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Cablegate: Af: Aynak Copper Mine Technical Negotiations Complete.

VZCZCXRO9570
PP RUEHBW RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #1047/01 1191122
ZNR UUUUU ZZH
P 281122Z APR 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 3714
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0626
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHNY/AMEMBASSY OSLO 0559
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

UNCLAS SECTION 01 OF 02 KABUL 001047

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
DEPT PASS TDA FOR STEIN AND GREENIP
CENTCOM FOR CG CFC-A, CG CJTF-76, POLAD, JICENT
NSC FOR JWOOD
TREASURY FOR ABAUKOL, BDAHL, AND MNUGENT
MANILA PLEASE PASS ADB/USED
PARIS FOR USOECD/ENERGY ATTACHE
OSD FOR SHIVERS, SHINN
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH
TOKYO ALSO FOR AID COUNSELOR AANENSON

SENSITIVE
SIPDIS

Reftel: Kabul 0108

E.O. 12958 N/A
TAGS: EMIN EPET EFIN ETRD ENRG KPWR EAID AF CH
SUBJECT: AF: Aynak Copper Mine Technical Negotiations Complete.

Sensitive but Unclassified

1. (U) Summary: Technical negotiations associated with the Aynak
Copper Mine project have concluded successfully. The Afghan deposit
is estimated to be among the largest in the world and is expected to
bring in over USD 450 million in yearly revenues to the government
when it begins operation in 2014. Although negotiations on the
mine's operation are complete, the Ministry of Mines remains under
deadline to negotiate several Memoranda of Agreement (MOA)
pertaining to associated projects including a railroad, power plant,
as well as water use and security arrangements. Advisors to the
process believe close cooperation with ISAF forces operating in the
area will be needed, particularly in the early stages of project
planning. End Summary.

2. (U) On April 15, Rainer Hengstmann, the World Bank-funded advisor
to the Aynak Copper Mine project told EconOff that the technical
negotiations for the development of the mine have concluded. One
outstanding issue, related to the double taxation of repatriated
Chinese profits (Reftel), was resolved when the Chinese firm, MCC,
acceded to the Afghan's demands. (Another indication of how eager
they are to conclude the deal at any cost.) The agreed upon draft
contract was initialed by both sides. Final signature is pending
the approval of the Afghan Council of Ministers and MCC leadership.


OUTSTANDING GOODIES: RAILROAD, POWER PLANT

3. (U) With the conclusion of negotiations for the main mine
project, deadlines to sign Memoranda of Agreement (MOA) on
additional projects including a railroad to run past the project
site are fast approaching. According to Hengstmann, the parties now
have 12 months to reach agreement on a MOA outlining the conditions
under which a 700 kilometer railroad, running from Uzbekistan
through Afghanistan (past Aynak as well as the Hajigak iron ore
deposit) to Pakistan, will be built. The project is envisioned as a
Build, Own, Operate, Transfer (BOOT) arrangement although the
timeline for transferring the railway's operations into Afghan hands
has yet to be determined.

4. (U) Before using the railway to move copper however, the project
site must have an internal power supply to power operations. As of
April, the parties have two months (with a possible 2 month
extension) during which to conclude a MOA on power supply. The
proposal is to construct a coal-fired 400 MW plant on the Aynak site
which will use 200 MW to power the copper mine and sell the
additional 200 MW into the national power grid. Power payment and
interconnection details will need to be outlined in the MOA.
Hengstmann indicated that the parties will make use of the two month
deadline extension as there are many technical and financial details
to work out surrounding power arrangements.

MORE MUNDANE MATTERS...

5. (U) Details outlining the construction of well and pipe systems
to provide much needed water to the mine site (water use and
recirculation) must also be negotiated. The deadline for this MOA
negotiation is 3 months, with a possible 3 months extension. (Given
the sensitivity of water issues in Afghanistan, as well as the
plethora of ministries and agencies - approximately 12 - involved in
the sector, we expect this MOA negotiation to also make use of its 3
month extension.)


KABUL 00001047 002 OF 002


6. (U) Security for the Aynak site, especially during the initial
due diligence and feasibility study phases, will be key to the
success of the project. An MOA placing site security responsibility
squarely on to the IRoA (probably Ministry of Interior) is to be
negotiated by June 2008. Despite this, the World Bank plans to keep
ISAF forces in the area fully briefed on project activities. It
also hopes to be able to rely on ISAF and local Afghan Army units in
the area for emergency support should an unfortunate situation
arise. To that end, Rainer and his colleagues hope to brief ISAF
headquarters on a regular basis. The project also intends to employ
one or more private security firms already fully licensed in
Afghanistan.

7. (U) The World Bank has further outlined some of the benefits to
the local Afghan population in Logar province, where the project is
located. They predict over 5,000 new jobs will be created and
expect another 15,000 to be employed at the coal mine to be
developed for the power plant. MCC, the project company, will build
approximately 4200 new homes for its workers and is expected to pave
or create over 50 kilometers of new roads in the immediate area. A
local hospital, mosque, schools and even power distribution lines to
the surrounding communities are also expected to be built, although
nothing has yet been finalized.

WOOD

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