China, Afghanistan Sign Historic Oil Deal

Posted December 28th, 2011 at 6:40 am (UTC-5)
Leave a comment

Afghanistan has signed its first major oil exploration contract with a state-owned Chinese company to develop three oil fields in northeastern Afghanistan.

The deal, signed Wednesday in Kabul, will allow the China National Petroleum Corporation (CNPC) to research oil and natural gas blocks along the along the Amu Darya River in the northeastern Afghan provinces of Sari Pul and Faryab.

Energy hungry China outbid Pakistan, Britain, Australia and the United States to win the contract, which Afghan officials say will have “enormous” financial benefit for Afghanistan.

Afghan mining minister Waheedullah Shahrani said the deal could bring about $7 billion to the war-torn country over the next 25 years.

“The deal has been very much in favor of Afghanistan in terms of the fiscal benefits. Fifteen percent is the royalty on the gross production of the fuel and 70 percent has been the share of the government from the profit.”

Though northern Afghanistan has been relatively peaceful in recent years, the operation still faces massive hurdles due to ongoing regional instability, poor infrastructure and endemic corruption.

Nonetheless, CNPC president Lu Gong Xun says both sides are anxious to begin operations.

“Not only CNPC, but also the ministry of mining is also willing to start production as soon as possible, so of course we are going to start production as soon as possible.”

The Chinese oil company will be working with an Afghan firm in the venture.

Extraction is expected to begin by sometime in late 2012.

Although CNPC is the first foreign company to exploit Afghanistan's oil and natural gas reserves, Afghan officials say several more oil fields are likely to soon be placed on the market.

The deposits in the Amu Darya River Basin are estimated to hold at least 87 million barrels of oil and could theoretically generate billions of dollars in tax revenue.