Signature bonuses account for over half of Afghanistan’s 2011 revenues from extractives

Afghanistan’s most recent EITI Report on extractive resources, covering the Solar Hijri calendar year 1390 (corresponding to the period 21 March 2011 to 21 March 2012), shows that signature bonuses related to the Mes Aynak project continue to be the largest contributor to the government from the extractive sector.

Bonus payments by the MCC-JCL Aynak Minerals Company (MJAM) amounted to US $53 million in the period covered by the report, or 52% of the industry’s total payments. Government revenues from the industry increased significantly as a result, from US $23 million to US $102 million (or AFS 4.85 billion).

The state owned Northern Coal Company was the other main contributor, accounting for 40% of total government revenues from the industry. According to the report, these two companies alone made up almost 95% of total industry payments, suggesting that the industry remains in its infancy in Afghanistan.

Renegotiation of copper exploitation contract leaves future income open

The report was launched on 16 September amid reports earlier this year that the Chinese state-owned company MCC renegotiating the terms of its contract for the Aynak copper mining project. The project was licensed to a consortium of the Chinese companies CMCC and Jiangxi Copper in 2007, in a deal that comprises a signature bonus of US $808 million and a further US $566 million payable upon commencement of the commercial production. Part of the signature bonus had been paid in 2008, making up more than 90% of government revenue from the extractives sector in that year. No payments were made in the two subsequent years, leading to a significant drop in revenues in 2009 and 2010. Subject to the outcome of the renegotiations, further down payments are expected to appear in subsequent reports.

Government aware of responsibility of stewardship
Revenues from mining and hydrocarbons have the potential to be the backbone of Afghanistan’s budding economy, and participants at the launch of the report underscored the importance of managing them in a responsible manner.

“Natural resources are the wealth of every Afghan, and if managed properly they can ensure that the country becomes independent of foreign aid”, said H.E. Abdul Hadi Arghandiwal, Minister of Economy. “It is important that we act as trustees of these resources. Afghanistan EITI plays an important role in this and I will stand with them and other organizations who work for the betterment of the country”.

Numerous media representatives attended the launch, and the importance of spreading and explaining the information in the report to as wide an audience as possible was a common thread in the different interventions.

Some progress reported, but records still need improvement

The 2011 Report showed noteworthy improvements, including an overview of the extractive industry in the country, the legal framework underlying the sector, and some analysis of the revenue data.  However, the independent administrator included a series of recommendations for strengthening future reporting. Among them is the call to harmonise accounting systems across ministries to improve the process of data collection as well as its quality.

For further information about the EITI Afghanistan, please visit the country page on the EITI website and the national EITI website.

Video of AEITI on youtube.