The Aynak Copper Tender: Implications For Afghanistan and The West

The Aynak Copper Tender:
Implications for Afghanistan and the West
James R. Yeager, BSc., MBA

Former Consultant to the Ministry of Mines and Industry
during the Aynak Tender
Contributors
 Eng. M. Mir Ashan Sediq, former Minister of Mines and Industries,
Afghanistan
 Mr. Ed Smith; former Head of the Afghanistan Reconstruction Group (ARG)
at the US Embassy in Kabul, Afghanistan
 Mr. David Garner, former advisor to the Ministry of Mines and Industries,
Kabul, Afghanistan
 Mr. M. Hassan Alief BSc., MSc., an Afghan-American geologist consultant to
Hunter Dickenson
 Dr. Larry Snee, PhD., Geologist United States Geological Survey (USGS)
(retired)
 Dr. Robert Shafer PhD., Vice-President of Business Development, Hunter
Dickenson, Vancouver, BC Canada
-and others-
Aynak Tender Writing Project Coordinator

Hon. Don Ritter, Sc. D.
Member of Congress 1979-1993
Business Developer, Afghanistan
© James R. Yeager, Skyline Laboratories and Assayers
1775 W. Shauaro Drive, Tucson, Arizona
Table of Contents
Preface ...........................................................................................................................v
Executive Summary ....................................................................................................7
Copper, Afghanistan and Mining .............................................................................12
Copper in the World Market.........................................................................12
Mining in Afghanistan...................................................................................13
Donor Support to the Afghan Minerals Sector ........................................... 14
Aynak Copper................................................................................................ 16
Development of the Aynak Copper Deposit Project .................................. 17
Institutional, Legal and Regulatory Framework Supporting the Afghan Minerals
Sector............................................................................................................................19
Minerals’ Legal Framework ...........................................................................21
Minerals’ Regulatory Framework................................................................. 22
Aynak Copper Deposit Tender Process .................................................................. 24
Identification of Aynak Copper Deposit as a Priority Tender................... 25
Tendering the Aynak Transaction Advisor Contract ................................26
Contracting the Transaction Advisor to Implement the Aynak Copper Tender31
Transaction Advisor Responsibilities .......................................................... 32
The Tender Plan and Process ................................................................................... 34
The Aynak Copper Bid Package................................................................... 37
Solicitation of Expressions of Interest to Bid for Aynak Copper Deposit
Rights.............................................................................................................. 38
Pre-qualification of Bidders .......................................................................... 39
Due Diligence of the Bidders for the rights to the Aynak Copper Deposit43
Receipt of Submissions and Evaluation of the Bids ....................................44
Impact of China’s Dominance of Natural Resource Development in Afghanistan
.......................................................................................................................................53
Findings and Recommendations .............................................................................. 56
Finding: Data and Information are Essential to Commence Viable Tender
Activities ........................................................................................................56
Finding: Deficient and Uneven Donor Support to the Afghan Minerals
Sector ..............................................................................................................58
Finding: Virtually no Government or Donor Oversight of the Tender
Process ............................................................................................................60
Finding: Technical and Financial Guidelines for Proposals Need to be
More Defined.................................................................................................64
Finding: Due Diligence of Bidders Must be Adequately Conducted.........65
Finding: Sector Governance and Contract Implementation Capacity are
Necessary .......................................................................................................66
Finding: Ancillary Agreements Require Independent Review and
Oversight........................................................................................................67
Finding: Appropriate Public Participation from Start to Finish should be
Required..........................................................................................................69
Finding: Insufficiently Funded Transaction Advisor Consultancy...........70
Finding: Conflicted Transaction Advisor.................................................... 72
Finding: Western companies and Fully Private Firms are not Equipped or
Able to Compete in this Environment......................................................... 73
Annex 1: Acronyms ...................................................................................................76
Annex 2: Definitions .................................................................................................77
Preface
The Aynak Copper Deposit located in Logar Province, Afghanistan, 35 km

south of Kabul, remains as one of the world’s near surface, unexploited
copper deposits. The tender process of this non-renewable and highly valued
deposit commenced as early as 2003 and was ultimately awarded to the China
Metallurgical Group Corporation (MCC) in December 2007. Final contract
and licensing rights have been issued throughout 2008; additional ancillary
works are being reviewed.
The author of this Paper is James R. Yeager, a US geologist. The author
lived and worked in Afghanistan and served as an Advisor to the Ministry of
Mines of the Islamic Republic of Afghanistan during various phases of the
Aynak Tender Process. Although not directly contracted to work on the
Aynak tender, the author was requested to provide assistance at various
times in the tender process of the deposit.
From the data gathered, the author has concluded that the manner in which
the Aynak tender process was conducted could not ensure that its investment
outcome will: (1) generate the actual value of resource development and
revenue return that it should; (2) capitalize on the financial and employment
opportunities that the Deposit offers; (3) support good governance of how
Aynak operations are actually conducted; and (4) provide a good model for
current and future resource development in Afghanistan such as the Hajigak
Iron Ore deposit, oil and gas, other copper deposits, various large coal
deposits, marble, precious metals and gemstones, etc.
This Paper is intended to provide objective observation and constructive
insight into how the Aynak Tender Process was conducted and the
implications of same. It has been prepared pro bono and is intended to
provide insight of the on-the-ground experience.
vi James R. Yeager
This paper has been facilitated by the Honorable Don Ritter, businessman,
investor and market economy builder who brought 30 years experience with
Afghanistan to the writing project. Contributors and Peer Reviewers have
included Eng. M. Mir Ashan Sediq, former Minister of Mines and
Industries; Ed Smith; former Head of the Afghanistan Reconstruction Group
(ARG) at the US Embassy; David Garner, advisor to the Ministry of Mines;
Hassan Alief, an Afghan-American geologist and consultant to Hunter
Dickenson; Dr. Larry Snee, geologist with the United States Geological
Survey (retired); Dr. Robert Shafer, Vice-President of Business
Development for the Canadian company, Hunter Dickenson. All comments
may be directed to, james.r.yeager@gmail.com.
Executive Summary
Understanding of the tendering of the Aynak Copper Deposit by the

Government officials of Afghanistan and by the donors to Afghanistan is a
key to establishing an Afghan minerals industry that will positively impact
the country’s economic, social and political well-being. If changes are not
made in future resource and minerals’ tendering by the Government in
Afghanistan with support of the donor community to ensure significantly
more transparent and market-based processes the integrity of Afghan
mineral resources and optimal fiscal return to the national budget and social
return to the national fabric will be forever lost.
There are few countries in the world known for their (varied) copper
reserves: The United States, Chile, Peru, and Indonesia have large low grade
porphyry copper deposits. Canada is the type location for smaller higher
grade massive sulfide deposits. The Democratic Republic of Congo, Zambia,
Zimbabwe, and now Afghanistan are known for sedimentary hosted copper
deposits. Copper ore deposits cannot be found anywhere; rather the minerals
are formed in the earth’s crust and are deposited is in specific geologic
environments. Total world production of copper in 2005 amounted to
15,100,000 metric tons. By 2008, that production grew to approximately
16,200,000 metric tons. With the demand for renewable energy resources like
wind power and solar power, the demand will continue to increase.
The Aynak Copper Deposit is noted to be the one of the largest unexploited
copper deposits in the world. The copper at Aynak is highly accessible and
surrounded by additional copper prospects. Aynak is a considered a world
class ore body containing at least 240 million tons of material with copper
content averaging 2.4% copper. These known reserves will produce at least 6
million tons of copper. Experts agree that in order to develop the deposit an
initial investment of more than $1 billion over five years is required.
International experts estimate that Aynak royalty revenues could generate

more than $200 million annually for Afghan budget funds over the next 30
8 James R. Yeager
years. In a country where the national budget in 2008 was $650 million, this
would have significant impact. Development of the deposit will require
tremendous infrastructure including roads, electrical power, and training of
the local workforce. Upwards of 1500 direct mine jobs are estimated to be
generated out of the Aynak work; indirect employment that includes
transport, mine product processing, production of spare parts, and
community and mine services could be up to 30,000 new jobs depending on
the amount of ancillary activity that are supported by the developing
company.
As early as 2003, World Bank experts assessed the opportunity that Aynak
Copper presented and began to strongly encourage government to develop a
tender plan for this deposit. The British Geological Survey in collaboration
with Afghan Geological Survey experts conducted site visits, reconstituted
Soviet data and prepared an impressive data package. A complicated array of
Afghan Government procurement requirements and personalization of
development priorities on the part of certain Afghan Government officials
resulted in diminished opportunity to ensure that an internationally
experienced Transaction Advisor would be in place to conduct the country’s
first large market tender. As this paper relays, the overall manner in which
the Aynak Copper tender process was conducted was flawed but short of the
Transaction Advisor’s recanting the process, insufficient tangible evidence
exists to void the tender.
The first significant step to legitimately develop the mineral wealth of the
country was finalized in December 2007 with the granting of the Aynak
Copper Deposit rights to China Metallurgical Group Corporation (MCC).
With an initial bid submission of $1.8 billion investment, as of this writing
MCC has provided initial front end payment, higher than experts
anticipated, of $800 million to be paid over 5 years. As part of the bid a
number of ancillary terms were promised by MCC including: the
construction of a power plant, community development infrastructure, roads
and light rail that would transit north to south of the country.
The fact that the Aynak Tender even happened in the current context of
Afghanistan of a country in conflict is admirable. Other tenders will
continue to take place exploiting the resources of Afghanistan to establish an
The Aynak Copper Tender 9
economic base for development. These tenders include the Hajigak Iron Ore
deposit and oil and gas concessions in northern Afghanistan. These tenders,
as was Aynak, are being conducted under the auspices of the Afghanistan
Ministry of Mines.
Perfect Storm of Tender Events. The array of players and issues that impacted
how the Aynak Tender process progressed contributed to the development of
a murky and insufficient tender process. These included: A strong-willed
Minister unrelenting in his preference to see this award through with Asian
partners. A primary donor and embassies with parachuting presence were
overwhelmed, unwilling or simply not attentive to the details of the tender
events until it was too late. The Afghan Government was not prepared in
any way to address the legal, fiscal or contractual aspects required for the
breadth and depth of this project. The Transaction Advisor had never
implemented a project of this scope, did not have the requisite team regularly
engaged, lacked understanding of the Afghan Government setting and was
itself conflicted as it simultaneously implemented contracts as a client to the
Ministry of Mines. There was a set of certain bidders that were for the most
part not sufficiently versed in how to do business in Afghanistan, had not
necessarily done their homework on the setting in which they were bidding,
and relied more on political intervention than the Afghan context. The
consequences may ultimately be that a series of flawed processes have now
taken root in the Afghan minerals sector that will continue to guide sector
development until and unless more transparent and market-oriented
principles are introduced.
At no time, even following months of observing how unprepared and
unaware the Ministry and Government staff were in mine tender processes
and even the technical aspects of the Aynak deposit, did either the
Transaction Advisor, the Government, the World Bank or any Embassy
suggest that the tender might actually be too large under the current
conditions and that perhaps a more gradual approach to tendering the deposit
rights should have been considered.
Premature Tender. The Aynak tender process progressed more quickly than
did Afghan Government and institutional development needed to support
10 James R. Yeager
the tender. In market terms, the minerals industry of Afghanistan is in an

early phase of development. While hundreds of mine licenses have been
issued by the Ministry of Mines, no major mines are in production and the
market legitimacy of these licenses is vague. Certain presumptions that the
Government was correctly implementing the process were baseless and failed
to recognize approaches that were based on central planning, conducted
behind closed doors, well outside market-parameters. Members of the Aynak
Tender Evaluation Committee questioned their participation, not having
acquired any skills to understand the tender process or to absorb what aspects
of bid submissions were most essential. This tender was a first; Government
agents could only employ the skills that they possessed, which were based on
an historic legacy of central planning and to some extent, state capture. In
addition, even for most of the international advisors on hand, this was a first
time tender experience. To evaluate the greatest benefit for Afghanistan, the
promises made by the winning bidder must be technically, financially and
socially measured and independently verified by a credible body of experts;
this was not the case for the Aynak Tender.
Insufficient Governance Mechanisms in Place. The Ministry of Mines,
specifically the Minister, firmly controlled the tender process for Aynak and
continues to hold grasp as contract and investment requirements are being
developed. Roles for other government agencies such as environment and
finance, the local Logar community and ancillary business opportunities
remain undefined. An historic lack of market orientation An leaves the
Afghan mining sector without legal, accounting and project finance aptitude;
mining is a high risk business that requires considerable capital investment
and regularized scrutiny of inordinate environmental aspects that include
toxic waste, water, land, and air pollution. The government was not prepared
to implement the tender to ensure a transparent outcome or to monitor the
outcome as the project is implemented.
Insufficient Oversight of the Tender Process. Neither Afghan Government
leadership nor its donor counterparts invested sufficient time or concern
during the Aynak Tender process. There was a sense that once a Transaction
Advisor had been contracted, that it would actually conduct all needed
oversight – for a number of reasons explored herein, that was not the case.
Members of the Evaluation Committee had never been part of a tender

process and were not clear as to what they should be looking for. While the
Ministry of Mines attempted to meet certain legal requirements to conduct
inter-ministerial forums around the tender, these were conducted behind
closed doors, did not necessarily include the appropriate personnel and were
so firmly controlled by the Minister himself that it was impossible for any
divergence of opinion or approach. There were no mechanisms for reporting
this skewed process.
West cannot always meet East. A variety of less than transparent mine
operations are underway throughout Afghanistan with some international
engagement, although with limited Western country company involvement.
The naïveté of the West to the potential for Afghan mining to develop
economic growth will translate into open access to, and dominance of, less
than transparent operations, illegitimate export of valuable non-renewable
products and missed opportunity to build the coffers of the Afghan national
budget through mine royalties and fees. Aynak provides the largest and
current example of this missed opportunity. Where some companies,
including MCC, are able to provide proposals that include an expansive array
of non-mining funding with their home Government support, Western
companies are not so structured. Had the tender documents more clearly
recognized this nuance in global mining bids, more clear terms about bid
parameters and funding mechanisms may have been put in place.
This Paper is intended to provide disinterested observation and constructive
insight into how the Aynak Tender Process was conducted and its
implications. It should provide important information that will alert the
Afghan Government and the international donors as to how an initial
bidding process, if not professionally and consistently handled, rather than
being purely dictated by non-technical bureaucrats concerned only with
dollar amounts and geo-political preferences, an entire chain of events can
emerge as detrimental to the entire outcome of an important tender activity.
Copper, Afghanistan and Mining
Copper in the World Market

Copper1 is a unique material for manufacturing. It is an essential commodity
primarily used for electric wire casing, power turbines – including solar and
wind turbines, power plants, machinery production, housing, and
transportation. In addition, because copper is a malleable metal that has very
unique heat transfer and electrical properties, it is a staple in the building
industry. It is used for copper tubing for all mechanical components in
housing including plumbing, heating, air conditioning, electrical wiring and
telecommunication infrastructure.
For the foreseeable future, copper has a secure market. By 2003, copper prices
had risen from a low of $0.60 per pound to $1.50 per pound, the projected long
term price for copper. Prices continued to rise to bullish levels of up to $4.00
per pound in 2006 and 2008 during the Aynak tender process and then
collapsed as the worldwide recession spread. Even today, China and India are
stockpiling copper for future infrastructure development. Such demand has
kept copper prices above $2.00 per pound. As the United States focuses on
clean energy alternatives, the demand for copper will increase and be used in
wind turbines, solar installations and hybrid cars. Smart electrical grids will
also require significant amounts of copper. Table 1 below shows world copper
production in 2005. Had the Aynak Copper Mine been in full production in
2005, Afghanistan would have ranked within the top 15 world copper
producers at the proposed production rate of 200,000 tons of copper per year,
Aynak would supply 1.3 % of the total world production. The challenge of the
copper mining industry is that to meet world demand every year the copper
industry needs to replace the exploited material on an ever increasing basis.
1
There are few substitutes for copper. Aluminum was used as substitute for copper in
house wiring in the 1970’s. It failed because the aluminum oxidized and would melt at
moderate temperature. Different types of plastics were used in plumbing, many of
which failed over time.
This task requires that at least one deposit, the size of Aynak, would have to
be found on an annual basis.
Table 1: World Copper Production
Copper Production Metric Tons

Rank Country 2,001 2,002 2,003 2,004 2,005
1 Chile 4,739,000 4,581,000 4,904,200 5,412,500 5,320,500
2 United States 1,340,000 1,140,000 1,120,000 1,160,000 1,140,000
3 Indonesia 1,081,040 1,171,726 1,005,831 840,318 1,065,000
4 Peru: 722,305 843,215 831,223 1,035,574 1,009,898
5 Australia: 871,000 883,000 830,000 854,100 927,000
6 China: 605,000 593,000 620,000 752,000 755,000
7 Russia 600,000 695,000 675,000 675,000 700,000
8 Canada 633,531 603,498 557,082 566,491 566,500
9 Poland 474,000 502,800 495,000 531,000 523,000
10 Zambia 312,000 330,000 349,000 426,900 436,000
11 Mexico 371,123 329,874 355,653 405,540 425,000
12 Kazakhstan 470,100 490,000 485,000 461,000 402,000
13 Afghanistan Aynak proposed production 200,000
14 Iran 133,000 133,000 142,000 162,000 197,000
Papua New
15 Guinea 218,000 211,311 190,200 173,400 193,000
Other 1,166,909 1,156,908 1,188,723 1,259,707 1,387,369
Grand total 13,700,000 13,700,000 13,700,000 14,700,000 15,100,000
Mining in Afghanistan
Afghanistan is home to some of the world’s most viable and least exploited
mineral resources; it hosts abundant mineral wealth potentially providing the
world with copper, iron, gemstones, and precious metals2. According to the
United Nations Economic and Social Commission for Asia and Pacific (UN-
2
Peters et al, Preliminary Non-Fuel Mineral Resource Assessment of Afghanistan 2007,
USGS Open-file report2007-1214.
14 James R. Yeager
ESCAP) report,3 there are more than 800 mineral occurrences including coal,
zinc, and gold, throughout the country. These occurrences are spread
amongst various regions of Afghanistan, holding great potential for
economic development (See Text Box4). Many of these products are presently
mined in the absence of a transparent
Examples of Mineral Resources in
Afghanistan framework for operations resulting in
Coal little to no economic return to
Base Metals – copper, lead, zinc, nickel,
cobalt Government.
Ferrous Metals - Iron ore, Chromium
Considerable mapping and assessment of
Precious Metals – gold, silver, platinum
Afghanistan’s mineral resources was
Gemstones –emeralds, sapphires, rubies,
spinel, amethyst, peridot, garnet,
aquamarine
conducted during the 1980s under Soviet
rule. Many Afghan engineers and
Ornamental Stones – lapis lazuli, amber,
marble, turquoise, jade, malachite,
petrified wood geologists received mine education in
Rostov, St. Petersburg and the Urals in
Construction materials – crushed stone,
dolomite, limestone, gravel, sand
Russia as well as worked in Donetsk,
Industrial materials – barite, bentonite,
Ukraine and other leading technical
borates, dimension stone, kaolin, mica,
phosphate
institutes in the region. The Soviets
carefully established Afghan government
agencies for mining including the
Afghanistan Geological Survey. They
provided training for the Afghans based
on Soviet ideology and an approach that relied on central planning and
production-based government operations. This approach dominates the
attitude and thought processes of the Afghan Ministry of Mines leadership
and staff today.
Donor Support to the Afghan Minerals Sector

Other than the World Bank, the international community has been slow to
commit to the legitimatization of Afghan mine operations and development
3
Geology and Mineral Resources of Afghanistan Atlas of Mineral Resources of the
ESCAP Region, Vol.11, 1995, 85 pages with four atlas maps at scale 1:2,000,000 and
1:2,500,000.
4
M.L. Vitelli, Energy and Mine Strategy of Afghanistan, Asian Development Bank
2007-2008
of improved mining capacity throughout the country. Some of the

assessment and assistance efforts that have been conducted are:
 In 2008, the U.S. Geological Survey completed an aerial survey of

mineral resources in Afghanistan, paid for by the Government of
Afghanistan, an estimated $9 million although $17 million was budgeted by
USGS;
 In 2003-2007, British Geological Survey staff based at the Afghanistan
Geological Survey provided technical assistance, developed mapping
systems, geo-science data facilities and ordered existing data;
 In 2007, under a USAID contract, Bearing Point implemented a Mine
Sector Strategy as part of the Afghanistan National Development
Strategy (ANDS) process;
 In 2007, under a U.S. Trade & Development Agency contract, the US
Geological Survey implemented an “Assessment of oil and gas
reserves in the Amu Darya Basin of northern Afghanistan;”
 In 2007, USAID implemented a 3 month study through Sibley
International, entitled “Review of Economic Opportunities for Mining
in Afghanistan”5 as part of small and medium size business program;
 In May 2006, the World Bank provided a $30 million grant for the
Sustainable Development of Natural Resources Project (SDNRP) for
Afghanistan;
 In 2006, the Asian Development Bank financed a Feasibility Study of

the TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas
pipeline project;
 In 2005, the Asian Development Bank supported a “Natural Gas

Strategy for Afghanistan;”
 In 2005, the World Bank financed an Assessment of Oil and Gas
Operations in Afghanistan;
5
As a follow on to this work a USAID contractor has attempted to develop more
information on mine opportunities as part of a small and medium size business
portfolio commencing in 2007; USAID funding only supported a brief assessment;
results have not been achieved.
16 James R. Yeager
 In March 2004, the World Bank published “Mining as a Source of

Growth”, a seminal document that alerted Government and donors of
the economic and development value that Afghan mining posed.
As part of these efforts, the British Geological Survey (BGS) and the United
States Geological Survey (USGS) have been working in Afghanistan since
2002. The BGS prepared the Aynak Data Information and Geological Maps.
Both the BGS and the USGS provided technical assistance to rebuild the
Afghanistan Geological Survey (AGS) included the compilation of all the
known technical data and the generation of new maps and airborne
geophysical surveys. The BGS maintained full time staff in Kabul while
USGS staff was based in the United States and made periodic visits to
Afghanistan, primarily limited to Kabul for security reasons. No donor
assistance has been provided to support mine infrastructure development.
Aynak Copper
The Aynak copper deposit is strategically located at the north end of Logar
Province 30 kilometers south-southeast of Kabul. At its closest point, the
deposit’s distance to Pakistan is approximately 65 km to the southeast.
Access from Kabul is provided by driving approximately 15 miles (25 km)
south on the Khost highway and then 10 miles (17 km) on unimproved dirt
roads, for a total of an hour’s drive. The property can be accessed year round
although snow can accumulate to result in interrupted access during spring
runoff. The property’s elevation ranges from 7,300 to 8,500 feet (2,200 to 2,600
meters). The high, dry desert climate with limited rainfall provides sparse
vegetation and abundant rock exposures. Electrical power is not available at
the property. Because of the remote location, communication is by satellite
phone although it is expected that cell phone communication could become
readily available.
Archived data defines the Aynak copper deposit as a “mineable reserve” of
240 million metric tons of material containing 2.34% copper (240 MT at
2.34%), which is considered a relatively high-grade deposit. During Soviet-era
field work, a camp and series of buildings for the storage of the core
(mineralized rock samples from the bore holes) were constructed. Bulk
samples were taken at that time by driving exploration drifts or tunnels for
more than 1,000 feet (300 meters) into the Aynak copper deposit. The tunnels
remain accessible today but the buildings do not. According to Abdul Wasai,
the late Director of the Afghanistan Geological Survey, the Soviet camp had
also served as a training ground for Osama Bin Laden and the camp was
destroyed by a U.S. air attack in 2002. There remain a number of bomb
craters, live and spent munitions on the property and the area continues to
provide a safe haven for Taliban and anti-government forces.6
Development of the Aynak Copper Deposit Project

Starting in late 2001, the World Bank7 working in partnership with the
Transitional Government of the Islamic Republic of Afghanistan helped to
develop an important series of foundation papers targeting key economic
sector of the Afghan economy. These documents were prepared under a
project framework entitled “Securing Afghanistan’s Future.” Mining was
included as one of the framework documents and reference to Aynak Copper
along with the Hajigak Iron Ore deposits was given. Following this work,
World Bank consultants over the course of 18 months conducted an
assessment of the Afghan minerals sector resulting in the publication of the
document “Mining as a Source of Growth.”8 This document firmly pointed
to Aynak as a primary target for the Afghan Government to pursue. It also
emphasized the absolute lack of institutional, legal and regulatory
frameworks in which any mining was being conducted and that these were
essential aspects to be developed before sound mine development could be
pursued. The document is commendable but was unfortunately not
translated into either Dari or Pashtu, the primary languages in Afghanistan.
In September 2005, the legal advisor to the Ministry of Mines prepared the
initial tender documents that would be required by the Government to
contract a Transaction Advisor to implement the Aynak Tender Process.
6
In late 2008, a New York Times journalist scheduled to interview local Taliban in
Logar Province was kidnapped and as of this writing has not been returned; it is
rumored – and not unlikely - that he has been moved to a border territory in Pakistan.
7
The World Bank was established post-World War II to provide financial assistance
for restructuring and reform of developing governments and to facilitate private sector
investment in transition economies in accordance with market principles
8
March 2004.
18 James R. Yeager
The Minister of Mines at that time was unfamiliar with mining and with
procurement.
In May 2006 the Government of Afghanistan entered into an agreement with
the World Bank for a $30 million grant to implement the Sustainable
Development of Natural Resources program (SDNRP). The project was
primarily designed to develop regulatory and commercial capacity at the
Ministry of Mines. The actual flow of project funds that funded a few
international advisors did not commence until August 2006; to date much of
the work to be conducted under this grant has either been stalled by the
sitting Minister9, delayed by World Bank procurement or for other reasons
has not been mobilized.
9
Since 2008, where technically qualified experts World Bank consultants have been identified and were based full-
time at the Ministry of Mines, the Minister has not supported their contract renewal.
Institutional, Legal and Regulatory Framework
Supporting the Afghan Minerals Sector
The institutional, regulatory and legal framework and its implementation

under which Afghanistan’s minerals’ sector currently functions are
insufficient if to support market operations. In the absence of these
frameworks virtually every aspect of minerals’ sector operations – including
tender processes - is vulnerable to corrupt practices. Institutional oversight of
the Afghan minerals sector – including Aynak Copper - is highly centralized
within the Ministry of Mines and relies on established relations and
geographic preference. Despite donor documentation and Government
statements, few of the ministry departments actually operate in accordance
with officially defined roles and publicized strategic scopes of work. In fact,
the governance arrangements in place to support the Afghan minerals’ sector
support entrenched practices and natural monopolies where no legal
framework functions practically exist. There is a sense that commercial mine
functions, i.e., licensing, contracting, are being conducted as if “going
through the motions” in order to fulfill some expectation of market
standards, and that the reality is considerable deal-making and personal
relations are essential to securing mine rights in Afghanistan. Mine operators
complain of having to pay increasing fees to the Ministry of Mines and that
they are closely watched and even micro-managed by the Ministry. Business
is therefore short lived and the focus is to make the deal while you can. The
result is little valuable mid to long term investment, significant damage to
less valuable deposits destroyed and while removing the best and significant
products, damage to the environment and loss of economic opportunity.
20 James R. Yeager
In this context, minerals operations are highly centralized despite the

issuance of mine licenses and use of tender processes. There is an
inconsistency in the application of policy and law as well as inadequate
public information about legal rights and responsibilities that has resulted in
an increasing public distrust of how minerals’ operations are being
conducted. In addition to
Institutions defined under
Ministry operations, national
the Minerals Law
reform programs such as the
Afghanistan National
Development Strategy (ANDS)  Ministry of Mines is the state
authority responsible and
and Priority Reform and
administrator for the state property in
Restructuring program (PRR), the minerals sector.
national investment promotion  Inter-ministerial Committee –is to be
established to include the Ministry of
through the Afghanistan Mines as Chair, the Ministry of
Investment Support Agency Finance as Deputy Chair and other
(AISA), procurement oversight ministries as Members including the
Ministries of Economy, Commerce,
by the Afghanistan Foreign Affairs as well as the National
Reconstruction Trust Fund Agency for Environmental Protection
(NEPA) and any other members as
(ARTF), various chambers of needed. The Committee has an
commerce as well as international important legal function in mine
tenders.
embassy staff have intermittently
 Mine Cadastre – to receive and
sought to influence sector approve applications for mineral
developments, including Aynak. rights; maintain registry books, survey
mapping on mineral rights. Mine
This array of changing actors has Inspectorate -financial and technical
effectively contributed to a inspections and evaluations; inspect
confusion of roles, sights, health and safety review,
facilities, books and records; order
responsibilities, sector strategy penalties and fines.
and priorities for development  Environmental Protection Department
– issue regulations for and monitor
and has resulted in an absence of
environmental compliance in sector.
an institutional framework in  Geological Survey – research, mapping
which a system of “checks and of mineral resources.
balances” is supported. As a
consequence, the Minister of Mines has taken on a very centralized and
singular leadership role in the sector.
Minerals’ Legal Framework

The Constitution of Afghanistan provides the legal foundation from which
the country’s resources can develop. The Minerals Law of the Islamic
Republic of Afghanistan was enacted by the Cabinet in July 2005. The Dari
version of the draft bill was enacted into law and the English translation of
the new law was completed in December 2005. Parliament came to office in
early 2006 and has since reviewed various sections of the Minerals Law
although final approval of the law has not been published. The Minerals Law
provides for the public tender of minerals in Afghanistan. The provisions are
drafted using internationally accepted industry standards; the tender of
Aynak Copper was the first time the Government of Afghanistan has
implemented the portion of the
Legal Entitlements under the Afghan Minerals Law regarding the
2005 Minerals Law competitive tender process on
the international world mining
 Minerals License for exploration
 Minerals license for exploitation stage.
 Authorization for quarry exploration
All tax and custom regimes
 Authorization for quarry exploitation
 Authorization for permanent quarry applicable in Afghanistan apply
exploitation to mine operations. Royalties
 Authorization for tailings exploitation
are applied to exploitation
 Authorization for artisanal exploitation
 contracts
Authorization for treatment, processing, based on a
determination by Ministry of
transformation, transportation or trading
of minerals
Mines’ officials. A well-
developed and specific
“Royalties Chart” designed by
World Bank consultants in consultation with Ministry of Mine officials was
not adopted as part of the Afghan Minerals Law which means that each set of
mine license terms will require negotiation per license. The development of a
royalty regime/ policy has been recommended by many advisors to provide
predictability to potential investors in minerals development.10 Commercial
legislation is developing in Afghanistan that will impact minerals
10
Most mine contracts currently in place call for a flat rate based on the gross value of
the commodity produced no matter what the price of the commodity. A sliding scale
royalty increases the tax take for the government as the commodity price increases and
insures profitability of the operator as the commodity prices decrease.
22 James R. Yeager
operations;11 still, throughout 2008 and into early 2009, the Afghan Parliament
has demonstrated a particular resistance to supporting new commercial
legislation and in effect has stalled these important developments.
The Minerals Law provides a mechanism for the Government to attract
investment by tendering know mineral occurrences such as Aynak. There are
very specific guidelines established to encourage transparency and insure that
all government stakeholders are involved in the process. In the tender process
for Aynak, the law was fresh off the press and had not been tested. The
tender of Aynak was the first time the Government of Afghanistan has
implemented the portion of the mining law regarding the competitive tender
process on the international world mining stage.
Minerals’ Regulatory Framework12

It is important to note that not all mines are on the grand scale of Aynak
Copper and that large-scale mine operations such as Aynak require a
different, if not more rigorous, regulatory environment than artisanal or
small mine operations. For large operations, mine companies will have
diverse skill sets with many experts to insure the compliance with the
regulators. These operations need to be held to a higher standard than
artisanal (small scale) gemstone miners that tend to be, at least in
Afghanistan, family operations. Regulators involved with the small mines
will need to provide technical assistance toward supporting maximization of
production and for small operators to maintain a safe working environment
with minimal environmental degradation.
11
In addition to commercial legislation, the standard provisions of other laws of
Afghanistan apply to the Minerals Legal framework; these include but are not limited
to: labor and environmental laws, Rights of Way requirements, Use of International
Accounting Standards (IAS) required, Use of Project Infrastructure (with payment of
reasonable fee) permitted, Requirement to submit and apply Health & Safety plans,
Explosive/blasting requirements/norms noted, Preservation of cultural heritage
requirements, Dispute resolution using administrative procedures, and where
necessary, criminal law applies
12
Initial regulatory framework documents for natural gas were prepared with funding
by the Asian Development Bank (ADB) by Energy Markets, Ltd. of the United
Kingdom through 2007; that regulatory work is not part of this White Paper review.
The Ministry of Mines maintains a Cadastre and Inspectorate office as well

as the Afghan Geological Survey. While these departments play a role in
how minerals and Aynak operations in specific will be registered, mapped,
reported on and tracked, they remain firmly controlled by the Office of the
Minister and work closely with the Department of Mines at the Ministry.
The World Bank program has supported some capacity building at the
Cadastre and Inspectorate and it had been anticipated that the program
would also support the drafting of at least fundamental regulations needed to
implement the Minerals Law. These drafts were to be in place by August
2008; while some draft regulations have been prepared by international
advisors, they have not been sufficiently developed or adopted. Drafting is
somewhat underway at the time of this writing but staff on the ground
anticipates considerably more time is required, notably in light of the
Ministry of Justice involvement that may follow to review new regulations.
Before any meaningful movement on the regulatory front, Aynak
exploration activities are already underway.
Building market capacity in this area is essential. Aside from regulatory
drafts being in English and requiring translation into the Dari language,
some regularized training is required for Afghan counterparts to absorb the
full intent and consequence of these detailed procedures. From there, the
Ministry of Justice will be required to review the regulations and even
Parliament review and approval will be required. Past experience (i.e., some
earlier attempts to draft oil and gas regulations) has demonstrated that these
processes can take up to two years if the process is even concluded at all -
and that timing is when at least one international advisor and an interested
Ministry leadership are consistently backing the process. Experience has also
demonstrated that intended content can be wildly changed during this
process to ultimately not reflect initially intended content13.
13
This was the case with the Afghan Hydrocarbons Law where at least seven
fundamental legal clauses where in the Dari translation of the law, were so completely
diluted or modified as to negate the intended effect.
Aynak Copper Deposit Tender Process
The Ministry of Mines is the Government agency responsible for the

oversight and development of the Afghan minerals sector. Since 2002, there
have been five ministers that in effect have resulted in five strategic plans for
the Afghan minerals’ sector. The current minister, Mohammad Ibrahim
Adel, who earlier served as Deputy Minister of Mines, is a mine engineer
and has been in office since March 2006. An objective observation is that this
Minister has been the least amenable to international assistance. His training
in the Soviet system where the state should own and exploit mineral deposits
based on the state plan, is counter intuitive to the private sector process of a
profit motive for the investor.
The first post-conflict Minister appointed in 2001 was Juma Muhammad
Muhammadi, an Afghan-American, U.S. citizen and former World Bank
staff member. Minister Muhammadi was highly respected amongst the new
Afghan government officials and although not a mine expert was familiar
with donor processes and possessed a strategic aptitude for economic
development. The Minister was responsible for putting in motion the World
Bank-supported effort to draft Afghanistan’s first Hydrocarbons Law and
Minerals Law as well as to conduct an assessment of the oil and gas sector, to
develop a natural gas strategy and to examine opportunities to divest
government of its mine assets. Minister Muhammadi seemed to possess all
the qualities needed to reconstruction and optimization of the Afghan
minerals sector. In February 2003, Minister Mohammadi was killed in a plane
crash in Pakistan.14
14
The Cessna 402 was on a mission to inspect copper mines in southeastern Pakistan.
The cause of the accident remains undetermined. Also killed in the crash was the
Deputy Minister and three other Afghan officials, two crew members and Sun
Changshen, the Pakistan representative of the China Metallurgical Construction
Company which operated the Sandaik copper mines in Baluchistan, Pakistan.
Subsequent to this unexpected tragedy, President Karzai appointed Dr.

Mehfooz Nedai,15 a former school teacher. During his relatively brief tenure
at the ministry, Minister Nedai placed much emphasis on the development
of the Afghan industrial sector. Following Dr. Nedai as Minister was
Mohammad Hakim Tuniwal, whose strategic emphasis was on the
development of the cement sector. Since Tuniwal16 was unfamiliar with both
mining and procurement, World Bank advisors took the lead to generate
momentum around the tender of Aynak copper. Upon Minister Tuniwal’s
departure, an Acting Minister was in place until at the end of 2005, President
Karzai appointed Afghan-American Mir M. Ashan Sediq who remained in
office until March 2006 when he was appointed by President Karzai to serve
as the Deputy Minister for Energy and Water. Minister Adel took office in
March 2006, implementing a highly centralized approach to ministry
operations. He surrounded himself with staffer that were not necessarily
technically qualified, and seemed to put into place a series of measures that
ensured a closed-door process around the Aynak Copper Deposit tender. In
his defense, the Minister had been given a task that no one in the country
had ever attempted; his own lack of market training and basis of knowledge
in technical aspects and Soviet industrial approaches could not have provided
him the requisite foundation to conduct a fair open market tender.
Identification of Aynak Copper Deposit as a Priority Tender

As early as 2002, as part of the reconstruction effort commencing in
Afghanistan, World Bank experts recommended to Government that the
development of the Aynak Copper Deposit should be considered as a sector
priority. Based on the March 2004, World Bank publication, “Mining as a
Source of Growth”, which highlighted the potential for Afghan minerals’
resources to be soundly developed, the Aynak Copper Deposit was
definitively identified as a primary economic development target for the
Afghan Government to pursue. It was agreed that the tender of the Aynak
copper deposit would consist of an Exploitation License and an Exploration
15
Dr. Nedai went on to an unsuccessful bid for President in an election that included
Hamid Karzai as a candidate in 2005.
16
Minister Tuniwal was appointed as Governor in Patika Province and was
assassinated there in September of 2006.
26 James R. Yeager
License. The Exploitation License consists of approximately 28 km2 and

surrounds the economic, proven reserve of the Aynak Copper Deposit. This
area encloses two sub-economic copper resources, referred to as Darband17
and Jawhar.18 From an exploration perspective, the existence of Darban and
Jawhar which contain copper mineralization in the same rocks as Aynak
indicate the possibility of additional copper resources in the area. Additional
exploration work will be needed to test this observation.
In September 2005, a World Bank legal advisor and consultant to the
Ministry of Mines prepared the initial pre-tender documents that would be
required by the Government to contract a Transaction Advisor to prepare
and implement the Aynak tender. The funding for this work would be from
the Afghanistan Reconstruction Trust Fund (ARTF) while the World Bank
would fund some advisors through the SDNRP grant funds starting in
August 2007.
Tendering the Aynak Transaction Advisor Contract

The process required to fund the Aynak Transaction Advisor Contract
required that the Ministry of Mines appeal to the Afghanistan
Reconstruction Trust Fund (ARTF) which was implemented at the time in
2007 through the newly formed Ministry of Economy. Partnering with
ARTF was another Government agent, ostensibly responsible for ensuring
strategic procurement and optimizing the use of Government funds, the
Afghanistan Reconstruction and Development Strategy group (ARDS); for a
number of reasons including the personalization of relationships, ARDS
17
The Darband Copper Prospect is located 7 km east of the Aynak copper deposit.
Geologically, the prospects are hosted in the same rock formations as Aynak and may
contain additional copper. Exploration work to date has defined an uneconomic
resource 665.7 thousand tons of material with a grade of 5.7% copper. This resource will
require additional work to turn the resource into a reserve.
18
The story goes that the Soviets, using the Russian language, were unable to
pronounce “Jawhar” which means “jewel” in the Afghan Dari language. Instead the
Soviets employed the term, “Dzhavkhar”. The Jawhar copper prospect is located 5 km
north of Aynak. ; Exploration on the property defined a resource of nearly 80,000 tons
of material with an average grade of 0.74% Cu. Additional exploration work needs to
be accomplished to determine the economic viability of this prospect.
firmly controlled how ARTF worked at that time and which tenders would
and would not be implemented by Government.19
Heavy handed input from ARDS which described itself to Ministry of Mine
leaders as the Government’s “strategic economic experts” resulted in highly
personalized dealings, non-technical handling of important technical content
and a general arrogance about which types of tenders would be supported and
at what funding level by Government with virtual disregard of World Bank,
Ministry and other funder priorities for development in Afghanistan.
Two tenders would be conducted relevant to Aynak: one for a Transaction
Advisor to implement the Aynak Tender Process; and a second for a
Company to conduct the exploration and exploitation rights of the Aynak
Copper Deposit. The first draft of the Aynak Tender sought a consultant to
conduct the Copper Deposit Tender – the Transaction Advisor – was
completed in October 2005, following the traditional tender template
prepared by the World Bank as agreed by the Government and the ARTF.
The document totaled more than 100 pages. The document was submitted by
the Ministry of Mines, according to protocol, to the ARDS staff for review;
despite several requests, for more than four months, no response was
received from ARDS. The then newly appointed Minister, Mir Ashan Sediq,
came to the Ministry in early 2005 and immediately inquired of ARDS and
ARTF as to what the hold up in their response had been. From early 2005
through May 2005 a “back and forth” of letters and approaches was
19
In theory the establishment of the ARTF made sense. Willing donors would place
their assistance funds in this trust fund and the Government, working with an
international consulting firm, would conduct tenders and procurements in a
transparent and efficient manner, optimizing use of Government funds and building
Government capacity to procure. However, the lack of competency to conduct
procurement at the Afghan government level was alarming. The initial consultant to
ARTF was the British firm, Crowne Agents which, by all accounts had done an
impressive job to establish and implement sound and practical procurement protocols,
trained staff and provided easy access to its offices and expertise for non-procurement
experts. However, in 2004-2005 when it came time for the renewal of the ARTF
implementing contractor, Government, with strong World Bank input, determined
that a much less expensive consultancy other than Crown Agents should be
considered. A lesser cost consultancy had in fact bid for the work to run the ARTF and
the award to manage the ARTF processes went to an Indian firm with experience as
the procurement advisor to the railways in India.
28 James R. Yeager
exchanged between the ARDS Afghan-American staff member who served

as the Deputy to ARDS, and the Ministry of Mines. This exchange could
never have been contemplated; it is incomprehensible that the Aynak tender,
recognized as a fundamental to Afghan development went through such
exorbitant micro-management by an ARDS procurement facilitator that
resulted in devastating tender modification, specifically its level of funding.
While World Bank staff estimated that between $600,000 and $800,000 was
required to sufficiently fund a Transaction Advisor, following months of
exchanges, the ARDS declared that he would not accept funding beyond
$400,000. The ARDS individual had no technical basis for using this amount
except that he had to manage a lot of Government funds and, based on his
discretion, did not believe that the Ministry of Mines could manage more
than this amount. Under mounting pressure from the highest levels of
Government to pursue the Aynak Tender Process, neither the Ministry of
Mines nor World Bank fought the funding level.
The following point of dispute between ARDS and the Ministry of Mines
was where the Notice Seeking Expressions of Interest for the tender notice
would be published. The ARDS official would not accept a suggestive
shortlist of mine journals and other international journals prepared with
World Bank inputs from the Ministry of Mines. ARDS instead suggested
Afghan Embassies around the world, and the Kabul Weekly and Kabul
Outlook newspapers, circulated only in Kabul; the first issuance of the tender
only went to the ARDS-preferred scope of publications. Later intervention
by new ARTF leadership expanded the publication to include the suggestive
list of mining and related journals which likely tender candidates would be
reading.
Seven firms submitted Expressions of Interest (EOIs) including those
directly contacted by the World Bank to bid on the Transaction Advisor
tender. Once these EOIs were received, however, as of the due date of
January 30, 2006, only two of these firms actually submitted. The two bids
were:
 Behre Dolbear (BDB), Denver, Colorado. One of the oldest, continually

operating, mineral industry consulting firms in the world, which has a
large staff of geologists, engineers, financial analysts, environmental
scientists and social scientists with ten offices throughout the world.
The bid amounted to approximately $1 million.
 Gustavson Associates, Boulder, Colorado, a 26 person office that focuses

on oil and gas appraisals and reserves evaluations and qualifying
reports for the mining industry. Gustavson Associates completed some
short-term work on oil and gas assessments in Afghanistan in 2003-
2006 and work in Central Asia and the FSU. Gustavson Associates bid
amount was approximately $400,000.
An Evaluation Committee consisting of an ARTF representative, a World

Bank consultant, and approximately 8 individuals from the Ministry of
Mines was formed to evaluate the technical proposals. ARTF assisted by the
evaluation committee evaluated the financial proposals.
The selection criteria developed by the World Bank and Ministry of Mines
with ARDS and ARTF acknowledgement and agreement that the Aynak
Transaction Advisor would not only be selected based on price. The bid
consisted of a technical proposal and financial proposal. Each set of
documents was evaluated separately. The technical evaluation was completed
prior to the evaluation of the financial proposal. The tender document
included a clear evaluation formula where the technical proposal held a much
greater weight than the financial proposal. Now public information, in the
analysis of the technical proposals completed by the evaluation group, Behre
Dolbear received a score of 94% while Gustavson Associates received a
technical score in the 60% range. Nonetheless, once the overall evaluation
formula was applied, Gustavson Associates received the bid since their
financial proposal of $400,000 was less than half of the BDB financial
proposal.
 Of the 10 references supplied by Behre Dolbear, five projects were cited
as ones that BDB brought to successful conclusion with the
privatization of state owned mine enterprises. Of particular interest
were the results of a sixth project, the tender of gold properties in
Nigeria. BDB had won but pulled out of that project due to corruption
in the process. More importantly for this tender than that of BDB’s
technical understanding and experience with copper mining worldwide
30 James R. Yeager
was its lengthy experience in preparing and conducting mine tenders

throughout many countries including Jordan, Russia, the Philippines,
Mongolia, Chile, Australia, Brazil and China.
 Of the 10 references supplied by Gustavson Associates, the company
brought two projects to a successful conclusion resulting in the
privatization of state-owned enterprises. However, in those two
projects, the company was not involved in all the tasks as required in
the terms of reference as required under the Aynak transaction advisor
tender. Gustavson Associates had never conducted a complete mine
tender.
Gustavson Associates was awarded the contract to serve as the Transaction
Advisor to implement the Aynak Copper Tender based on least cost.
Contracting the Transaction Advisor to Implement the
Aynak Copper Tender
One of the first actions conducted by Minister Adel as he took office in March
2006, was to sign the World Bank $30 million SDNRP grant that would be
channeled to his Ministry toward strengthening institutional arrangements in the
sector. These funds could have been used to support a more transparent and robust
tender processes for Aynak copper – but were not.
The second major action required by the new Minister was to negotiate the Aynak
Copper Transaction Advisor Contract with a US firm, Gustavson Associates. The
negotiations commenced in April 2006 in a format where Minister Adel dominated
the talks as lead negotiator along with 18 members of his staff. At this time, the
Minister told the Transaction Advisor representatives to return home and to return
in two weeks; the World Bank advisor to the MoM reviewed the contract line by
line and attempted to explain its contents to the MoM staff. The tone of these
negotiations in which an author of this Paper was present, was extremely
adversarial on the part of the Minister. He did not hide his dissatisfaction with
earlier oil and gas work that Gustavson Associates conducted or that he lacked
confidence in the firm’s ability to effectively work in Afghanistan. In addition,
new commercial tax laws were not sufficiently understood by either the Ministry
or Gustavson Associates; no one could define how taxes would be collected from
the firm which resulted in prolonged negotiations. Negotiations were completed in
June 2006 and the Transaction Advisor work commenced in August 2006. The
original term of the contract was for 7 months which was ultimately extended.
32 James R. Yeager
Transaction Advisor Responsibilities

The work of the Transaction Advisor was defined as a seven part process.
1. Develop a Tender Plan for the Aynak Copper Deposit; the Plan to be
approved by the Minister and Inter Ministerial Committee,
2. Prepare the Aynak bid documents including a model contract,
3. Solicit Expressions of Interest,
4. Evaluate and Pre-Qualify Bidders,
5. Conduct Due Diligence of the bidding firms including the opportunity for
bidders to visit Aynak and gather information from the Government,
6. Receive and evaluate the Bids with the use a pre-approved process, and
7. Negotiate and Award the Aynak Copper Mineral Rights.
Observations. This work was to have been carried out by a team from Gustavson
Associates that included geologists, mining engineers, financial specialists,
environmental specialists, and legal support. While many individuals were
promised to implement this activity as Transaction Advisor, in fact, only one
regular representative participated – a geologist. He was never fully based in Kabul
during the contract and did not have colleagues as part of the Transaction Advisor
Team as promised in the Gustavson Associates proposal. Legal Counsel hired as a
consultant to Gustavson Associates participated to a much lesser extent.
The funding for the Transaction Advisor Contract was estimated by World Bank
experts to require approximately $800,000 but that the amount could be as high as
$1 million. Through the Afghan Government procurement agency, the sum made
available to support this contract was $400,000, a substantially diminished funding
level than should have been available. As a result only 2 companies submitted bids
to conduct his work.
It must be noted that during its time serving as the MoM Transaction Advisor for
the Aynak Tender, Gustavson Associates was also providing advisory to MoM on
identifying potential gas markets as part of an Asian Development Bank contract
as well as working with US Agency for International Development (USAID)

funding to assess gas production opportunities in northern Afghanistan. The
World Bank and ADB work required direct reporting to and approval by Minister
Adel; USAID work did not. Whether attributed to heavy handed decision-making
by the Ministry of Mines, lack of oversight by the World Bank and ARTF or
general neglect of the sector by the Afghan Government and international
community, to select a Transaction Advisor for a project defined to be the largest,
most economic and socially influential in the history of the country “on the cheap”
resulted in irreversible lost economic and social opportunity.
The Tender Plan and Process
The Contract terms for the Transaction Advisor, based on the Request for
Proposal (RFP) prepared by World Bank consultants, provided an overall
framework for what the details of the tender plan should look like. As a
starting point, the Transaction Advisor was directed to (1) conduct due
diligence of the fiscal and regulatory regime of the Aynak Copper Deposit as
a potential tender property and to (2) consult with the British Geological
Survey (BGS) on geologic data support in order to define a Tender Plan.
The Tender Plan would then outline the preferred course of actions across
the proposed five-month program to likely include:
 Preparation of a tender methodology and evaluation criteria by which
bidding companies would be pre-qualified and by which final bid
submissions would be scored.
 Development of guarantees and bond posting requirements and
corresponding procedures for same.
 Determination of which individuals would actually participate in the
evaluation and evaluate bid submissions as well as the development of
rules for evaluation including actions for how consultants to the
process would support the evaluation phase.
 Development of required inputs/outputs of selected Afghan

Government agencies throughout the Aynak Copper Deposit tender
process
Observations. An essential but poorly defined guideline set out in the
Transaction Advisor Terms of Reference was that, in addition to close
collaboration with MoM it should interact with other Executive Branch
offices of the Government. The earlier determined underlying need for this
interaction was to ensure that relevant branches of the Government were
consistently part of the tender process, gained a reasonably detailed
understanding of the impact of the Tender and could contribute to the

process as it progressed ensuring that various Government agency and
ministry concerns would be addressed in the evaluation of the bids. The
Transaction Advisor did not reach out to other branches of Government and
in fact was ordered by the Minister not to extend its reach.
Ironically, a credible array of Afghan public and private sector
representatives have expressed concerns to the effect that if more
government bodies had actually had more participation in the process, as
legally prescribed, opportunities for corrupt practices would have increased.
While this may be the case and presents a valid concern related to how the
Afghan government is operating, it does not allay concerns that the Aynak
tender was closed and firmly controlled by one government agency with
virtually no oversight. In implementing the legal requirement to include
other government agencies, four fatal flaws emerged:
1-The Transaction Advisor had only ever worked with the Ministry of Mines and
was not familiar with other Government agencies or ministries or even the
overall structure of the Afghan Government relevant to the Aynak Copper
Tender activities. The Minister assured the Transaction Advisor that he was
regularly meeting with other government agencies and that it was not the
concern of the Transaction Advisor.
2-The Transaction Advisor relied heavily on mine engineers and technical staff with
virtually no consistent legal advisory, project finance or government relations staff
that would ordinarily be well-versed in this approach to tender processes,
notably in a nascent market, to reach beyond the Ministry of Mines.
3-The Minister of Mines in office by the time the Transaction Advisor took on its
role had no meaningful interest or intent to engage other government offices. The
Minister began to meet with Ministry representatives behind closed doors in
early 2008 on an irregular basis. The other government representatives were
low and mid-level; not until pressure to increase government participation
emerged in June 2008 were higher government officials invited into the
process.
36 James R. Yeager
4-The Transaction Advisor relied on the Minister’s control of this requirement in

what appears to have been an inexperienced and ignorant approach to doing business
in Afghanistan.
And so, the Tender Plan that the Transaction Advisor, Gustavson
Associates, submitted to the Ministry of Mines, per its contract
requirements, was subsequently approved by the Minister of Mines. The
plan did indicate the need for interactions with the other Ministers.
However, implementation of same was fully conducted by the Minister who
took a heavy-handed approach as to which Government agencies he would
invite to meetings and which level of representation from the various
agencies would be invited – generally mid to lower level officials.
During its initial information gathering trip in August 2006, Gustavson
Associates’ representatives did attempt to set up meetings with the
government agencies that comprise the Inter-Ministerial Committee. The
input of the other ministers that have a vested interest in mineral
development include the Minister of Finance, Minister of Economy, Head of
the National Agency for Environmental Protection, Minister of Foreign
Affairs, and the Minister of Commerce. The Minister strongly informed the
Transaction Advisor that it had no need to meet these individuals this
directive was the first of many to come from the Minister that served to
reduce the transparency of the Aynak Copper Deposit tender process.
Minister Adel states that regular meetings of the Committee were conducted
and, in fact, they were. Over the course of approximately five months,
committee meetings were conducted when he called them and were not
regularly scheduled; they were conducted in his office at the Ministry of
Mines behind closed doors with no Transaction Advisor participation and
with no note-taking or minutes; they were conducted with him stating the
agenda and providing his view of and preferences for the transaction
details20.
It was only toward the very end of the tender process, when increasing
publicity was being given to the Aynak Tender, that a few higher level
20
Various participants reflected on the meetings as “very interesting” but did not
convey that they were actual participants in the tender, rather, that they were being
updated by the Minister.
meetings of various ministers were called. Neither the Transaction Advisor

or World Bank consultants were invited – or permitted – to be present on the
topic on which they had been actively engaged. No Afghans who were part
of the Tender Process were permitted to speak in the meetings, other than
the Minister. Not one Minister opposed the process, likely for lack of full
understanding of the process, but more likely encouraged by the fact, as
suggested by President Karzai, that Afghanistan was now entering the world
of international tenders and world class bidding. In effect, heads were turned
and Minister Adel emerged as more of a hero than a manipulator of the
process.
The Aynak Copper Bid Package21

The Bid Package prepared by the Transaction Advisor and approved by the
MoM included:
1. Instructions to Bidders describing in detail the bidding procedure, the
content required to submit a bid, the evaluation criteria for bid review
and the overall process for bid submission including the exact date,
time and place to submit the bids.
2. Rules for Negotiation detailing the process by which the Government
would negotiate with the successful bidder including time limitations
and extenuating factors that might either delay or cancel the
negotiation.
3. A draft Model Contract prepared by Gustavson Associates that included
broad terms and conditions under which the successful bidder would
negotiate.
4. Summary of fiscal and regulatory regime aspects taken from relevant
overarching instruments including the 2005 Minerals Law, Extractive
Industries Tax Provisions from the draft Tax Code, Investment Law,
Environment Law, and Customs Law provisions that were in various
stages of development.
21
Proprietary information is not included in this review, nor are conversations directly
conducted during the Evaluation Process, also deemed to be proprietary and
confidential in a tender setting.
38 James R. Yeager
5. Technical Data. All relevant technical data on the Aynak Copper

Deposit.
As for technical data to be included in the Bid Package, the British

Geological Survey (BGS), for almost three years, had been working with the
Afghanistan Geological Survey (AGS) to develop data bases on key deposits,
including Aynak. In collaboration with the World Bank as early as 2004, the
BGS worked to gather relevant Aynak materials and in 2006 established a
web site with all the pertinent materials. All the information was provided to
the bidders in electronic format on portable hard disks.
Unlike the advertising for the Aynak Copper Transaction Advisor
consultancy, the advertising of the actual Aynak Copper Deposit bid was
able to be conducted by the Ministry of Mines – not the ARTF. Both the
initial Request for Expressions of Interest (EOIs) and the final Request for
Tender were published by the Ministry of Mines in major international
mining publications such as the Mining Journal. From these postings,
interested parties learned about how they could view the detailed
information at the BGS website. The Transaction Advisor used “PR Wire”
which is a wire service that distributes press releases.
Solicitation of Expressions of Interest to Bid for Aynak Copper Deposit

Rights
As part of the Transaction Advisor contract terms, a dedicated Inter-
ministerial Committee was to approve the Bid Package. This approval would
trigger the Transaction Advisor’s preparation, designing, launching and
managing of the overall tender process. All tender processes were to be based
on “international open-bidding process” standards. The Transaction Advisor
published the Expression of Interest (EOI) in major international mining
publications. Thirteen companies submitted Expressions of Interest.
Observations. Receipt of the Expressions of Interest was conducted by the
Ministry of Mines although the original tender plan called for the
Transaction Advisor to receive the EOIs. Once received, the Minister took
control of the documents, locking them in his office. The Minister assumed
complete control over the documents and the release of the documents. This created
major transparency problems as the facilitators were not allowed to become

familiar with the material before presenting the information to the
evaluation committee. Originally, there were no constraints regarding the
size of the companies submitting bids. However, as later indicated, during
the evaluation process, it was determined by the Minister of Mines that the
smaller companies would be dismissed as he believed that they lacked the
financial and technical capacity to bring the project to completion.
Pre-qualification of Bidders
In order to conduct a pre-qualification review of bidders, Minister Adel
appointed 14 members that included Ministry of Mines’ staff that
encompassed the Afghanistan Geological Survey, Deputy Ministers, and
other ministry staff (see box). By all observations, the members were
subservient to not only the Ministry of Mines but to the Minister himself. In
addition, a German trained geologist and mine sector advisor to President
Karzai was selected by Minister Adel
Companies that Submitted EOIs for
and agreed to by the international Aynak Copper
advisors to work on the project.
Non-voting members of the group Bahana Consortium, Australia
China Metallurgical Group, China
who acted as facilitators to the tender
General Minerals Corporation, USA
process included an economic Green Mountain Mine Management
geologist with the BGS, an economic Company, Iran
Hindalco Industries, Ltd., India
geologist with Gustavson Associates
Hunter Dickenson, Canada
and an economic geologist and the Kazinvest Minerals, Kazakhstan
World Bank Technical Advisor to K Kares Co., Ltd, South Korea
Phelps-Dodge Corporation,* USA
the Ministry of Mines.
SK Mining Invest and Development,
On October 28, 2006, 13 Expressions South Korea
Strikeforce, Ltd., Russia
of Interest (EOI) were received by Tyzhpromexport, Russia
the Ministry of Mines from Zijin Mining Group, China
companies interested in developing
the Aynak copper deposit. In order to show no favoritism on the order of the
evaluation the minister suggested a random draw where each package was
given a number. Members of the evaluation group drew the numbers and the
EOIs were set in the queue. Minister Adel ordered that, instead of opening
40 James R. Yeager
all EOIs at the same time, they would be opened in accordance with a draw
to determine evaluation order.
The Transaction Advisor developed a scoring matrix to assess the EOIs
based on 100% total score which consisted of three categories:
1. technical capacity (45%) – broken down to an evaluation of technical
staff and corporate history;
2. financial capacity (45%) – broken down to market capitalization or
demonstrated ability to raise capital and experience/history of
financing large mine operations; history of financing large copper
development; and,
3. work in the region (10%).
Each subcategory of the technical and financial category was given a weight
and was scored from 1 to 5 where 1 indicated poor and 5 indicated excellent.
Each of the 14 Evaluation Committee members scored each company
individually.
The evaluation of the companies started on October 29, 2006 and continued
through November 7, 2006. The Evaluation Committee met daily from 9am
to 5pm with a 1 hour lunch break in the first floor main conference room of
the MoM building in Kabul. The first two days of the Evaluation Committee
work consisted of a refining the scoring methodology, training the evaluators
and conducting mock evaluations – “evaluation training on the job” .The
actual scoring of the EOIs began on November 1 and continued through
November 6. The Evaluation Committee was generally able to evaluate two
EOI submissions per day. No names were used when the data was
presented to the
evaluators.
On November 7,
the Evaluation
Committee
members’ began
to tabulate the
results.
Tabulation
Figure 1: Analysis of EOIs

consisted of a dual data entry system. Both the Transaction Advisor

representative and World Bank consultant maintained the summary spread
sheets who would also address discrepancies as they arose. Each individual
evaluator would bring his “ballot” to the “polling booth.” At each polling
booth which consisted of two computer stations in the ministry conference
room, an outside observer would assist and observe the entry of the scores
from the evaluators. The individual evaluator would read his score and the
data was entered into a spreadsheet. Once all data was entered, the
international advisors began the calculation of scoring and final analysis.
The companies fell into three categories based on size, which for the
Evaluation Committee members became known as the “big fish”, the
“medium fish”, and the “little fish”. The five large companies scored
between 98 and 82, the medium sized companies scored between 45 and 60,
the smaller companies scored between 0 and 20. The Committee found that,
based on its established criteria for evaluation, “it was obvious that the four
companies did not qualify. These companies included: General Minerals
Corporation, USA; Green Mountain Mine Management Company, Iran; K Kares Co.,
Ltd, South Korea; and, SK Mining Invest and Development, South Korea.
Following some discussion, the Committee selected the top nine companies
as opposed to the top three companies as proposed by the Tender Plan.
Although such a large selection of companies to compile the short list would
require considerable work for the Evaluation Committee, it was agreed that
this approach would provide greater exposure of Afghanistan to the
international mining community. The companies selected to submit bids for
Aynak included (Listed alphabetically by company):
 Bahana Consortium (Australia)

 Metallurgical Corporation of China (MCC) (China)
 Hindalco Industries, Ltd. (India)
 Hunter Dickenson (Canada)

 Kazinvest Minerals (Kazakhstan)
 Phelps-Dodge Corporation* (USA)
 Strikeforce, Ltd (Russia)

 Tyzhpromexport (Russia)
42 James R. Yeager
 Zijin Mining Group (China)

Nine of the companies that submitted an EOI were invited through the use
e-mail to continue the tender process and to submit a bid for the rights to the
Aynak Copper Deposit. Three companies withdrew from the bidding. They
included Hidalco Industries of India, Tyzahpromexport of Russia and Zinjin
mining of China.22
Observations
Despite having a legal advisor and available financial advisors to assist with
the evaluation process, the Minister did not want this participation and the
Transaction Advisor did not push for it; thus, and this is a critical point, no
commercial experts participated in the evaluation of EOIs. This approach
continued into the latter phase of bid evaluation and would subsequently
have lasting impact on the contract development as most bidders included
non-core terms beyond technical aspects of copper, i.e., financial guarantees,
community development projects, transport projects, power and heat-
generation projects. The Committee membership did not technically
represent the breadth of the Aynak Copper tender proposals. In addition, as
most proposals had significant tender inclusions on power development, rail
and other transport and community development, it would have been
expected that some technical expertise on these topics would also have been
included in the Committee, but that was not the case.
With respect to weighted average scoring method, it appears that neither the
Minister or Committee members fully understood the method. Although
each of the 14 members individually scored each company, Minister Adel
sought to review each Evaluation Committee member’s evaluation sheets.
The facilitators vigorously opposed the request and insisted that all
evaluations remain individual ballots and no undue pressure be put on the
22
Hindalco Industries was in the process of developing other mines and made a
corporate decision not to pursue the Aynak. Tyzahpromexport would not return calls
and never indicated why they withdrew. .Zijin, the company indicated that the
Government of China did not want them to participate since they would be in
competition with MCC.
evaluators to reconsider their scores. After some lengthy discussion, the

Minister agreed.
Due Diligence of the Bidders for the rights to the Aynak Copper Deposit
The expectation of the “due diligence” phase of the Tender Process was that
several things would simultaneously transpire: (1) that the Transaction
Advisor, working with the Ministry of Mines, would conduct due diligence
on each of the six companies that indicated that they would bid for the
deposit rights; (2) that the British Geological Survey (BGS) had prepared all
relevant geo-science data and a data room in Kabul located at the
Afghanistan Geological Survey (AGS) where bidders were invited to visit
and review materials, speak with the BGS and AGS representatives, etc. and
(3) that the bidders would conduct their due diligence by visiting
Afghanistan, the Ministry of Mines, the Aynak site and inquiring on various
levels among government, other international firms and various agencies
facilitating private sector investment in Afghanistan.
In order to distribute the data concerning the Aynak Copper Deposit, each
Bidder was provided a portable hard drive with more than 80 gigabytes of
data. This disk was shipped to each company by courier from Kabul in early
January 2007. This disk not only contained all relevant technical data, but
applicable laws, and logistical information about travel visas, security,
lodging, and entertainment in Kabul, and a site visit; the Tender Plan
originally called for the companies to visit Kabul in January of 2007. The
visit dates were pushed back to April because of the likelihood of adverse
winter weather and the inability to provide the tender package on schedule.
In order to assist the company representatives, at least one staff member
from the MoM was assigned to each company as assigned by the minister.
The companies were divided into groups of three. The schedules were
prepared by the Technical Mining Advisor and approved by the Minister and
the Transaction Advisor. The objective of the visit was to provide each
company the opportunity to make a site visit at Aynak and to talk with each
Ministry represented in the Inter-ministerial Committee and to collect
sample and first-hand information about the deposit. The late Director of
AGS, Abdul Wasai, who had worked at the Aynak site during the 1980s, led
44 James R. Yeager
each excursion. Each company was escorted to various ministries to

addresses issues including: taxes, security, environmental constraints, social
development and other factors that were to be included in their bid.
Observations
The fact that due diligence was not conducted on bidders and that actual
track records of bidders, as opposed to their own informational materials,
were not known to the evaluators substantially reduced the credibility of the
process. No independent evaluation of the bidders’ past performance was
considered. In addition, the rapidity with which the actual tender work was
happening left Ministry and donor representative officials to recognize and
appreciate the more than four years of work that the BGS staff in Kabul had
undertaken to reconstitute important geo-science and other technical data
that was essential in the preparation of the Aynak Data Packages. The BGS
prepared this information while training AGS staff which consisted of all the
archived Russian data and was provided in user-friendly electronic format.
For the Transaction Advisor to have suggested January travel to Afghanistan
seems to have been shortsighted and reflected either a lack of understanding
of the country’s annual climate conditions or an oversight in an attempt to
meet rapid tender timing that ultimately delayed the tender process for a
solid four months.
Receipt of Submissions and Evaluation of the Bids

The due date for Final Bid Submissions for the Aynak Copper Deposit rights
was May 28, 2007. Five Bid Submissions were received. The Bahana
Consortium from Australia opted out of the bidding. After their due
diligence visit, the group determined they did not have the capacity to
develop the infrastructure that would be required to bring the project on line
in the timeframe required. The other five companies had financial resources
to complete the project and infrastructure. This is especially true of MCC
which is 44% owned by the Chinese government.
On May 29, 2007, the five bid submissions were received at the Ministry of
Mines. The Minister decided that the earlier Evaluation Committee
membership of 14 members should be expanded to 20. And so, on the same
day the bids were received, 40 Afghans from the Ministry of Mines were
presented to the World Bank consultants for a three day training course on
how to conduct bid evaluations. Some of the members who worked on the
EOIs were retained; some were let go and replaced by new members.
Minister Adel expressed that this way anyone who was possibly “corrupted”
was replaced – by him. The new committee was appointed by Minister Adel.
Missing from the new Evaluation Committee were any representatives from
other ministries of the Inter-ministerial Committee. The reason given by
Minister Adel for this more narrow composition of the Committee, now
predominantly MoM staff was that he had personally been given full
authority from President Karzai to conduct the Aynak Copper Deposit bid
evaluation as he – the Minister – saw fit.
According to the Transaction Advisor’s Terms of Reference, included as part
of its contract terms (i.e., to which MoM agreed), all documents related to
the bid submissions were to be controlled and held by the Transaction
Advisor. The agreed upon intent of this process was to ensure that a third
party would be in charge of the documents and their security and that the
Transaction Advisor would be responsible for any breach of that security.
However, immediately upon receipt of the Bid Submissions, counter to what
had been previously agreed, the Minister took complete control of all Bid
Submissions, locking them in what he described as “a secure file cabinet” to
which he alone had the key. One can only speculate why this was done but
these actions served to shock officials working outside of the Ministry as
well as his own staff and donor observers. At the very least, there exists the
possibility by appearance that the Minister or his staff could have tampered
with the bids; but more indications suggest that highly confidential
information presented by some bidders may have been passed to certain
other bidders.
Gustavson Associates had prepared an evaluation matrix to score the Bid
Submissions. As with World Bank procurement guidelines, the procedure
was to first evaluate the Technical aspects of the proposal (75%) followed by
the evaluation of Financial aspects of the proposal (25%). Each component
had “sub-components”. The technical proposals consisted of the technology
employed by the companies, the environmental protection program, the
social/economic development program, and proposed infrastructure
46 James R. Yeager
development. The weight carried by each of the technical components and

the financial component as decided by the IMC and was as follows:
 Technical Mine Development Program 20%

 Environmental Program 20%
 Social/Economic Development Program 25%
 Infrastructure Development Program 10%

 Financial Benefits to Afghanistan 25%
The bid evaluation process was conducted over the course of four weeks and
was conducted in the MoM main conference room on the first floor. Minister
Adel set the ground rules that (1) no work could be done outside the MoM
conference room and when any work was done and that (2) Minister Adel
would have to be present at all times during evaluation work. The timeline to
complete the evaluation was somewhat fixed by the Tender Plan. The plan
called for 30 days time frame to complete the evaluation of the bid
submissions. Originally the Tender Plan called for the top-scored 3
companies during the EOI phase to be invited to actually submit bids for the
rights to the Aynak Copper Deposit. As earlier indicated, nine companies
were invited to submit Bids and five companies actually submitted Bids.
Because of contractual constraints, the timeframe for evaluation of the five
bids – rather than the intended three – remained the same at 30 days. While
this would require additional preparation time by the facilitators, it was not
deemed by them to be impossible. Because of the Minister’s schedule where
he had other duties including weekly Cabinet meetings, conducted on
Mondays and the half-day work schedule of the Afghan Government on
Thursdays and no work on Fridays, no more than five working days per
week could be utilized for bid evaluation. Added to this, on a daily basis,
when the Minister would be called to an unexpected meeting or to take a
phone call, all evaluation discussions would stop. Moreover, not all
Evaluation Committee members could be present at all meetings at all times.
This created additional lost days, again, within the 30 day timeframe. There
is no record of actually how much down time there was, but one
international facilitator noted that “it was substantial.” Evaluators rarely
commented on any points made. When they did try to express an opinion,
they were verbally cut off by the Minister and prevented from speaking. On
a daily basis, the main dialogue was conducted amongst Minister Adel his
three Deputy Ministers. On one occasion, the Minister of Finance sent over
two western observers to attend the meeting. The Minister turned them
away.
Bid Submission Content. The Evaluation Committee members found that on
the whole, submissions were very comprehensive containing between 150 to
300 pages of detailed documentation. No page limit was set and each
company prepared their documents as they saw fit. Each proposal was
required to have an Executive Summary in Dari that would summarize the
main points of the Bid. As a result, each member of the Evaluation
Committee could obtain an overall understanding of document. The Bid
documents were to be in English so that the Transaction Advisor and those
assisting could read the proposals in detail. The proposals were also required
to be presented in Adobe Acrobat format, they could be searched and
different parts of the proposal could be presented to the evaluators.
Financial Proposals. One task required of the Transaction Advisor was to
analyze each company’s financial data in order to determine if mining costs
were in line with international standards. In Gustavson Associates’ original
Tender Plan, their financial team member was to be in Kabul to assist in the
financial review. Because of general security concerns in Afghanistan at the
time and the added cost to Gustavson Associates, the financial analyst was
not present for the evaluation.
Therefore, in order to accomplish the financial review, the Transaction
Advisor planned to provide the financial data to their analyst via the internet
since all data was provided in an electronic format. However, Minister Adel,
not a computer user, refused to allow transmission of that data to the
financial team member. Without the Minister’s approval, the Transaction
Advisor nonetheless managed to obtain the financial proposals and
forwarded the information to its financial analyst. The analysis of the
financial proposals was part of the due diligence process. It was essential to
determine if mining costs were in line with international standards; if the
royalty stream of payments was accurate; and that the price of copper in all
48 James R. Yeager
proposals was the same so the royalty stream and financial benefits would be
consistent
Observations
1. Increase and Change in the Evaluation Committee membership. It appears that
there was virtually little planning from the commencement of the tender
process as to which individuals would serve on the Evaluation Committees,
how and whether they would be trained and how their work would be
monitored and evaluated – beyond the Minister’s discretion. This should
have been a clearly resolved issue from the beginning of the process over
which the Transaction Advisor should have taken the lead. While there
might be some merit to increasing the number of evaluators, a serious
problem with this approach was that the new bid evaluation team members
did not understand the social, economic, technical, financial or
environmental issues involved with a project as complex as Aynak. Minister
Adel’s assertion that he had President Karzai’s authority to appoint
whomever he thought best to serve on the Evaluation Committee was an
entirely false one. This became apparent when the final decision for the
tender was made by the Cabinet as a full extension of the Inter-Ministerial
Committee. The Transaction Advisor nonetheless failed to raise any
meaningful level of awareness to Government, donors or legal authorities
when on its face, this discretion goes against the international tender
standards for which the Transaction Advisor was retained. This approach
also directly contravenes the approved 2005 Minerals Law. The Transaction
Advisor failed to fully research or to understand the legal framework in
which this tender process was being conducted, namely that due to the size
and scope of Aynak, as is the case with most large projects under tender in
Afghanistan to date, the Cabinet will have the final vote on whether a tender
process should move forward or not. In fact, considerable power rests within
the Cabinet and as part of that the High Council of Economic Affairs which
consists of the key economic ministers, including the Minister of Mines.
It would have been consistent for the Transaction Advisor to work with
Cabinet members that would ultimately be engaged in this tender process.
Because the Transaction Advisor did not understand the institutional
framework of the tender, it failed to fully brief the Cabinet, leaving that
work to the Minister who was adept and able to present his side of the
process, himself not an expert in world class market-based tenders.
As stated above, the assertion that Minister Adel had full authority make the
decision to award the mineral license for Aynak was false because the final
decision was made by the Cabinet after it was provided with the
inconsistencies of the evaluation. Observers from the IMC were present
during the evaluation proceedings, but had no say or vote in the proceedings.
This was in direct contradiction to the Minerals Law. It is at this point where
decisions were made, that made the process less than transparent and the
concept of “apparency” – which can be defined as going through the process
saying the right things, but knowing the outcome has been predetermined –
shadowed the proceedings.
2. Minister Adel as Chair of the Evaluation Committee. By acting as chairman,
the Minister effectively squelched any open discussion of competing
proposals; summarized each day’s discussion with his own view; and, finally,
restricted the preparation and discussion time. As the evaluation process
progressed, considerable criticism was given by the MoM Deputy Ministers
participating on the Evaluation Committee of the Western companies and
the Russian Companies. At one point one of the Deputy Ministers suggested
that the Phelps Dodge bid should be rejected because he was aware that the
company had undergone a change in ownership structure and had become
Freeport-MacMoRan23. While Minister Adel did not assign points to the
various categories or “score”, he served as a constant presence during scoring
and all evaluation processes and as one international participant described as
“a forceful Chairman of the Evaluation Committee”. The international
facilitators were advised by Minister Adel that they were not to raise any
negative aspects with respect to the MCC (China) bid submissions. At the same
time, the Minister spent hours identifying negative aspects of the bid
submissions from Western nations.
3. Public-Private Partnerships Will Have the Advantage. A major observation of
how the Tender for Aynak copper rights progressed was that purely private
firms working along strict market operating principles were not as well
positioned as those firms that could offer benefits that generally amass when
23
Phelps Dodge became part of Freeport MacMoRan in March 2006.
50 James R. Yeager
partnered with government or state affiliates. Here, a noticeable division

between how bidders from “the West” fared against bidders from “the East.”
The companies coming out of the East displayed a more acute understanding
of the Aynak deposit, knew its history – many had actually explored the site
in the early 2000s, and were able to provide as part of their tender, additional
development assistance that would be funded either by their sister-companies
or their governments. For infrastructure development, the winning bidder,
MCC, offered the construction of power generation, rail and roads and
community development. As a state company, it was able to include Chinese
Government Assistance funds as part of its proposal, almost as if a “Marshall
Plan” for Logar. Western private firms did not have this opportunity.
Western companies recognized the need for the development of additional
power, but took the position that they would study the problem and provide
the required power either financed by debt or through donor programs. They
could not provide an absolute figure since that figure didn’t exist.
Importantly, despite all of the media attention to the MCC proposal to
support infrastructure development, no more than 10% of the overall bid
values covered this.
All bidders except one company of Asian origin provided similar information
indicating the standard methods of providing Environmental Impact
Assessments. One of the Eastern companies failed to adequately address the
issue in their proposal. Only two basic paragraphs covered the statement
saying that the firm would comply with environmental standards. Another
Eastern Company went into great detail quoting acceptable EPA limits of
toxic elements such as mercury, selenium, cadmium, etc. – even though those
trace elements are not present in the host rocks. All of the Eastern
Companies scored higher on the environmental portion of the proposals than
the Western companies.
On the social/economic development portion, Western companies focused
on strengthening the educational system, working with Logar Province to
meet their needs, and building infrastructure as necessary utilizing their own
funds or perhaps working with the IFC and other donors. One of the more
progressive approaches by a Western company was to develop a Technical
Institute for mining patterned after and partnered with the British Columbia
School of Technology. This would instantly have infused today’s knowledge

and approach to mineral development into the Afghan society. One of the
Eastern companies proposed building 3 mosques, providing 5 scholarships per
year for engineers and geologists to study in its home country and a number
of other specific programs. One of the more interesting discussions led by the
Minister at the Evaluation Committee was whether 3 mosques was enough.
4. No Standard Financial Proposal Formats Required. As part of the Transaction
Advisor’s Terms of Reference no standard format for providing information
on operating costs, mine life, production rates, and other factors that define
the financial viability of the proposals was included. Each company
identified a copper price that it believed was feasible or would sell the best for
the evaluation. For example, one company selected a high price of copper so
their 18% straight line royalty payment would look feasible, providing a very
high revenue stream to Afghanistan. Because of the lack of required format
for financial information, the content of the financial proposals submitted by
each company was so varied that it was impossible for the financial analyst
to make any comparable analysis amongst the proposals. As a result, no
critical consistent evaluation of mining costs was possible to carry out. To
fill this gap, a sliding scale royalty rate was a very progressive concept put
forth by World Bank. High royalty when commodity prices are low can
cause projects to become uneconomic. Whereas, when commodity prices are
high, low royalty rates mean that the Government fails to gain a fair share of
the value produced from the deposit. A sliding scale royalty was proposed. .
A sliding scale royalty provides a higher royalty rate when metal prices are
high and a lower royalty rate when prices are low. This insures that the tax
take for the government remains at a constant rate despite metal prices and
insures that the operations are profitable when metal prices are low.
5. Anomalies in the final scoring. All bids were completed in a very professional
manner. All proposals had advantages and disadvantages in the development
of Aynak. No one individual company showed an advantage in every
evaluation category. Yet, in the final scoring, MCC received a total score
greater than 90% while the other companies clustered in the 70 percent range.
This was caused by a number of individual evaluators who gave MCC a
52 James R. Yeager
perfect score in all categories. This anomaly does not coincide with a critical
evaluation of the proposals as shown in figure 2.
Scatter Plot - Evaluators
100.0%
90.0%
80.0%
70.0%
60.0% Hunter Dickinson

Kazakhmys
Score
MCC
50.0%
Phelps Dodge
Strikeforce
40.0%
30.0%
20.0%
10.0%
0.0%
0 5 10 15 20 25
Evaluator
Figure 2
In June 2007, a group of tribal leaders from Logar Province visited Kabul and
stood in front of the Parliament Building, met with the President and the
Minister of Mines to protest the possible award of the Aynak Copper
Deposit rights to a Chinese firm. The Leaders made clear that they sought to
safeguard this precious resource, the surrounding environment and
community residents. They also indicated that should such an award be
made, that they could not guarantee security for the workers of the company.
Impact of China’s Dominance of Natural Resource
Development in Afghanistan
When MCC was awarded the contract to develop Aynak, the ties between
the Asian neighbors was intertwined for the future. China will have greater
influence in the region with the development of the transportation corridor
between the two nations. China’s influence will dominate Logar Province
and the surrounding region. However, such dominance comes with certain
implications.
Salutary aspects of the relationship: China produces much of the consumer
products used by the Afghan people. While most Westerners would scoff at
the often miserable levels of quality, for millions of Afghans living at
subsistence levels, having the pot, pan, space heater or stove is what counts.
Thousands of these Chinese products flood the Afghan stores and markets
providing inexpensive and affordable goods for most of the Afghan
population. Also, Afghan businesspeople are in China doing trade and
developing business relationships at higher levels as well, extending from
agribusiness to electronics and telecommunications. China produces the
necessities that Afghans can afford.
This is the highly advantageous side to the broad economic relationship
between Afghanistan and China. Also, this side is part and parcel of the
legitimate, free and open market economy in Afghanistan. As long as the
market economy holds sway, both countries benefit from the exchange.
The economic and political dimension: When the relationship ceases to be market
economy-driven and a government becomes involved as investor, business
partner and even final arbiter, an uneasy confusion between the economics
and politics of this essential geopolitical relationship emerges that can create
longer-term negatives for Afghanistan’s development. The big industrial
Chinese companies are closely connected to the Chinese government and so
do not always operate within the fiscal or operational discipline of the open
54 James R. Yeager
marketplace. This is true for the mines and minerals sector as proven in the
Aynak copper rights’ competition.
Chinese companies are not subject to a Chinese version of the U.S. Foreign
Corrupt Practices Act (FCPA); China is in a position to dominate the future
development of the Afghan mining and natural resources sector because
Chinese firms can package their tenders to include what Western countries
refer to as “foreign aid” – President Karzai and many in the Cabinet
understood this when they initially and clearly stated that the award should
go to the companies whose people and governments were making vast
sacrifices in blood and treasure for the Afghan people. But this signal policy
pronouncement was overwhelmed by the modus operandi of tender process
implementation by the Minister of Mines and the incapacity of the Western
governments to focus on the impact of the tender as it relates to the overall
political economy of Afghanistan.
If the foreign aid of the Western countries was in any way, shape or form
incorporated into the bids of their home companies, formally or informally,
they would win the competition, hands down. That’s because, in addition to
winning financially, the past performance, the track record – something
assiduously prohibited by the Minister of Mines from entering into the
Aynak bid evaluation process – of the Western companies on pivotal social,
environmental, training/employment and political issues, is so far superior
to the Chinese record that Western companies would be much more
competitive. Such would be the case for the major U.S. and Canadian mining
companies. Still, this is not a tender approach that should be supported if to
facilitate transparent market-based operations.
The Political Economy Envisioned for Afghanistan: Donor nations, understanding
the debilitating effects of corruption are spending substantial resources to
create a polity for Afghanistan that is based on rule of law and engagement of
the Afghan people in defining their destiny. Donors understand that to fight
the insurgency, the support of the people will be necessary and that support
will not be forthcoming in conditions of runaway corruption, perceived or
otherwise. The Chinese model of doing business does not support the kind of
open and transparent, democratic capitalism that the international
community has agreed is essential to building Afghan institutions that tend

to engage the support of the people.
Thus, Chinese or “Eastern” dominance of mines and minerals development has the
potential to limit and constrain the very governance reforms essential to fighting the
insurgency. The amount of potential wealth in the exploitation of
Afghanistan’s natural resources will allow those controlling that wealth to
put their particular brand on an Afghan body politic that is already
amenable to engaging with those entities who would purchase rather than
compete for favor.
Conclusions: In sum, there remains, even after Aynak, a stunning lack of
focus, capacity and strength of purpose in policy-making quarters of the
Government of Afghanistan and relevant Western governments regarding
natural resource development in Afghanistan. The World Bank, while
bringing expertise to tenders, simply does not have the political clout – or
mandate – to either define the ground rules for what constitutes financial
contributions to a tender process or to discipline the process once it is
underway. Tendering natural resources in Afghanistan, rightly or wrongly,
presents as a make or break feature of the future economic landscape with
broad implications for the rest of Afghan society.
It is highly recommended that economic policy capacity-building take place
immediately within major Donors, particularly in the realm of natural
resource development and that such capacity be promoted and engaged in the
Afghan governing circles as well. If the goal of the Donors is to stabilize
Afghanistan then the third leg, the economic leg (in addition to the political
and the military) to the three legged stool that constitutes foreign policy
must be strengthened. There is no better place to start than in the mines and
minerals/natural resource sector.
Findings and Recommendations
The purpose of the analysis is to provide a forward looking perspective to

insure that tenders of mineral wealth are truly transparent and that the
benefit of such development is maximized for the host country. It is
necessary that the donor community learn from each experience and
critically evaluate the tender process for the international mineral deposits.
Finding: Data and Information are Essential to Commence Viable Tender

Activities
At some point during the tender process, most bidders expressed gratitude
for the information provided as part of the Aynak Data Package. This
technical information was prepared by the British Geological Survey (BGS)
funded by the Government of the United Kingdom, with guided inputs from
Afghan colleagues at the Afghanistan Geological Survey (AGS). The
preparation of the package itself was conducted in such a way by the BGS as
to build local Afghan capacity to understand what information is included
for bidder review and what information is proprietary. The entire process
was conducted over almost four years and relied on information collected
during the Soviet era with informational updates contributed by the BGS
personnel.
However, a finding of this assessment is that information systems and data
retrieval protocols put in place have basically been closed down. In late 2007,
it was determined by the British Government agency that oversees BGS
operations – the National Environmental Research Council (NERC) – that
they could no longer work in Afghanistan due to security concerns24. BGS
24
The initial BGS work was funded by the Department for International Development
(DfID) which is part of the United Kingdom Government’s Foreign and
Commonwealth Office but the latter work would have required submitting a bid to the
World Bank for funding. DfID staff did not anticipate and were reportedly not pleased
with the NERC decision.
representatives on the ground fought to carry on their work but were forced
to leave the country. Minister Adel subsequently ordered the AGS staff to
shut down the server at the AGS office on which BGS had stored detailed
and carefully developed mineral resource information. He ordered that the
server room be locked as well as the library and record room. Consequently,
all technical data which the BGS, and AGS had reconstituted, and where
necessary, translated from Russian into English and all data archived on a
searchable data base was taken out of the public domain.
This single act of the Minister has meant that the unprecedented and
commendable work conducted by the BGS, conducted for more than four
years, now sits locked in a Kabul office building instead of having been
integrated as part of a market-based ministry operation that could facilitate
increased sector transparency, accuracy of data and investor interest.
The assistance approach implemented by the BGS has proven, as compared
to other donors attempting to engage in the sector, to be the most results-
oriented and technically beneficial for the long-term benefit of the Afghan
minerals sector. Full time expatriate staff based in Kabul with considerably
more scope to travel and provide ongoing capacity building than could the
USGS, meant that the BGS work built on existing Afghan expertise while
introducing modern technology and approaches to ensure the sound
development and safeguarding of geo-science data. By including Russian
speaking BGS staff, existing Afghan minerals data, most of which was in the
Russian language, could be reconstituted in English or at least assessed by
technical experts. Finally, unlike the USGS, all BGS data and findings was
stored in Kabul at the AGS offices, not outside the country. This important
step provided important ownership to Afghanistan. Of course the issue now
is that the sitting Minister has chosen to no longer access or build on the data
bank, still, this is an Afghan Government decision as it should be.
Recommendations
 Ensure Good Data. Information is power. As the international
community begins to recognize the economic value and development
importance of the Afghan minerals sector for the country, targeted
assistance to realize the benefits of the BGS work and to build on that
58 James R. Yeager
is recommended. This will include close collaboration with the AGS to

provide ongoing IT training, preparation of data packages and overall
storage and information safeguard training.
 Re-start the Server. The donor community should work with Minister
Adel to understand the rationale behind closing down the data server
and explore options to restore the system.
 Call back BGS. Future geo-science support programs should look to the
BGS model and staff to provide a comprehensive and consistent
assistance approach.
Finding: Deficient and Uneven Donor Support to the Afghan Minerals

Sector
Since 2001 the donor community, and increasingly Afghan Government
officials, have called for market-oriented development of the country’s
resources, including mineral resources. Afghan and international leaders,
especially the US Embassy, have constantly called for private sector
investment and market entry for non-government funds to promote
economic growth, create jobs and to diversify the economy. These calls
however, have not translated into meaningful development assistance or
legitimate engagement of private investment in the minerals sector.
At a time when the donor community had ample opportunity to hone in on
key economic areas of growth for Afghanistan, i.e., mining, it appears that
the donor community (1) did not want to engage in mining; (2) did not
understand the nexus of Afghan mining and Afghanistan’s economic
development; and (3) opted to focus on other areas of development. While
donors were shoveling funds to support free elections, create micro-finance
programs, to build schools and clinics and to develop programs to support
women’s’ rights, they chose to spend virtually nothing on developing a
traditionally important and proven revenue generating sector of the nation’s
failing economy that could ultimately provide tens of thousands of jobs for
men and women and triple the nation’s national budget in the form of taxes
and royalty payments. One only has to look at the history of Afghanistan
during the Russian occupation in the 1980s when Northern Alliance
resistance operations were effectively funded by the sale of Afghan gems.
U.S. assistance has been provided to generate a body of commercial

legislation that should be applied to minerals operations. However, no
linkages between the effort and the mine sector have been made. There is
virtually no understanding in the Afghan minerals sector as to what and how
commercial legislation applies to minerals contracts. The Minerals Law, an
impressive feat facilitated by the World Bank in 2002-2005 provides
international standards and unprecedented legal guidance for mine contracts.
Unfortunately the law is supported with limited and inadequately prepared
legal staff, regulations or an overall understanding of minerals and
commercial law at the government level. As a result, there exists
considerable opportunity for corrupt practices and for ministry leaders to
interpret the legal framework with virtually no oversight.
At a time when Ministry leadership was in transition, insufficient technical
understanding of Aynak Copper’s wealth for Afghanistan and what amounts
to procurement malfeasance by ARDS, it is tragic that the World Bank and
donor community did not take a stronger line against the ARDS heavy-
handed approach to using Government funds for such a uniquely important
project. The lack of exposure of the Evaluation Committee Ministry of Mine
members to world class mine practices, costing and even what the role of a
Transaction Advisor was, was immense.
The uneven donor support and lack of donor strategy in providing assistance
to Afghanistan’s minerals sector has resulted in the emergence of serious
market gaps that are reflected in how the market presently operates, that is,
based on a system of ad hoc approaches, geographic preferences and
considerable “payments and fees” to the Ministry of Mines, conducted
outside requirements of the Minerals Law.
Recommendations
 Comprehensive Donor Minerals’ Tender Process Support. The donor
community should immediately offer and provide tender support as
the Hajigak Iron Ore deposit is being tendered. It appears that the
initial oil and gas tender process may already be near completion. The
World Bank Kabul-based consultant/advisors available to support the
process as part of their overall work have been shut out of the process
60 James R. Yeager
to the point that the Minister has refused to renew certain of their
contracts.
 Build Afghan Market-based Legal and Financial Capacity. Should the

donor community opt to support the Afghan minerals sector, its
assistance to build legal and financial capacity in line with the
Minerals and Commercial Laws of the country would be timely.
Preparation of market-based contract terms, contract negotiations,
conducting due diligence and oversight of contract requirements are all
areas requiring capacity.
Finding: Virtually no Government or Donor Oversight of the Tender

Process
While the World Bank spearheaded the effort to educate officials and to
build Afghan Government support for the tender of the Aynak copper rights,
as an institution, it did not provide any actual oversight of the tender process,
instead leaving that oversight to the Government. While World Bank staff
visited Kabul to check on the grant program and would assess the status of
the Aynak tender process, it did not take on or instigate an actual oversight
role for the Aynak tender process. In that the World Bank initially
formulated the tender process concept to which the Afghan Government
agreed and funded the Transaction Advisor Contract as part of the World
Bank/Afghan Government procurement office, this absence of an oversight
role by the World Bank is an area to explore for future World Bank and
donor participation in the sector.
The “hands off” role of the World Bank resulted in the Government’s
leaving oversight to a Government with no experience in conducting this
scope of international market tender which then delegated oversight
responsibility first to the ARDS and then to a single Minister. Aynak
presented a known situation where donors and Government agree that a
particular tender is an essential and critical aspect of the economic
development and wealth creation in Afghanistan and from the get go it was
nickel and dimed by non-technical bureaucrats seeking to have control over
Ministry and donor actions. This was short sighted. The heavy handedness
of the ARDS staff member in the design and costing for the Transaction
Advisor set the entire Tender process off on an initially flawed path.
Minister Adel retained great control over this process. One task under the
Transaction Advisor’s Terms of Reference that was not accomplished was to
provide the Evaluation Committee members with a profile of each of the six
Bidders. Minister Adel indicated to the Transaction Advisor that this was
not necessary. Unfortunately, the Transaction Advisor did not resist this
decision or raise this absolutely critical issue to higher levels of Government.
It would have seemed that the Transaction Advisor, at a minimum, could
have prepared due diligence materials that could have been presented to the
Evaluation Committee as well as to the Inter-ministerial Committee. In
effect, all members had to review was the information provided directly by
the companies themselves with no neutral due diligence information
provided. This failure of the Ministry to critically evaluate the bidders has
emerged as a critical flaw in transparency and validity of the selection
process.
The Minister of Mines, also without any market tender experience, was
known in the Afghan mining community to have strong and stated notions
of which countries he would work with, the levels and types of investments
he sought and which areas of mining he would support for development;
these notions did not necessarily align with best national economy. The
Inter-ministerial Committee that was legally required to be a part of the
tender process was constrained on several fronts: (1) limited information
provided by the Ministry as to the status of the tender; (2) virtually no
understanding of how a market-based tender process is to be conducted; (3)
virtually no knowledge of the Aynak property, its value in the world market,
it’s potential role to contribute to the national economy.
The IMCs role served as one of affirmation for the Minister of Mines.
Rather than oversight of the tender process, because of the way it was
managed, and information that it received about the tender, the IMC
ultimately provided no more than a stamp of approval over the tender
processes based on the Minister’s word that the tender process was properly
being conducted. The Transaction Advisor contracted to facilitate the tender
62 James R. Yeager
was consistently beholden to the Minister and itself had insufficient and
ineffective oversight of the Aynak transaction.
The absence of independent oversight, especially conducted by the
Government or a donor, especially in the nascent market infrastructure of
the Afghan economy, resulted in a flawed tender process that was conducted
in an absence of transparency. The process provides no assurance of contract
oversight.
Recommendations
 The international community needs to pay attention. In a post-conflict
nation, new to market principles, a tender of the scope and precious
resource of Aynak copper must be treated with consistent and
comprehensive oversight. From start to finish, the Aynak copper
tender processes were conducted in an ad hoc manner with
intermittent international advisors and occasional Afghan government
participation. The only consistent player was the Minister of Mines.
In future, donors and interested embassies must pay considerably more
attention to the tender processes employed to license such vast and
valuable resources. This may be achieved by providing early-on
advisory services to the government, supporting improved commercial
skills and improving public information surrounding the tender
activities both in and out of the country.
 Finish what you start. In this case, the World Bank but other donors
may be faulted as well for instigated powerful government action to
support certain activities and then, in effect, removing themselves as
donors from the process. While in theory the Government would then
be deemed to be conducting these tender processes, in reality, the
Government of Afghanistan was not in any way prepared or
sufficiently experienced to take on this daunting copper tender and in
fact, there was an important oversight role for the donor to play.
Where the donors start the process they must be better at ensuring
sound completion.
 Establish Independent Oversight. The establishment of an actual

Oversight Committee that is independent of the line ministry and
responsible for regular monitoring of the tender process should be in

place at the start of the tender process. Committee members must be
sufficiently educated on what a tender process entails and a system for
published reporting of the process must be in place. Members must be
independent of the Ministry of Mines and accountable to the donor.
 Clarify the full extent of the Role of the Transaction Advisor. The role of
the Transaction Advisor, while not to oversee the tender process but
rather, to implement same, should have included a more firm
commitment to reporting exactly how the tender process was
progressing and to identify areas for immediate improvement of the
process. There are no less than five areas where ordinarily a
Transaction Advisor would have called for more attention from donor
and higher levels of Government, i.e.,
o Minister stored all tender documents in his personal office;
o Minister selected all Evaluation Committee members that only
included his staff and no outside ministry or independent expert
staff:
o Evaluation Committee members had no experience in conducting
a large international minerals tender;
o The Transaction Advisor was told by the Minister of Mines that
it could not meet with ministry officials outside the Ministry of
Mines despite the legal requirement and its TOR requirements
that it effect the operations of the IMC;
o Credible reports that certain bidders either saw or had copies of
parts of other bidders’ tender documents.
 Full agreement on a Tender Plan. A realistic tender plan must be agreed
to at the outset of the tender process. The plan must be agreed to not
only by the Ministry and Government officials but also the donors
supporting or facilitating the tender in order to ensure that the form
and format of the tender clearly revealed to bidders and adhered to
throughout the tender process.
64 James R. Yeager
Finding: Technical and Financial Guidelines for Proposals Need to be

More Defined
For as many compliments that the Aynak Data Package received, just as
many questions and concerns were expressed by bidders as to the lack of
definiteness of information as to what the Afghan Government required be
submitted in support of bidders’ technical and financial proposals. General
parameters for submission were developed by the Transaction Advisor.
These parameters were fundamental and basic items that did not sufficiently
distinguish the level of detail or full content expected for evaluation.
It was clear early on in the process that certain bidders had already received
considerable information from the Ministry as to what the ministry
leadership was anticipating in terms of technical development and its
investment and costs – either at the time of this tender or as early as 2001.
These indications reflect either a lack of market sophistication leaving
ministry officials to share its expectations with potential bidders or more
likely, the savvy of ministry leadership to “put the word out” as to what it
sought in the Aynak submissions.
Recommendations
 Ensure full tender submission requirements. For an international tender the
size and scope of Aynak, a detailed set of standard parameters should
be provided to potential bidders with respect to what content and
detail is required of their technical and financial submissions.
 Establish independent tender oversight body. Higher levels of the Afghan

Government need to be engaged in tenders of this nature. An
independent body that serves as the point of contact for tenders of this
size can be expected to provide significantly more transparent tender
processes than enclosing the tender process solely within one line
ministry.
 Financial bid format. Financial bid requirements should be submitted
according to a strict format that will ensure that all financial bids can
be consistently and critically evaluated by a third party. A key role of
the Transaction Advisor is to affirm that statements made by the
bidder make financial sense. The Transaction Advisor must also
provide a comprehensive evaluation of the financial information in

future bids – more comprehensive than was provided for the Aynak
tender.
Finding: Due Diligence of Bidders Must be Adequately Conducted.

The Aynak Tender Plan called for a due diligence process. Just as the bidders
had the opportunity to evaluate the data and information about the Aynak
deposit; it is imperative that the Government has the opportunity to conduct
a critical analysis of the bidders and their submissions. Due diligence was
inadequately conducted throughout the Aynak tender process. It is important
that the evaluation committee and key decision makers have the opportunity
to understand the track history of the bidders as well as an understanding of
the corporate culture and the constraints that guide different companies. For
example, where western companies are generally guided by the Equator
Principles and self imposed reporting to independent third party watch
groups (i.e., International Council on Mining and Metals (ICMM)), other
companies may not operate in this manner. While no company track record
will be without flaws, sufficient independently collected background
information needs to be provided to decision makers.
Recommendations
 The Transaction Advisor must conduct Due Diligence of Bidding Firms. The
Transaction Advisor must implement the Minerals Law which
requires that the Government perform an analysis of the bidders. The
analysis should consist of an independent review of the bidders’
international operations. Ideally the research should permit the
Government to talk with regulators of other governments who host or
have hosted the bidding companies in their work in other regions.
 Research on ongoing operations by the bidders should include analysis

of the major aspects of the bid submission. The information should be
gathered to include follow through on financial commitments, jobs
created, social responsibility of operations, technology employed, and
the environmental track record of the bidding firm. This analysis
66 James R. Yeager
should be conducted by an independent third party with no interest in

the outcome of the tender.
Finding: Sector Governance and Contract Implementation Capacity are
Necessary
Now that the Aynak Copper Rights have been awarded, it has become
increasingly clear that neither the Afghan or expatriate advisors are well-
positioned to ensure that the contract rights are comprehensively in place or
well-monitored. The first example is the fact that the Government has issued
a mine license for the Aynak rights to MCC without having agreed to final
terms on the various “deal-makers” included as part of the MCC bid. These
included: (1) minimum 400MW electricity; (2) rail line from Hairton (on the
Uzbek Border) through the country and into Pakistan; (3) smelter operations;
(4) community development and job creation.
In a country where established laws and mining operation norms are in place,
moving quickly forward with the Aynak Copper license would not have been
extraordinary. However, in Afghanistan where this unprecedented tender
was conducted to solicit sound investment for this unique resource, it is
foolhardy to expect that the full content of the proposal will be implemented
absent firm agreement between the Government of Afghanistan and MCC.
Agreement should have been in place to at least support the fundamental
proposal elements provided as part of the MCC bid which in the end, set the
MCC bid apart from the other bid submissions.
It remains very unclear as to why the Transaction Advisor abandoned the
work of negotiating and implementing the final Aynak Contract Terms.
While the Transaction Advisor provided a general minerals rights contract
template, there was little engagement on its parts with the day to day
negotiating of terms or attempt to protect the interests of the Afghan
Government. This work was included as part of the Transaction Advisors’
scope of work.
Because there is not a lawyer at the Ministry of Mines or in the Government
able to or called upon to implement the Aynak copper deal terms, a
combination of Ministry of Mines and World Bank advisors –all of whom
were mine engineers or geologists – were brought to the table to review legal
content. This approach was irresponsible on the part of the World Bank
advisors and inept on the part of the Afghan Government, nonetheless, the
deal terms moved quickly forward and by all accounts, MCC remains well in
the drivers’ seat of the Aynak deal.
As for contract monitoring, while “Inspectorate” and “Cadastre” offices are
located at the Ministry of Mines, they are not sufficiently experienced in
market contracting and have never been trained to implement the scope and
content of the Aynak contract. These offices remain firmly beholden to the
Office of the Minister.
Recommendations
 Re-engage on Aynak. In the near term, the World Bank should re-
engage on the Aynak copper contract issues whether by re-inserting
legal advisory to the Ministry of Mines or more likely, legal advisory
to the Ministry of Finance and Office of the President. In addition,
specific contract monitoring capacity building for the Inspectorate and
Cadastre with respect to Aynak, Hajigak and other large mineral
licenses is recommended.
 Transaction Advisor Contracts must be regularly monitored and assessed for

performance to ensure full completion of obligations; where contract
negotiation is not included, another advisory firm may be contracted
but assistance in this area is essential to ensure contract terms that are
fair and appropriate for the counterpart government.
 Secure the Government’s legal rights. The Government of Afghanistan

needs to hire an international law firm to conduct its major transaction
business.
Finding: Ancillary Agreements Require Independent Review and

Oversight
The scope of the ancillary promises set forth in the MCC proposal are such
that they in and of themselves are major infrastructure projects. In a country
such as Afghanistan where infrastructure has been neglected or never even
constructed, to suggest as part of a copper tender that new power facilities,
68 James R. Yeager
new rail lines, new roads and new community assets will be developed calls
for a technical and financial level of scrutiny that has been absent.
 Who will construct these major infrastructure projects?

 Will Afghan jobs be created or will the contractors employ their own
staff?
 What kind of investments are required and where will those

investment funds be coming from?
 Who will conduct the due diligence of the firms responsible for
implementing these major infrastructure projects?
 What is the sequencing for developing these projects with the Aynak
copper deposit development timeline?
Recommendations
 Government – beyond the Ministry of Mines - needs to take over the Aynak
Copper Contract Oversight. The work at Aynak may continue for up to
30 years; Government needs to be engaged beyond the Ministry of
Mines at least as this new market develops. Whether a special
Ombudsman’s Office, likely based at the Ministry of Finance, or
another non-Ministry of Mines overseer, it is clear that some vigorous
checks and balances are absent but needed.
 Slow down. The Ministry of Mines urgent appeal to Government to
move forward with formally awarding the Aynak Copper rights
resulted in expatriate non-legal staff hurriedly agreeing to facilitate the
licensing process without fair and necessary consideration of how the
entire bid proposal promises would be integrated for the benefit of
Afghanistan. For a nation that has been at war for more than two
decades, there was absolutely no justification for the rapid awarding of
Aynak copper rights – as there is no justification for rapid award of
Hajigak, Oil and Gas or other mineral resources. It is suggested that
Government develop a realistic timeline for minerals’ development
that includes due diligence, fair and open tender processes and market-
based contract negotiations.
Finding: Appropriate Public Participation from Start to Finish should be

Required
By the accounts of Logar Province community members, they have not been
sufficiently informed as to the tender process or development plans for the
Aynak copper deposit. The leaders from Logar Province were at no time part
of the tender process or dialogue surrounding the tender. While Minister
Adel would put aside such claims, the leaders of Logar have firmly indicated
that they were not sufficiently aware or participant to the overall process and
that all they knew was either from media or what they would learn when
World Bank and company representatives would visit the site, making
inquiries about the deposit. Considerable rumor has circulated throughout
the tender process but no consistent engagement of the local community,
including its leadership, was instigated by Government or its delegate, the
Ministry of Mines. The Minister of Mines refused to instigate formal public
information and outreach program or to contract a firm to promote relations
amongst key stakeholders to the Aynak copper development. As a result, he
single-handedly orchestrated the type of information that would be
disseminated, to whom and when.
Recommendations
 Establish a Public Information Program. Especially in an emerging
economy where communities have not been exposed to resource
tenders or market development, building public participation is
especially important if to ensure community “buy-in”. It is not too late
to establish an Aynak Public Affairs Office, i.e., at the Ministry of
Mines but it is essential that the information not be controlled by one
of a few officials, and rather, that it generate information exchange
among Government, the Ministry of Mines, MCC and the local
community members.
 Transaction Advisor Information Role. The Transaction Advisor should
play a vibrant part of information and outreach processes throughout
the tender process. Short of this, the Advisor may recommend that the
outreach function be outsourced to a contractor but to work alongside
the Transaction Advisor. This did not take place during the Aynak
tender process.
70 James R. Yeager
 Build a Cadre of Outreach and Media Specialists. Government and its

expatriate advisors should promote job creation in the form of
outreach and media specialists that would engage with the public and
media as well as Parliament to provide information on the tender
process as well as to solicit concerns. This is a standard procedure for
minerals’ tenders and most international firms employ a staff of
outreach specialists.
Finding: Insufficiently Funded Transaction Advisor Consultancy

From the start, the Aynak tender process may have been doomed. Aside from
Afghan officials never having implemented any level of minerals’ market
tender and government institutions not being in place to support market
operations, the Transaction Advisor was selected based on its willingness to
conduct the work at more than half its competitor and half the expert-agreed
requirement to get the job done. It is astounding that no “red flags” were
waved either by the World Bank or the Transaction Advisor winner itself as
to the insufficiency of funding provided to achieve the expected outcomes.
There appeared an unforgiveable institutional gap in how the World Bank
engaged with the Government at the time of the Aynak Transaction Advisor
award. The Government relied on its ARTF office to conduct the
procurement but the ARTF relied on the decision-making of one ARDS
advisor (now Deputy Minister of Commerce and Industries) who had no
technical or financial experience in the minerals sector. This individual was
wholly responsible, if not entitled, to determine the level of funding that
Government would allocate for the Aynak Transaction Advisor contract.
Despite the World Bank expert recommendations as well as World Bank
funded advisor international experience on how much a transaction effort
would cost under these conditions, the ARDS severed costs to such an extent
that it would be impossible for a full and fair tender process to be conducted
by an internationally experienced firm.
Recommendations
 Sufficiently fund key contracts. If the international community seriously
wants to help Afghanistan get back on its feet, it cannot take the nickel
and dime approach that it consistently has to support the minerals -and
other key economic sectors. Either fund the anticipated work to ensure
an appropriate level of quality or do not support the effort at all – the
half-funded effort of the Aynak Tender has not generated the results it
should have, virtually no capacity building has occurred, public trust is
lost as is tremendous economic opportunity for the country.
 One individual should not control procurement decisions. It was no secret to
World Bank staff or Government that one individual at ARDS was
controlling cost and content of the Aynak tender contract. At some
point, leadership on the part of the donor or the Government was
needed and did not occur. At no time did the US or other Embassies
become engaged despite their knowledge of events. It is recommended
that an independent donor and government group work together in
future to ensure that this under-funding and individually controlled
contracting not occur again.
 Delay contracts when the pieces don’t fit together. The fact that only two
international firms even submitted bids to serve as the Aynak
Transaction Advisor should have caused concern amongst
Government and World Bank staff where ordinarily three bidders are
expected to ensure best quality and competitive bidding. Where one
bidder submitted costs at more than $1 million and the other was
satisfied at $400,000, another red flag should have been acknowledged.
When the Minister of Mines sought to rapidly implement the tender
process, concern should have been expressed and at some point, the
Transaction Advisor should have suggested that the tender be voided
or delayed. It is recommended that the Transaction Advisor needs an
independent venue where it can go to express concern on a regular
basis without jeopardizing its role in the process. It is also suggested
that the Transaction Advisor must take a more certain stand as during
the tender process where flaws are apparent in how the process is
progressing.
72 James R. Yeager
Finding: Conflicted Transaction Advisor

The fact that the Transaction Advisor selected to conduct the Aynak Tender
Process was simultaneously implementing two other contracts for the
Ministry of Mines requires careful consideration, understanding and
assessment. At the very least, the scenario conjured serious perception
problems but more assuredly, crossed fiduciary boundaries that led to a lack
of independence and judgment on the part of the Transaction Advisor. The
Advisor is a technically competent, small U.S.-based firm that had earlier
implemented short term Oil and Gas assessment work under World
Bank/USTDA funding in Afghanistan. Following this it was implementing
– at the same time as the Aynak Tender Process – (1) a short-term natural
gas market assessment funded by the ADB and (2) a short term natural gas
assessment work funded by USAID. While these pieces of work were not
copper-specific, they required that the firm work directly with and report to
the Minister of Mines and the same staff that was handling the Aynak
Tender. The Transaction Advisor Contract reads:
3.2. Conflict of Interests. The Consultant shall hold the Client’s
interests paramount, without any consideration for future work,
and strictly avoid conflict with other assignments or their own
corporate interests.
The fact that the firm had more than one contract ongoing with the Ministry
as its counterpart is not solely a reason for it not to serve as Transaction
Advisor. However, there is ample evidence that because of these other
relations and contractual commitments that required Ministerial liaison, the
firm was under pressure to perform in accordance with the Minster’s
demands. The firm did not take a stance on many issues involving the
Aynak tender as it ordinarily should have. The firm’s lack of stance may be
attributed to inexperience, poor judgment or fear of diminished relations
with the Ministry – none of these reasons is acceptable.
Perhaps the greatest example of what could be perceived as a benefit of the
conflict is the fact that without tender, the Transaction Advisor selected to
conduct the Aynak tender, has since been awarded the sole source award to
implement Afghanistan’s Hajigak Iron Ore Deposit tender. Despite all the
difficulties expressed by the Transaction Advisor firm representatives with
respect to working with the Minister of Mines, it did not refuse the sole
source contract.25
Recommendations
 Conduct due diligence. It appears that while the selected Transaction
Advisor firm indicated “past experience” with the Ministry of Mines,
counterparts and the World Bank did not fully comprehend the extent
to which the firm was still going to be closely engaged with and report
to the Ministry on other contracts. Improved due diligence of the
bidding firms would have revealed this information and at that time
some serious decisions could have been made as to whether these other
commitments presented conflict or provided opportunity to discuss
how the firm contracts would be best managed.
 Assign different reporting counterparts. Because of the way in which the
Ministry of Mines is managed, all decisions are made by the Minister
of Mines; all contract negotiations and contract oversight is conducted
by the Minister. The recommendation is that more delegation of
contract oversight is essential in a country where it is likely that a
lesser number of qualified firms may be available to implement project
work.
Finding: Western companies and Fully Private Firms are not Equipped or
Able to Compete in this Environment
Partially because there were no limits placed on the technical and financial
proposal content and partially because of the nature of the firms that bid for
the Aynak Copper Rights, Western companies appear to have the odds
against them when trying to emerge as best-placed to bid on Afghan minerals
rights.
The vast foreign aid package included as part of the MCC and other Eastern
firm bid packages are designed to give the Eastern resource development
companies a competitive advantage over other private sector development of
25
According to dgMarket.com, the sole source, 6 month contract was awarded to
Gustavson at a lump sum of $564,890.04. http://secure-in.dgmarket.com/tenders/np-
notice.do~3705030.
74 James R. Yeager
resources. Aid packages intertwined with the development of resources create

a competitive advantage for the state-owned companies such as MCC. In the
bid for Aynak, aid projects such as the development of power plants, roads
and railroads – described if not disguised as infrastructure development –
provided MCC and other state owned enterprises a strategic competitive
advantage in any tender process for mineral development.
The reality is that the bid submissions, while not illegal, did result in the
creation of an uneven playing field as evaluators assessed bids submitted by
the private sector and those of state or quasi-state enterprises. When it
became clear that the Eastern firms, notably MCC of China, were including
broad assistance packages as part of their technical copper bids, western
companies – primarily U.S. and Canadian –sought to engage their embassies
at the last minute in the tender process. These particular embassies had
already lost their informational opportunity. Having avoided full
engagement on the process for years up until then, they held no credibility
with the Ministry of Mines with whom they had developed virtually no
relations – unlike their Eastern country embassy counterparts.
The Aynak experience requires Western governments who provide far
greater aid (apart from the tender) to Afghanistan and respective Western
companies to rethink how their bids are packaged lest Chinese state-owned
and related companies totally dominate the Afghan minerals and other
natural resources sector. The vast amount of money and the sheer size of
these projects with respect to Afghanistan’s GDP along with the Chinese
model of doing business has the potential to swamp the economy and
counteract Western attempts to limit corruption and build a healthy market
economy. Aynak thus has enormous implications for the social and political
future of Afghanistan.
Recommendations
 More Definite Tender Submission Requirements. If the Government wants
to distinguish between technically qualified firms and those firms that
can offer the largest most comprehensive investments, it will need to
better define the rules of engagement during the tender process. This
will ensure that each bidder submits the same level of technical and
financial information and that ancillary information may be evaluated

a part from the core submissions.
 Western companies need to get serious. If Western companies actually

seek to work in the Afghan minerals sector, they need to be on the
ground with a presence and understanding of the market. Eastern
firms maintain Kabul offices, are frequent visitors to the Ministry of
Mines and are well-versed in the existing geo-science data. Western
firms need the support of their Western governments.
 Donor nation Embassy and Assistance Agencies Role. If Western

companies do opt to engage in the investment opportunities that will
continue to emerge out of Afghanistan, their embassies and assistance
agencies need to be much better informed, consistently engaged and
enthused about the opportunities. They need to better understand the
linkages between economic, political and social development and the
investments that these Western firms could bring to the nation. They
need to understand the influence that vast monies, operating under an
“Eastern business model” framework can conflict with many
important Donor and enlightened Afghan goals for Afghanistan.
Finally, ways to incorporate some degree of credit for the far greater
Western donor assistance funding must be developed so as to upgrade
the competitiveness of the bid packages offered by Western companies
to accommodate those State-related Eastern companies which package
foreign aid into their bids.
Importantly, the value to nation-building of Western principles of market
operations, local job training and creation as opposed to large-scale
importation of workers, environmental protection and creating legitimate
frameworks in which to sustain sector operations, need to be better
appreciated by all sides to a tender, private and public.
Annex 1: Acronyms
ADB Asian Development Bank

AGS Afghanistan Geological Survey
AISA Afghanistan Investment Support Agency
ARDS Afghanistan Reconstruction and Development Strategy
ARTF Afghanistan Reconstruction Trust Fund
BGS British Geological Survey
Cu Chemical Symbol for Copper
DFID Department for International Development (United Kingdom)
EOI Expression of Interest
EPA Environmental Protection Agency
GOA Government of Afghanistan
IMC Inter-Ministerial Committee
MCC China Metallurgical Group Corporation
MoF Ministry of Finance
MoM Ministry of Mines
Mt/y Metric tons per year
MW Mega Watt
NEPA National Environmental Protection Agency
RFP Request for Proposal
SDNRP Sustainable Development of Natural Resources Project
TAPI Turkmenistan Afghanistan Pakistan India natural gas pipeline
TOR Terms of Reference
UN ESCAP United Nations Economic and Social Commission for Asia and
Pacific
USAID United States Agency for International Development
USGS United States Geological Survey
Annex 2: Definitions
Bid Package The term used to describe the various documents that any interested
company will receive to review before submitting a proposal (bid).
Concession A lease form that conveys specified national or state permission to a

lessee to explore for or produce minerals from specified properties.
Exploitation The process of winning or producing from the Earth the oil, gas,
minerals, or rocks that have been found as the result of exploration.
Exploration The search for coal, mineral, or ore by (1) geological surveys; (2)
geophysical prospecting (may be ground, aerial, or both); (3) boreholes
and trial pits; or (4) surface or underground headings, drifts, or tunnels.
Exploration aims at locating the presence of economic deposits and
establishing their nature, shape, and grade,.
Geological A national or federal institution employed to maintain the geological

Survey inventory and advance the knowledge of geosciences for the benefit of
the wealth and health of the nation.
Geology The scientific study of the origin, history, and structure of the earth
Massive Sulfide Polymetalic ore bodies consisting of massive solid amounts of metal
Deposits bearing sulfide minerals such as chalcopyrite, sphalerite, and galena.
They are deposited on the ancient seafloor near sub-aqueous volcanic
vents.
Mine Life The time in which, through the employment of the available capital, the
ore reserves--or such reasonable extension of the ore reserves as
conservative geological analysis may justify--will be extracted.
Ore The naturally occurring material from which a mineral or minerals of

economic value can be extracted profitably or to satisfy social or political
objectives. The term is generally but not always used to refer to
metalliferous material (material containing metal), and is often modified
by the names of the valuable constituent; e.g., iron ore.; ore mineral.
Ore Deposit A natural accumulation of a metal, gemstone or other valuable mineral

substance, sufficiently rich in concentration to be profitably mined.
Physiography Physical geography: the study of physical features of the earth's surface
Porphyry Copper Copper ore bodies which are associated with intrusive rocks where
Deposit copper is deposited as disseminations along a stockwork of veins and
fractures. Average copper grade is between 0.4% and 1% Cu . They can be
very large up to 1.2 billion tons of material
78 James R. Yeager
Prospect An area that is a potential site of mineral deposits, based on preliminary

exploration.
Reserve The quantity of mineral that is calculated to lie within given boundaries.
It is described as total (or gross), workable, or probable working,
depending on the application of certain arbitrary limits in respect of
deposit thickness, depth, quality, geological conditions, and
contemporary economic factors. Proved, probable, and possible reserves
are other terms used in general mining practice.
Resource A concentration of naturally occurring solid, liquid, or gaseous material

in or on the Earth's crust in such form and amount that economic
extraction of a commodity from the concentration is currently or
potentially feasible.
Sedimentary A sedimentary hosted copper deposit is defined as ore bodies hosted and
Hosted Copper deposited is layered rock units
Deposit

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The Aynak Copper Tender:

Implications for Afghanistan and the West

James R. Yeager, BSc., MBA

Aynak Tender Writing Project Coordinator

The Aynak Copper Deposit located in Logar Province, Afghanistan, 35 km

Understanding of the tendering of the Aynak Copper Deposit by the

International experts estimate that Aynak royalty revenues could generate

the tender. In market terms, the minerals industry of Afghanistan is in an

Members of the Evaluation Committee had never been part of a tender

Copper in the World Market

Table 1: World Copper Production

Copper Production Metric Tons

Donor Support to the Afghan Minerals Sector

of improved mining capacity throughout the country. Some of the

 In 2008, the U.S. Geological Survey completed an aerial survey of

 In 2006, the Asian Development Bank financed a Feasibility Study of

 In 2005, the Asian Development Bank supported a “Natural Gas

 In March 2004, the World Bank published “Mining as a Source of

Development of the Aynak Copper Deposit Project

The institutional, regulatory and legal framework and its implementation

In this context, minerals operations are highly centralized despite the

Minerals’ Legal Framework

Minerals’ Regulatory Framework12

The Ministry of Mines maintains a Cadastre and Inspectorate office as well

The Ministry of Mines is the Government agency responsible for the

Subsequent to this unexpected tragedy, President Karzai appointed Dr.

Identification of Aynak Copper Deposit as a Priority Tender

License. The Exploitation License consists of approximately 28 km2 and

Tendering the Aynak Transaction Advisor Contract

exchanged between the ARDS Afghan-American staff member who served

 Behre Dolbear (BDB), Denver, Colorado. One of the oldest, continually

 Gustavson Associates, Boulder, Colorado, a 26 person office that focuses

An Evaluation Committee consisting of an ARTF representative, a World

was its lengthy experience in preparing and conducting mine tenders

Transaction Advisor Responsibilities

as well as working with US Agency for International Development (USAID)

 Development of required inputs/outputs of selected Afghan

understanding of the impact of the Tender and could contribute to the

4-The Transaction Advisor relied on the Minister’s control of this requirement in

meetings of various ministers were called. Neither the Transaction Advisor

The Aynak Copper Bid Package21

5. Technical Data. All relevant technical data on the Aynak Copper

As for technical data to be included in the Bid Package, the British

Solicitation of Expressions of Interest to Bid for Aynak Copper Deposit

major transparency problems as the facilitators were not allowed to become

Figure 1: Analysis of EOIs

consisted of a dual data entry system. Both the Transaction Advisor

 Bahana Consortium (Australia)

 Hindalco Industries, Ltd. (India)

 Hunter Dickenson (Canada)

 Phelps-Dodge Corporation* (USA)

 Strikeforce, Ltd (Russia)

 Zijin Mining Group (China)

evaluators to reconsider their scores. After some lengthy discussion, the

each excursion. Each company was escorted to various ministries to

Receipt of Submissions and Evaluation of the Bids

development. The weight carried by each of the technical components and

 Technical Mine Development Program 20%

 Social/Economic Development Program 25%

 Infrastructure Development Program 10%

partnered with government or state affiliates. Here, a noticeable division

School of Technology. This would instantly have infused today’s knowledge

Scatter Plot - Evaluators