China Extends Influence in Afghanistan

In Foreign Policy, Alexander Benard and Eli Sugarman write about how Chinese state-owned oil company CNPC won the rights to develop several oil fields in Afghanistan, and how a U.S. Defense Department task force oversaw a tender process which stacked the deck against Western competition:

In Central Asia, the norm is for the government to receive roughly one-third of the profit oil and for the oil company to receive the remainder. Yet in Afghanistan — one of the riskiest countries in Central Asia, with incomplete geological data and the near absence of key infrastructure — the task force pushed for a profit split that would give the Afghan government the majority of the profit oil. This was in addition to royalties and several other taxes included in the agreement, all of which are entirely atypical in Central Asia.

We provided the task force with several examples of contract terms in other Central Asian countries and repeatedly asked the task force to identify which countries served as the model for the unattractive commercial terms offered for the Amu Darya tender. The task force refused to answer our question, and the terms remained unchanged, resulting in virtually no interest in the tender among serious Western oil companies. The terms did not deter CNPC, however, which is willing to make investments in Central Asia that are not strictly profitable for the purpose of capturing resources and extending China’s political influence.

The other problem was the process, under which the company that bid the highest royalty would be designated the winner of the tender so long as it met the basic technical requirements for executing the project. It was clear from the beginning that CNPC would bid the highest royalty (especially given that the terms were unattractive to Western companies). Indeed, according to industry experts we consulted, it is common knowledge that CNPC typically bids $5 to $7 per barrel more than other interested bidders in oil tenders in which it participates. So this selection process all but guaranteed that China would win the tender.

The win in Afghanistan underscores the momentum of the Chinese model of development, known as the Beijing Consensus, which has allowed China to use soft power to foster influence abroad and feed its resource-hungry economy. From Reuters:

Chinese firms already have a stake in nearly 40 projects in Afghanistan, with contracts worth nearly $500 million at the end of June, according to Wu Gangchen, the commercial counselor at the Chinese Embassy.

“Reconstruction means markets, reconstruction means opportunity,” Wu was quoted as saying in a recent interview with Beijing-based newspaper the International Business Daily.

He urged Chinese investors to keep their eyes open for possible deals in Afghanistan, particularly in the sectors of “energy, infrastructure, trade, service and processing.”

Despite the threat a large Chinese coal project poses to an ancient Afghan Buddhist site, a September China Daily report claims such investments can show the way to peace and prosperity in Afghanistan:

According to the governor of Logar, Afegalla Loden, about 300 former members of the Taliban have recently turned their guns into the province. Many of them have obtained important posts in the government, while about 70 are taking part in the mine project.

“They (former Taliban members) now have houses and jobs and therefore tend to be doing good deeds.”

Moreover, the Afghan Power Human Resources Service Company is working with the Metallurgical Corporation of China to run a training program for the Afghans who will work on the project. Those who go through the training will receive a month of classes in technology, management, accounting, safe production and the Chinese language. They will then spend two months getting hands-on experience at their jobs.

The commercial counselor at the Chinese Embassy in Afghanistan, Wu Gangchen, said he has also observed that “The Afghan people show a great eagerness for development and for cooperation with their neighbor, China, which has no history of being in conflict with Afghanistan.”

The Globe and Mail also recently highlighted the parallels between China’s investments in Afghanistan and similar ventures in Iraq, while Bloomberg noted that China employed the same strategy that has opened the door to Africa’s wealth of natural resources.