Will China's latest investment in Afghanistan actually work?

The Taliban-run Afghanistan saw its first significant foreign investment last month when a Chinese firm signed a 25-year-long, multimillion-dollar contract to extract oil. Experts are cautiously optimistic the project may bring jobs and income despite China’s sketchy record on executing deals.

On January 6, the Taliban signed with Xinjiang Central Asia Petroleum and Gas Company (CAPEIC), a subsidiary of the state-owned China National Petroleum Company (CNPC), a contract to extract oil from the Amu Darya basin, which stretches between central Asian countries and Afghanistan where it covers about 4.5 square kilometres (1.73 square miles). The deal will see an investment of $150m in the first year in Afghanistan and $540m over the next three years, a Taliban spokesperson said on Twitter.

“The daily rate of oil extraction will be from 1,000 to 20,000 tonnes,” spokesperson Zabihullah Mujahid shared in a tweet, adding that the Taliban will be a 20 percent partner in the deal, which will later be extended to 75 percent.

Abdul Jalil Jumrainy, an industry expert and the former director general of the Afghan Petroleum Authority at the Ministry of Mining and Petroleum, is one of the many following the development with a little bit of hope.

“Looking at the situation now, the way our people are struggling, in my opinion, this [project] can be a source of revenue that provides economic relief – an opportunity for Afghans to benefit from their resources,” Jumrainy said. “Even if a major part of it goes to the government, there will be jobs created and some Afghan expertise will be utilised, and that is a good thing,” he said.

Though “it all depends on how it is implemented”, he added.

Sketchy past
While the announcement has brought some initial cheer to the beleaguered country, old Afghan hands are cautious in their optimism, not only because China is yet to see through any of its investments in the country’s mining sector, but because this particular deal sounds just like the one the previous Afghan government had called off on account of corruption.

That exploration and production sharing deal was struck in 2011, under the previous Afghan government, between China’s state-owned CNPC and an Afghan company called Watan Group for the “Kashkari block”, one of the three blocks now part of the recent Amu Darya tender.

“It was a major win for the government because CNPC is a very big company and China is currently the biggest oil and gas buyer in the region,” recalled Jumrainy.

China imports gas from Turkmenistan via four pipelines, three of which transit through Uzbekistan and one via Tajikistan. Afghanistan was offered the opportunity to be part of the fourth pipeline.

The “Afghan government at the time asked CNPC to be part of the tendering process, which they rejected. It was a great opportunity for Afghanistan to develop its petroleum sector had the Chinese agreed to a fair tendering process,” Jumrainy said.

The previous deal, also for 25 years, would have seen a potential initial investment of $400 million to extract 87 million barrels of oil, eventually generating at least $7bn in revenues for Afghanistan.

Afghanistan has significant potential for oil and gas, Jumrainy said. “Afghanistan was among the major exporters via Turkmenistan to the Soviet Union. However, there hasn’t been sufficient exploration in the last few decades which requires billions in investment,” he said.

The previous government had hoped China would be a significant investor in Afghan extractive sectors, including copper, oil and gas, but very little materialised.

“There were certain regulatory and budgeting concerns of CNPC’s expenditures in Amu Darya EPSC and when the government raised questions and hired independent auditors, CNPC shut the field and its staff left the country. The expenses were higher and contracts were given to Chinese companies without following proper procurement rules,” he recalled.

The Afghan government made several other attempts to revive the deal but the negotiations fell apart. “When we visited China to ask CNPC to resume the deal, they asked to be the sole source for arrangements of the entire Amu Darya basin covering 10 blocks. But the government decided against it and instead put the potential gas block up for bidding. We offered for them to be part of the tender process but they were not interested,” Jumrainy said, adding that the CNPC’s local Afghan partners had similar concerns, which led to disputes between the two sides.

The previous controversies with CNPC, Jumrainy speculated, may be the reason why the deal with the Taliban was made through an affiliate company rather than with the state body itself.

Then there is the case of the Mes Aynak mines, one of the largest untapped deposits of copper globally, 40km (25 miles) southeast of Kabul.

In 2008, a Chinese company took a 30-year lease for Mes Aynak mines to extract nearly 11.08 million tonnes of copper. Now, more than halfway through their lease, the company is yet to develop the mines. “Until the concrete investments are actually made on the ground, I would be sceptical of considering any of the announced figures or targets as being more than declarative ambitions,” Zhou said.

In a sign the Taliban is aware of the Chinese lackadaisical performance, the Taliban spokesperson said that under the Amu Darya contract, “if the said company does not fulfil all the materials and items mentioned in the notice within one year, the contract will be automatically terminated.”

Political significance
Nevertheless, the deal has a degree of political significance given the Taliban government’s pariah state status, said Jiayi Zhou, a researcher at SIPRI, an independent conflict research institute based in Sweden, who specialises in China geopolitics. “But it is also not completely surprising: Chinese corporations had been publicly in contact with Taliban over the past year, to renegotiate and restart previous mining and oil contracts settled in 2008 and 2011. This deal is essentially the fruit of those talks,” she said.

Zhou also pointed out that the Taliban have been engaged in negotiations with several other neighbours as well to resume economic cooperation projects.

“Among Afghanistan’s neighbours, broadly, there is consensus that there is no alternative to some form of engagement with the Taliban, if only for reasons of ensuring regional stability and security,” she said, noting that such channels of economic interaction between Afghanistan and its neighbours have remained open. “I would at least in part contextualise Chinese investments as being part of that wider picture,” Zhou added.

Omar Sadr, an Afghan academic and former professor at the American University of Afghanistan, told Al Jazeera that China’s engagement with the Taliban is based more on security rather than economic interests.

“Chinese interest in Afghanistan is driven by two major factors: preventing an entrenchment of the Eastern Turkistan Islamic Movement (ETIM) and the return of the US to the region,” Sadr said.

ETIM is an al-Qaeda-affiliated armed group that has conducted attacks on China in its pursuit of the creation of “East Turkistan” on the Chinese mainland. It is in China’s interests to stabilise the Taliban government, Sadr told Al Jazeera.

“Both of these interests are historically embedded in the Chinese engagement over the last 10 years. Any form of economic interest would be secondary to the security interest,” he added.

China’s renewed interest in Afghanistan came after the fall of the United States-backed Afghan government. Independent Chinese investors were making inroads, albeit weak and flailing attempts, into Taliban-controlled Afghanistan. This latest deal cements China’s presence in the war-ravaged country.

But the true test of the deal will remain to be seen in its implementations, experts say.

“The real win is not in getting the contract or getting the Chinese back on the ground but in how [the Taliban] regulate and implement [contracts and projects], considering the current capacity within the Ministry,” Jumrainy, the industry expert, said, adding that not many details of the deal were made public.

“The question remains on what benefits Afghans will receive; training, technology transfer, revenues from the contract, none of these are known,” he pointed out.

China is also aware of the Taliban’s limitations and, as a result, has not committed much, Sadr added. The investments under the Taliban deal are significantly less than those announced between 2002 and 2021.

“Its state-owned corporations, in particular, will not invest in Afghanistan until it is sure of its security. We should recall the latest attack on Chinese investors in downtown Kabul which prompted China to advise its nationals to leave Afghanistan,” he said, referring to an attack in December 2022 on a Kabul hotel popular with Chinese nationals, for which ISIL (ISIS) claimed responsibility.

Source: Al Jazeera