Afghanistan on Wednesday signed an oil deal with China which could earn the war-torn country $7 billion over 25 years.
Afghanistan’s first major oil exploration contract will see state-owned China National Petroleum Corporation develop three oil fields in the relatively peaceful north of the country along the Amu Darya river.
Under the deal, signed in Kabul by Afghan mining minister Waheedullah Shahrani and CNPC president Lu Gong Xun, Afghanistan will take 70 percent of the net profits, and the Chinese oil giant will pay 15 percent corporation tax.
“This will have enormous benefits for Afghanistan,” Shahrani told reporters after the signing.
Energy hungry China, which is pushing into oil-rich countries to secure the resources needed to fuel the world’s second largest economy, outbid four companies for the contract.
The deposits are estimated to contain about 87 million barrels of oil, relatively small globally but significantly profitable for Afghanistan, Shahrani said.
“If there are 87 million barrels of oil and each barrel is estimated at $100, Afghanistan will make about $7 billion in the next 25 years,” the minister said.
Extraction along the Amu Darya river, which separates Afghanistan from its Central Asian neighbours, is not expected to begin until late next year, he added.
The joint-venture is being launched with Afghan company the Watan Group.
Afghanistan currently imports its oil and gas, mostly from Central Asian countries and Iran, which on Monday signed a deal to supply its neighbour with a million tons of fuel oil, petrol and aviation fuel a year.
Lu Gong Xun, who is president of CNPC’s international branch, said his company has agreed to build a refinery and was expected to invest about $400 million in the project, which will also create hundreds of local jobs.
He said investment will expand if more reserves are explored in the future.
Six oil deposits have been discovered in Afghanistan, including one elsewhere in the north estimated to be worth 1.8 billion barrels, as well as in Herat in the west, Helmand in the south and Paktia in the southeast.
Afghanistan’s natural resources could theoretically generate billions of dollars in tax revenue.
But exploitation of these resources faces massive hurdles due to ongoing instability, woeful infrastructure and endemic corruption.