Kabul, October 04, 2018 – Afghan and international civil society organisations (CSOs) have raised serious concerns over two mining contracts that are close to being signed by the government, which appear to be in clear breach of Afghan law barring Ministers from holding concessions for a period after they leave office.

“The Afghan government has repeatedly stressed its commitment to bring transparency and the rule of law to Afghan mining. If some of the first major mining contracts they confirm have these questions marks over them, it will send a very worrying signal” said Ikram Afzali, Executive Director of Integrity Watch Afghanistan, a member of the Mining Watch Afghanistan civil society group.

The two contracts, for major gold mines in Badakhshan and a copper mine in Balkhab, both in northern Afghanistan, are set to be the second major deals finalised under the National Unity Government (NUG).

Sadat Mansour Naderi, a businessman who was the Minister for Urban Development from April 2015 to June 2018, is registered as the President of the Afghan Krystal mining company – a major partner in both contracts, along with the UK-led Afghan Gold Holdings. Article 16.5 of the 2014 Afghan mining law sets a five-year time limit before a Minister or their direct relatives are allowed to hold a mining contract.

Mr. Naderi’s company believes the contracts are in order since he was not a Minster at the time that his company was part of the consortiums named as preferred bidders for the deals in 2012. But crucial elements of oversight and revision have since taken place while Naderi was a Minister or shortly afterwards. The High Economic Council only approved the contracts in August 2018, and they have still yet to be signed. This process has included a decision to sharply reduce the royalties on both the contracts, a change which arguably amounts to a re-negotiation of the deals.

“Regardless of whether or not this is a good deal for Afghanistan, approving a contract in apparent contravention of the Minerals Law would undermine the government’s declarations that it is bringing the rule of law to the sector,” said Stephen Carter, Afghanistan Campaign Leader at Global Witness, an international civil society organisation focused on mining and conflict. “The High Economic Council was reviewing and taking serious decisions on this contract while a major beneficiary was either still in office, or had just left. The law is designed precisely to avoid the doubt that this sort of situation inevitably creates, even if there is no wrongdoing.”

There is no process in the current law or regulations which could resolve this issue by allowing an independent and credible review of a contract in the rare circumstances where a company owner is made a Minister after having been named as a preferred bidder.

CSOs raised other concerns about the contracts, pointing out that the gold mining concession in Badakhshan covers mining areas which are largely under Taliban control. No details have been released of what effect this would have on the economics of the project and government revenues. “Insecurity could massively delay the project or make it uneconomic,” Carter said. “At a minimum, these factors should be seriously and transparently assessed.”

A new Minerals Law is close to being finalized for submission to Parliament, and would require companies to declare their real, beneficial owners before they could be granted a concession – a critical protection against abuses. But the CSOs expressed concerns that the government would not apply the same standard to the contracts.

“The Afghan government has made very welcome commitments to require the publication of the beneficial ownership of mining companies, in a law which could be weeks away from coming into force,” said Yasin, coordinator of civil society’s Environmental and Natural Resources Monitoring Network (ENRMN). “These projects should go ahead after the beneficial ownership of the companies involved is clear, not before.”

The CSOs were especially concerned that the deals might reflect pressure to agree new contracts as a way of ensuring continued international engagement and support to the Afghan government. “We fully support the government’s concern to develop Afghanistan’s mineral wealth, but it must be in a way which is transparent, fair, and benefits the Afghan people – not pushed through at any price,” said Dr. Orzala Nemat, Director of the Afghanistan Research and Evaluation Unit (AREU), a member of the ENRMN. “Otherwise, the whole sector will continue to do more harm than good, both for investors and more importantly for the Afghan people.”

/Ends

Contacts

• Integrity Watch Afghanistan: Wahidulla Azizi, Communications Officer / wahidullah.azizi@iwaweb.org / +93 (0)705666962
• Global Witness: Stephen Carter, Afghanistan Campaign Lead / scarter@globalwitness.org / + 44 (0) 7912 517 127(English)

Notes to Editors

• Civil Society previously raised public concerns over the contracts in February 2018 (https://www.globalwitness.org/en/blog/us-quest-afghan-minerals-risks-burning-everyone-involved/) and March 2018 (https://iwaweb.org/civil-society-calls-on-president-ghani-to-ensure-transparency-in-large-contracts-to-american-companies)
• Article 16.2 of the 2014 Minerals Law states in part that:

(2) The following persons shall not be eligible to obtain Licenses set forth in this Law:

1. The President, Vice-Presidents, Ministers, Chief Justice and members of Supreme Court, Attorney General, members of the National Assembly, Heads and members of the Independent Government Commissions (…) and their relatives up to the second degree of consanguinity or by marriage.

Article 16.5 of the 2014 Law states that:

(5) Any person stipulated in Section 1 and 2 of Paragraph (2) of this Article may obtain a License or Contract stipulated in this Law, five years after termination of their term [of tenure in an official position].

• As part of the process of review of the contracts, the government agreed to cut the headline royalty rate for the Badakhshan contract from 11% to 6% and for Balkhab from 11% to 7%. This was justified on the basis that security costs would be borne by the contractors and not the government.
• In September 2017, President Trump and President Ghani agreed to “help American companies develop materials critical to national security while growing Afghanistan’s economy and creating new jobs in both countries, therefore defraying some of the costs of United States assistance as Afghans become more self-reliant.” A draft of the US-Afghanistan Compact suggests that the US has made the resolution of the contracts a condition of its support to the Afghan government.