Mining Sector Roadmap

3. Building Materials to the economic development of the country. In the Amu Darya Basin Province, most Next, let us review the building materials, known recoverable crude oil and natural gas including building/dimension stones and were discovered in Jurassic elastic rocks, sand/gravel: Jurassic carbonate reef- and platform- associated rocks, and Cretaceous elastic rocks Building/Dimension Stones (down to a depth of about 5,500 meters). Most The mountains of Afghanistan contain known recoverable crude oil and natural gas abundant rocks suitable for use as building in the Afghan-Tajik Basin Province have been and decorative stone. Granite, marble, discovered in Upper Cretaceous carbonate limestone, and sandstone occur in abundance. rocks and in Paleogene elastic rocks (down Limestone deposits suitable for cement to a depth of about 3,700 meters). A 2011 production are widespread in Afghanistan, study estimated undiscovered, but technically 10 MINING SECTOR ROADMAP Afghanistan's Natural recoverable conventional resources of these AO!s contain a number of assets that should Resource Endowment: two basins to be approximately 1.6 billion reduce investment risk, including road An Overview barrels of oil (220 million MTs) and close to networks, so they are the most likely places to 440 billion cubic meters of natural gas. be tendered first. In addition to these two large known The research volumes provide a three hydrocarbon basins, there are likely smaller chapters for each AO!: (1) '/\ chapters: undiscovered hydrocarbon assets in three summarize the economic geology, (2) 'B' main basins located in western and southern chapters: summarize the hyper-spectral Afghanistan: (1) the Tirpul Basin, which is data and hyper-spectral anomalies that a transpressional basin located in western may indicate mineralized areas, and (3) 'C' Afghanistan, extending from near Herat in chapters: summarize the geohydrology. the east, to the Iranian border in the west, To develop each AO! data package, a (2) the Helmand Basin, which is situated number of research methods were used. First, in southwestern Afghanistan, southwest existing data in the form of archived reports of Kandahar, and (3) the Katawaz Basin in were compiled. Second, a digital elevation southern Afghanistan, which consists of map (DEM) and database were created using accreted terrane in the collision zone of Advanced Spaceborne Thermal Emission and the Helmand and Indian tectonic plates. Reflection (ASTER) satellites. Initial resource estimates were not made Third, the teams generated hyperspectral for the Helmand or Katawaz basins, but data to identify the occurrence of selected an initial assessment (2009) of the Tirpul materials at the surface based on basin estimates undiscovered conventional, characteristic absorption features. Fourth, technically recoverable petroleum resources geophysical data methods combined existing of 22 million barrels of oil and 1.3 billion cubic data with new aeromagnetic and ground meters of natural gas. magnetic surveys to produce a map and dataset for each EOI. Fifth, geohydrologic data was obtained to provide information on the seasonal availability of water. This

5. Areas of Interest included the completion of the analysis of historical streamflow for Afghanistan.Finally, From the initial mineral studies, twenty-four mineral scoping missions were undertaken areas of interest (AO!s) were identified. A to visit various AO!s and verify mapping and number of these AO!s were then field checked historical data. by AGS and USGS geologies between 2009 and Given this overview of Afghanistan's 2011, and then summarized in greater detail extensive mineral resources and areas of in two additional research volumes. 7 The interest, let us now turn to the constraints data includes GIS data, archival reports, maps, that have thus far limited the extraction of new research data, as well as a comprehensive these natural resources. By identifying the bidding package for each AO!. key constraints, we will be able to develop These AO!s commonly contain known strategies to overcome the constraints, and by measured mineral reserves or resources that doing so, will be able to leverage our natural were calculated from sampling in trenches, resource endowment into a sustainable drill holes, or underground workings. These resource for our citizens. 7 "Summaries of Important Areas for Mineral Investment and Production Opportunities of Nonfuel Minerals in Afghanistan," by Afghanistan Geological Survey and USGS (Volumes I and II) 11 MINING SECTOR ROADMAP Afghanistan's Natural AFGHANISTAN: Resource Endowment: AREAS OF INTEREST (AOI) An Overview TAJIKISTAN TAJIKISTAN PAKISTAN TIJRKMENISTAN IRAN EXPLANATION Airborne geophysics and compilation AGS active project and compilation - USGS specialproject and compilation Lithuanian project area - lnactive projects[compilationonlyl Kandahar PAKISTAN Industrial mineral project area . Oilandgas project area • Cement plantsandqu arries PAKISTAN 12 MINING SECTOR ROADMAP Afghanistan's Natural PROCESS TO PRODUCE MINING TENDER Resource Endowment: INFORMATION PACKAGES An Overview Total Information Package Compiled by USGS New USGS New2008 New Hydro ASTER NewDEM Data Pacakge Geophysics Data mapping -USGS science tor a changing world New75 cm AIR PHOTOS New Hyperspectral New Maps New Shape Files USGS Previously Published data sets cut to Area ofInterest ·-----------------------------------------·+·------------------------ Contractor Data Balkhab North Aynak Zarkashan Coal Khanneshin and Reports ·-----------------------------------------·+·------------------------ Misc. Reports, MoM/AGS AGS Project Data 2009, AGS-MoM Archival Documents, &Other Data 2010,2011 maps, reports, data Summaries Additional added data and information MoM/AGS Data Center and Services ..1, Additional added data and interpretations ..1, 13 MINING SECTOR ROADMAP Constraints in the Mining Sector Despite the preponderance of extensive The primary reason has been a number of important constraints that mineral resources located throughout have not yet been removed. This section Afghanistan, minimal large-scale will provide an overview of the main constraints. development of these resources has taken place during the 20th and 21st centuries. SUMMARY OF MINING SECTOR CONSTRAINTS Transport Many minerals, and all bulk metals, need extensive transport infrastructure to move the minerals to end markets. We can think of a spectrum of transport infrastructure that is required, from no infrastructure for small precious stones such as gemstones to extensive rail road network infrastructure for iron ore transport. The Afghan Government is currently moving forward with new rail and road projects to reduce this constraint over time Power Mining and processing ore requires the use of extensive power infrastructure. In the most extreme case, the production of aluminum requires significant investment in power generation Land The land acquisition process can be a complicated and uncertain process for investors in many jurisdictions. Afghanistan has created a single point of contact (ARAZJ) for all land- related issues Water Processing of minerals requires the use of extensive water resources. A policy should be developed to clearly delineate the water usage and water environmental standards SOFT INFRASTRUCTURE Rule of Law Mining contracts can extend for up to 30 years. In such contracts, both the investor and the host government must be confident in the rule of law and contract sanctity. The Go!RA has made development of the rule of law a cornerstone of our development policy Security Mining requires high levels of investment, typically over a wide geographic area. Security for such investments must be ensured Procurement Procurement has been a significant constraint in the past. To overcome this problem, the Government has created a fully professional office and a High Council on Procurement, chaired by the President, that meets on a weekly basis Legacy Issues Afghanistan's MoMP has a legacy of non-performing contracts. The Government of Afghanistan has recently taken decisions to settle and/or take action on these contracts Community Social impact assessments are a common component of many mining projects. But Engagement whereas most countries do not have a community engagement framework, Afghanistan will deliver all social projects through our Citizens Charter program Environmental Environmental impact assessments are an important part of any natural resource project. Issues We have developed a clear impact framework, that are in line with international standards Human Capital We have lacked the human capital necessary to lead and manage the knowledge systems necessary for the development of our natural capital. Training and hiring has been often ad hoe, resulting in poor utilization of technical assistance. We will prepare and implement a human capital action plan to address this critical constraint. Information Information necessary and sufficient for decision-making by policy-makers and investment by the private sector is still unavailable for most of the natural wealth of the country. We will invest in the knowledge generation and information management systems, including exploration of oil and gas, to enable us to harness our natural wealth 14 for equitable and sustainable growth. MINING SECTOR ROADMAP Constraints in the Mining Over the long-term, the constraints listed framework) regarding land access rights to Sector above must be resolved for Afghanistan's India. mining sector to improve. In the current Road investments include finalizing the climate, we must sequence reforms that take completion of the national ring road between into account the existing constraints, while Qasiar and Laman in Northwest Afghanistan, taking account of the progress that has been increasing the amount of interconnections made in relaxing these constraints over the with neighbors (e.g. the 2nd highwayfrom past few years. In sum, we have a coherent Jalalabad to Pakistan), and greater integration national development plan to relax these of Central Afghanistan with the ring road constraints. Let us highlight a few of these (northwards with the Yawkalang to Dar-e-Suf road, changes: southwards with the Bamyan to Maidan road, the Dushi to Bamyan road, the East-West highway, and the Bamyan- Uruzgan-Kandahar road) . Tertiary roads are also being quickly built throughout Infrastructure the country. In terms of railways, Afghanistan now has Transport three railway connections with neighboring The GoIRA has invested in improving countries: (1) Uzbekistan at Hairaton in transport infrastructure by signing Balkh province, (2) Turkmenistan at Aquina multiple trade and transit agreements, as in Frayab province and by Mrach 2018 at well as investing in road, rail, and airport Torghaundy in Herat province, and By and (3) infrastructure. These show that transport Iran close to Herat. Railway feasibility studies constraints have largely been removed for have been completed for the Northern Rail high value goods such as emeralds and gold, link connecting Tajikistan (at Sherkhanbandar) and that over time transport constraints for with Mazar-e-Sharif and Uzbekistan (at bulk minerals will also be removed. Hairatan) . We are moving forward with a In terms of international, regional, and feasibility study for the portion of the railway bilateral trade and transit agreements, we to connect this northern line with Iran. have made a number of recent strides. Most Longer-term, we will implement our vision importantly, we have joined the WTO, which to extend these rail network to significant integrates Afghanistan with international mineral areas of interest. trade systems and rules. In terms of regional In terms of airports, Afghanistan has a agreements, the Lapis Lazuli agreement significant asset base of airport infrastructure. gives Afghanistan direct access to European Our eight airports are world class in terms markets through Turkmenistan, Azerbaijan, of capabilities, and we are developing a Georgia, and Turkey. The Chabahar strategy to transform these to free economic Agreement provides direct access to the sea zones over time. We have inaugurated the via Iran and its Chabahar port. In terms of air corridor strategy, which provides quick bilateral agreements, we have signed a trade transit for high value-to-weight goods to and transit agreement with Uzbekistan that regional markets. We have used this program will allow for greater use of the Uzbekistan to increase exports of Afghan fresh and dried rail line for exports all the way to Kazakhstan fruits, but this could just as easily be used to and further to China. We will also move to transport goods such as gold, talc, or precious hold discussions with Pakistan (within the WTO stones quickly to international markets. 15 MINING SECTOR ROADMAP Constraints in the Mining Power Water Sector Significant amounts of power are required Water is essential to the mining and to mine and process minerals. Afghanistan processing of minerals, as well as for local previously operated under nine separate communities in mining areas. The Go!RA islands of electricity. Within three to four is developing a water policy that will clearly years, these islands will be connected to delineate the water rights for all stakeholders. each other, as well as with regional electricity This will include prioritizing economically markets. This strategy will provide sufficient viable projects for dams, irrigation projects, power to Afghanistan's population, as well as local communities, and the mining sector. for all commercial and mining needs. Within this policy, we will create a framework In terms of imports, we have signed a that identifies the tradeoffs of different uses number of agreements with Turkmenistan and of water, but ensures that the mining sector Uzbekistan that will provide up to 4,500MWs of receives priority. This framework will apply power to Afghanistan. Furthermore, we have throughout Afghanistan's five major water invested heavily in transmission networks to basins and associated tributaries. distribute this power throughout the country. In terms of power generation, we recently opened up the power generation market to private sector investment, and this policy shift has already paved the way to two completed power IPP contracts. These activities have Soft Infrastructure already relaxed the power constraint in Afghanistan's northern provinces. The 300MW Rule of Law Doshi-Bamyan electricity line will help remove Mining companies want stability in regards the electricity constraint in Afghanistan's to both mining legislation and mining central provinces. And the implementation contracts to be able to be able to make long- of the TAP! natural gas pipeline and TAP500 term investment decisions. Afghanistan projects will provide power generation unfortunately has a history of unclear rules capabilities for Western and Southern of the game, manipulation of tendering Afghanistan. Finally, for smaller-scale and off- processes, and widespread corruption. grid locations, we are working to implement However, we have made great strides in renewable energy projects. three areas: (1) developing the legal basis of a market economy, (2) ensuring transparent Land decision-making processes for all economic Land acquisition can be a complicated and procurement decisions, (3) improving process in most countries. Although most of contract stability, and (4) accepting Afghanistan's mineral resources are located international dispute resolution mechanisms. in uninhabited areas, some of these mineral To develop required legislation for a assets are located in agricultural, industrial, market economy, we are in the process of or perhaps even residential areas. Ifland enacting various pieces oflegislation (e.g. acquisition becomes necessary, Afghanistan revising the Corporations Law, passing a new has passed the required legislation and Bankruptcy law). To ensure implementing designated one organization (ARAZf) as the transparency in all economic-making and sole point of contact for land acquisition contractual processes, all large contracts are needs. now approved at the National Procurement Council, economic policy is created at the 16 MINING SECTOR ROADMAP Constraints in the Mining High Economic Council, and any corruption customized protection. Furthermore, the Sector issues are reviewed at the High Council on U.S.'s recently announced South Asian Governance and Rule of Law. strategy calls for a secure Afghanistan To improve contract stability, the Go!RA embedded in a secure region, and will ensure has hired international external counsel to continued support for Afghanistan so that develop and advise on contractual terms we triple the size of our air force, expand the and tendering processes. We will over time commando core to a division, and implement use standard contracts. Furthermore, we a generational shift to an active cadre of have appointed new leadership at our legal young commanders. These security changes institutions, and have ensured greater will complement the motivations of the autonomy for these legal sector actors entire population, which is clearly aligned (including a vice-president in charge reviewing and supportive oflarge national economic legislation, a new ChiefJustice of the Supreme projects. Court, and a new AG). Finally, there is broad agreement in Procurement terms of accepting international dispute Afghanistan's reform of procurement has resolution and arbitration mechanisms been cited as an example of success in fighting for large contract awards. In sum, we have corruption and ensuring transparency. As the moved from a situation where contracts National Procurement Office has acquired were awarded non-transparently based on both the capacity and the culture of efficiency, side deals, to a rule-based and transparent effectiveness and transparency, procurement contractual development and awards process. of mining and oil & gas contracts will take These steps should provide confidence to place through this office. To ensure efficiency, mining investors that Afghanistan's legal the technical board for evaluation of bids framework, as well as contractual terms and will function under the umbrella of the tendering process, will provide stability for National Procurement Office, submitting investment decisions. This leaves only the its recommendations to the High Economic identification of relevant risks, appropriate Council and, after approval, follow up on the pricing of such risks, and usage of risk- procurement process. mitigation strategies where available (e.g.from IDA, OPIC, or MIGA). Legacy Issues The Go!RA is committed to ensuring Security transparency into the mining sector. The Although we must acknowledge security MoMP has already updated the database of considerations in Afghanistan, it is all mining contracts, as well as has scanned worth noting that Afghanistan already and uploaded all mining contracts. This sets has thousands of kilo meters of existing the standard for transparency in the mining transmission lines and fiber optic cables, sector. We are now working to resolve, using which are rarely targeted. To further ensure the legal system, any legal and financial issues security for economically significant projects, with previously signed contracts. These steps we have embedded security strategies for will ensure that there is clarity in regards to large economic projects within the national the existing mining landscape, and so that the security four-year action plan. For these MoMP can focus on developing the vision of large projects, the Afghanistan Public the mining sector rather than focusing on the Protection Force (APPF) is available to provide past. 17 MINING SECTOR ROADMAP Constraints in the Mining Community Engagement system of Afghanistan. Identification of the Sector While many mining areas are located in skills necessary for sustainable utilization relatively desolate areas, there are significant of our natural capital and investing in the mineral areas where community engagement systems and institutions to produce and becomes critical. The minerals framework upgrade the skills is one of the central stipulates that a portion of mining revenues objectives of the Council. be spent at the local level. Rather than every mining company having to develop unique projects for each community in The first implication of these which they invest, the GoIRA strategy existing constraints is that it will impact will be to utilize such funds through the the sequencing the selection of the priority Citizen's Charter program, which provides a AO! tenders. For example, we will likely nationwide framework for engaging with local have to move forward with bulk metal communities. The use of this framework will contracts such as iron ore and copper lower uncertainty and program management only after a few years, when power and costs for mining companies, while increasing transport issues are resolved . The lack of the effectiveness and benefits for local acknowledgment of these constraints is communities. one reason why the signed Aynak and Haji- Gak contracts have not moved forward Environmental Issues since the signing of these contracts. For All mining exploitation contracts require an this reason, it likely makes greater sense environmental impact study. We have only to begin with construction material and one relevant counterpart: Afghanistan's aggregate contracts, as these form the National Environmental Protection bulk of contract awards and do not require Agency (NEPA). They are in the process of extensive transport or power resources. ensuring that their policies are in line with Second, the security constraints international environmental standards so imply that we should either sequence AO! that mining companies will not face unique tenders in regions of the country with environmental standards in Afghanistan. higher security, or upfront acknowledge that greater security must be provided for Knowledge and Information mines in less secure areas. Management Systems Third, we must decide whether we A whole government approach for want to relax these constraints one by information management systems is being one, or ifit is possible to resolve these prepared, with Ministry of Information and constraints concurrently by region. In Culture and the Central Statistical Office other words, it may be difficult to quickly leading an inter-ministerial task force. This resolve security, power, or transport group is also tasked with identifying crucial issues throughout the country, but it gaps in the knowledge of our natural capital may be possible to resolve a bundle of and MOMP will play an active role in assessing these constraints in a particular region gaps in its area of competence and propose a at the same time. If this is true, then we program for generation of knowledge. must align our regional transport, power, security, and other strategies with our Human capital mining strategy. High Council on Human Capital, chaired by the President, has been formed and meets regularly to reform the entire educational 18 MINING SECTOR ROADMAP Legal Framevvork The decision-rights as outlined in the mining legislation provide a great deal of discretion to the Minister of Mines to approve contracts. In particular, the Minister currently holds decision rights authority for reconnaissance, small-scale, artisanal, and construction material contracts. We therefore A strong legal and will make changes to the legislation such that regulatory framework can all contracts should have to be at a minimum taken and approved at the High Economic successfully attract and Council (HEC), with larger contracts approved retain investment. at Cabinet. This change of decision-rights in the legislation should be made immediately. Moreover, it can assure contract Second, the current legislation must transparency. The Afghan Cabinet originally clarify the tendering process for all types adopted the Mineral Law in 2005. It has since of contracts. The key principle here is been amended three times: in 2009, 2011, and the requirement for transparency. The

2012. There are four key issues that must be current mineral legislation allows simple resolved in the current version: (1) decision applications for reconnaissance, artisanal, rights, (2) tendering process, (3) classification and construction material contracts. We will of mining assets, and (4) royalty rates. First, move to an open tendering process for all in terms of decision-rights, the law provides type of production licenses. Furthermore, for different approval processes and decision- a professional board to evaluate all mining rights for each of the five contract award tenders submitted to the ministry will be types. This is provided in detail in the table jointly proposed by the ministry and the below. National Procurement Office for approval TYPES OF MINING LICENSES & ASSOCIATED DECISION RIGHTS License Process Decision Area (maximum) Term

1. Reconnaissance Application MoMP approval 20,000 square km 2 years + no extensions HCI + Cabinet

2. Exploration Tender 250 square km 3 years + 2 extensions approval HCI + Cabinet 30 years + 15-year

3. Exploitation Tender 50squarekm approval extensions

4. Small-Scale Mining Tender MoMP approval 1 square km 10 years+ 5-year extensions

5. Artisanal Application MoMP approval 1 hectare 5 years + 5-year extensions

6.Quarry& 5 years + continuous 5 year Application MoMP approval 1 hectare Construction Materials terms HCI = High Commission for Investment 19 MINING SECTOR ROADMAP Legal Framework to the President. After this standing board exploitation licenses, irrespective of the evaluates the mining applications, they license area. These changes in the law should will provide an evaluation report and final be made immediately. recommendation to the HEC and, in case Fourth, we must clarify which contractual of approval, follow up on the procurement terms should be stipulated in the Mineral process up to the High Council on Law versus individual contracts. The Procurement. This change of tendering consideration of such frameworks must process in the legislation should be made take into account the trade off between immediately. In the long-term, this standing certainty for investors and flexibility for advisory board will also act as the board for the government as conditions potentially the independent mining regulatory body.8 improve. In particular, many countries have Third, we must clarify how we classify moved away from a legal framework where mineral assets in the minerals legislation. royalty rates are negotiated into contracts to The current classification methodology a framework where royalty rates are specified relies too heavily on the maximum mining in the law (and are distinguished by the type area to distinguish license types. This has of mineral). This change would provide a led to confusion and rent-seeking, as both greater deal of certainty to investors during mining companies and ministry employees their exploitation period. Furthermore, such a simply divide a mining area to smaller legal change would allow the state to grant an blocks, thereby allowing approvals at the almost automatic transition from exploration ministerial level rather than the council or to exploitation licenses, as there would be no Cabinet level. Instead, we seek a classification financial negotiation necessary if a company scheme that reduces the types of licenses and finds a mine during its exploratory period focuses classification of licenses on the type (this would still require negotiations on minor of mineral and required investment levels. issues). This legislative change will require For example, gemstones and construction some analytical work, but should also be materials would be classified as small-scale made immediately. mining licenses, while copper would be an PROPOSED: TYPES OF MINING LICENSES & ASSOCIATED DECISION RIGHTS t - Area (maximum) I Term 20,000 square 2 years+ no

1. Reconnaissance Application HEC approval km extensions HEC + Cabinet 3 years+ 1

2. Exploration Tender 250 square km approval extension Tender/ HEC + Cabinet 30 years + 15-year

3. Exploitation 50 square km Application" approval extensions

4. Small-Scale Mining Tender HEC approval 1 square km 10 years * All licenses require the review of the Standing Technical Board for all applications before they are presented to HEC and Cabinet A Exploitation licenses go for tender, except for cases where an exploration license leads to a mineral finding, in which case the license will be transferred to an exploitation license 8 Please see the next section on MoMP required reforms 20 MINING SECTOR ROADMAP Legal Framework Some countries have gone even further, exploitation. And in terms ofroyalty rates, and have made an even stronger commitment these will now be specified into the legislation to potential investors by passing an additional (distinguished by the type of mineral). While piece of legislation that ensures the stability these changes will be made immediately, a of contractual terms of twenty or thirty years larger reworking of the legislation will take for mining investment contracts. This is place over the next year. the framework that the country of Chile has Furthermore, we must move towards implemented with a great deal of success. a system of standardized contracts. Just as We will evaluate the potential for similar with procurement contracts, financial terms legislation in Afghanistan. Taken together, should be standardized, leaving only a few the mentioned changes would create a minor terms that will be negotiated during the new tender process and decision-rights bidding process. This would act as another framework as per the table below.To reiterate, mechanism to provide greater stability for there were four required legal changes that potential investors, as well as likely reduce the we will move to implement immediately. In likelihood of corruption during the bidding terms of decision rights, we have provided process. a framework where approvals have to be Finally, Afghanistan has Mining given, at a minimum, by HEC or Cabinet. In Regulations that were approved on February terms of tendering processes, we have made 14, 2010. These regulations provide greater all processes to be open bidding processes, detail for each type oflicense, tendering except for reconnaissance licenses. In process, royalty fees, and environmental and terms of classification, we have suggested social protection issues. These regulations that the classification of contracts should should also be reviewed to ensure compliance be based more on the type of mineral and with any redrafts of the mining law. required investment rather than the area of 21 MINING SECTOR ROADMAP Ministry of Mines and Petroleum: Required Reforms To move Afghanistan's mineral sector reduce and eventually eliminate its role in forward, we must reform the Ministry of the operations of these enterprises. As a first Mines & Petroleum (MoMP) itself. The core step, each tasadee should implement financial functions of the ministry must be clarified and accounting systems, obtain an external audit, redefined. The ministry currently combines and expand its board members to include elements of policy-making, regulation, and independent directors. operations, and employs more than 2,200 Second, to improve employee employees. Over time, we seek a MoMP will performance, the MoMP must effectively retain and strengthen its policy-making leverage external assistance. Too often in role, while relinquishing its regulatory and the past, single individual consultants with operational roles. only minimal mining experience provided The regulatory component of the technical support for the ministry. We ministry will initially be given operational must accept that some activities should be autonomy, and over time be spun off as a outsourced, so that the ministry could focus separate regulatory authority. This regulatory on its key policy-making role. The roles that portion will be responsible for tendering should be outsourced include the legal and processes, similar to the telecoms and transaction functions . This means that the hydrocarbons industries. Likewise, the ministry will only retain small legal and operational portions of the ministry, which financial teams, whose job it will be to liaise include Afghan Gas Enterprise (AGE), Kod- with external consultants. Ideally, MoMP e-Barq (KeB) fertilizer factory, Jabal Saraj would retain multiple legal and financial cement (JSC), and Coal Enterprise (CE) will teams, who could then provide multiple legal each be corporatized. The Ministry will and financials opinions for each tender or retain a majority ownership stake, but will financial transaction. A vital component of 22 MINING SECTOR ROADMAP Ministry of Mines and Petroleum: Required Reforms this reform is to depoliticize the legal function Third, MoMP should move away from within the ministry. Currently, legal advisors general technical assistance contracts, and report directly to the minister. This creates move towards specific support for key tasks. turnover as each new minister brings his own Fourth, the ministry should identify areas legal advisor. Instead, the ministry should where it requires training, and should partner create an office of legal counsel, whose staff with domestic mining technical institutes and builds expertise over time and is appointed other mining ministries to build capacity. by the civil service commission instead of the minister. KEY DEPARTMENT SUMMARIES Afghanistan The Afghanistan Geological Survey is responsible for developing and maintaining Geological Survey natural resource technical reports. Its archive collection contains a wealth of reports, aerial photographs and maps of the geology and mineral resources of Afghanistan. It is housed in one wing of the AGS building and consists of four rooms containing the collection and another four rooms comprising staff offices, a consultation room and storage rooms Technical Offices Most offices under the MoMP DM Technical deputy are key in technical decision- making. A key office is the cadaster department, which is responsible for assessing production TASADEES Afghan Gas AGE extracts gas at its four main gas reserves in Sheberghan City of Jawzjan province. Enteprise (AGe) Annual production is 147 million cubic meters. The company's main customer is Kod- e-Barq fertilizer company, as well as local businesses and residents of Sheberghan City. Two new contracts for generation of 90 megawatts of power by the private sector have been approved. Kod-e-Barq This company is located 18km west of Mazar-e-Shareef. It was established in 1964 Fertilizer Factory with an initial investment of $48 million. During its early period, the factory had (KeB) the capacity to produce 105,000 MTs of fertilizer and 48MW of electricity per year. Currently only the factory only produces -35,000 MTs of fertilizer and -13MWs of power Northern Coal NCE is one of the four state owned enterprises managed by MoMP. In terms of Enterprise (NCE) operation, NCE currently owns six mines, of which four are active mines and two are inactive mines. The current daily production of NCE is an average of 4,500 MTs. In addition, NCE operates as a coal trader, sourcing supply from great number of independent miners Jabal-Saraj A small cement clinker factory that produces minimal amounts of cement for local Cement (JSC) consumption 23 MINING SECTOR ROADMAP Ministry of Mines and Petroleum: Required Reforms ORGANIZATIONAL STRUCUTRE OF THE MINISTRY As ofSeptember 2017 Minister (2,704) Internal Audit Office Diredorate 25 Diredorate 48 34 Provincial Diredorates 574 Government Enterprise Information &Public Diredorate 30 Relations Diredorate 25 Deputy Minister Deputy Minister Deputy Minister General Diredorate Admin & Finance 410 Policy 11 Technical 1,118 Geological Survey 399 Finance a Human RISOUl'tl Logal Sorvlcos Investment Minos Cldutn Minos T1<hnlcal Geological Envlronmonlll Accounting DI.-- DlrKWnll Support a 01.-- Inspection lnfomlllon Geology 01.-- Marketing 01.-- OlrKWnll Olro<to- 39 64 17 Olro<to- 22 72 128 52 40 Procunmont Admln a Services Economk Analysis, Coordination Gtnoral Gon111I Mlnorals Survey LlbsOlrKW- 01.-- 01.-- Plan, a Evaluation asuporvision DI.-- 01.-- OlrKWnll of Polidos of Programs of Solid Minos of Pvtroloum 35 150 Dlro<to- 19 Olro<to- 13 113 782 153 52 lnfomlllon Gonder Sub- SmallSClloa Pvtroloum T1<hnology Olro<to- Prohssional survey a 01.-- Mining Tochnlcal Services 42 4 Dlro<to- 41 Olro<tonto 724 Geological Survey Supervision on Supervision on Finance Sub- lmplomontltion lmplemtntltion 01.-,111 of Solid Mlnorals of Oil a Gu 76 Contnct Contract 01.-- Olro<to- 69 35 Provincial Oll&Gu Coordination Projtcts 01.-- Olro<to- 23 20 24 MINING SECTOR ROADMAP Industry and Regional Market Development Afghanistan must leverage (Baghlan) and Jabal-e-Saraj (Parwan). If required, a detailed feasibility study should be the expertise of the private commissioned for each, and then both sites sector to harness the should be put out for tender. There is also an opportunity for a cement plant at Herat. The potential of its mining site has extensive limestone, and power needs sector. can be met by either the nearby Sabzak coal area or natural gas once the TAP! pipeline That much is clear. But the Government can reaches the city support the sector by improving minerals and hydrocarbon legislation, recalibrating the Hydrocarbon Market Development MoMP so that it works in support of the private NORTHERN AFGHANISTAN sector, removing infrastructure impediments, Northern Afghanistan's Amu Darya and and implementing a transparent tendering Afghan-Tajik basins could become the center process. Although market development will of oil field drilling, service, and refining depend on the trajectory of future mineral industries. In addition, the region could findings, we offer a few potential examples of be locus for natural gas production and industry development across a few mineral/ transmission facilities. industry sectors: Gold Market Development Cement Production NORTHERN+ SOUTHERN AFGHANISTAN CENTRAL+ WESTERN AFGHANISTAN Afghanistan's gold belt runs from Badakhshan Cement is the most basic of all modern southwest to Takhar. Given the concentration building materials. Hence, the availability of of the gold belt, a domestic processing reasonably priced cement to the construction industry could be developed in northeast industry in Afghanistan is a high priority. The Afghanistan . A second gold belt running demand for cement is estimated at greater from Ghazni to Zabul could be centered in than 6 million MTs per year, which is currently Ghazni. Both markets could be connected via being met by imports from neighboring air corridor to the largest gold market in the countries. The two most promising areas world in India. for cement production are in Pul-e-Khumri 25 MINING SECTOR ROADMAP Industry and Regional Gemstone Market Development investment in the required infrastructure, Market Development EASTERN AFGHANISTAN such as the rail and power networks, will be a Extensive gemstone assets are located in national priority. Meanwhile, we will focus on Panshir, Nuristan, Kapisa, and Laghman. development of medium- size iron and copper Kabul could therefore become a key gemstone deposits. Current market demand and future processing area. MoMP must develop a clear infrastructure investments serve as a good licensing and validation process, so that guide to the private sector. Investment in steel gemstones are processed in Kabul, and could mills in the last three years, for instance, has be exported via air corridor to international boosted domestic production to 220,000 tons, markets in India, China, and beyond. allowing it to meet about 33% of the current demand . Construction of the national railway Rare-Earth Minerals and power systems will boost and sustain the SOUTHERN AFGHANISTAN demand for at least two decades, allowing for REMs assets in Afghanistan provide a unique a medium-term horizon. opportunity. These assets will need to be tendered and evaluated under commercial Talc terms, but under the parameters laid out in Preliminary analysis shows that Afghanistan a national security REMs strategy. One such can join the rank oflO largest producers. area of interest is the lithium deposits located Eastern Afghanistan, particularly, is endowed in southern Helmand province. Such assets with high quality deposits that are harvested could be transported to international markets from the surface. Despite the fact that talc was via our extensive airport infrastructure and classified for artisanal mining, the private air corridor program. sector has already invested around $35 million in the value chain and an industrial Bulk Minerals part in Nangarhar has emerged as a hub of CENTRAL AFGHANISTAN processing. Examining the prospects, the Both the Aynak copper and the Haji-Gak Economic High Council has changed the iron ore mines, as well as other large bulk classification into large-scale, instructing mineral assets, are located nearx Kabul. the ministry to create the conditions for These mineral resources require extensive award of competitive tenders for large-scale power and rail infrastructure. To ensure the development of the value- chain of this development of our world-class bulk mines, mineral and export of its processed products. AFGHANISTAN MINERAL PRODUCT/ REGION MIX Region Primary I industrial I Bulk Building Materials Hydrocarbons Eastern -- Gemstones + Talc Copper + Iron Marble -- Amu Darya + North Gold Gemstones Copper Marble + Limestone Afghan Tajik West -- -- Copper Marble + Limestone -- South REMs+ Gold Flourite Copper -- -- Central REMs -- Lead+ zinc -- -- 26 MINING SECTOR ROADMAP Industry and Regional Chromite Coal Market Development Exploitation of chromite through crude Initial estimates of coal deposits were in inefficient technology and its smuggling has the range of 1 billion MMTs. Subsequent become a contributing driver of conflict in estimations, however, have varied widely. the central, southeastern and eastern regions MOMP, however, estimates 2017 production of the country. Creating the conditions for around 2 MMTs, of which around 500 MMTs investment in processing facilities and the have been exported. Production is inefficient, development of an efficient and profitable dangerous and, at times, illegal. As our coal value chain, is, therefore, a priority for the is high quality, we will focus on its utilization country. for generation of power through clean coal technology, develop its value chain, and seek Marble agreements for export to new markets. Our deposits of 1.3 billion MTs gave us the These product/region mix strategies quantity to be a long-term player. Additionally, are summarized in the table below.unique we are blessed with a range of colors, around opportunity. These assets will need to be 40, and quality, including Carrara quality tendered and evaluated under commercial white. An analysis by Chinese experts terms, but under the parameters laid out in estimate that an annual export of $500 million a national security REMs strategy. One such to China alone is feasible . Concentration area of interest is the lithium deposits located on the development of the value chain for in southern Helmand province. Such assets marble, therefore, will be among our top could be transported to international markets priorities. via our extensive airport infrastructure and air corridor program. 27 MINING SECTOR ROADMAP Conclusions and Recommendations Mineral/AO! Prioritization Framework This roadmap provides In terms of mineral interventions, we will a strategy for the key begin by prioritizing interventions first in construction materials, second in industrial decisions on how to metals, third in precious metals, and lastly move with tenders for bulk minerals. This improve the performance of sequencing has a number of advantages. Afghanistan's minerals and First, it acknowledges the current constraints in the sector, particularly in regards to a hydrocarbons sector. lack of transport and power infrastructure required for bulk material extraction. Second, it allows MoMP to build expertise and a track We now provide recommendations across five record with smaller contracts before signing key areas: (1) prioritizing mineral and AOI a long-term contract without sufficient legal, interventions, (2) implementing institutional financial, and technical experience. Third, reform at MoMP, (3) reforming the tendering it can be approved for mines throughout the process, (4) ensuring service delivery country. for communities, and (5) ensuring that For larger mines, and for reasons of mining revenues contribute to macro-fiscal regional equity, we will move forward with sustainability. a larger mining tender in each of the five Region AOI/Mine Summary This large limestone deposit could be used to jumpstart cement sector in West Limestone Western Afghanistan Contains large reserves ofrare earth minerals and uranium reserves. Could be South Khanneshin given by restricted tender given, national security implications A large lead and zinc deposit in western Ghor province that may be connected Central Nalbandon to western transport and power infrastructure. However, mines in this region will be difficult to move forward quickly Ghunday This talc deposit is already being mined, and we will move forward to formalize East Achin/ these talc mines and increase investment in the region. The formalization of Panjshir the gemstone industry should also be a priority Baghlan is ideally located to move forward with a tender for a limestone North Baghlan/ contract that will be able to provide raw materials for cement production 28 MINING SECTOR ROADMAP Conclusions and regions of the country, based on the identified board seats, but the ministry will no longer be Recommendations 24 areas of interest (AO/s). Given the world- involved in operational issues. As a first step, class deposits in the fifth (central) region of robust financial systems will be implemented the country, we are implanting a series of at each tasadee. During 2018, independent measures to create the enabling conditions directors will be added to the board of each for award of tenders in the short term . These tasadee. By year-end 2018, an independent ideas will be validated and confirmed. financial audit will have been completed. MoMP Reforms Improving Mineral Tendering Process In terms of institutional reform at MoMP, In terms of tendering processes, given a the long-term vision has now been clarified. clear prioritization framework, ready-to- We seek a ministry that is pared back in issue EOI packets for each AOI, and clear terms of size, and that focuses solely on decision- making framework, the MoMP policy-making. Over time, the regulatory is theoretically ready to issue a number of functions and operational components of the tenders. The remaining issue is the evaluation ministry will be spun off as separate entities. and selection process. Revisions will be made The hydrocarbon regulatory functions to the minerals legislation such that, at a will be spun off to form an independent minimum, the High Economic Council (HEC) hydrocarbons regulatory authority. Next, the will approve of all mining evaluation teams mineral technical departments will form the (with larger contracts approved at Cabinet). In the nucleus of an independent mining regulatory long- term, a larger redraft of the minerals agency. This independent regulator will be in legislation will take place charge of tendering processes and contract enforcement. As a first step towards this goal, Ensuring Community Service Delivery MoMP will form a technical advisory board All service delivery functions, such as that will provide guidance for the MoMP community engagement and local community Technical Deputy Minister. support, should be managed by the Citizen's The AGS will be spun off as an Charter program. This has the benefit of independent technical agency whose sole consolidating all community engagement purpose will be to develop and maintain functions into one program rather than natural resources data or it will be merged spreading the function tasks throughout with the Arazi, an organization with proven multiple ministries. Likewise, all resettlement leadership and vision. Where data is activities will be tasked to an independent unavailable, AGS will be tasked with acquiring resettlement agency. These actions will allow the required data via either internal resources MoMP to focus its energy on mining policy- or contracting mechanisms. This includes making activities development of geospatial infrastructure, assessment of mineral resources, assessment Ensuring Mining Revenues Contribute to of coal resources, and assessment of Macro-Fiscal Sustainability Many countries earthquake hazards. Priority assessments for have experienced a 'resource curse,' a large immediate implementation include those in component of which is the effect of large the coal, cement, and natural gas sectors. natural resource inflows during a short All state-owned companies will be spun period of time. Such large inflows tend to off as independent state corporations. MoMP overwhelm small domestic economies, cause will retain a significant ownership stake and a non-sustainable overvaluation of a country's 29 MINING SECTOR ROADMAP Conclusions and exchange rate, and create boom-and-bust Recommendations cycles that coincide with commodity price fluctuations. To resolve these issues, some Implementing these changes will countries have created commodity surplus be challenging-but if done correctly- funds to smooth economic cycles. Although has the capacity to change the course of Afghanistan is currently far from creating Afghanistan's trajectory from a low- such a fund, we must plan for the future. If income country to a middle-income and when large mineral deposits do begin country over the course of the next production, our Ministry of Finance should few decades. This report provided a prioritize creating legislation that outlines roadmap for how we aim to ensure formulaic fiscal rules that outline how that Afghanistan's natural resources resource revenues are spent and saved. will benefit its entire citizenry. We In Chile, for example, the Economic have highlighted the extensive mineral and Social Stabilization Fund (ESSF) allows resources of the country, described financing of fiscal deficits and amortization the GoIRA's strategy of methodically of public debt. As defined in their Fiscal removing legal, operational, and Responsibility Law, when copper prices are transport constraints facing the sector above their long-term average (using a clear so that the minerals sector will act as formula), excess revenues are deposited into the growth engine of Afghanistan for the ESSF. When copper prices are below their decades to come. Upon approval of long-term average, ESSF funds are used in this roadmap by the High Economic the national budget. Thus, the ESSF is able to Council, the roadmap will be turned provide fiscal spending stabilization since it into a time-bound action plan. reduces its dependency on global business cycles and revenue's volatility derived from fluctuations of copper price and other sources. ~ £ r C . ~ ~ -c -El ] ~ C C -:--11111111. .. .J ~ 30 ""'-"- - " " " ' - - ~ MINING SECTOR ROADMAP Summary Table of Commodities All figures in MTs except where noted otherwise Commodity Resource Estimates I Provinces I Type

1. BUILDING MATERIALS Afghanistan has abundant sand and gravel resources, as well as for building and dimension stone. Limestone deposits suitable for cement production are widespread in Afghanistan. Granite, marble, limestone, travertine, and sandstone occur in abundance Sand/Gravel 136,000,000 (sqm) Badakhshan Aggregate Marble 1,300,000,000 Various Building stone Limestone >500,000,000 Badakshan, Herat, Baghlan Cement &flux 3,500,000 Bamyan Building stone Dolomite 1,040,000 Bamyan Building stone Glass Sand 10,900,000 Balkh Sand (sandstone) 110,000 Balkh Sand (siliceous) Aragonite 770,000 Helmand Dimension stone Sandstone 650,000 Bamyan Building stone (siliceous)

2. METALS Afghanistan has extensive availability of most bulk and precious metals, including iron, aluminum, copper, gold, silver, and molybdenum Iron 2,261,200,000 Bamyan, Baghlan Sediment-hosted iron Aluminum 178,000,000 Badakhshan, Kandahar Igneous-related iron 4,535,000 Zabul, Baghlan Bauxite (50.5% alumina, 12% silica) Copper 12,340,600 Kabul, Logar Sediment-hosted (probable: + 16,880,000 MTs) 68,500 Kandahar, Zabul, Herat Igneous-related (probable: +28,469,200 MTs, +724,010 MTs molybdenum, 682 MTs gold, 9,067 MTs silver) Gold 1,780 (kg) Badakhstan, Ghazni, Zabul Lode gold 91B(kg) Takhar, Ghazni Placer gold Lead &Zinc 90,000 Kandahar, Herat, Paktia Igneous-related lead &zinc 153,900 Ghor Sediment-hosted lead & zinc Tin &Tungsten Unknown Herat, Farah, Uruzgan Sn veins, SN &Wskarns & greisen Mercury 32,234 Farah, Ghor Hot-spring mercury (probable)

3. INDUSTRIAL MINERALS Afghanistan has extensive amounts of gemstones, rare-earth minerals, uranium, su/fur, chromite, and talc, among other industrial metals Brick Clay 2,200,000 (sqm) Kabul Clay Rare-earth elements 1,405,179 Helmand Carbonatite (probable, +3,480, 159MTs niobium, phosphorous, uranium, &thorium) Chromite 200,000 Logar, Paktia Chromium oxide (43% weight, probable: +979,484 MTs) Barite 151,500,000 Parwan, Herat Bedded & vein barite Celestite >1,000,000 Baghlan, Kunduz Celestite (75% weight) 31 MINING SECTOR ROADMAP Commodity Resource Estimates I Provinces I Type

3. INDUSTRIAL MINERALS (continued) Potash 27,513,690 Balkh, Samangan, Kunduz Evaporite (probable) Fluorite 8,791,000 Uruzgan Fluorspar (46.69% weight) Talc, asbestos, 1,250,000 Nangarhar Metasomatic/metamorphic replacement magnesite (+31,200 MTs magnesite) &magnesite 50,000 Nangahar Talc-magnesite (probable:+ 13,365,563 MTs asbestos) Sulfur 450,000 Balkh, Badakhshan Bedded &fumarolic (probable: 6,000,000 MTs) Kaolin 385,000 Baghlan Sedimentary kaolin 150,000 Baghlan Residual kaolin Graphite 5,000 Badakhshan Disseminated flake graphite (probable:+ 1,050,223 MTs) Lazurite 1,300 Badakhshan Skarn lazurite Halite Unknown North Afghanistan Evaporite Summary Table of Areas of Interest Source: AGS/USGS AOI Main Minor Deposit Model Comments Priority CENTRAL AFGHANISTAN Central Afghanistan has extensive tin, mercury, and lead. However, the region is currently located far from required transport and power infrastructure Daykundi Sn,W,Li Cu, Pb-Zn Greisen tin-tungsten, tin-tungsten-skarn, Taghawlor lithium pegmatite field 2 lithium pegmatite Karnak-Khanjar Hg Sb, As, Au, Ag Epithermal mercury, base-metal skarn Mercury belt 3 Nalbandon Pb,Zn Ag Sediment-hosted lead-zinc Extensive mineral field 1 SOUTHERN PROVINCES Southern Afghanistan has the largest amount of rare-earth minerals and onyx, as well as copper, gold, and the country's main fluorite deposit. These deposits could be relatively easily connected to southern neighbor transport infrastructure Khanneshin REMs, U, P Th, Ba, Sr, Carbonatite Significant REMs and uranium resources 1 limestone South Helmand Travertine Cu,Au, Mo Travertine, porphyry copper-gold Travertine production, porphyry copper-gold deposits in 2 (onyx) adjacent Pakistan Kundalan Cu,Au, Mo Ag,Ph Porphyry copper-gold and skarn Copper and gold resource; multiple occurances 6 Bakhud Fluorite Zn, Pb,Ag, Sediment-hosted fluorite, fluorite vein, Main fluorite district in Afghanistan 3 Sb, Ba polymetallic skarn Katawas Ag, Hg,W Epithermal gold-silver ASTER anomaly 4 Zarkashan Cu,Au Ag,Pb Porphyry copper-gold and skarn Copper and gold resource, multiple occurrences, gold placer 5 32 MINING SECTOR ROADMAP AOI Main Minor Deposit Model Comments Priority WESTERN PROVINCES Western Afghanistan has sufficient limestone for a cement factory, copper deposits, and tin. Mining infrastructure could easily be connected to Iranian ports for export Ba, limestone, Bedded barite, vein barite, chemical Major barite field, marble factory, industrial North Herat marble, NA limestone, marble, clay, iron skarn center 1 clay, Fe Porphyry copper, volcanogenic Dusar-Shaida Cu, Sn Pb,Zn, W Shaida porphyry copper prospect 3 massive sulfide, tin-copper skarn Tourmaline Sn Cu Tin-tungsten vein, placer tin Previous mining for placer tin 2 EASTERN PROVINCES Many of the largest mines (including Haji-Gak and Aynak) are located in Central Afghanistan, far from transport infrastructure. Also includes Emeralds (Panjshir), talc (Nangarhar), and REMs (Nuristan) are located in Eastern Afghanistan. Larger deposits will need to be integrated with southern railway networks Ba, marble, Hajigak Fe sandstone, Volcanogenic iron 1.7 billion MTs plus iron ore .. U,Cu Chromite, .. Aynak Cu, Co.Ag Sediment-hosted copper, podiform chromite Reserves at Aynak, Jawhar, & Darband deposits asbestos, talc Emerald, Panjshir NA Emerald, sedimentary iron, silver Major emerald mining area 2 Fe,Ag Magnesite, Graphic, coal, Metasomatic magnesite-talc, ultramafic- hosted Ghunday-Achin Achin and Ghunday magnesite-talc deposits near Tora Bora 1 talc, asbestos marble asbestos Paron (Jumanak-Pasgushta) and Pachigram pegmatite fields, Nuristan REMs, Li,Sn Ta, Nb Pegmatites 3 lithium NORTHERN PROVINCES The north part of the country has the most diverse set of mineral resources, including gold, copper, limestone, bauxite, and celestite. Regional infrastructure could be relatively easily connected with northern neighboring countries Badakhshan Au, Fe Ag, Cu, U Gold-quartz veins, gold and iron skarn Weka Dur deposit contains 958kg of gold 6 gold North Takhar Au NA Gold placer Past production, gold resources 5 Salt, clay Takhar Coal, oil & gas Salt dome, clay, sandstone Rock salt deposit at Namaka b. Porcelain and pottery clay 2 silica Bedded celestite, oil & gas, bedded phosphate About 1M MTs of celstite in speculative resource and Katar Kunduz Celestite Oil &Gas 4 deposits Oil occurrence Bauxite, clay Tala Barfak bauxite deposit contains resources, Clay deposits Baghlan (kaolin), NA Bauxite, clay, gypsum 1 are extensive gypsum Balkhab Cu Pb,Zn, coal Vocanogenic massive sulfide Balkhab copper prospect 7 Dudkash Limestone Limestone cement, dolomite, bedded celestite, Industrial dolomite, Coal, gypsum Pul-e-Khumri area and Tangi- Murch celestite deposit 3 gypsum clay Minerals celestite 33