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Cablegate: Prc/Afghanistan: Mcc On the Aynak Copper Mine

VZCZCXRO5574
OO RUEHCN RUEHDBU RUEHGH RUEHPW RUEHSL RUEHVC
DE RUEHBJ #2918/01 2940854
ZNY CCCCC ZZH
O 210854Z OCT 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6510
INFO RUEHOO/CHINA POSTS COLLECTIVE IMMEDIATE
RUCNAFG/AFGHANISTAN COLLECTIVE IMMEDIATE
RUEHZG/NATO EU COLLECTIVE IMMEDIATE
RHEFDIA/DIA WASHINGTON DC IMMEDIATE
RUEAIIA/CIA WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 002918

SIPDIS

DEPT FOR EAP/CM AND S/SRAP

E.O. 12958: DECL: 10/21/2019
TAGS: EAID EINV EMIN ENRG PREL AF CH
SUBJECT: PRC/AFGHANISTAN: MCC ON THE AYNAK COPPER MINE
PROJECT

REF: KABUL 3101
Classified By: Acting Economic Minister Counselor Robert Forden. Reaso
ns 1.4 (b, d)
1. (C) Summary: The political vacuum created by Afghan
elections and "inefficient" work of the de-mining company has
caused delays at the Aynak copper mine project, according to
two executives at the China Metallurgical Group Corporation
(MCC, the mine contract holder). The MCC officials requested
U.S. assistance in expediting the de-mining process and
expressed willingness to participate in consultations with
the United States on Afghanistan economic development. They
expressed mild concerns about security but commented that
security at Aynak was "not as bad as imagined." The company
hoped to begin small-scale production by the end of 2011 and
large-scale production by the end of 2013 and eventually hire
up to 4000 direct employees. Although the company was
committed to hiring "as many Afghans as possible,"
significant job training would be necessary before MCC could
reach its goal of having 80 percent Afghan workers. MCC
planned a number of infrastructure and community projects,
including new roads from Aynak and a power plant near the
Bamiyan coal mine. The company was also considering
construction of a steel plant if awarded the Hajigak iron ore
contract. End Summary.
2. (C) EconMinCouns met MCC [TEXT REMOVED BY AFTENPOSTEN]
and MCC [TEXT REMOVED BY AFTENPOSTEN] on
October 21. [TEXT REMOVED BY AFTENPOSTEN]
is responsible for oversight of the Aynak
copper mine projects and makes regular visits to the mining
site.
Delays Caused by De-mining Company and Elections
--------------------------------------------- ---
3. (C) [TEXT REMOVED BY AFTENPOSTEN] said MCC had been unfairly criticized for the
slow progress on the project and blamed the delays on the
"inefficient" company that received the contract to de-mine
the surrounding area. He said the de-mining company insisted
on clearing some areas that had already been de-mined, adding
to the project costs and preventing MCC from carrying out
other preliminary work. [TEXT REMOVED BY AFTENPOSTEN] asked the United States to
help expedite the de-mining process.
[TEXT REMOVED BY AFTENPOSTEN] said the Afghan
elections had also impacted the project by creating a
political vacuum and making the Afghan government even less
efficient than usual.
Security Not as Bad as Imagined but Still a Concern
--------------------------------------------- ------
4. (C) The security situation at the mine site was "not as
bad as I imagined," said [TEXT REMOVED BY AFTENPOSTEN],
who last visited Aynak in
July2009. Nevertheless, [TEXT REMOVED BY AFTENPOSTEN]
said MCC still had security
concerns, noting that insurgents had fired three rockets at
the mine site in recent months. He expressed concern that
terrorists were hiding in surrounding villages and complained
that the Afghan National Police (ANP) assigned to the mine
were afraid to go into the surrounding villages to root out
the terrorists.
MCC Outlines Project Timeline
-----------------------------
5. (SBU) [TEXT REMOVED BY AFTENPOSTEN]
said preliminary work on the project began in
July 2009 with a site survey, de-mining of the site and other
prep work. Once preliminary work is finished, MCC plans to
begin phase one of construction of the mine. MCC expects to
complete phase one by the end of 2011, at which point
small-scale production would begin. MCC plans to expand
production capacity during phase two and hopes to complete
phase two and begin large-scale production by the end of 2013.
MCC: Our Goal is to Create Local Jobs
-------------------------------------
6. (C) [TEXT REMOVED BY AFTENPOSTEN]
stressed that creating local jobs was one of the
company´s main goals, commenting that MCC would honor its
commitment to the Afghan government to hire "as many Afghans
as possible." [TEXT REMOVED BY AFTENPOSTEN]
said the contract required MCC to
hire a certain percentage of Afghan workers, from 50 percent
when production started to at least 80 percent within eight
years. MCC expected to hire 1500 workers by the end of phase
one and eventually have 4000 direct employees, at least 80
percent of whom would be Afghan. [TEXT REMOVED BY AFTENPOSTEN]
said hiring local
workers would eventually lower costs and contribute to
security, but the lack of skilled technical workers
necessitated the use of skilled Chinese workers and training
of Afghan workers in the short-term. He complained that
delays caused by the de-mining company had prevented MCC from
building a training center for Afghan workers.
MCC Planning Infrastructure and Community Projects
--------------------------------------------- -----
7. (C) [TEXT REMOVED BY AFTENPOSTEN] downplayed the possibility of building rail
lines from Aynak, commenting that building new roads would be
sufficient to transport the refined copper processed at the
mine. MCC also planned to build a power plant that would be
powered by coal from the Bamiyan coal mine and would supply
power to the Aynak copper mine. Asked about MCC´s plans for
community development projects, [TEXT REMOVED BY AFTENPOSTEN]
said the company was
"always considering" possible projects.
[TEXT REMOVED BY AFTENPOSTEN] said MCC
had plans to train local workers to grow vegetables and other
food that could be sold to MCC for its workers. He said the
local government supported the plan and had already set aside
land for the project. [TEXT REMOVED BY AFTENPOSTEN] said the company planned to
eventually build schools and mosques and provide water and
electricity for the local community, but he did not specify a
timeline for these projects.
MCC Considering Steel Plant at Hajigak
--------------------------------------
8. (C) Regarding MCC´s participation in the Hajigak iron ore
tender process, [TEXT REMOVED BY AFTENPOSTEN]
said MCC´s proposal had received strong
support from the Afghan government. He said if MCC was
awarded the contract, the company would consider building a
steel plant near the mine to process most of the iron ore in
Afghanistan rather than transport it to China, hoping to
capitalize on the growing demand for steel for construction
projects in Afghanistan.
Af-Pak Consultations
--------------------
9. (C) Noting the United States and China´s shared interest
in stability and economic development in the region,
EconMinCouns raised the possibility of MCC´s participation in
the proposed U.S.-China consultations on Af-Pak. [TEXT REMOVED BY AFTENPOSTEN]
replied that MCC was "willing to actively participate in
talks." (Note: Since MFA and the Ministry of Commerce have
not yet agreed to send a delegation to Washington for
consultations, we did not formally invite MCC but only
mentioned its participation as a possibility. It is unlikely
that MCC would take part in consultations unless invited by
the Chinese government.)
Complaints about Afghan Corruption and Inefficiency
10. (C) Following the meeting, [TEXT REMOVED BY AFTENPOSTEN]
told EconMinCouns
privately that dealing with the Afghan government was a
challenge because of the government´s corruption and
inefficiency. He said Afghan officials could not make
decisions without getting approval from the highest levels of
government, making it difficult for MCC to proceed with the
project. In addition, everything required the approvals of
numerous officials, to each of whom small payments would have
to be made.
[TEXT REMOVED BY AFTENPOSTEN] praised the World Bank for providing some
oversight of the tender process for mining rights, commenting
that the tender process would be even more corrupt without
World Bank oversight.
HUNTSMAN

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