VZCZCXRO6435
PP RUEHDBU RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #3932/01 3310809
ZNR UUUUU ZZH
P 270809Z NOV 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 1562
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC 0559
RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 4287

UNCLAS SECTION 01 OF 03 KABUL 003932 
 
SIPDIS 
 
DEPT FOR SCA/FO, SCA/RA, AND SCA/A (A/S BOUCHER, GASTRIGHT,DEUTSCH) 
DEPT PASS AID/ANE, OPIC 
DEPT PASS USTR FOR GERBER AND KLEIN 
DEPT PASS OPIC FORZAHNISER 
DEPT PASS TDA FOR STEIN AND GREENIP 
CENTCOM FOR CG CFC-A, CG CJTF-76, POLAD, JICENT 
NSC FOR JWOOD 
TREASURY FOR ABAUKOL, BDAHL, AND MNUGENT 
MANILA PLEASE PASS ADB/USED 
PARIS FOR OECD/ENERGY ATTACHE 
OSD FOR SHIVERS, SHINN 
COMMERCE FOR DEES, CHOPPIN, AND FONOVICH 
TOKYO ALSO FOR AID COUNSELOR AANENSON 
 
SENSITIVE 
SIPDIS 
 
REF: KABUL 3087 
 
E.O. 12958 N/A 
TAGS: EMIN EFIN ETRD KPWR EAID PGOV AF CH
SUBJECT: AF: Aynak Copper: Details of winning Chinese bid remain 
elusive. 
 
Sensitive but Unclassified 
 
¶1. (SBU) Summary: After a prolonged tender and evaluation process, 
on October 20, 2007, the state-owned China Metallurgical Group (CMG) 
was awarded the right to start negotiating a detailed contract for 
the Aynak Copper Mine project.  By some accounts, the Chinese are 
expected to invest approximately USD 3 billion to develop 
Afghanistan's large copper deposit in Loghar Province, south of 
Kabul.  Despite accusations of irregularities in the bid tendering 
and evaluation process, the World Bank - the process underwriter and 
overseer - has said the evaluation of the bids appears to have 
proceeded according to the process spelled out in tender documents, 
and in accordance with the law (reftel).  Although exact details are 
currently unavailable, meetings with Chinese Embassy officials in 
Kabul and other sources yielded additional information regarding the 
project.  End Summary. 
 
¶2. (SBU) According to our U.K. colleagues, project development is 
expected to take five years with the mine employing some 10,000 
workers.  Once mining operations are underway, the IRoA will receive 
royalties equal to 15 percent of the mine's income, estimated to be 
worth some USD 400 million per year.  (Note: We have no indication 
if this will be net or gross income.  End Note.)  The award 
announcement clearly states that no bid or evaluation details will 
be released until a mining contract has been signed.  World Bank 
advisors to the Ministry of Mines told us that construction of a 
railroad, as well as an on-site power plant, are the key elements of 
the Chinese bid.  These, if realized, will be important to the 
overall development of Afghanistan's infrastructure. 
 
------------------------ 
..and the Chinese say.. 
------------------------ 
 
¶3. (SBU) On November 26 EconCouns met with Mr. Hu Yuanteng, Chinese 
Commercial Counselor, who explained that many of the project details 
will be worked out in contract negotiations, due to start in 
December and run 120 days until about late March/early April 2008. 
Even then, feasibility studies need to be completed before many of 
the details and costs will be known.  For example, during the second 
round of bidding, the Afghan Government asked that the Chinese match 
the railroad that the Kazakhs had included in their bid.  The 
Chinese Government agreed to fund the estimated $5 billion cost of 
building the railroad from the Hairatan railhead with Uzbekistan 
through Kabul and Aynak to the Torkham border with Pakistan.  But 
the IRoA has not yet decided on the gauge of the railroad. (Note: 
Uzbekistan uses Russian broad gauge track, Pakistan uses standard 
gauge, and Iran, which is building a rail link to Herat, has its own 
gauge.  China uses standard gauge and Afghanistan has no track. End 
Note.) 
 
¶4. (SBU) The Chinese Government is funding the railroad because it 
views this aspect of the Aynak bid as not part of a normal 
commercial bid.  Hu explained that while CMG is state-owned, CMG is 
now operating in China's market economy as a profit-making 
enterprise, and as such is different from the former "centrally 
planned economy's" state-owned enterprises.  Also, having just 
completed the Qinghai to Lhasa railroad, the Chinese government has 
available construction teams with experience working in rugged, 
mountainous conditions. 
 
¶5.  (SBU) Hu confirmed that, in addition to the railroad, the CMG 
 
KABUL 00003932  002 OF 003 
 
 
bid includes construction of: a power plant, an associated coal mine 
to fuel the power plant, and a cement mill to aid in mine 
construction.  While the plant will likely be 400 MW, it is unclear 
if there will be any excess power available to be sold to power 
Kabul or Jalalabad.  He declined to put a price on the entire 
construction project, saying that until detailed feasibility studies 
are completed, anything would be a "guesstimate." 
 
¶6.  (SUB) Hu did express concern, however, about the implications of 
the security situation in Afghanistan for management of the project. 
 He noted that in an incident several years ago, about 10 to 15 
Chinese workers were murdered in their tents the evening of their 
arrival in Afghanistan.  He said the Chinese Government sees the 
Aynak bid and its associated construction projects, such as the 
railroad, which will facilitate greater regional economic 
cooperation, in the context of its support for a politically stable 
and economically prosperous Afghanistan. For the Chinese, this 
support is an important way to prevent the re-emergence of a safe 
operating base in Afghanistan for the so-called East Turkistan 
Liberation Front in neighboring Xinjiang Province of China. 
 
---------- 
Background 
---------- 
 
¶7. (SBU) The Aynak copper deposit in not a new find.  It was mapped 
and prospected at various times by Soviet geologists between 1974 
and 1989.  They estimated the site contained between 11 and 13 
million tons of copper ore, ranking it among the largest copper 
deposits in the world.  Minister of Mines Adel has repeatedly 
claimed the estimates were "low balled" by the Soviets and expects 
estimates of ore deposits will increase once the site has been fully 
surveyed. 
 
¶8. (SBU) Among the companies out-bid by CMG were U.S. company Phelps 
Dodge, a subsidiary of Freeport-McMoran, Strikeforce, a part of 
Russia's Basic Element Group, the Kazakhmys Consortium (London-based 
but with mostly Kazakh assets) and Canadian firm Hunter Dickinson. 
Hunter Dickinson (HD) was selected as the reserve bidder.  If the 
IRoA is unable to conclude mining contract negotiations with CMG in 
120 days, they are obliged to begin negotiating with HD.  Upon being 
notified their bid was unsuccessful, the Kazakh consortium issued an 
official complaint and went to the media complaining of 
irregularities in the bid tendering and evaluation process.  To 
date, neither the IRoA nor the World Bank, which funded assistance 
for the tender process (reftel), have commented on these 
accusations. 
 
------- 
Comment 
------- 
 
¶8. (SBU) Comment:  It comes as no surprise that Minister Adel has 
warmly welcomed this investment.  Current and former advisors to the 
Ministry confirm he advocated for the Chinese bid from the start of 
the evaluation process.  Although the expected revenues, promised 
rail road links, power plant and 10,000 jobs appear to be a win-win 
for the IRoA, it remains to be seen if all of them will materialize. 
 In particular, it is not yet clear how many of the 10,000 jobs to 
be created will go to Afghans.  In addition to following the 
project's progress, Post will encourage the IRoA to create some sort 
of mechanism to ensure CMG fully lives up to its contractual 
 
KABUL 00003932  003 OF 003 
 
 
commitments.  End Comment. 
 
Dell