Thursday, June 02, 2011

Afghanistan: Neighbouring states may be unhappy to see Afghans producing and refining their own oil

This article originally appeared in the Institute for War and Peace Reporting,

Oiling Wheels in Afghanistan

Neighbouring states may be unhappy to see Afghans producing and refining their own oil.

Afghanistan is developing a modest oil industry, with some wells already on stream and others expected to start producing later this year.

Some experts worry that neighbouring states will grow jealous of the country’s new resource wealth and will try to obstruct its development. Others believe the dangers lie nearer to home, where the oil and fuel markets will be as vulnerable to predatory speculators as any other economic sector.

At Angot, some 20 kilometres from Saripol in northern Afghanistan, oil is gushing out at high pressure from four wells. The crude is transported on tanker trucks to Hairatan, where it is refined into petrol, diesel and thicker fuels.

The wells on the Angot field containing an estimated 60 million barrels are just the start of plans to exploit reserves which Afghan officials put at 1.8 billion barrels, located in deposits stretching across Balkh, Jowzjan and Saripol provinces.

Afghanistan’s mining minister Wahidullah Sharani says current production of 800 barrels a day is worth ten million US dollars a year in government revenues.

However, this only accounts for two or three per cent of Afghanistan’s annual demand, around 13 million barrels a year. But it is seen as enough as a good start for a process that will see rising production and demand for new refining capacity, creating thousands of jobs along the way.

Shahrani says that later in 2011, other fields in Saripol and Balkh provinces will be put out to tender for bids from international extraction firms. Afghan companies are unable to lift oil by themselves, he added.

The minister predicted that this next wave of oil developments would meet 80 per cent of domestic demand.

Aside from oil, Afghanistan is rich in a range of mineral deposits, but so far foreign investments has been slow in coming. The first major foreign entries are two Chinese companies which are involved in the Ainak copper mine in Logar province.

At the moment, there is just one oil refinery, at Hairatan near the border with Uzbekistan. It was built by Kam Group, a privately-run Afghan company. Another local firm, Ghazanfar, has plans to import the machinery needed to set up a second refinery.

Attila, director of the Kam refinery, says it is processing 200 barrels a day, but complains that the oil coming in from Angot is contaminated with other substances.

“It’s 40 per cent water and salt. We’ve reported this problem to the authorities, and if the government doesn’t revise the rate it charges [50 to 60 dollars per barrel], we will have to cancel the contract,” he said.

With 200 people employed at the refinery, and more involved in extraction, transport and security services, the industry is already creating jobs in the north.

Khudaiberdi, one of several dozen drivers on the Saripol-Khairaton route, and foresees thousands of new jobs appearing once other fields open up.

“Every other day, it’s my turn to deliver crude to the refinery, and each time I make a net profit of 400 dollars. That’s a good income,” he said.

Local resident Khan Mohammad noted that many workers had been taken on to gravel the road from Saripol to the Angot field and to do other jobs. Opportunities were also opening up to join security units protecting the oilfields, he added.

In the minds of people living near the field, the only downside is that the oil is not refined locally.

“The oil is in our area, and the refinery should be built here as well, so that our people get jobs. Otherwise, the oil wells aren’t going to benefit us,” local man Faizullah said.

Saripol provincial governor Mohammad Anwar Rahmati agrees with such views, saying that with no local manufacturing, a refinery would create the workplaces essential to keep young men from going over to the anti-government insurgents.

The Kam Group says this was never included in their contract, and while it would be happy to build refineries closer to the source of the oil, conditions were not right for this.

“There’s no electricity and no railway in the [Angot] area, and it’s far away from commercial ports, so we just can’t build a plant there,” Attila said.

New refineries should reduce Afghanistan’s dependence on fuel imports, which come from major producers like Iraq, Russia and Kazakstan as well as neighbours Iran, Pakistan, Uzbekistan and Turkmenistan.

This reliance means that any hold-up can create serious problems, for example when Iran stopped about 2,000 oil tankers on the border during the winter.

“We have a lot of problems with exporting countries, some of which are inexplicable,” Ibrahim-Oghli, a trader from Mazar-e-Sharif said: “I hope God will grant our people and our government the ability to extract oil in their own country, so that we have no need of others’ oil any more.”

Political relations with Iran and Pakistan, in particular, have long been troubled, and some Afghans fear that these and other neighbouring states will be none too happy to see the country moving towards energy self-sufficiency, especially if that involves exploiting reserves that cross international boundaries. The worry is that funding insurgency in these areas would be an easy way to disrupt oil exploration.

Zalmai Mirzazadah, a oil and gas engineer in Mazar-e Sharif, noted that Afghanistan’s hydrocarbon deposits were close to the former Soviet republics of Turkmenistan, Uzbekistan and Tajikistan, which would have concerns that extraction on the Afghan side could deplete their own underground reserves.

“Our neighbours, especially those bordering on our oil fields, have prevented this country exploiting the oil one way or another, and they still want to challenge it,” he said. “In the 1980s and even before that, the Soviet Union surveyed Afghanistan’s oil deposits, but it blocked their exploitation of these deposits because that would affect adjacent countries.”

Another risk, this time a domestic one, is that the emergence of local refining capacity will simply increase the scope for corrupt trading in the already lucrative fuel market.

Ihsan, head of the Afghanistan National Standards Agency, said equipment was already in place at the Hairatan border crossing with Uzbekistan to check imported fuels and reject any that fell below the requirements. Ihsan said similar equipment would installed at all customs points, although he acknowledged that there were some crossings which the Afghan government did not control.

“Low-quality fuel is imported through border zones where there is no government control and no standards office,” he said.

Hajji Taher, an oil trader in Balkh province, predicted that the arrival of Afghan-made fuels on the market would create scope for what he called the “fuel mafia” to import low-quality crude oil, refine it locally and sell it on.

“It is hard to trust government agencies to stop either the import or the supply of low-quality fuels,” he said.

Abdul Latif Sahak is an IWPR-trained reporter in Balkh province.