Karzai Woos India Inc. as Delay on U.S. Pact Deters Billions

Photographer: Shah Marai/AFP via Getty Images

As Afghan President Hamid Karzai explains his reluctance to sign a security pact with the U.S. to political and business leaders in the region, investors are voicing concerns. Close

As Afghan President Hamid Karzai explains his reluctance to sign a security pact with... Read More

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Photographer: Shah Marai/AFP via Getty Images

As Afghan President Hamid Karzai explains his reluctance to sign a security pact with the U.S. to political and business leaders in the region, investors are voicing concerns.

Abhay Barhate listened with skepticism as Afghan President Hamid Karzai told Indian investors of the riches that await if they pour money into his country, one of the poorest in Asia.

Barhate, business development manager for Jain Irrigation Systems Ltd. (JI), Asia’s largest irrigation-equipment maker, said the Indian embassy had warned him against investing in a solar-power plant in Afghanistan. Karzai, who met billionaire Malvinder Singh in New Delhi at the start of a trip to India that ended yesterday, said little to reassure Barhate that the country would be safe if all U.S. troops withdraw next year.

“There’s no problem of competition, money, land or potential in Afghanistan,” Barhate said after Karzai’s Dec. 14 speech in Pune, India, where the president met about a dozen business leaders. “There’s just one major risk, and that’s security.”

As Karzai explains his reluctance to sign a security pact with the U.S. to political and business leaders in the region, investors are voicing concerns. The agreement would assuage businesses seeking to tap mineral resources estimated at $3 trillion and ensure that the country’s 31 million people, who live on an average of less than $2 per day, receive billions of dollars in aid money over the next decade.

‘Brinkmanship’

“I don’t think the Americans are thinking of the zero option,” Karzai told reporters in New Delhi two days ago, referring to a scenario under which all U.S. troops might leave Afghanistan in 2014. “It’s a brinkmanship they’re playing with us. Even if they did, then come what may.”

Karzai said he would not sign the pact until the U.S. shows that it has put an end to attacks on Afghan homes and publicly starts peace talks with the Taliban. The two conditions are an “absolute prerequisite” to conclude the agreement, he told reporters.

Later in the day, the Afghan leader told a group of business leaders in the western city of Pune that President Barack Obama’s administration would succumb to his demands. India was Afghanistan’s fifth-biggest trading partner in 2012, according to statistics compiled by the European Union.

“Eventually, America will fulfill our conditions,” Karzai said, referring to talks over a bilateral security agreement between the nations that still needs his signature. “If you are waiting for the BSA, that’s good. It will come.”

Millionaires

At the J.W. Marriott hotel in Pune, Karzai walked around the room shaking hands with Indian business leaders. He called for Mumbai-based Tata Motors Ltd. (TTMT) to start Afghan sales of the Nano, the world’s most inexpensive car, and urged an investment from Malvinder Singh, chairman of Fortis Healthcare Ltd., India’s second-biggest hospital company.

Malvinder Singh will profit the second he lands in Kabul,” Karzai said, adding that Afghanistan posed “no risk” to investors. “All those who have come to Afghanistan are millionaires or multimillionaires.”

Singh couldn’t be reached for a comment yesterday. Tata Motors currently has no plans to sell the Nano in Afghanistan, spokeswoman Minari Shah said in an e-mail.

During a question-and-answer session, the crowd gasped when Karzai corrected Ajay Sambrani, managing director of Sandvik Asia Pvt., when he mentioned Afghanistan’s $3 trillion in mineral wealth.

$30 Trillion

“Actually it’s $30 trillion,” Karzai said. “The U.S. knocked a zero off to keep our assets a secret.”

Whatever the amount, Indian companies are looking for evidence Karzai can deliver a secure environment before spending the money to extract the minerals.

Ravi Uppal, chief executive officer of Jindal Steel & Power Ltd., said “everything is up in the air” on $11 billion in planned spending by his New Delhi-based company and its Indian partners for a project to mine Afghan iron ore and build a steel plant.

“We need to know if the Americans are going to pull out,” Uppal said in a Nov. 29 interview. “If they are going to pull out, what are Afghanistan’s assurances that our investment is protected? Steel factories are long-gestation projects. Before we do that, we need to know that our project has security and stability. Right now, we don’t have that.”

Karzai’s reluctance to sign the agreement has frustrated U.S. lawmakers, who criticized him as irrational during a Senate hearing last week. A U.S. agreement to stop raiding Afghan homes in search of militants “almost amounts to a one-sided cease-fire,” according to Ambassador James Dobbins, the special representative for Afghanistan and Pakistan.

Deal Possible

Even so, a deal is still within reach as Karzai is looking for assurances from the U.S. rather changes to the text of the bilateral security agreement that has already been negotiated and approved by a council of tribal elders called a loya jirga, Secretary of State John Kerry said in an interview airing yesterday on ABC’s “This Week” program.

“I believe it’s possible to work this through,” Kerry said. “And I don’t think we’ve reached a point of throwing up our hands.”

If the security pact isn’t signed by the end of the year, the U.S. has said that it will have to start planning for withdrawal of all 48,000 forces now in the country. American allies have an additional 27,000 troops in Afghanistan, according to the U.S. Defense Department.

Karzai, who is banned from standing in an April election due to term limits, said a withdrawal of troops would hurt the economy and sap funds needed to pay Afghan security forces. Even so, that’s not enough for him to sign right away.

“Hopefully, the U.S. doesn’t give us all an ultimatum of a continued state of war in exchange for billions of dollars,” he told reporters in New Delhi. “They need not frame it that way. I’m trying to make it a win-win for everyone.”

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

To contact the editor responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net

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