The mining sector in Afghanistan has the potential to generate large government revenues, with potential to support economic development. The security background means that central government is hampered in its ability to manage and enforce revenue collection in accordance with laws and regulations. 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. These included tangible commitments to the EITI, including in areas of systematic disclosures of extractives data and beneficial ownership.

Afghanistan's latest EITI Report published in June 2019 covered the fiscal years 1395-1396 (2016-2017). An addendum published in May 2020 maps government systematic disclosures of extractive industries data. The publication of Afghan Gas Enterprise and North Coal Enterprise' audited 1395-1396 financial statements in January 2020 has opened up the financial management of the two state-owned enterprises, which together account for two thirds of the USD 48m in government extractives revenues in 1396 (2017). Implementation of EITI recommendations has led to concrete improvements in government systems, including the launch of a cadastral and non-tax revenue transparency portal.  

Afghanistan’s extractive industry is governed by the 2018 Mineral Law and the Hydrocarbons Law of 2009.

According to the 2016-2017 EITI Report, the 2018 Mineral Law was designed to improve the governance of the sector, secure optimal resources for the state, improve the confidence of potential investors and facilitate local community participation in mining. The law prohibits elected politicians and senior government officials from acquiring mining contracts. 

The 2009 Hydrocarbons Law 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 2016-2017 EITI Report is a good source of information on these issues, including state participation in the extractive sector and artisanal and small-scale mining. In early 2020, the two state-owned enterprises, Afghan Gas and North Coal Enterprises, published their financial statements that had been audited for the first time. 

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.

In 2018, the Ministry of Mines and Petroleum launched the Afghanistan Transparency Portal, which includes an online cadastral system and disclosure of non-tax payments on a per-license basis. 

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 2016-2017 EITI Report shows that total coal production disclosed by the government for the year 2017 amounted to 1.8 million tonnes, alongside gold, cement, marble, talc and stone.

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. Aside from these exceptional payments, the two state-owned enterprises (North Coal Enterprise and Afghan Gas Enterprise) account for around two-thirds of government extractives revenues. The security background means that central government is hampered in its ability to manage and enforce revenue collection in accordance with its laws.