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    South Asia
     Jun 13, 2012

China's Afghan oil deal on the skids
By M K Bhadrakumar

Within a week of the Afghan government's resolve to take its relationship with China to a "new strategic level", Sino-Afghan ties have run into bad weather. China finds itself in the middle of a cesspool of first-class political intrigue, sleaze and power plays that could sully its good-neighborly image among the people of northern Afghanistan.

The facts are as follows. Toward the end of last year, Afghan President Hamid Karzai took the fateful decision to award the first contract for exploring, developing and extracting oil in the Amu Darya basin. In a crisply worded statement, Karzai's office put his personal stamp on the decision: "The Afghan cabinet has ordered Mines Minister Wahidullah Shahrani to sign an oil exploration contract for Amu Darya with China National Petroleum Corporation (CNPC)."

The deal generated a lot of interest in world capitals, as it


constituted a major win for China, giving it access to not only the Amu Darya basin, which is estimated to hold around 87 million barrels of oil, but also gave it an advantage in chasing bigger Afghan reserves.

The Afghan-Tajik basin, a geological zone in the northeast, is estimated to hold 1.9 billion barrels of oil and natural gas liquids with gas deposits equivalent to 1.5 billion barrels of oil, according to US Geological Survey data.

Most important, the deal testified to the astounding success of Chinese diplomacy in Kabul. China already figures as Afghanistan's biggest foreign investor. In 2007, it won a multi-billion deal to mine Afghanistan's biggest copper deposit at Aynak and also build a coal mine, power plant, smelter and a railroad.

Three blocks of the Amu Darya basin form part of a geological zone that extends to Turkmenistan and Uzbekistan, where Chinese oil and gas companies are already well-established and China has built a pipeline grid to evacuate the oil and gas to Xinjiang.

Again, Aynak and the Amu Darya basin and the Afghan-Tajik basin all lie in proximity to China's western frontier and Beijing is eager to boost incomes in Xinjiang and accelerate the development of its border province. To be sure, the Amu Darya oil deal is of strategic importance to China.

Unsurprisingly, the CNPC chose the Watan Group as its local partner. Watan is owned by the Popal brothers who are cousins of Karzai. According to a New York Times report, Watan's largest shareholder could be Qayum Karzai, brother of President Karzai, who denies it. (The New York Times recently reported that Qayum Karzai was possibly mulling a run for the presidency when his brother steps down.)

Evidently, China kept a low profile and quietly worked its way through the Byzantine corridors of power in Kabul to reach the most powerful family in Afghanistan. Indeed, Watan has proven credentials. It serves as war contractors for the United States by providing logistics, security services, etc. It protects convoys of trucks carrying supplies for US forces between Kabul and Kandahar. (There are allegations that the company paid the Taliban to the tune of 10% of their $360-million contract so that the insurgents would not attack the US convoys.)

Now, just when everything seemed to be going brilliantly for the CNPC, trouble has appeared out of nowhere. Chinese engineers from CNPC are being intimidated from working on the oil project in the northern province of Sar-e Pul by local strongmen demanding hefty bribes and kickbacks.

Skating on thin ice
It may seem a storm in a tea cup for Watan, but then, Sar-e Pul is also the fiefdom of Rashid Dostum, the leader of the Junbish-e Mili Party and a key figure in the erstwhile anti-Taliban Northern Alliance. To give a bit of a figurative touch, no leaf turns on a tree in Sar-e Pul and no bird takes off in that mountainous province of rugged territory without Dostum knowing and approving. And Sar-e Pul also belongs to Afghanistan's "Wild West", teeming with highway bandits and thieves, corrupt militiamen and police where people die in mysterious road accidents.

In retrospect, CNPC should have known that Kabul was far away from the Amu Darya region. Maybe it trusted Watan's ingenuity; maybe, Watan wanted to keep Dostum at arm's length knowing his rough methods and his persistence. Or, China didn't want to consort with Dostum, who is at present opposed to Karzai - although he played a crucial role in ensuring Karzai's victory in the 2009 presidential election.

It seems China raised the CNPC's woes with Karzai during his recent visit to Beijing to attend the summit meeting of the Shanghai Cooperation Organization (which granted "observer" status to Afghanistan). Following talks between Chinese President Hu Jintao and Karzai, a declaration was issued in Beijing on Friday in which China pledged "sincere and selfless help to the Afghanistan side". Hu told Karzai at their meeting at the Great Hall of the People in Beijing, "At present, Afghanistan has entered into a critical transition period. China is a trustworthy neighbor and friend of Afghanistan."

Hu's message was direct: China is prepared to go the extra mile to shore up ties with Afghanistan and enter into wide-ranging cooperation in preparation for the departure of the bulk of the US troops at the end of 2014. Significantly, Karzai pledged at the meeting with Hu that his government will take "tangible measures" to protect the Chinese citizens and institutions in Afghanistan.

At any rate, immediately after his return to Kabul from Beijing on Friday, Karzai ticked off Dostum. On Sunday, the National Security Council in Kabul (which reports to Karzai) accused Dostum of "undermining national interest" by intimidating Chinese engineers working at the Sar-e Pul site. The NSC has since directed the Attorney General's Office in Kabul to investigate. A joint team from the Afghan intelligence and the Attorney General's office has been directed to book Dostum, if need be.

But putting handcuffs on Dostum's powerful wrists and dumping him in a dingy prison cell is not so easy. China is skating on thin ice. Karzai may end up offending Dostum, who commands a huge following in the Amu Darya region where the CNPC hopes to work for years if not decades.

Meanwhile, former vice president and leading opposition figure, Ahmad Zia Massoud (brother of slain Northern Alliance leader Ahmad Shah Massoud), has come out in defense of Dostum and the searchlight gets turned on the CNPC's oil deal. Massoud scoffed at Karzai's moral right to speak of "national interests". He told a press conference in Kabul on Monday:
Those who looted $900 million from Kabul are national traitors, those who built private houses on the property of Ministry of Defense in Kandahar are national traitors, and those who misused the Ghori Cement plant and took financial benefit from it are national traitors.
The reference is to the alleged role of Karzai's family members in the scandal surrounding the Kabul Bank (which lost about $900 million in insider deals, much of it ending up in secret bank accounts in Dubai in the United Arab Emirates).

Crab mentality
There could be a sense of deja vu, since corruption and political sleaze are not exactly the stuff of "breaking news" in present-day Afghanistan. But some serious issues arise.

The line-up - Karzai versus Massoud and Dostum - shows the acute political polarization in Afghan politics. The opposition has got a fresh issue to agitate and the CNPC deal itself may come under public scrutiny.

At the root of the current dispute is the local leadership's claim on "revenue-sharing". This is somewhat similar to the tussle in Iraq between the central government in Baghdad and the local leadership in northern Kurdistan province over the sharing of oil revenue. Plainly put, Dostum wants his share of any kickback from the CNPC that the people in Kabul might have got, because the oil happens to be in the territory under his control.

The highly centralized Afghan polity is showing signs of fatigue when it rubs against strong local leaderships. The Afghan opposition has been demanding a decentralized form of government with delegation of powers to directly elected local powers. (Unsurprisingly, Karzai doggedly resists the opposition demands.)

In the period ahead, Kabul's decisions to award contracts to foreign parties in the extraction industry are going to be increasingly controversial. The point is, the scramble for Afghanistan's mineral resources has begun. China and India are in the forefront. The US's New Silk Road is a barely-disguised project to gain control of Central Asia's natural resources.

The Indian and Afghan governments will be co-chairing a Regional and International Investors meeting in New Delhi on June 28 to discuss the strategies to boost foreign investment in Afghanistan. It is notionally a "private sector" meeting, but government entities are also asked to attend, as the government "plays a role in further exploring and promoting investments in Afghanistan over the long term and lays down better opportunities".

Interestingly, the first announcement of the conference was made last weekend from Washington. The US and India are interested in jointly pursuing business opportunities in Afghanistan's mining sector, which seems to be the optimal way of countering competition from Chinese companies.

The US is enamored of India's "soft power" in Afghanistan, which it obviously lacks; on the other hand, Washington can bring in the "hard power" component. The resultant US-Indian "smart power" - to use Joseph Nye's famous expression - is expected to be more than a match for China.

The ground reality is that China's towering economic presence in Afghanistan has become an eyesore. Competing foreign players tend to develop the "crab mentality" - pulling each other down - in a business milieu lacking a level playing field. This is where Dostum's entanglement with the CNPC becomes a little more interesting than money.

Dostum always kept up links with foreign powers. Originally trained in the KGB school in the Soviet era, his mentors ranged from Uzbekistan to Turkey to Pakistan and the US. There is always scope to speculate whether he is acting on someone else's behalf.

Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.

(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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