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Cablegate: Af: Afghan Ministry of Mines: Big Plans for 2008.

VZCZCXRO7631
PP RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #0108/01 0090943
ZNR UUUUU ZZH
P 090943Z JAN 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 2338
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0584
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHNY/AMEMBASSY OSLO 0554
RUEHZG/NATO EU COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 4352

UNCLAS SECTION 01 OF 02 KABUL 000108

SIPDIS

DEPT FOR SCA/FO, SCA/RA, AND SCA/A (DEUTSCH)
DEPT PASS AID/ANE, OPIC
DEPT PASS USTR FOR LILIENFELD AND KLEIN
DEPT PASS OPIC FOR ZAHNISER
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CENTCOM FOR CG CFC-A, CG CJTF-76, POLAD, JICENT
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COMMERCE FOR DEES, CHOPPIN, AND FONOVICH
TOKYO ALSO FOR AID COUNSELOR AANENSON

SENSITIVE
SIPDIS

REF: KABUL 3932

E.O. 12958 N/A
TAGS: EMIN EPET EFIN ETRD KPWR EAID AF CH
SUBJECT: AF: Afghan Ministry of Mines: Big Plans for 2008.

Sensitive but Unclassified

1. (SBU) Summary: Minister of Mines Adel told EconOff he intends to
shepherd several natural resource tenders, including oil, gas and
iron ore deposits, through the biding process this coming year. The
Ministry intends to tender two blocks for commercial gas exploration
and one for oil exploration at the Sheberghan field. These will be
in addition to a current USAID project to rehabilitate existing gas
wells at the Sheberghan site. Contract negotiations for the
exploitation of the Aynak copper deposit are set to begin January 12
and expected to run three weeks. Railroad and power plant
negotiations for the project will be separate.

2. (SBU) In the New Year, the Minister expects to oppose proposed
Parliamentary amendments to the Minerals Law and oversee the final
passage of the Hydrocarbons Law and its accompanying regulations.
Adel is eager to obtain several international advisors who could
help the ministry oversee the Aynak project and ensure the Chinese
firm awarded the tender is adhering to its contractual obligations.
The one impediment to his agenda is the lack of Ministry funds for
the preparation of tender documents. Previous funding has come from
the World Bank. The Minister is interested in exploring the
possible availability of USG funds for tender document preparation.
End Summary.

--------------------------------------------- ------
Aynak Copper: Contracts, Power Plants and Railroads
--------------------------------------------- ------

3. (SBU) On December 29, 2007, Minister of Mines Mohammad Ibrahim
Adel told EconOff about his priorities for the Ministry in 2008.
Since the official Aynak copper tender award to the China
Metallurgical Group (CMG) in October 2007 (Reftel), Adel has been
negotiating the "basis and protocols" under which contract
negotiations will be held. These will begin January 12, 2008. Adel
expects "ten to twenty days, no more" will be needed. Gustavson and
Co., the Denver, Colorado firm retained by the World Bank to oversee
the tender process, will serve as contract advisor to the Ministry
of Mines. Negotiations for the construction of a coal-fired power
plant at the project site and a railway to transport the copper ore
will be held separately.

4. (SBU) Adel expects the rail road, which is part of the Aynak
deal, to be built from either Hairatan on the border with Uzbekistan
or Sher Khan Bandar (site of the Tajik bridge) on the Tajik border.
The route would then lead south through Samangan or Kunduz province
to Pul-e-Khumri, from there to Doshi, to Hajikak (west of Kabul in
northern Wardak province, where iron ore deposits are located) and
on to Kabul. It would then turn east towards Jalalabad and
terminate at Torkham, on the border with Pakistan. He expects the
Chinese to undertake a one to two year feasibility study, to be
followed by seven or more years of actual construction. (We believe
this is a very optimistic timeline.)

------------------------
Potential Tenders Galore
------------------------

5. (SBU) Minister Adel envisions three new natural resource tenders,
at a minimum, for 2008. The Ministry has been working closely with
the Norwegian foreign aid agency NORAD to prepare tender documents

KABUL 00000108 002 OF 002


for the commercial exploration of two gas and one oil blocks in the
Sheberghan area. These blocks are not in the area in which USAID
currently has a project to rehabilitate existing Soviet-era oil
wells. According to the Hydrocarbons Law, this exploration should
be structured along a Production Sharing Agreement (PSA) model.

6. (SBU) After the successful award of the Aynak tender, Adel has
now set his sights on the Hajikak (or Hajigak) iron ore deposit to
the west of Kabul, on the border between Bamyan and Wardak
provinces. Until the construction of a rail road makes the
extraction of ore for export possible, Adel envisions the
construction of an on-site smelter to process the ore for domestic
use. If such a condition is written into a proposed tender, it may
prove difficult to find interested bidders. Unlike Aynak and the
Sheberghan fields, the Ministry of Mines does not currently have
advisors to assist with the preparation of this tender. Adel
bemoaned this fact and appealed for donor support for Hajikak, as
well as his planned development of exploratory oil and gas blocks in
the Afghan-Tajik Basin.

7. (SBU) The Afghan-Tajik basin has recently reappeared on Minister
Adel's radar with the news that the Tajiks have contracted an
internationally renowned firm to begin exploratory drilling in the
basin on their side of the border. Adel wants Afghanistan to begin
its own exploration as soon as possible to ensure the resources are
exploited equitably. In order to proceed however, the Ministry of
Mines needs to identify funds and an interested donor to help them
prepare tender documents.

8. (SBU) Adel listed a number of other potential projects, including
the extraction of palladium, platinum, gold, copper and lead. For
the exploitation of these sites, as well as others with proven
deposits of marble, lapis or other valuable minerals, the ministry
continues to select the deposit site, advertise for the submission
of mining proposals, select a winner, award a contract and then
issue a mining license for the term of the contract. The Minister
expects to see a 20 percent production increase in 2007 from these
operations.

---------------------
Legislative Prospects
---------------------

9. (SBU) Despite progress on the passage of the Hydrocarbons Law in
2007, its accompanying regulations remain under review at the
Ministry of Justice (MOJ). Adel expects the MOJ to pass them to the
Cabinet for approval in the first three months of the year.
According to the Minister, despite the fact that the Mineral Law has
been passed, an amendment has been proposed in Parliament which
would require both Cabinet and Parliamentary review and approval of
any investment in mineral extraction/processing of USD 50 million or
more. Adel is opposed to this amendment and intends to work to
prevent its adoption in 2008.

Wood

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