Chinese firm signs deal with Taliban to produce oil in Afghanistan

Xinjiang Central Asia Petroleum and Gas will invest up to US$150 million in the first year and US$540 million over the subsequent three years
The Taliban will earn 15 per cent royalty fees from the 25-year contract, with daily oil production to start at 200 tonnes and rise to 1,000 tonnes

Afghanistan

Bloomberg

Published: 8:00pm, 6 Jan 2023

Why you can trust SCMP

The Taliban-led administration in Afghanistan signed its first international contract Thursday to extract oil from the northern Amu Darya basin as the beleaguered group seeks to increase revenue.

The agreement with a subsidiary of China National Petroleum Corporation (CNPC), was signed in Kabul in the presence of Chinese Ambassador to Afghanistan, Wang Yu, and the Taliban’s Deputy Prime Minister for Economic Affairs Mullah Abdul Ghani Baradar.

The pact will “strengthen Afghanistan’s economy and increase its level of oil independence”, Baradar said at the signing. Wang, whose country does not recognise the Taliban government, said the 25-year contract will support Afghanistan’s push for self-sufficiency.

Acting minister of mines and petroleum Shahabuddin Dilawar (left), Afghanistan’s acting first deputy prime minister Abdul Ghani Baradar (centre) and China’s ambassador to Afghanistan Wang Yu. Photo: AFP

Xinjiang Central Asia Petroleum and Gas will invest as much as US$150 million in the first year and US$540 million over the subsequent three years to explore five oil and gas blocks, said Shahabuddin Delawar, the acting minister of mines and petroleum. The blocks are located in a 4,500 sq km area in northern Afghanistan.

The militant group will earn 15 per cent royalty fees from the 25-year contract. Daily oil production will start at 200 tonnes and gradually rise to 1,000 tonnes. The five blocks are estimated to hold 87 million barrels of crude oil, according to a previous survey.

The company, known as CAPEIC, will also build Afghanistan’s first crude oil refinery, Delawar said. If it failed to meet all the contract obligations within a year, the contract would be terminated, he added.

The real reason China wants peace in Afghanistan

CAPEIC’s parent CNPC was awarded the same projects in 2011 by the previous US-backed government, but the deal was scrapped years later by former president Ashraf Ghani due to delays and lack of progress in work.

The Taliban have regarded the restart of this project as significant as so far investments have been coming from private or individual entrepreneurs, said Raffaello Pantucci, a senior associate fellow at the Royal United Services Institute in the UK.

“This contract is clearly quite significant for the cash-strapped Taliban because they’ve been desperate for this kind of investment,” he said. “Strategically, this isn’t going to be a game changing oil commitment for China as it’s a relatively limited opportunity.”

The Taliban have harboured hopes for China to boost investments in the country’s rich resources, estimated to be US$1 trillion. The militant group sees the investments as a way to fix an economy that is nearly collapsed after international aid, accounting for 40 per cent of the nation’s gross domestic product, was halted following the chaotic withdrawal of US troops in 2021.

The flags of the China and the Islamic Emirate of Afghanistan are displayed during a news conference. Photo: Reuters

However, attacks by the Islamic State group in Afghanistan, such as the one that targeted Chinese businessmen and executives in a hotel last month, have made China wary on investing. Then there’s also the presence of the East Turkistan Islamic Movement, a Xinjiang-based separatist group, that has kept Beijing rather cautious.

Before CNPC came into the picture, Metallurgical Corp of China Ltd won almost a US$3 billion bid in 2008 to mine one of Afghanistan’s largest copper deposits in Logar province, but it never made headway due to a series of delays mostly to do with security concerns. The Taliban say they are renegotiating the contract.

Taliban guards once-hated Buddhas as it eyes Chinese cash from copper mine

The Taliban have repeatedly asked international companies to invest in Afghanistan’s natural resources, even though it has drawn widespread international condemnation for its rules barring women from education and jobs. China has consistently said it will never interfere in the country’s affairs.

Although no nation has officially recognised the Taliban government, China, Russia, and Pakistan have maintained close political and economic ties. Afghanistan consumes 1.3 million tonnes of fuel annually, imported mostly from Uzbekistan, Turkmenistan and Iran.