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Cablegate: Chinese Firm Re-Thinks Afghan Mining Contract

VZCZCXRO2385
OO RUEHCN RUEHDBU RUEHGH RUEHPW RUEHSL RUEHVC
DE RUEHBJ #3295/01 3441035
ZNY CCCCC ZZH
O 101035Z DEC 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7148
INFO RUCNAFG/AFGHANISTAN COLLECTIVE PRIORITY
RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RHMFISS/CDR USPACOM HONOLULU HI PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 003295

SIPDIS

DEPT FOR EAP/CM AND S/SRAP

E.O. 12958: DECL: 12/09/2019

TAGS: EAID ECON EINV EMIN ENRG MASS PREL PGOV PTER

AF, CH, PK

SUBJECT: CHINESE FIRM RE-THINKS AFGHAN MINING CONTRACT

AFTER DIFFICULTIES OF THE AYNAK COPPER MINE PROJECT

REF: (A) KABUL 3574 (B) BEIJING 2918 (C) KABUL 3101
Classified By: Economic Minister Counselor William Weinstein. Reasons
1.4 (b, d)
1. (C) Summary: China Metallurgical Group Corporation (MCC)
President Shen Heting told a visiting U.S. delegation on
November 12 that inefficiency and corruption in the Afghan
government, security problems, and a lack of skilled Afghan
workers had delayed work on the MCC´s Aynak copper mine
project. Shen asked for U.S. support in training Afghan
National Police (ANP) deployed to protect the mine and
insisted that the company would create jobs and carry out
community projects. Highlighting the U.S. and China´s shared
interests in security and development in South Asia, Deputy
Special Representative for Afghanistan and Pakistan Dan
Feldman urged Shen to ensure MCC´s investments in both
countries contributed to economic stability in the region.
Feldman emphasized the need for infrastructure development,
anti-corruption measures, job creation and vocational
training. End Summary.
Afghan Inefficiency, Security Concerns Slow Progress
--------------------------------------------- -------
2. (C) Shen explained the MCC won the Aynak cooper mine
tender among 6 bidders in 2007-8, and began construction on
the mine in July 2009. He said MCC had encountered a number
of difficulties that slowed progress on the project,
including inefficiencies in the Afghan government, which Shen
said had not honored its commitment to relocate a number of
villages in the area, and security concerns. He also listed
poor infrastructure, a shortage of skilled workers and lack
of necessary supplies as other reasons for the slow pace of
work. Citing the "low fighting capability" of the 1200
Afghan National Police (ANP) deployed to protect the Aynak
copper mine (after the Government of Afghanistan had promised
1500 ANP guards), Shen requested U.S. assistance in providing
them training and better weapons.
Chinese Government Urging MCC to Honor the Contract
--------------------------------------------- ------
3. (C) Despite the difficulties MCC faced in Aynak, Shen said
the Chinese government gave the company "clear instructions"
to honor its contract and keep to the original schedule. At
the same time, MCC did not believe it could ask the
Government of China to intervene with the Government of
Afghanistan to request additional security forces. While MCC
planned to train local laborers to work in the mine, it would
recruit Chinese engineers for the jobs requiring university
qualifications. Shen said existing roads would be sufficient
to transport the copper from the mine and that construction
of a railway from the mine to the Pakistan port of Gwadar was
not economically justified. However, he reiterated that the
Chinese government was urging the company to honor its
commitments, suggesting that MCC might eventually build some
railway. (Comment: MCC has never before been so blunt with
us about the fact that it is state-owned. Shen´s repeated
references to state instructions likely were his way of
absolving the company of proceeding with what he saw as an
economically unsound project.)
MCC Having Second Thoughts About Hajigak Tender
--------------------------------------------- --
4. (C) Although MCC was the leading bidder among the seven
companies short-listed for the contract for the multi-billion
dollar Hajigak iron ore mine in Bamyan, Shen said the company
was "not prepared to move forward on the tender." He did not
indicate that the company would withdraw its bid, but
suggested the company was re-thinking its proposal given the
many requirements and "difficult conditions" associated with
the Hajigak project and MCC´s experience with Aynak. He
complained of rampant corruption among Afghan officials
involved in mining tenders, commenting that MCC had
encountered far fewer problems in carrying out two
large-scale projects in Pakistan.
U.S. Urges MCC to Create Jobs, Promote Good Governance
--------------------------------------------- ---
5. (C) Deputy SRAP Feldman welcomed Chinese investments in
Afghanistan and Pakistan and urged MCC to support regional
stability by ensuring its projects created jobs and promoted
good governance by eschewing corrupt practices. Noting that
training of the ANP was central to the U.S. strategy in
Afghanistan, Feldman encouraged MCC to contribute to
Afghanistan´s security and the security of the Aynak mine by
providing financial assistance or in-kind support to the ANP.
Shen replied that MCC was committed to using part of its
total investment of USD 4.4 billion to improve the lives of
the local population. He said MCC had plans to set up a
training center near the Aynak copper mine and to hire as
many Afghan workers as possible. The company hoped to begin
work on community projects - including schools, hospitals and
a mosque - by the end of this year.
HUNTSMAN

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