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Response to Ministry of Mines’ statement of December 2012 on “Copper Bottomed?” report

21st December 2012

Global Witness welcomes the public response of the Ministry of Mines to our Copper Bottomed? report on Afghanistan’s biggest private investment and the country’s first major extractives agreement – the 2008 Aynak copper deal.  We set out below clarifications and further information on the points raised in the statement of the Ministry of Mines.  We look forward to continuing an open and constructive dialogue on how our research can be used to strengthen the foundations for the emerging extractives sector so as to guard against risks of harm and to ensure that the Afghan people receive the real and lasting benefits they deserve.

(1)  Transparency:  As set out in “Stop Press” on the opening page of Copper Bottomed? and in our joint civil statement, Global Witness welcomes the major move made by the Ministry of Mines in October 2012 in publishing over 200 extractives contracts in accordance with presidential decree 45.  We also welcome the Ministry of Mines’ confirmation of imminent release of the as yet unpublished Aynak contract, the action being taken to increase transparency of beneficial ownership of subsidiaries and sub-contractors, and the proposed incorporation of transparency provisions within proposed new legislation.  In conjunction with our civil society colleagues, we are following up with the Ministry of Mines on these points and are asking for the latest draft of the proposed legislation so as to review and provide comment on transparency requirements and other provisions in the new law.

(2)  Renegotiation and recommendations:  Global Witness has not recommended wholesale renegotiation of the Aynak contract.  Instead, we have highlighted a small number of clauses which need to be addressed because of the serious ramifications they could have for the project itself and the sector more broadly.   

The contract provides for the very high royalty rate in the contract to be negotiated down if Afghanistan agrees another mining deal with a lower royalty rate.   This risk is specifically highlighted in the International Advisory Council’s review of the contract, which ‘observes that it is likely that the 19.5 per cent royalty will be adjusted at some future date’.  Revising this clause is important to remove uncertainty over what revenue Afghanistan can actually expect to receive from this deal, and to avoid affecting negotiations now taking place for other mineral concessions.

Beyond these specific renegotiation recommendations, we have suggested that the parties agree clarifications on terms used, and agree and publish procedures on implementation so as to minimise the risk of future disputes and to ease future management of the project.  Going forward, we agree that many of the points raised are best addressed through the proposed new laws so as to ensure a uniform approach across the sector and, to this end, have suggested opening the proposed laws up to civil society review and input.  At the same time, new contracts need to address any points which are not dealt with in the law, so as to ensure that the overall framework for each project is as clear and comprehensive as possible.

(3)  Community engagement:  Based on feedback from the Ministry of Mines in late 2011, Global Witness expanded its review of the Aynak agreement from a pure contractual analysis to take account of steps being taken on the ground.  To this end, we have incorporated information obtained from the Ministry of Mines website and from discussions with government representatives.  We have also included details provided by the investing consortium and comments from the local community.  The report acknowledges positive references to international standards, identifies contractual provisions which work against effective engagement, and sets out the actions which the government and consortium are taking to consult affected communities and to address concerns and complaints.  We have recognised the positive progress made, and have suggested additional measures to develop structures which affected communities know and trust, and which are publicly agreed with the investing consortium.   We would, of course, be happy to discuss our research with the Ministry of Mines in more detail, and any further progress made, for example, on the proposed ‘Grievance Resolution Mechanism’ and on engagement mechanisms on issues such as the environment, security and human rights.  We also welcome the Ministry’s recommendation of field visits to extractives sites, which we consider to be very important for civil society oversight over the sector.

(4)  Contract comparisons:  The Global Witness comparison of the 2008 Aynak contract and the 2011 Qara Zaghan contract is set out in our April 2012 report, Getting to Gold.  We reviewed Qara Zaghan at the recommendation of Ministry of Mines representatives and carried out the comparison to see what broad lessons had already been learned from the Aynak experience and what more needs to be done.  We found that, in several regards, Qara Zaghan takes a step back from Aynak.  It includes, for example, a very broad stabilisation clause which ‘freezes’ the law which applies to the project, and could preclude the envisioned improvements to the law on transparency, anti-corruption and rules of conduct from taking effect at Qara Zaghan.  The contract grants the investing company broad land and water rights without the community safeguards present in the Aynak contract, and provides a guarantee of only $100,000 for compensation for environmental, property and other damage – a minimal amount compared to the damages which projects of this type can result in.  Again, we would be happy to discuss these findings and learning points for model and template contracts being used for new contract negotiations.

(5)  Ongoing dialogue with civil society:  We welcome the steps that the Ministry of Mines is taking to engage with civil society, both through direct statements and through dialogue processes such as EITI.  In November 2012, a civil society forum on extractives was held to bring together community, national and international groups engaging or interested in engaging in this sector – a crucial step in self-organisation and coordination.  Work is continuing to expand and develop this platform, and the next step is a planned roundtable between representatives of civil society, the Government of the Islamic Republic of Afghanistan, the international community and the private sector.  We see this roundtable as a crucial opportunity to discuss recent civil society research including the Global Witness Copper Bottomed? and Getting to Gold reports, and future civil society engagement and dialogue in this sector for our shared goal of a better future for the Afghan people.