Ten years ago, the United States went to war in Afghanistan as retaliation for the destruction of the World Trade Center in New York by terrorists linked to (and protected by) the Afghan government. Seven years ago, the United States went to war in Iraq for reasons that remain somewhat unclear, but which many think had something to do with oil. T. Boone Pickens went so far as to complain to Congress: “They’re opening them (oil fields) up to other companies all over the world ... We’re entitled to it. Heck, we even lost 5,000 of our people, 65,000 injured and a trillion, five hundred billion dollars. We leave there with the Chinese getting the oil!”
Pickens wasn’t really correct about Iraq, but he nailed it in ... Afghanistan. In 2004, the USGS published a report examining the resources of the Amu-Darya basin, most of which is in Turkmenistan and Uzbekistan, but part of which extends in Afghanistan’s northern provinces. In 2006, the USGS made a more detailed survey of the resources on the Afghan side of the border. They estimated that the Amu-Darya fields might hold as much as 141 million barrels of oil, which is not a lot ... but the nearby Afghan-Tajik fields likely held 1.4 billion barrels (and might hold as much as 3.6 billion) which is.
In 2009, the Afghan government decided to put the smaller Amu-Darya blocks out to bid. The winner of the bid would be the company that offered the most favorable production sharing agreement (PSA) to the Afghan government. The offer would have to include (a) an offer of a fixed royalty percentage on all production; (b) a specific additional percentage for known fields in the blocks; and (c) a second specific percentage for unknown fields discovered after the bid. As standard for most PSAs, the winner would get 100% of the revenue until they covered their exploration and development costs, including interest. The real reward, of course, wouldn’t be Amu-Darya, but the much bigger Afghan-Tajik fields.
No points for guessing who won: the China National Petroleum Company (CNPC). CNPC beat Australia’s Buccaneer Energy, the U.K.’s Tethys Petroleum, and Pakistan’s Shahzad International. According to Afghan sources, CNPC offered a 15% royalty, a 30% PSA share (referred to by the FT as a “corporation tax on profits,” which isn’t quite correct but does capture the basic idea) and the construction of a $300 million refinery. (Afghanistan consumes about 1.7 million barrels per year. A ballpark estimate of a refinery capable of processing all domestic consumption comes to a bit less than $50 million ... the implication being that the CNPC refinery is going to be intended to export to neighboring countries.
Three things are interesting about the deal. The first is that the Chinese appear to have gotten a pretty good deal: unless their marginal costs turn out to be astronomical (which is unlikely in a conventional onshore field with next-to-no exploration risk), a 45% government take after cost recovery is not bad at all. The second is that there isn’t any evidence of Chinese sweeteners, in the form of cheap development loans. This is not a loans-for-oil deal of the type signed with Russia or elsewhere. In a sense, then, this contract represents a change from previous Chinese deals, which generally involved overpaying for access to oil. Whether that change is going to be sustained is, of course, a completely different issue. The third is that any later disputes can be taken to the International Centre for the Settlement of Investment Disputes (ICSID), even though China and Afghanistan lack a bilateral investment treaty. ICSID is a remarkably powerful organization even when wielded against large and powerful states — if no big country has yet reneged on an ICSID judgment (although Argentina may change that) a small country like Afghanistan, highly dependent on World Bank funding and American assistance, is extremely unlikely to resist.
Americans will be responsible for creating the institutions (both inside an outside Afghanistan) that give foreign companies the certainty they need to invest, but Americans show no sign to getting any of the fruits of that investment. The Afghan War, in short, was clearly not about oil. The Afghan peace, however, if there is to be such a thing, just might be.
Let's assume that the Taliban threaten the oil fields ... would China be willing to intervene militarily to protect them?
Posted by: Peter | September 07, 2011 at 08:47 PM