Analysis

Winnipeg Free Press - PRINT EDITION

Resources could be Afghan salvation

By: The Bloomberg View

Posted: 10/24/2012 1:00 AM | Comments: 0

What do you get when you bless one of the most corrupt countries in the world with newly discovered bounties of natural resources? Answer: Afghanistan, perched between prosperity and greater malefaction.

The Afghan government estimates reserves of coal, copper, gold, iron ore, gemstones and other riches -- many of which were recently identified by the U.S. in a topographic survey using an airborne imager -- could bring in as much as $1.5 billion in annual revenue by 2016. In the unlikely event authorities manage the wealth for the benefit of all, natural resources could prove Afghanistan's salvation. Otherwise, the blessing will become a curse that fuels corruption and conflict, as it has in countries such as Angola, Myanmar and the Democratic Republic of Congo.

In these early days, before serious digging has begun, the government has made many of the right commitments to responsible oversight. What matters, though, is whether it codifies and aggressively enforces those policies.

A case in point is President Hamid Karzai's summer decree requiring publication of all extractive industry contracts signed in the previous three years. Transparency around contracts will enable Afghans to scrutinize deals made on their behalf. They need to know: Are officials awarding contracts to cronies? Are royalty payments sufficient? Are provisions for mitigating environmental damage and compensating local populations for disruption in line with best international practices, notably the Sustainability Framework of the World Bank's International Finance Corp.?

Last week, the Ministry of Mines largely fulfilled Karzai's promise, posting on its website more than 200 contracts, mainly for small operations such as salt mines. Notably left out was the 30-year, $3-billion lease of the giant Aynak copper mine by a Chinese consortium, for which the government has published only a summary.

How transparent will future contracts be? Mining Minister Wahidullah Shahrani has promised to publish them as well. Yet rather than resting on one official's pronouncement, contract transparency should be the law of the land, perhaps a part of the reformed mining regulations that parliament is expected to consider later this year.

Publishing contracts, within 30 days of signing, would put Afghanistan in compliance with a benchmark established by the Independent Joint Anti-Corruption Monitoring and Evaluation Committee. The committee is made up of equal numbers of appointees of the Afghan government and its donors, who use the group's reports to assess Afghanistan's anti-corruption efforts.

Yet contracts alone won't provide the public sufficient information to judge deals the government has struck. For major concessions, important details may be excluded from the contract document. In the case of the 2011 Qara-Zaghan gold concession, for example, the published contract guaranteed a healthy royalty rate while leaving out provisions addressing the operation's environmental and social impacts.

Especially in a country as violence-prone as Afghanistan, disputes over damaged cropland and livelihoods can lead to unrest that disrupts mining operations and discourages investors. The government needs to give its people all the information they need to prevent such outcomes.

Resource transparency also has the power to yield genuine benefits. In Liberia, local advocates, working with international groups, compelled the government to renegotiate a 25-year iron ore mining contract. A similar strategy in Sierra Leone won the country an additional $60 million from a diamond mine. The models are out there for Afghanistan to adopt.

The resource curse thrives in darkness. Afghanistan's government has the power to let in the light.

-- Bloomberg News

Republished from the Winnipeg Free Press print edition October 24, 2012 A9

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