TAHIR KHAN
ISLAMABAD — Afghanistan’s Taliban government has terminated a two-year-old oil extraction and development contract with a Chinese company due to alleged violations of contractual obligations, with some experts believing the move to be a sign of the economic difficulties the Kabul regime faces.
“The Amu Darya Oilfield Exploration and Production Agreement, signed between the Ministry of Mines and Petroleum and Afchin Company for a period of 25 years, was terminated due to the contractor’s repeated violations of the contractual obligations,” Hamayun Afghan, the ministry’s spokesperson, stated in an X post last week.
In 2023, Kabul signed a $540 million agreement with the Xinjiang Central Asia Petroleum and Gas Co. (CAPEIC) to extract oil from the Amu Darya Basin in northern Afghanistan, marking the first major foreign investment deal since the Taliban’s takeover in August 2021.
Under the agreement, the Taliban regime granted a license to Afchin, a newly formed joint venture between Afghanistan’s state-owned Afghan Oil and Gas Company, which holds a 20% stake, and CAPEIC, which has an 80% stake. The extraction area is located in the provinces of Faryab, Jowzjan and Sar-e Pul. According to Kabul, CAPEIC pledged to invest at least $150 million in the first year, rising to $540 million in three years, and to employ 3,000 Afghan citizens.
At the signing ceremony in January 2023, Shahabuddin Delawar, then-acting Minister of Minerals and Petroleum, said, “Afghanistan has not signed such a large economic agreement with any foreign country in the last 50 years.”
Hamayun, the spokesperson, told Nikkei Asia that “the Chinese company delayed the investment in accordance with the agreement,” and that the project also suffered from “non-payment of due royalties, [insufficient] seismic surveys and postponement of local infrastructure projects.”
“The company has been told clearly that if the promises are not kept, the contract will remain just a piece of paper,” he added. “The company was supposed to complete all stages of full survey, oil discovery and production within three years.”
“We informed Chinese officials. We sent teams to the company’s officials. But the response was never positive,” Hamayun said.
Following an investigation by an inter-ministerial committee into contractual violations and an invitation by the ministry to international consulting firms for technical and legal assessment, Prime Minister Hasan Akhund approved the cancellation of the contract, according to Hamayun.
CAPEIC did not respond to Nikkei Asia’s queries by the time of publication.
Acting Minister of Minerals and Petroleum of Afghanistan Shahabuddin Delawar and Representative of Chinese company CAPEIC exchange agreements during the signing ceremony for the oil project in Kabul, January 2023. © Reuters“Although this termination is solely based on the poor performance and inability to deliver according to the contract, it could impact broader Taliban-China relations, particularly economic ties,” Zardasht Shams, Afghanistan’s former deputy minister for information, culture and tourism, told Nikkei.
“After August 2021, Taliban showed unprecedented warmth towards China and made some exaggerated expectations in terms of trade, investment and possibly financial assistance. The Taliban eyed China as an alternative to the United States,” said Shams. “However, China can in no way replace the U.S. and its allies. Even after the 2021 withdrawal, the U.S. has helped Afghanistan with several billions of dollars,” he added.
Shams also believes that the Taliban regime’s fiscal plight played a key role in deciding to terminate the contract. “The Taliban are currently facing financial issues and are exploring ways to enhance their revenues to sustain their power,” he said.
On the other hand, Ubaidullah Burhani, an American academic researcher of Afghan origin, views the cancellation of the contract as “unlikely to cause a serious rupture in Sino-Afghan relations.”
“Both parties remain bound by critical mutual interests, particularly as Afghanistan faces acute economic and infrastructural needs, which China continues to leverage to its strategic advantage,” Burhani told Nikkei.
He also said slow progress in Chinese investment is not limited to the Amu Darya oilfield project.
“For years, China has pursued a policy of securing exclusive agreements in Afghanistan without committing to operationalizing these projects — a trend exemplified by the Mes Aynak copper mine contract, which remains largely dormant,” he said, referring to a project in Logar province, near Kabul, which was awarded to a Chinese company in 2007.
“In addition to the lack of tangible progress, these projects have been hindered by complex geopolitical dynamics, conflicting Western interests, environmental compliance demands, regional pressures, and persistent security threats posed by recurring attacks,” added Burhani.
Despite the cancellation of the Afchin contract, diplomatically the Taliban maintains a warm stance toward China.
The regime’s Deputy Prime Minister Mawlvi Abdul Salam Hanafi visited Kunming in China to attend the China-South Asia Expo earlier this month, reaffirming Kabul’s support for the Belt and Road Initiative and expressing hope for strengthened cooperation between the two countries, according to statements from the Taliban government in different languages.
“Hanafi highlighted strong ties between China and Afghanistan, describing Chinese projects in Afghanistan as highly significant and mutually beneficial,” one of the statements said, adding that while meeting Chinese investors, the deputy prime minister reiterated the Taliban’s commitment to facilitating investments from both domestic and international investors, particularly Chinese companies, and highlighted the strong potential for investment growth in Afghanistan.
The article appeared in the asia.nikkei