VZCZCXRO2676
RR RUEHDBU RUEHIK RUEHYG
DE RUEHBUL #0745/01 0511250
ZNR UUUUU ZZH
R 201250Z FEB 06
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 8421
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI 6794
RUEHIL/AMEMBASSY ISLAMABAD 2769
RUEKJCS/OSD WASHDC
RUEKJCS/JOINT STAFF WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUCNDT/USMISSION USUN NEW YORK 2255
RUEHGV/USMISSION GENEVA 5564
RUEHUNV/USMISSION UNVIE VIENNA 1097
RUEATRS/DEPT OF TREASURY WASHDC
RHEHAAA/NSC WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KABUL 000745 
 
SIPDIS 
 
DEPARTMENT FOR SA/FO, SA/A, EB 
TREASURY FOR PARAMESWARAN 
NSC FOR AHARRIMAN, KAMEND 
CJTF-76 FOR POLAD, CENTCOM FOR CG CFC-A 
COMMERCE FOR AADLER 
USTDA FOR DSTEIN, SGREENIP 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: ECON ETRD EFIN PREL OPIC EAID PGOV AF
SUBJECT: AFGHANISTAN INVESTMENT COMPANY CLOSING IN ON FIRST 
PROJECT 
 
REF: KABUL 006232 
 
¶1. (SBU) Summary: The Afghanistan Investment Company (AIC,) 
founded in October 2005 by 50 of Afghanistans and the 
Afghan Diasporas wealthiest businessmen, is closing in on 
its first venture: a Greenfield cement plant in Puli 
i 
Khumri, Baghlan province.  According to Mahmood Karzai, the 
GOA Presidents older brother and lead negotiator for the 
AIC, discussions with the GOA on this project has been a 
nightmare, as procedures for investment in this sector 
(restricted by the Private Investment Law) are ill-defined. 
The AICs experience bodes poorly for other investors.  End 
Summary. 
 
¶2. (U) The AIC was founded in October 2005 by a group of 
businessmen from both Afghanistan and the Afghan Diaspora. 
The company, headquartered in Dubai, announced its 
formation and intent to invest in major infrastructure 
projects in Afghanistan during the U.S. Afghan Business 
Matchmaking Conference, organized by the Afghan American 
Chamber of Commerce (AACC) October 2-4 in Washington, D.C. 
 
¶3. (SBU) Econoff recently met with Mahmood Karzai, brother 
of GOA President Hamid Karzai, owner of a string of 
Helmand restaurants in the U.S., Chairman of the AACC and 
one of the AICs founding members.  Karzai reported that 
d that 
the AIC now has 50 members, each of whom has invested equal 
USD 500,000 shares in the company, bringing the total value 
of the fund to USD 25 million.  While a complete list of 
the investors is not publicly available, Karzai stated that 
the group includes prominent businessmen such as Habib 
Gulzar, owner of the bottling facility licensed by Coca- 
Cola, Farid Maqsudi of the Afghanistan Reconstruction 
Company,  Farnood Sherkhan of Kabul Bank and Rahim Safi of 
Safi Industries. At least ten AIC investors are U.S. 
citizens. 
 
¶4. (SBU) Karzai reported that the AICs first project will 
be a USD 250 million investment in a Greenfield cement 
plant at Puli Khumri in Baghlan province. (Note: Two 
moribund state-owned cement manufacturing plants are 
located at this site. End note.)  The AIC has already 
formed and registered a local company called the 
Afghanistan Cement Company for the purposes of this 
project.  A site has been identified which the AIC plans to 
lease from the GOA for a 49-year term.  Negotiations on 
other aspects of the deal are still underway.  The price at 
which the AIC will purchase raw materials from nearby 
state-owned limestone quarries is particularly contentious. 
The GOA has reportedly asked for USD 8 per metric ton of 
limestone.  Karzai called this price crazy, claiming that 
Pakistani plants purchase limestone at just 5 rupees 
(approx. 8 US cents) per metric ton.  Karzai stated that 
the AIC was attempting to negotiate contract language 
stating that the GOA will set prices for raw materials 
commensurate with those of neighboring countries. 
 
¶5. (SBU) Karzai stated that the AIC has already found a 
potential financier for this project, the ExIm Bank of 
China.  According to Karzai, China ExIm will finance up to 
85 percent of the project if the Afghan Cement Company 
purchases Chinese equipment.  However, the bank is seeking 
a GOA loan guarantee for the transaction.  Karzai has been 
en 
unsuccessful in convincing the GOA to provide such a 
guarantee. (Comment: We seriously doubt that one will be 
 
KABUL 00000745  002 OF 002 
 
 
forthcoming as the GOA is constrained by its own zero 
overdraft budget policy and by IMF oversight. End 
comment.)  The AIC is seeking additional investors for the 
remaining USD 37.5 million.  According to Karzai, both the 
Asian Development Bank and the Afghan International Bank 
have expressed interest in supporting this project. 
 
¶6. (U) The plant will be capable of producing three million 
metric tons of cement per year.  According to Karzai, this 
is enough to satisfy all of domestic consumption.  The AIC 
hopes to begin production in 2009. (Note: A USTDA-funded 
feasibility study conducted by Box International Consulting 
has found that a Greenfield plant in the Puli Khumri area 
would be competitive, but only for the North-Central 
Afghanistan market where imports from Iran, Pakistan and 
Turkmenistan incur higher transportation costs. End note.) 
 
 
 
¶7. (U) Karzai clearly has great expectations for the AIC, 
making reference to possible plans for the company to go 
public in the future.  He stated that the AIC is 
simultaneously pursuing a USD 8 million investment in a GOA 
owned coal mine, but was hesitant to discuss the details. 
A fertilizer plant project is also under consideration. 
 
¶8. (SBU) COMMENT:  While the formation of the AIC is a 
promising step for the development of private sector 
investment in Afghanistan, the process through which the 
company is negotiating its contract with and permits from 
the GoA is worrisome.  Under the recently passed Private 
Investment Law (reftel), investment in sectors such as 
cement, coal and fertilizer are considered on a case-by- 
case basis by a sub-cabinet committee of economic 
ministers.  Karzai has taken the lead in negotiating the 
AICs project and, while his status has undoubtedly proved 
useful in cutting a deal with the GOA, he characterized the 
process as a nightmare.  The absence of clearly 
ly 
established procedures for obtaining approval for this type 
of investment has necessitated scores of signatures and 
meetings with recalcitrant GOA officials to convince them 
of the merits of the project.  While Karzai claims to have 
steered clear of corruption, other investors without his 
family connections would likely not be as successful.  This 
bodes poorly for the future of private investment in 
sectors covered by these special procedures under the 
Private Investment Law.  Post will press the GOA to 
establish clear rules of the game for investment in these 
sectors as soon as possible.  End comment. 
 
NEUMANN 
N