September 6, 2011 / 3:14 PM / in 6 years

Afghanistan to negotiate oil deal with China's CNPC

KABUL, Sept 6 (Reuters) - The Afghan government has chosen China’s National Petroleum Corp (CNPC) as a preferred bidder for an oil field in northern Afghanistan, a government official said on Tuesday, and hopes to come to a final deal by the middle of October.

The contract will be the first international oil production deal signed by the Afghan government for several decades. Last year the ministry made a short-lived deal with a local company to pump crude in northern Sar-e Pul province.

The deal will represent a small but important step towards the ill-funded government’s dream of cashing in on untapped mineral deposits, estimated to be worth up to $3 trillion.

Poor infrastructure, years of conflict and widespread corruption mean it could take years for significant revenue to materialise, however.

“CNPC’s offer is the best so far, and the ministerial council (Afghanistan’s cabinet) has instructed the mining ministry to start negotiations with them,” a mining ministry official told Reuters on condition of anonymity.

There will be a month of talks, starting on September 12, and a final deal must be wrapped up by October 11, he said.

“If we don’t agree with CNPC on terms and conditions, we will go for one of the other four companies that were short-listed,” he told Reuters.

The Kashkari, Bazarkhami and Zamarudsay blocks contain an estimated 80 million barrels of crude oil located near the Amu River, part of a larger deposit that extends into neighbouring Turkmenistan and Uzbekistan, the official said.

According to the official, companies from Australia, the United Kingdom, the United States and Pakistan are the top four bidders after State-owned CNPC, China’s largest oil firm.

Experts have warned that mining in Afghanistan will likely be a target for insurgents; production and transportation costs will be high, and sovereign risk a serious concern.

Nearly 10 years after the Taliban government was toppled by U.S.-led and Afghan forces, violence is at record levels, with the insurgency spreading from traditional strongholds in south and east into the once peaceful north of the country.

But China’s oil firms have long been willing to take on projects in risky areas, such as Sudan, to help slake the oil thirst of the world’s top energy consumer.

The Afghan Taliban said also said last month they aim to boost Afghanistan’s mining and energy sectors, although they did not say whether they would honour existing contracts if they regained power.

China’s top copper producer, Jiangxi Copper Co, together with China Metallurgical Group Corp, in 2007 won the contract to develop the Aynak Copper Mine south of Kabul -- which is due to start production in 2014.

Mainly Indian companies have shown interest in the Hajigak iron ore project, the government has said, which has deposits of about 2 billion tonnes. The announcement of preferred and reserved bidders is expected around Oct. 4. (Editing by Emma Graham-Harrison and Keiron Henderson)

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