The mining sector in Afghanistan has the potential to generate major government revenue for the country and is recognised as a valuable source of revenue to develop the national economy. The security background means that central government is hampered in its ability to manage and enforce revenue collection in accordance with its laws. Building on earlier efforts, President Ashraf Ghani announced reforms specific to the extractive sector as part of a wider anti-corruption package in May 2016. The government has committed to:

• Support the 2016 EITI Standard,​ in particular the requirements on beneficial ownership​.
• Enhance company disclosure​ (regarding payments to governments for the sale of oil, gas and minerals).
• Supporting voluntary disclosures through EITI reporting ​and by some major companies regarding payments to governments for the sale of oil, gas and minerals.
• Avoid doing harm by ensuring that licences are allocated fairly and openly, focus on building the institutions and human capacity, and work with the 34 provinces to work out their rights and status in relation to the mines.
• Build the infrastructure and invest, so that the revenue creates jobs beyond the sector and builds a lasting legacy.
• Collect basic information so that better assessments can be made of the potential and risks of the minerals and spending can be directed where it is most needed.

The EITI is, among other things, being used in Afghanistan:

• as a diagnostics tool for cadastre system
• as a way to strengthen the government’s revenue collection
• to explain the artisanal and small-scale mining sector
• to identify challenges and propose improvements to auditing practices

Afghanistan’s extractive industry is governed by the 2014 Mineral Law and the Hydrocarbons Law of 2009.

According to the 2013 EITI Report, the 2014 Mineral Law was designed to improve the governance of the sector and improve the confidence of potential investors. In particular it remedied a previous situation where exploration licenses could not be turned to production licenses. The law prohibits elected politicians and senior government officials from acquiring mining contracts. As the report also notes, “perceived deficiencies in the law have been noted including the absence of transparency in the bidding process and allocation of licenses, of the requirement that contracts be published in full, and of clear penalties for violations of the law.”

The Hydrocarbons Law of 2009 was written specifically to encourage private investment in the sector. It states that contracts must be awarded subject to the completion of a public, transparent and competitive tender process managed by the Ministry of Mines and Petroleum. In the event of a tie between two bidding companies, the law favours the bidder with an Afghan partner.

The 2013 EITI Report is a good source of information on these issues, including state participation in the extractive sector and artisanal and small-scale mining.

Tax code

The Ministry of Finance is the sole public authority with jurisdiction to collect taxes and custom duties and the Ministry of Mines and Petroleum is the authority with jurisdiction to collect Mineral Royalties. Royalty rates are not specified.

Contracts

All contracts should by law be published and be made available online, however EITI Reports show that there are important deficiencies in record keeping.

Licenses 

Mining regulations stipulate that announcements of bidding be published on the Ministry of Mines’ website, national and international press and media in Dari, Pashto and English, by the Department of Cadaster. The announcement is also to be provided to local government authorities by letter.

The regulations require that no later than ten days following the execution of any mining contract, the Ministry of Mines and Petroleum (MoMP) is to publish an announcement summarising the material terms of the contract, including a summary of the minimum working obligations, rate of royalties and other material revenues and benefits that the government will derive from the contract.

The 2013 EITI Report highlights a number of areas where further work to improve the cadastre is needed. The World Bank is assisting the MoMP and the National Environmental Protection Agency in this work. More information, including recommendations for further work, is available in the EITI Report.

Production in Afghanistan is severely constrained due to the security situation and other limitations. Although there is much potential, for example for copper production in the Aynak copper project, most production is limited to coal. The latest AEITI Report shows that total production disclosed by the government for the year 2013 amounted to 1.6 million tonnes, of which the vast majority (1.5) was coal and the rest was cement.

Afghanistan has extensive mineral deposits and potential for oil and gas production. Due to conflict, political instability and inadequate infrastructure, the extractive industries are relatively underdeveloped.

The Afghanistan Geological Survey identified six major metals and minerals opportunities in the country – copper, iron-ore, rare-earth metals, gold, gemstones and marble. Deposits have been estimated to be worth over USD 1 trillion.

Most gemstone mining is artisanal. Operations are small-scale and output is supplied mainly to local and regional markets. Afghanistan is thought to be the world’s largest exporter of lapis lazuli, but all production is currently unregistered and untaxed.

Globally significant deposits include the copper deposit in Aynak, Logar province and iron-ore in Hajigak, Bamyam province. Consortiums of Chinese and Indian companies have signed contracts to develop these mines.

Developing transport infrastructure that would link deposits to global markets remains a challenge. Governance challenges, as well as the security situation, pose additional hindrance to the development of the sector.

EITI Reports show that the largest source of government revenue from the extractive industries in Afghanistan are bonus payments (signature bonus) from the Aynak Copper Project. The security background means that central government is hampered in its ability to manage and enforce revenue collection in accordance with its laws