India Billions Secure Afghan Mines in Challenge to China Drive

An Indian security guard, cradling a Kalashnikov assault rifle, shadowed two Indian engineers as they inspected the concrete shell of the parliament building they are constructing -- in the Afghan capital of Kabul.

Erecting the new seat of government is part of a push by India to seek both profit and a greater strategic role in the nearby country, where Taliban guerrillas battle the government with support from within Pakistan, India’s arch-rival.

India, having spent $1.5 billion over a decade on Afghan roads, power lines, schools and the parliament, now is proposing what may become Afghanistan’s biggest foreign investment: $11 billion to build an iron mine, steel mill and railroad.

“India is showing its commitment to an unprecedented ambition and role in Afghanistan,” said C. Raja Mohan, a senior fellow at the independent Center for Policy Research in New Delhi. “Stabilizing the northwest of the subcontinent, Afghanistan and Pakistan, is absolutely India’s top foreign- policy priority, because most of our threats come from there.”

India’s planned Afghan iron mine would help companies such as Jindal Steel & Power Ltd. (JSP) and Rashtriya Ispat Nigam Ltd. (RINL) by giving them shares in an estimated 1.8 billion tons of ore, for which global prices have more than doubled in the past three years. Afghanistan may see its geographic and economic isolation reduced as India follows China in promising money to build the country’s first major railroads.

India Backs Karzai

As Afghan anger over the shooting of 16 civilians by an American soldier last month increases calls for an accelerated U.S. exit, India is seeking to position itself as a rival to China in investment in Afghanistan and as an anti-Taliban force to help the government of President Hamid Karzai.

“Instability and radicalism in Afghanistan pose a threat to our common security,” Indian Foreign Minister S.M. Krishna said in a December speech at a conference in Bonn on Afghanistan’s future.

“The Indian and Chinese investments will contribute to Afghanistan’s stability” as the U.S. withdraws its main combat forces between now and 2014, said Ali Jalali, a professor at the U.S. National Defense University in Washington and a former Afghan interior minister.

“They not only will bring jobs and infrastructure, but these two powerful governments will have a greater direct interest in seeing that all actors in Afghanistan behave moderately,” Jalali said in an interview in New Delhi.

Hajigak Iron Mine

India’s expanded role in Afghanistan is anchored in its plan to mine iron ore from mountain ridges at Hajigak, 100 kilometers (60 miles) northwest of Kabul. India’s government backed a group of seven Indian state-owned and private companies that won three of four blocks.

The Indian group, the Afghan Iron & Steel Consortium, or AFISCO, has offered to build a steel plant and railroad, and in December asked for $7.8 billion in government loans and guarantees, two people with direct knowledge said then.

“They have sought certain assurances regarding the financing,” Foreign Secretary Ranjan Mathai said at a March 21 press conference in New Delhi. “When they made their bid they were confident that they would have the ability to do it,” he said. “This matter is still under discussion.”

AFISCO’s biggest owner, state-controlled Steel Authority of India Ltd., or SAIL, hasn’t said when iron production might begin, although the New Delhi-based company says full development of the mine and railroad may take eight to 12 years. Hajigak would be SAIL’s first expansion beyond India.

Ore Supplies

The Afghan deposit would offer needed future ore supplies for other AFISCO partners, such as JSW Steel Ltd. (JSTL), where profits fell in the quarter ending in December after an Indian court banned mining in Karnataka state.

India’s mines ministry has assembled a second group of state companies, including SAIL, National Aluminium Co. Ltd. (NACL) of Bhubaneswar and Kolkata-based Hindustan Copper Ltd. (HCP), to bid on licenses to mine copper or gold offered by the Afghan government, according to Mines Secretary Vishwapati Trivedi.

That bid may be combined with a separate offer being assembled by private Indian companies, he said in a March 21 interview in New Delhi.

The parliament rising on the outskirts of Kabul is further evidence of the broad engagement envisioned by Singh and Karzai, who holds two degrees from Himachal Pradesh University in northern India. In October, the two leaders signed a strategic partnership that will increase the numbers of Afghan students at Indian universities and may let India train Afghan army troops.

Pakistan’s Reservation

For Pakistan’s military, which dominates national security policy after having ruled the country for more than half the time since independence in 1947, India’s growing role in Afghanistan appears as a threat, said Imtiaz Gul, executive director of the independent Center for Research and Security Studies in Islamabad.

“We have always this perception that India will use Afghanistan against us,” he said in a phone interview.

Since the 1980s, Pakistan has backed Afghan guerrilla groups such as the Taliban’s Haqqani network in attacking Afghan governments, including Karzai’s, Gul said March 26. The goal, he said, was to keep Afghanistan from aligning too closely with India and from reviving old Afghan sovereignty claims over ethnic Pashtun parts of western Pakistan.

Pakistani officials, including Interior Minister Rehman Malik, have said for years that Indian spies in Afghanistan foment insurgency by ethnic Baluch and Pashtun guerrillas near the Afghan border. “We have proof to show that,” said Foreign Ministry spokesman Abdul Basit in an interview in Islamabad Feb. 9. “We don’t want to say more than that in public,” he said.

No ‘Solid Evidence’

Gul and other independent analysts, including Rustam Shah Mohmand, a former Pakistani ambassador in Kabul, say there is no evidence for Pakistan’s claim of Indian subversion. “We say these things because of our India-centric policy,” Mohmand said by phone Feb. 24 from the northwestern city of Peshawar. “But we don’t have any solid evidence to prove that.”

Taliban or allied Islamic militant fighters killed at least 58 Indians and Afghans in two suicide bombings of India’s embassy in Kabul in 2008 and 2009. India accused Pakistan’s spy agency, the Inter-Services Intelligence Directorate, or ISI, of assisting the first attack, which Pakistan denied.

Other Taliban attacks have killed Indian doctors and aid workers in Kabul and construction workers building a highway in southwestern Afghanistan.

Defending Trains

Karzai’s government has deployed dedicated troops to protect a Chinese-owned copper mine at Aynak, south of Kabul, Afghanistan’s biggest mining investment now underway. While no Taliban attacks have been recorded there and Afghanistan promises similar protection for India’s iron mine, the railroads envisioned to carry ores would be more difficult to defend against guerrilla attacks.

India’s AFISCO intends to overcome Pakistani suspicions enough to transport the iron ore back to India through Pakistan, said Sandeep Jajodia, managing director at Monnet Ispat (MISP), a New Delhi-based steel company that is a member of the group. While Pakistan bars Indian exports across its territory to Afghanistan, it lets Afghan companies ship to Indian markets and this year relaxed strictures on its own imports of Indian goods.

“Shipping the ore via Pakistan is a logical possibility, but it’s a call we will have to take much later, considering how trade relations between India and Pakistan develop,” Jajodia said in a March 27 interview.

India also is considering construction of a rail line from Afghanistan to Iran’s port of Chahbahar, which would give it a transport route that Pakistan can’t control.

There’s more at stake for India than a predictable neighborhood. Its drive for Afghan iron and copper ore is key in Singh’s plan to create 100 million jobs by raising industrial production to 25 percent of GDP by 2025, said Gopalaswami Parthasarathy, a retired Indian ambassador who serves on a government task force reviewing India’s national security needs.

“An essential part of our long-term national security is expanding industry,” Parthasarathy said in an interview in New Delhi. “The pacing of this will depend on stability as the Americans manage their end game. But when the time comes we’ll have streams of Indian construction crews, technicians and plant going in.”

To contact the reporters on this story: Eltaf Najafizada in Kabul at enajafizada1@bloomberg.net; James Rupert in New Delhi at jrupert3@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg in Hong Kong at phirschberg@bloomberg.net

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