Afghans may miss huge Chinese copper investment - watchdog

KABUL (Reuters) - Afghanistan may not reap the full benefit from the biggest foreign investment in its history, a copper mine to be built by a Chinese company, if full safeguards are not set in place, an independent watchdog said on Wednesday.

The site for the mine at Aynak, 60 km southeast of Kabul contains the world's second-biggest unexploited copper deposit with the potential to generate revenue of $1.4 billion a year, 1.7 times bigger than the 2006 Afghan state budget, the Kabul-based independent Integrity Watch said.

"There is a huge potential for Afghanistan, but there is a danger that this opportunity may be missed," said Lorenzo Delesgues, the French executive director of the internationally funded Integrity Watch.

State-owned MCC China Metallurgical won a tender last month to develop the Aynak copper deposit with an expected initial investment of $2.9 billion, equal to around 35 percent of all international assistance to Afghanistan in the last five years.

After a five-year construction period, royalties could generate some $390 million a year for the Afghan government, 47 percent of Afghanistan's budget last year.

The mine has the potential to produce between 150,000 and 200,000 tonnes of copper a year, catapulting Afghanistan into the top 15 copper producing nations in the world with just one mine.

Now the tender has been awarded to the Chinese company, the two sides are engaged in negotiating the final contract, but Afghanistan's minerals law is in parts vague and a regulatory authority has yet to be set up, Integrity Watch said.

"There is concern that the good progress made in selecting an investor is not being matched in building institutions and a regulatory environment," the report said.

"In many instances, developing countries' state apparatus have experienced difficulties in resisting pressure and lobbying from powerful industry majors, once they have awarded contracts."