Railways and the Mes Aynak copper mine contract

The April 2008 contract1 between the Afghan government and the MCC-Jianxi Copper Consortium (also known as MCC-JCL Aynak Minerals Company2) for the construction of the copper mine at Mes Aynak has been leaked,3 enabling us to see what it really says about the proposed railway project.

Mes Aynak archeologists camp

Mes Aynak (meaning “little copper well” or similar) is in Logar province, around 35 km south of Kabul.

Part V section 30 (page 23) of the contract says that “MCC has made a commitment to the Government of Afghanistan to construct, at MCC’s sole expense, a railway associated with the project”. This commitment is “memorialized” in a memorandum of agreement forming appendix 7 (page 57-59), “which shall be adopted and incorporated into the Mining Contract as an enforceable part of this Mining Contract”.

As far as I can tell, the contract doesn’t set out much in the way of technical or route details for the railway. In fact, the parties acknowledge that at the time of the contract “the specific conditions and requirements for the route, construction and operation of the railway have not been definitively established”.

In October 2011 Minister of Mines Wahidullah Shahrani said the initial route had been determined the proevious year, and would run from Kabul to Torkham (on the Pakistan border near the Khyber Pass) and from Kabul to Mazar-i-Sharif via Ghorband, Bamyan and Naybabad. However MCC still needed to sign a contract with China Railway Co for a technical survey.4

It would seem that the mining contract agreement requires a feasibility study for the railway to be undertaken, but does not require that the line is built if this study comes out against it.

(Elsewhere, it has been suggested that a railway is not essential for the copper project, as road transport could be used. This is in contrast to the Hajigak iron ore mining schemes, where the volume of iron ore means that a railway would probably be the only viable transport option.)

The memorandum is binding and “shall form the basis of a definitive railway agreement to be negotiated and concluded by the Parties.” It commits MCC to “conduct reconnaissance (survey) and prepare a feasibility study according to the schedule provided in MCC’s August 16, 2007 letter.” The feasibility study will then be provided to the government for review. If the government disagrees with the conclusions of the study, it may retain an independent expert to review the study.

On completion of the study, and on “on the basis of the railway project being feasible“, MCC would arrange 100% of the finance for the railway and design and build it “on its own” under a build own operate transfer (BOOT) model. The government would use assist MCC in securing the land and route. MCC would be responsible for overall operation and management of the line.

The memorandum requires the parties to negotiate in good faith to conclude a railway agreement within 12 months of the effective date of the mining contract (the effective date is defined as 2 months from the date of the the signing of the contract and final approval by China’s National Development & Reform Commission and Afghanistan’s Council of Ministers). The parties agree that failure to conclude such an agreement within that timeframe shall constitute cause for the mining contract to be revoked.

Part XI section 47 c (page 35) deals with the compensation arrangements if the agreement required in section 30 (or various other sections covering other matters) is not reached.

Within the two years before the full recovery of MCC’s investment, the government would form an operating entity or a joint venture with MCC to study and formulate policies regarding the operation and management of the railway following its take-over by the government. MCC will provide free training on maintenance, operation and management of the railway.

The terms of the memorandum could be modified by agreement of the parties.

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