MCC

Railways and the Mes Aynak copper mine contract

Posted on by Andrew Grantham

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.

MCC to commission studies for north-south railway

Posted on by Andrew Grantham

The Minister of Mines Wahidullah Shahrani has said Chinese copper mining concessionaire MCC should award contracts for surveying railway lines from Kabul to Torkham (on the Khyber Pass border with Pakistan), and from Kabul to Kabul to Ghorband, Bamiyan and Naibabad (for Mazar-i-Sharif and Hayratan).

I think “China Railway(s) Company” is China Railway Group, who undertook work on the Kabul – Jalalabad road.1 However there are a number of Chinese organisations with similar names which can be hard to untangle.

Technical research for Kabul-Mazir and Kabul-Torkham railways begins soon

According to Aynak Copper Project contract, MCC are required to extend the railways sub projects for transportation of copper. Accordingly a meeting took place between the relevant organizations at the Ministry of Mines to discuss the coordination and regular implementation, and, identifying routes for the railway tracks.

The Minister of Mines Wahidullah Shahrani said at the meeting that the preliminary track – from Kabul to Torkham and from Kabul to Mazarisharif via Ghorband, Bamyan and Naybabad to Hairatan – of the railway was determined last year. Now it is necessary for MCC to sign a contract with a company for technical survey though a bidding process.

“The China Railway Company which is familiar with the territory of Afghanistan and have experience in constructing the Polikhomri-Shikhanbander and Kabul-Jalalabad roads, has been identified as being the winning company of the tender, and will begin the technical research for Kabul-Mazar and Kabul-Torkham railways” Said Mr. Shahrani

Mr. Shahrani believed that the creation of railways in Afghanistan is a complex undertaking and therefore there is need for an independent railways organization inside the government.

He stressed that the creations of most of railways are related to mining projects therefore for the time being all of railways projects will be related to the Ministry of Mines.

“These railways will not be limited to transportation of minerals, but will be used in different sectors like trading goods etc.” He said.

The exact expenditures of the project will be estimated after the technical research implemented by the China Railways Company.

Source: Ministry of Mines, dated 2011-10-17, published 2011-10-18

  1. Record results for China Railway IPO, China Economic Review, 10 January 2011 ↩

Agreement signed for north-south corridor studies

Posted on by Andrew Grantham

This looks potentially significant, although the words if feasible are probably quite important. I will try to study the announcement in more detail later this week.

MINISTER SHAHRANI SIGNS HISTORIC RAILWAY AGREEMENT

Kabul: September 22, 2010

Mines Minister Wahidullah Shahrani today signed an historic agreement with the China Metallurgical Company (MCC) for a railway to connect Kabul to Pakistan and Uzbekistan.
This northern railway project is part of the Aynak Copper Mine Contract, signed between the Government and MCC. The contract specifies that MCC constructs a railway, if feasible, from northern Pakistan through Kabul to southern Uzbekistan. This rail link will connect Afghanistan to the railways of Pakistan, India, and South East Asia and to the extensive rail system of China, Europe and Central Asia.

Minister Shahrani said, ‘When complete, the railways will give substantial benefits for the Afghan economy in trade, employment and cheaper prices. This northern railway is part of a wider plan to extend the Afghan rail network to connect Afghanistan to ports in Iran and Pakistan.’

The next step is for MCC to commission and fund a competitive tender for a feasibility study to examine the preferred route proposed by the Government’s Inter-Ministerial Railway Committee. It will take up to two years for the detailed route study and another six months to complete the full feasibility study.

The feasibility of the second part of the railway, from Kabul through Bamyan, Doshe, Kunduse, Niadabob, Hairetan and on to Uzbekistan, will be studied for an additional 18 months with construction to follow.

MCC will build the railway according to the ‘BOOT’ principle – ‘Build, Own, Operate and Transfer’. MCC will own the railway until it has recovered its capital costs through collecting transport fees. The details of the BOOT Agreement will be negotiated once the Government have approved the feasibility study prepared by a independent contractor funded by MCC.

The railway will be designed to have the size and capacity to carry the heaviest of loads – copper cathodes, copper concentrates, and commercial goods for transit, agricultural products, passengers and normal freight.

MCC will employ Afghan labor as much as possible in the construction and operation of the railway. Prior to the transfer of ownership to the Government, MCC will complete a training program for Afghan workers to operate the railway. The training will range from

basic functions to high level executive management.
Estimated costs for the entire railway range from US $ 4 –5 billion. Completion of the entire route could be within five years from starting the detailed route survey.

Benefits
The opening the new railway will bring many benefits to Afghanistan. Costs of goods and services will fall due to lower transportation costs. Huge economic and social development opportunities will arise along the rail route as companies switch from road to rail transport. The mining and extractive industries will become more cost effective along the resource corridor developed with the railway.
Source: Ministry of Mines, 2010-09-22

MCC to build Kunduz – Jalalabad railway

Posted on by Andrew Grantham

“75km Railway to be Completed in Afghanistan”, reported TOLOnews on 2 August 2010. Work is “50 percent completed”, and there is a new opening date: “I hope the construction of this rail-road will be completed by the end of March, 2011,” said the Minister of Public Works, Abdul Qudoos Hamidi.

There is also this hint at something much bigger in the pipeline:

The ministry also adds that the Afghan government is planning to build 700km rail-road that will connect the capital Kabul with the northern province of Kunduz and the eastern city of Jalalabad.

The railway will be built by the MCC Chinese Company.

“The primary studies of this rail-road have already started, and its contract will be signed soon,” said Deputy Minister of Public Works, Ahmad Shah Wahid.

Source: TOLOnews, 2010-08-02

MCC is presumably China Metallurgical Group Corporation (rather than the other MCC). The Chinese group was selected for a concession to develop the Aynak copper deposits in 2007, with a railway proposed as part of the project.

The plan which seems to be firming up is to build a new north-south railway starting from Tajikistan. There would be a new line from the Tajik capital, Dushanbe, to the Tajik-Afghan border near Kunduz. The route would then run through Afghanistan from Kunduz to Kabul and the Aynak mining area, continuing on to Jalalabad. There would then be an onward link to the Pakistan Railways network, joining the line through the Khyber Pass to access to Pakistan’s coast.

Pakistan keeps talking about reinstating the out-of-action Khyber Pass line and extending it to Torkham (the Afghan border town) and possibly Jalalabad (the first major town in Afghanistan). However Pakistan Railways is reported to be facing serious financial and structural problems at present.

And as a correspondent points out, “railroads are built with money, not signed agreements to build railroads”.

Aynak copper mine project update

Posted on by Andrew Grantham

A May 2010 update on the Aynak copper project. No mention of railways, but “exploitation activities of the deposit will begin in two years”.

Aynak Copper Deposit Exploitation on Track to Begin Operations in Two Years

The Minister of Mines Wahidullah Shahrani visited the Aynak Copper Deposit to observe ongoing research activity and equipment installation.

While visiting the Aynak copper deposit, Mr. Shahrani told MCC authorities there that the techno-economical research should be accelerated, and that according to the contract, the resulting report is to be completed in six months for presentation to the Ministry of Mines.

The main goal of the trip to Aynak was to assess the work progress thus far at the deposit. The area of demined land is about three million square meters. More the five thousand square meters of land has been drilled so far to determinate the potential capacity of deposit.

A 17 Km long security ring road also has been built, the work at the base of deposit has been completed, the building of the project headquarters is 70% competed, and more than 65 police posts have been established around the deposit.

According to the terms of the contract, it is expected that the assembly and installation of technical equipment will be completed in one year, while exploitation activities of the deposit will begin in two years.
Source: Islamic Republic of Afghanistan Ministry of Mines, 2010-05-27

A 2008 announcement gives details of the Anyank copper mine project and associated railway plan.

The largest contract in history of Afghanistan is signed

Exploration, exploitation, processing and smelting Contract of Aynak copper deposit signed between the ministry of mines of Afghanistan and MCC Company of China.

Eng. Ibrahim Adel minister of mines, Dr. Anwarulhaq Ahadi, minister of finance, Dr. Jalil Shams, minister of economy, Mr. Yang Houlan, Chinese ambassador in Kabul and Shen Heting chairman of MCC were present at the special ceremony for this occasion.

Inaugurating the ceremony, Eng, Adel said: ‘’I am glad to sign the contract of a project, which in viewpoints of physical mass, investment, and incomes for state and job opportunities, is the largest contract in the history of our country’’.

Pointing the history of copper resource of Aynak, the minister for mines said: ‘’about 40 years ago, the Aynak copper deposit was discovered and its exploration began, but unfortunately, its exploitation delayed for 40 years’’.

During the cooperation of former Soviet Union with the ministry of mines, there was a plan to enrich the copper ores to 30%, and as raw materials transfer outside of the country, the process of melting and infiltrating will had been there, but Afghan experts in point of national interests, restrained this plan and were not afraid in this regard.

Fortunately according to this contract, all of the exploration, exploitation, process, smelting and cathodic infiltration will done in side the country, that transfer the knowledge, experience and technology. This project provides electricity network and transportation facilities to the residences of around the copper resources of Logar province, and especially builds primary and secondary schools, regional markets, clinics and masques for the surrounding residents of the copper deposit of Aynak, Darband and Jowhar.

The minister for mines added: “This project provides high level of income for the government, and opportunities for more then 6000 people directly and for thousands others indirectly, is the largest project in the history of Afghanistan. And has other sub projects such as extinction of rail way form north of Afghanistan to Torkham border, exploration and exploitation of phosphors resours to produce the mineral fertilizer, exploration and exploitation of coal mines to generate 400 mega watts electricity – 200 MW will operate the project and other 200 mw will be bought by ministry of energy and water and distribute to people.- Each of these projects has economical and social benefits, specially the project of railway will have the basic and important role to reclaim the historic importance of Afghanistan (Silk way), and, because this railway will join the central Asia to south Asia and China, will not only play significant role in transit of mining products to international markets, but also will join the central Asian countries to the countries of south of Asia.

The minister of mines said: “While the usage of railway has vital pith for exploitation of iron mines, therefore this railway will increase the significance of Hajigak iron ore, the exploration and exploitation of which will be tendered internationally.

At the end, the minister for mines said: the implementation of this contract and investment will courage other national and international companies to investment in Afghanistan, an I am hopeful that this will be the first step toward the other large projects to interest for investment, and in the future more companies take part in tender and show their interest in investing in Afghanistan.

Yang Houlan, Chinese ambassador to Afghanistan, said: Afghan- China friendship has a long background and hope the project of Aynak will strengthen this friendship.

Appreciating the hospitality of Afghans, Shen Heting the chairman of MCC said: I am happy to gather in Kabul to sign an important contract, this project I hope to begin the new round of Afghan-China cooperation. 

Introducing the MCC Company, he added: “MCC is a large company, works under the supervision of government and have active presence in five continents of the world.”

Mr. Heting, said: ‘’this project, economically and socially is an important project for the people of Afghanistan’’, and he added that this project strengthen relationship between the two countries.

Dr. Anwarulhaque Ahadi, minister for finance, entitled the project, a great achievement for Afghanistan, and said the transparency and sincerity of its tender will provide great tendency for additional investments in Afghanistan.

He hoped that this will have not been the last contract, and in the future these kinds of project will play its role to purge the poverty and secure the national development.

Dr. Abdurahman Ashraf, advisor to the president in mining affairs and president of Kabul University, said: “Afghanistan has many more mines similar to Aynak copper resources, and I am hopeful the coming generations will sign the similar contracts for them.”

At the end of the ceremony, the ministry for mines of Afghanistan and Mr. Heting the chairman of MCC, signed the contract, and after that both of them answered the questions of journalist at a press conference.

Source: Islamic Republic of Afghanistan Ministry of Mines, 2008-05-25

There was an “inauguration” (start of work?) ceremony for the project in July 2009.