Afghanistan's Oil Bids Bode Well for Transparency

By Rebecca Iwerks, RWI Training and Capacity Building Program Officer

Though the summer headlines for Afghanistan are likely to be filled with talk of the upcoming elections and debates about troop levels, the Ministries of Mines and Finances will continue working quietly to improve governance and secure sources of long-term revenue for the country.  Over July and August, the Ministry of Mines will be accepting bids from qualified oil and gas companies on three oil and gas blocks in Afghanistan.  While these fields are all too small to foster hopes of large revenues for the people of Afghanistan, unlike the controversial oil fields in Iraq, they may nonetheless be important to the war-torn country's future: Afghanistan's open and public process of auctioning these fields is a strong indication of the government's resolve to promote transparency and accountability.

In mid-March, the government of Afghanistan declared it was opening its first auction for the rights to extract oil and gas in three blocks.  With the announcement, the government unveiled a process that included a detailed calendar and clear criteria for companies wishing to bid on the rights. 

	Map showing Amu Darya Basin and Central Asian oil and gas fields Map: www.afghanistanpetroleum.com

Showing a further commitment to transparency, within a few days the Ministry of Finance announced its plans to implement the Extractive Industries Transparency Initiative (EITI).  The EITI is a multi-stakeholder initiative that fosters the consistent reconciliation and public dissemination of extractive company payments and government receipts in resource-rich nations.

After a "road show" tour introducing the country's new legal framework and the geological composition of the blocks that stopped in Dubai, London, Calgary, Houston, and Singapore, the government collected pre-qualification bids from over 11 companies.  These companies, based in nine different countries, including France, China, and Canada, were assessed by the government against the pre-qualification criteria.  On June 28, the Ministry of Mines announced that eight of the companies were eligible to submit full bids by the September 15 deadline.  Despite being located in the relative calm of the northern frontier, the small size of these fields attracted only attracted one major oil company as a bidder—Total.

By committing to the EITI and creating a bidding process that meets the highest international standards, the government of Afghanistan has shown a new commitment towards transparency, even though only small revenues are envisioned for the near future.  They have continued these early steps by furthering the EITI process in the midst of a busy pre-election season.  Earlier in July, during a visit by World Bank officials, Afghanistan's government strove to solidify plans for the personnel and facilities necessary to meet the practical needs of EITI implementation.

This push for transparency is welcome in a country whose record in the area is checkered, at best.  Afghanistan ranks in the bottom tier of countries in the International Budget Partnership's Open Budget Index, which analyzes how governments give the public access to budget information and opportunities to participate in the budget process.  The OBI assessment cites problems ranging from a lack of critical details in government reports to delays in publication that mitigate the possibility for meaningful public comment. 

Implementation of the Extractive Industries Transparency Initiative will also bring transparency to Afghanistan's burgeoning mining sector, which is more financially significant for the country.  Last year, Afghanistan took a major new step by signing a deal with China Metallurgical Group to extract copper.  The mine is expected to reap hundreds of millions of dollars in revenue for the government of Afghanistan and could result in a small number of local jobs.  Local communities, however, have been concerned that the lack of transparency surrounding mining operations is leading to mistrust. A concerted move towards transparency and accountability and earnest implementation of the EITI could go a long way towards both reassuring Afghan citizens and ensuring that new mineral wealth helps the country to rebuild.

LEARN MORE

• Afghanistan to Launch Oil, Gas Licensing Round in April (Oil and Gas Journal)
• EITI Builds Momentum at Global Conference