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Extractive Industries 

National Priority Program 

Table of Contents

Executive Summary                                                                                                                                                   3 

Current Status of Afghanistan’s Extractive Sector                                                                                                        4 

Component 1:   Strengthen Institutional Capacity                                                                                                        5 

Component 2:            Geo-technical Information and Investment Promotion                                                                  9 

Component 3:   Regulation, Inspection, and Compliance                                                                                            11 

Component 4:   Government Collaboration and Economic Linkages                                                                           15 

Proposed Implementation Plan                                                                                                                                 17 

Implementation Requirements                                                                                                                                  19 

Draft: National Priority Programme                                                                                                                                                                                                       

Executive Summary 

The National Priority Program (NPP) for the Extractives Industries outlines the Government of Afghanistan’s development priorities for the sector over the next five years (1396–1400).  The Government’s overall development policy is to promote the sustainable creation of employment and to improve the welfare of the Afghan people. The NPP for the extractive industries highlights how the sector can significantly contribute to achieving this objective. 

A well-managed extractive industry could play a key role in Afghanistan’s long-term economic development. While the full extent of Afghanistan’s resource endowment is unknown, the resources are generally considered to be significant, and represent one of Afghanistan’s main prospects for economic growth and development.  However, the extractive industries are a challenging sector and a variety of factors, including insecurity, and a poor investment climate, have meant Afghanistan has had limited opportunities in developing its extractive sector thus far. 

The security situation in Afghanistan is an overarching concern that is being addressed by the Government as a whole and its coalition partners.  Therefore, the development plan for the extractive industries focuses on sector-specific issues and has the following four components: 

1. Strengthen Institutional Capacity 
2. Geo-technical Information and Investment Promotion 
3. Regulation, Inspection, and Compliance 
4. Government Collaboration and Economic Linkages 

Strengthening Afghanistan’s institutional capacity to manage the sector is crucial in the responsible development of Afghanistan’s natural resources.  These efforts will be the focused of the Ministry of Mines and Petroleum, which has primary responsibility for managing and regulating the country’s mineral and petroleum resources.  The Ministry must improve its capacity to effectively allocate, negotiate, and administer resource rights and contracts and continue to develop and implement a transparent and accountable governance framework.  

The extractive industries are capital and technologyintensive, which means that Afghanistan will need to attract significant private-sector investment to develop these industries. Therefore, improving the investment climate is a core component of the NPP.  One method to attract investment is through easy access to complete geodata sets. This component will attract investment for the extractive industries through improved geodata and accessibility to this data, data acquisition programs and a targeted investment promotion program. 

The third component of the extractive industry development plan is to strengthen regulation, inspection and improve compliance. Through improving the regulatory framework, license compliance and strengthening oversight and inspection functions the Ministry will have the capability to better manage the resource endowment of the country and responsible development of resource projects. While the key driver of economic development in the extractive industries will be private investment, the public sector also has a crucial role to play in ensuring that the Afghan people all share in the benefits of their country’s mineral and petroleum endowment.  The Ministry will achieve this by implementing a transparent and effective non-tax revenue collection process and a dedicated community development fund.  

Finally, this NPP is intended to improve government linkages and promote responsible economic growth. The Ministry will take a leading role in cross government collaboration to improve regulation of the extractive industries.  A major initiative is promoting local content and value addition, including a vocational training in extractive industry skills so that Afghans can be more gainfully employed in the sector.  It will include a local content development strategy so that Afghan businesses can more actively participate in and benefit from investment and growth in the industry, and develop and implement an integrated infrastructure development plan for the extractive industries. 

The components are designed to support and reinforce each other.  The strengthened Ministry of Mines and Petroleum serves as the foundation for developing the extractive industries.  This will enable an improved investment climate that will attract private sector investment and support economic growth and development.   

It is important to note, however, that while the components are designed to build on each other, elements of each will be implemented concurrently so that progress in all areas can be realized as rapidly and efficiently as possible.  The Ministry has developed an ambitious implementation plan for the NPP, which will require concerted effort within the Ministry, across government and with external stakeholders. The plan is designed to ensure that Afghanistan will have wellregulated, revenue generating extractive industries that attract investment and support responsible economic growth. The Ministry has developed indicative costings for this plan and identified areas where further support and assistance will be required. 

Current Status of Afghanistan’s Extractive Sector 

The National Priority Program for the Extractive Industries is intended to support Afghanistan’s self-reliance through the responsible and well-managed development of Afghanistan’s mineral and petroleum resources.  The program aligns to the Ministry of Mines and Petroleum’s core functions and builds on work currently underway in the Ministry to enable the extractive industries to contribute to Afghanistan’s broader development priorities. This section outlines the current status of the sector that the National Priority Program for the Extractive Industries will build on.  

Afghanistan’s resource endowment has attracted international headlines, as geological studies have indicated the country hosts large untapped mineral deposits. However, currently Afghanistan’s mineral sector is characterised by small-scale, labor-intensive, low-value operations.  These supply a limited, often illegal, export market as well as local industries such as coal for heating and cooking and marble and stone for construction and road building. The sector is serviced by limited infrastructure, is remote from international markets restricting export opportunities, and receives low levels of investment. In addition to this, there is an extensive informal artisanal and small scale mining sector, which poses unique risks to the environment and the safety of the miners, whilst being a potential driver of conflict and corruption and representing lost revenue for the Government.   

Considering its prospects, Afghanistan has a low level of mineral sector activity, although historic and new geological information has highlighted a few key assets that have already been tendered. These include the Aynak copper deposit awarded to MCC-JCL Aynak Minerals Company and the Hajigak iron ore deposit. The Afghan Geological Service, a division of the Ministry, has also identified three major additional copper prospects: the Balkhab copper project in Sari-i-Pul, the Shaida copper porphyry deposit in Herat, and the Zarkashan copper and gold porphyry deposit in Ghazni. There are also prospective mineral belts for semi-precious and precious gemstones, coal, marble, copper, gold, iron ore, and chromite. 

Coal mining in Afghanistan is dominated by the state owned enterprise, North Coal Enterprise (NCE) under the Ministry’s mandate.  NCE has a number of coals mines including Tala wa Barfak coal mines in Baghlan province, and Dehana-e-tor, Shabashak, and Abkhorak coal mines in Samangan province. 

Natural gas production is managed by Afghan Gas Enterprise (AGE), a state-owned company also operated under the Ministry’s mandate.  In the early 1990s, natural gas was Afghanistan’s largest export; however, conflict, resource depletion, and lack of maintenance have significantly reduced production since then.  With donor support, the Government has invested in rehabilitating some of the Soviet-era gas infrastructure, including wells and most of the pipeline from Sheberghan to Kud Berg near Mazar-e-Sharif.  They have also built a new amine plant to treat Sheberghan’s high-sulfur gas. These investments have allowed AGE to continue producing about 500 mcm per day from the Sheberghan gas fields, although significant further investments will be required if production is to be increased or even maintained. 

For petroleum, the Ministry issued its first exploration and production sharing contracts in 2011 and now has three contracts issued (Amu Darya and Totai Maidan in the Amu Darya Basin and Sanduqli in the Afghan Tajik Basin). However, only Amu Darya has entered production, and it has produced just 680,000 barrels of oil since 2011. 

Production of resources provides the country with a non-tax revenue stream, through royalties.  The production rate over the past three years has seen this fiscal revenue stream increase to a modest 400 million Afs (approximately $6 million).  If modern mineral or petroleum development are brought into production, this would add significantly to this revenue stream.  However, such developments require many years and large capital investments, so investors will require Afghanistan to offer a secure, stable, and reliable investment climate. 

Through investment into infrastructure, exploration, development, and value addition projects, Afghanistan’s extractive industries have the chance to grow and benefit the country through economic development, including direct, indirect, and induced employment, power generation, diversifying exports and non-tax fiscal revenue.  The Ministry of Mines and Petroleum has a major role to play as the institution responsible for regulation and management of the extractive industries, from allocation of resource rights, to collection of geological information and the collection of non-tax extractive industry revenue.  With strong governance and the tools to regulate, the Ministry can build an extractive industry that can attract domestic and international investment in order to contribute to economic growth, employment and revenue.

Component 1: Strengthen Institutional Capacity 

Whether extractive industry development will benefit Afghanistan largely depends on the Government; the quality and capacity of its institutions to manage the country’s resources, enable development, and on their effective interactions with extractive industry companies and civil society. 

The Ministry of Mines and Petroleum has the mandate to regulate and manage the extractive industries, allocate resource rights, collect geological information and collect non-tax extractive industry revenue. This component is designed to increase the Ministry’s capacity to deliver on its mandate.  

Whether through corruption, environmental degradation or other threats, the extractive industries can pose risks. Strong institutional capability and robust governance are fundamental to overcoming these risks. The Ministry intends to adopt a strong institutional and governance framework in order to help Afghanistan manage the sector responsibly. This includes providing clear policy direction for the extractive sector, and delivering improved extractive industry laws; reforming the state owned enterprises; and engaging with civil society. These activities are underpinned by a comprehensive plan to support the development of institutional and individual capacity.  

The activities within this component will combine to provide a stable legislative regime, lower sovereign risk, and build a Ministry able to manage the country’s resources for both current and future generations.

The sub-components needed to achieve this outcome are detailed below.  

1.1. Develop Capacity of Ministry to Deliver its Mandate 

The Ministry must have the institutional capacity to deliver on its mandate to establish and implement effective policies and regulations for the extractive industries. This is the first sub-component as it underpins the Ministry’s key role in managing and regulating the sector and is crucial in implementing the National Priority Program. Each component requires significant technical and organizational capacity, and to deliver them, the Ministry must continue to develop and sustain this capacity. 

The Ministry requires the technical and organizational capacity to implement a wide range of activities, from the development of a strong governance framework to ensuring compliance with complex contracts. These are extremely challenging tasks, but given the significant hope for Afghanistan’s brighter future placed on the extractive sector, the Ministry must develop the capacity to overcome these challenges.   

The first activity under this subcomponent is to conduct an organizational and capacity needs assessment. This will identify the additional capacity required for the Ministry to fulfil its mandate.  Following this, the second activity will be to develop a plan to deliver the human resources necessary to develop and retain the staff required by the Ministry.  The third activity will be to implement organizational reforms so that the Ministry is properly structured to fully delivery its mandate, including in the areas of policy, regulation, and investment promotion for both minerals and petroleum.  The final activity will improve communication and coordination throughout the Ministry and its provincial offices. 

The following are the key activities and expected outcomes from this sub-component: 

1.2. Transparent and Accountable Governance Framework 

Good governance is essential for the responsible development of Afghanistan’s extractive industries. Whilst the sector can pose risk of corruption and resource conflict, the returns from tackling corruption can be vast.  In order to tackle corruption and pursue the sustainable development of the sector, Afghanistan intends to embrace high standards of transparency to ensure the sector delivers its promised benefits to the Afghan people. Afghanistan is an EITI implementing country and intends to use this process to shine a light of the sector. The Ministry has also already taken steps to develop an anti-corruption plan, key components of which including transparent working procedures for; standard, transparent and accountable mechanisms for concluding contracts and licences; and transparent management and implementation of contracts and revenue collection. The elements of this plan are integrated throughout the NPP.  

The following are the key activities and expected outcomes from this sub-component:  

1.3. State Owned Enterprise Reform 

Organisational reform includes addressing state ownership of enterprises (SOEs), of which there are currently four under the Ministry’s mandate. The low capacity of technical personnel and lack of modern equipment are among some of the issues with the current SOEs.  

SOE transitioning is critical for a transparent, private sector-led approach to extractive industry development. Through a reform process, the Ministry would improve the productivity of these enterprises for efficient extraction and utilization of the resource assets held by the enterprises.    

The following are the key activities and expected outcomes from this sub-component:  

1.4. Policy and Legislative Reform 

Building the legislative regime through public policy enables the regulators to administer the industry for the government’s purpose.   

Through policy and legislative reform the Ministry can outline the direction for the extractive industries and encompass these policies in law. This improves the rule of law, reduces sovereign risk, and attracts investment and its associated benefits including economic growth. 

The Ministry is currently undergoing a period of policy and legislative reform.  It is working on a minerals policy and has plans to develop a petroleum and coal policy.  The Ministry also has amendments pending for the Minerals Law and the corresponding drafting regulations. 

The following are the key activities and expected outcomes from this sub-component: 

1.5. Increase Public and Civil Society Engagement 

Afghanistan’s extractives industries must be developed sustainably, for the benefit of the Afghan people and as such it is important that the Ministry effectively engages with civil society to understand the peoples’ perceptions and concerns over the sector. Having an informed and effective civil society is vital in managing expectations around the sector and giving citizens the space have oversight over the sector and feed into policy and decision making.  

The following are the key activities and expected outcomes from this sub-component:  

Component 2: Geo-technical Information and Investment Promotion 

Developing the extractive industries requires the Ministry to attract investment from the private sector. In order to attract such investment, Afghanistan needs to significantly improve the investment climate for the extractive industries. Whilst work under the other components will contribute to an improved investment climate, including lowering sovereign risk, favourable regulatory regime and favourable fiscal terms, developing needed infrastructure and sector skills, one way to attract investment is through providing modern geological information to investors.   

By building capacity in AGS, the Ministry intends to improve the Survey’s understanding of Afghanistan’s resource endowment and improve the Survey’s facilities to provide geological data to investors. The intended outcome of this component is to improve AGS’s capacity in geology surveying, geodata collection, and analysis. This in turn will drive exploration and extraction of Afghanistan’s mineral and petroleum resources. 

The sub-components needed to achieve this outcome are detailed below. 

2.1 Expand Capabilities of AGS 

Expanding the capabilities of AGS has two main benefits for the country.  Firstly, it will improve the understanding of the geology of the country, which have flow on benefits not only for the extractive industries but also agriculture for example through better understanding of water resources and soils; and geo hazards, through better understanding of faults. Secondly, a more capable AGS can assist in the discovery of mineral and petroleum resources, regulation of the industry through environmental monitoring and as a commercial provider of data and services to the extractive industries. 

The following are the key activities and expected outcomes from this sub-component: 

2.2 Information and Investment 

Ease of access to geodata facilitates investment into the extractive industries of a country.  As such, having the infrastructure to host this data administered by the geodata custodian (AGS) is important for attracting new investment into the country’s extractive industries.  As is acquiring modern geodata, such as aeromagnetic and seismic data.  Such surveys can be used to attract new investment into the country. 

If the government is trying to stimulate its extractive industry for economic growth, it is important to have a dedicated arm of the government to attract investment in this sector.  This unit should be well resourced and have strong linkages with AGS to leverage new interest from the investments made by the survey, such as data acquisition programs. 

The following are the key activities and expected outcomes from this sub-component: 

Component 3: Regulation, Inspection, and Compliance 

A core function of the Ministry is to regulate the extractive industries. Strong regulation is imperative to building a responsible sector that generates economic growth and attracts investment.  The Ministry has undertaken substantial work in this area that must be continued to build a regulatory regime to be the foundation for responsible sector development, through regulation, inspection and compliance.

This component will deliver clear regulations and guidelines for the extractive sector to function in a responsible manner within Afghanistan.  This includes strengthening the allocation of mineral and petroleum rights through improved processes, including licensing and contract management, model contracts, and resource management through ongoing license compliance.  

It is within the Ministry’s mandate to collect non-tax revenue from extractive sector activities. It is intended the Ministry will collect this revenue in a transparent and effective manner through improved infrastructure and processes and formalization of the artisanal and small scale mining sector.  In order to ensure the Afghan people benefit from the revenue generated by the sector, the Ministry must develop  a revenue management and distribution mechanism. 

The outcome of these activities provides a framework for a Ministry, with the capability to better manage the resource endowment and responsible development of resource projects of the country. It will build capacity throughout the Ministry, including improving the abilities of staff and inspectors. 

The sub-components needed to achieve this outcome are detailed below. 

3.1 Improve Regulatory Framework 

To effectively regulate, the Ministry must have the correct tools in place.  As such, this sub component concentrates on developing and implementing the extractive industry regulations and procedures needed to achieve this.  Having the regulations in place defines how participants in the extractive industries operate and what is expected of them. Such requirements need to be clearly defined and so the Ministry needs to develop and implement these regulations fully. This will lead to stable extractive industry regulator regime and lower the country’s sovereign risk. 

The following are the key activities and expected outcomes from this sub-component: 

3.2 Improve Licensing and Contract Compliance 

The Ministry is responsible for the allocation and compliance of resource rights in Afghanistan. By standardizing these processes, the Ministry can reduce corruption, reduce administrative timeframes and build a strong regulator regime for the extractive industries.  These outcomes can entice formalization of the industry and install confidence in the Ministry. 

The following are the key activities and expected outcomes from this sub-component: 

3.3 Strengthen Oversight and Inspection Functions 

Developing the extractive industries requires the Government to enter into appropriate contracts with the private sector that enable the Government to further its development priorities and respond to the aspirations of the people. These contracts mean very little without the foundational structure to enforce the laws and terms and conditions of the contracts. To achieve this compliance, a well-disciplined and competent inspectorate with full responsibility and authority is the pillar of the industry. 

Inspection and oversight functions are currently carried out through the Inspectorate and Cadastre Directorates, with direct inspection of extractive sights carried out by the relevant provincial offices. The Ministry has made great progress in this area in the last few years, from an Inspectorate with no set contract management process or training for inspectors, to an expanding pool of competent inspectors, working to an established contract management system. However, there is still room for improvement in this vital function of the Ministry, to ensure all operations are inspected and contract terms are rigorously enforced.   

The following are the key activities and expected outcomes from this sub-component: 

3.4 Transparent and Effective Revenue Collection 

The artisanal and small scale mining (ASM) sector in Afghanistan is vast and requires substantial human and financial resources for the Ministry to administer and regulate it. However, the majority of these operations are informal and not regulated by the Ministry and its provincial offices. Formalisation will improve the sector’s management of health and safety and environmental issues, improve lost revenue collection, reduce conflict and spur growth.   

The use of the complicated manual revenue collection procedures seriously hinders the ability of the Ministry to ensure transparent and effective collection of non-tax revenue from extractive sector projects. In order to improve revenue collection, the Ministry needs to implement streamlined revenue collection procedures. By implementing a fully functional Financial Management Information System (FMIS), the Ministry may efficiently collect, record, monitor and report revenues from the extractive industries. 

The following are the key activities and expected outcomes from this sub-component:  

3.5 Manage Revenue for the Benefit of the Afghan People 

Government revenues from extractive industries represent a significant opportunity for Afghanistan to achieve longrun economic development and fiscal sustainability.  However, extractive industry revenue can also be detrimental to economic growth and governance if not managed well.  

With an increase in minerals, oil and gas production from the major projects being a real possibility in the next five years in the country, the Government will experience an increase in the revenue from the extractive industries, which it must manage responsibly. Currently, non-tax revenues generated through the sector are collected by the Ministry and deposited with the Ministry of Finance, and are spent through the national budget.  There is no specific mechanism for the management and distribution of revenue generated from the extractive industries. This leaves the income vulnerable to mismanagement. It is therefore essential that the Government take appropriate steps now to be able to handle the inflow of larger revenues in future that will ensure the resource revenues are distributed and spent in a way that generates the highest possible benefits for the Afghan population.  

The following are the key activities and expected outcomes from this sub-component:  

Component 4: Government Collaboration and Economic Linkages 

While the Ministry has primary responsibility for developing Afghanistan’s extractive industries, it also recognizes that many of its activities will require collaboration and linkages with other organizations and institutions.  This component therefore includes two sub-components: institutional collaboration and economic linkages. 

Institutional collaboration includes increasing intra-government collaboration, such as with the Ministry of Finance over revenue collection and allocation and the Ministry of Interior over infrastructure development.Through mechanisms like the IMC and the joint environmental assessment and monitoring being under taken by the Ministry and the National Environmental Protection Agency, the Government has taken important steps in this direction. In addition, given the significant involvement of the donor community in the extractive sector, the Ministry will also establish a donor coordination forum for extractive sector activities.  The economic linkages sub-component recognizes that to maximize the economic impact of extractive industries, they need to be linked to the broader economy.  This can be achieved through promoting local content, establishing economic linkages, and supporting value-added industrial development.  

The outcome of this component will be an extractive sector that is developed collaboratively to ensure the greatest economic and social development impact for the Afghan people. 

The sub-components needed to achieve this outcome are detailed below. 

4.1 Institutional Collaboration 

Regulation of the extractive industries requires all the responsible government agencies to work together, collaborating to strengthen regulation.  As the main government agency for the extractive industries, the Ministry will take a leadership role in institutional collaboration to improve information flow, regulation and to streamline economic development.  Such linkages will also improve the efficiency and effectiveness of donor funding. 

The following are the key activities and expected outcomes from this sub-component:  

4.2 Promote Local Content, Economic Linkages, and Value Addition  

In order to realize the greatest economic benefit from its resource endowment, the Ministry will promote local content provisions, economic linkages and value addition to maximize the economic multiplier effect from the extractive industries.  Using its resource endowment in this manner will increase the standard of living for greatest number of Afghan people, help the economy to diversify away from the extractive industries and enable the government to provide improved services. 

The Ministry understands that growth in the extractive industries offers the opportunity for employment opportunities (skilled and unskilled). As such the Ministry will pursue concerted coordination to develop the skills of the extractive industries workforce through vocational training improved the skill pool of local labor for employment with domestic and international extractive industry companies. This will increase the ability of Afghan citizens and local businesses to participate in, benefit from, and add value to the extractive industries. 

The Ministry will explore linkages through the integrated development of resource corridors, where supporting and ancillary industries are developed near extractive industry sites (or transit, in the case of TAPI).  This integrated planning will also include linking extractive industry development with energy infrastructure development.  The Ministry will build the capacity to negotiate industry partnerships for infrastructure with requirements for additional capacity for Afghans. 

The following are the key activities and expected outcomes from this sub-component: 

Proposed Implementation Plan

The Ministry has developed a five-year implementation plan for the National Priority Program for the Extractive Industries.  The plan is organized by components and is broken down into the activities that make up each subcomponent. 

The components are designed to build on each other, but elements of each are also intended to be implemented concurrently so that some progress in all areas can be realized as soon as possible.  The plan is ambitious, with ten activities starting in the first quarter.  The plan is designed to ensure Afghanistan will have a well-regulated, revenue generating extractive sector that attracts investment and supports responsible economic growth. The plan will require coordination across government and with external stakeholders, as well as continued support from the international community.  

Indicative costing has been prepared for the National Priority Program and this costing and implementation requirements are set out in the following section.  

The Ministry is in the process of developing its Five-Year Business Plan, which will incorporate a Monitoring and Evaluation Framework. It is intended that once the National Priority Program is approved, the Ministry will integrate the activities into the Business Plan and ensure they are monitored in accordance with the framework set out in the Business Plan, with clear and measurable performance indicators established for each activity.   

Extractive Industries National Priority Program Implemention Schedule

FY 1396  - FY 1400

                                                                                                                FY 1396                   FY 1397                   FY 1398                   FY 1399        FY 1400

Implementation Requirements 

Implementing the National Priority Program for the Extractive Industries will be a significant undertaking and will require coordination across government and continued support from the international community  to provide transfer of knowledge on international best practice and share lessons learned from other countries.  This will include a continuation of on-going support as well as additional technical and material assistance in some areas.  The following table summarizes the indicative implementation needs, including indicative costing .This costing does not include support the Ministry currently receives and the below reflects additional support.  

Indicative Costs (USD)

                                                                                        Ministry           International TA          Equipment/ Other                Total                                                  Areas of Assistance