latest deal cements China’s presence in the war-ravaged country.

But the true test of the deal remains to be seen in its implementation, experts say.

“The real win isn’t in getting the contract or getting the Chinese back on the ground, but how [the Taliban] regulate and implement [contracts and projects]considering the current capacities at the ministry,” said industry expert Jumrainy, adding that not many details of the deal have been released.

“The question remains what benefits the Afghans will receive; Training, technology transfer, revenue from the contract, none of this is known,” he stressed.

China is also aware of the Taliban’s restrictions and has therefore not pledged much, Sadr added. The investments under the Taliban deal are significantly lower than those announced between 2002 and 2021.

“In particular, its state-owned companies will not invest in Afghanistan until it is assured of its security. We should remember the recent attack on Chinese investors in downtown Kabul, which prompted China to advise its nationals to leave Afghanistan,” he said, referring to a December 2022 attack on a hotel popular with Chinese nationals in Kabul for which ISIL (ISIS) claimed responsibility.