Press release / Nov. 25, 2018

Civil society open letter to President Ashraf Ghani on the Badakhshan and Balkhab mining contracts

His Excellency Mohammad Ashraf Ghani

President of the Islamic Republic of Afghanistan

Excellency,

We are writing as Afghan an international CSOs to respectfully express our deep concern over the Badakhshan and Balkhab mining contracts, which were signed on October 5th in Washington DC.

We fully support the sustainable development of the Afghan mining sector, and understand the pressure the government feels to move forward with new contracts. We welcomed the Shaida copper deal, which so far has not raised major red flags. However, these two contracts appear to us to be in clear breach of the mining law. However great their other merits may be, we are concerned that proceeding with them could call into question the government’s commitment to the rule of law.  

Our major concern is that the contracts appear to be in clear breach of Article 16.5 of the 2014 Minerals law, which bars former Ministers from obtaining a contract for 5 years after leaving office. Mr. Sadat Naderi, who until June 2018 was minister for Urban Development, has a 51% stake in the Balkhab contract, and a 25% stake in the Badakhshan contract. While the contracts are largely subject to 2014 law, the draft 2018 law has similar provisions under Article 13.4.

Some government officials have argued a) that the contracts were ‘obtained’ in 2012, when the consortium was named as preferred bidders; b) that the 2009 law (which does not have the same restrictions) should apply to the contract, and c) that the law only bars Mr. Naderi from holding a contract in his own name, not through a company or as part of a consortium in which he has a stake.

We do not believe these arguments apply. First, being named as preferred bidder is clearly different to having ‘obtained’ a contract. This is especially the case as the terms of the contracts were significantly altered – including a major reduction in royalty rates and possible changes to financing guarantees – in 2018, while Mr. Naderi was Minister or immediately afterwards. The High Economic Council also formally cancelled the bidding process in August 2016 – meaning a decision was clearly made to revive it after that date, again while Mr. Naderi was in office. The HEC decision was partly because of the conflict of interest issue. 

Secondly, there is no stabilisation clause in the published contract, nor any precedent for applying the law in force at the time a preferred bidder was announced. Using the 2009 law would also call into question major elements of the contracts. Article 74 of the 2018 law also makes clear that the two contracts are subject to the 2014 law (with the exception of a few articles).  

Thirdly, if the government was to choose to interpret Article 16.5 to mean that a Minister was only barred from holding a contract in his own name but not through a company, this would go against the clear intent and substance of the law, and effectively render it meaningless (not least since exploration and exploitation contracts are only granted to companies). Deliberately choosing such a weak interpretation would seriously call into question the government’s commitment on corruption.

But even if the government was to interpret Article 16.5 this way, the contracts also appear to be in clear breach of Article 16.2.9, which bars any company for which “one or more of its major shareholders, member of executive board or member of its board of directors would be legally disqualified.” Mr. Naderi would clearly be disqualified as an individual, and he is a major shareholder in the consortium and owner and director of one of its constituent companies.

Importantly, we understand that the government’s most recent and complete legal advice also took this view – raising the question of why this was not acted on.  

Mr. President, the Article 16 protections are appropriate – indeed essential – safeguards. The point is not the merits of the contracts (or of the changes made to them), it is that deals in which a Minister had a direct interest were negotiated, and significant oversight completed, while he was in office or shortly after. That inevitably creates public suspicion (justified or not) over whether the changes reflected political interference – exactly the situation Article 16.5 was designed to avoid.  

In addition to these legal questions, we have other concerns. The Badakhshan mining area is highly insecure, raising the question of how it will be pacified. We are also concerned that the companies have not declared their beneficial owners. Many of the listed shareholders of Centar group, a key company in the consortium, are nominees acting for unknown individuals. This raises concerns that the contracts could potentially benefit inappropriate people. While public declaration of beneficial ownership is not a requirement under the 2014 law, the government has made this measure a key commitment, and was rightly praised for including it in the draft 2018 law. But at present that draft largely excludes existing contracts from the requirement to publish beneficial ownership, as well as other transparency provisions. That deeply undermines the value of those measures, with no obvious justification.

Mr. President, we have always greatly welcomed the commitments you have made to clean up the massive corruption and revenue loss in Afghan mining. It distresses us to be in this position, but we see this is a test of whether the government will uphold the law even when it may not be easy or convenient to do so. We therefore respectfully ask that the government retender the contracts, and take other actions in the interim:

  • ·Amend Article 74 of the draft 2018 law to clarify that all transparency, governance and community benefit measures will apply to any contract, not just those signed after the law is ratified. 
  • Reinstate into the 2018 law the protections in Article 16.2.9 of the 2014 law barring all disqualified individuals (not just PEPs) from being major shareholders or board members of a company holding a mining license.
  • Publish the beneficial ownership of the contract holders.
  • Publish details on the financing of the projects, and in particular any financial or investment guarantees provided by the companies.
  • Publish the security plans for the mines (excluding any genuinely sensitive elements)

We would be happy to meet to discuss these issues. Meanwhile, we attach for reference a more detailed explanation of the key legal and other points outlined above.  

Sincerely,  

Mining Watch Afghanistan logo




Members of the Mining Watch Afghanistan network


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Members of the Environmental and Natural Resources Monitoring Network  


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Global Witness

/ ENDS

Contacts

Stephen Carter, Afghanistan Campaign Leader

[email protected]

+44 (0)7809342796

Wahidulla Azizi, Communications Officer, Integrity Watch Afghanistan

[email protected]

+93 (0)705666962

General/out of hours media enquiries

[email protected]

+44 (0) 7912517127

Notes to editor:

See links for Dari and Pashto versions, and for the associated briefing note

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