AF: Aynak Copper Mine Technical Negotiations Complete.

UNCLAS SECTION 01 OF 02 KABUL 001047 SIPDIS DEPT FOR SCA/FO, SCA/RA, AND SCA/A (DEUTSCH) DEPT PASS AID/ANE, OPIC DEPT PASS USTR FOR LILIENFELD AND KLEIN DEPT PASS OPIC FOR ZAHNISER 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 USOECD/ENERGY ATTACHE OSD FOR SHIVERS, SHINN COMMERCE FOR DEES, CHOPPIN, AND FONOVICH TOKYO ALSO FOR AID COUNSELOR AANENSON SENSITIVE SIPDIS Reftel: Kabul 0108 E.O. 12958 N/A TAGS: EMIN EPET EFIN ETRD ENRG KPWR EAID AF CH SUBJECT: AF: Aynak Copper Mine Technical Negotiations Complete. Sensitive but Unclassified ¶1. (U) Summary: Technical negotiations associated with the Aynak Copper Mine project have concluded successfully. The Afghan deposit is estimated to be among the largest in the world and is expected to bring in over USD 450 million in yearly revenues to the government when it begins operation in 2014. Although negotiations on the mine's operation are complete, the Ministry of Mines remains under deadline to negotiate several Memoranda of Agreement (MOA) pertaining to associated projects including a railroad, power plant, as well as water use and security arrangements. Advisors to the process believe close cooperation with ISAF forces operating in the area will be needed, particularly in the early stages of project planning. End Summary. ¶2. (U) On April 15, Rainer Hengstmann, the World Bank-funded advisor to the Aynak Copper Mine project told EconOff that the technical negotiations for the development of the mine have concluded. One outstanding issue, related to the double taxation of repatriated Chinese profits (Reftel),was resolved when the Chinese firm, MCC, acceded to the Afghan's demands. (Another indication of how eager they are to conclude the deal at any cost.) The agreed upon draft contract was initialed by both sides. Final signature is pending the approval of the Afghan Council of Ministers and MCC leadership. OUTSTANDING GOODIES: RAILROAD, POWER PLANT ¶3. (U) With the conclusion of negotiations for the main mine project, deadlines to sign Memoranda of Agreement (MOA) on additional projects including a railroad to run past the project site are fast approaching. According to Hengstmann, the parties now have 12 months to reach agreement on a MOA outlining the conditions under which a 700 kilometer railroad, running from Uzbekistan through Afghanistan (past Aynak as well as the Hajigak iron ore deposit) to Pakistan, will be built. The project is envisioned as a Build, Own, Operate, Transfer (BOOT) arrangement although the timeline for transferring the railway's operations into Afghan hands has yet to be determined. ¶4. (U) Before using the railway to move copper however, the project site must have an internal power supply to power operations. As of April, the parties have two months (with a possible 2 month extension) during which to conclude a MOA on power supply. The proposal is to construct a coal-fired 400 MW plant on the Aynak site which will use 200 MW to power the copper mine and sell the additional 200 MW into the national power grid. Power payment and interconnection details will need to be outlined in the MOA. Hengstmann indicated that the parties will make use of the two month deadline extension as there are many technical and financial details to work out surrounding power arrangements. MORE MUNDANE MATTERS... ¶5. (U) Details outlining the construction of well and pipe systems to provide much needed water to the mine site (water use and recirculation) must also be negotiated. The deadline for this MOA negotiation is 3 months, with a possible 3 months extension. (Given the sensitivity of water issues in Afghanistan, as well as the plethora of ministries and agencies - approximately 12 - involved in the sector, we expect this MOA negotiation to also make use of its 3 month extension.) KABUL 00001047 002 OF 002 ¶6. (U) Security for the Aynak site, especially during the initial due diligence and feasibility study phases, will be key to the success of the project. An MOA placing site security responsibility squarely on to the IRoA (probably Ministry of Interior) is to be negotiated by June 2008. Despite this, the World Bank plans to keep ISAF forces in the area fully briefed on project activities. It also hopes to be able to rely on ISAF and local Afghan Army units in the area for emergency support should an unfortunate situation arise. To that end, Rainer and his colleagues hope to brief ISAF headquarters on a regular basis. The project also intends to employ one or more private security firms already fully licensed in Afghanistan. ¶7. (U) The World Bank has further outlined some of the benefits to the local Afghan population in Logar province, where the project is located. They predict over 5,000 new jobs will be created and expect another 15,000 to be employed at the coal mine to be developed for the power plant. MCC, the project company, will build approximately 4200 new homes for its workers and is expected to pave or create over 50 kilometers of new roads in the immediate area. A local hospital, mosque, schools and even power distribution lines to the surrounding communities are also expected to be built, although nothing has yet been finalized. WOOD