Dec. 28 (Bloomberg) -- China National Petroleum Corp., the nation’s largest oil company, agreed to develop Afghanistan’s Amu Darya basin, a project the war-ravaged country's government estimates will yield about $7 billion in profits.
The project will have an initial investment of about $400 million, CNPC President Lu Gong Xun said after signing the accord with Afghan Mines Minister Wahidullah Shahrani today in Kabul. The contract will include exploration and extraction, and the government will get 70 percent of the profit from selling each barrel of oil, Shahrani said.
The deal will bolster China’s position as Afghanistan’s largest foreign investor after Metallurgical Corp. of China won the right in 2007 to develop the nation’s biggest copper deposit. It will also reduce the oil import bill of President Hamid Karzai’s government, which spends about $3.5 billion to buy almost all its fuel requirement from neighboring nations including Uzbekistan and Iran.
Chinese companies are also facing competition from India, which is trying to increase investments to thwart nuclear-armed Pakistan’s influence in Afghanistan. An Indian government-backed group plans to spend $11 billion to mine the Hajigak iron ore deposit west of Kabul, build a steel mill, a power plant and transport links.
The three blocks of the Amu Darya basin, in the country’s north, probably hold more than 87 million barrels of crude oil reserves and the estimate may climb higher after re-exploration, Shahrani said. The investment in the project will rise should more reserves be discovered, Xun said.
PetroChina Co.’s parent won the auction in August after offering to build a refinery and pay more royalty than rivals from Australia, the U.K., the U.S. and Pakistan. The refinery will be completed in two years, Shahrani said. Afghanistan has one oil-processing plant capable of making 500 metric tons of fuels daily.
Northern Afghanistan may hold more than 1.6 billion barrels of crude, 16 trillion cubic feet of natural gas and 500 million barrels of natural gas liquids, according to the government. Afghanistan will hold its next oilfield auction in February, Abdul Jalil Jumriany, policy director at the mines ministry, said in September.
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