Cautious optimism as Afghan oil starts pumping

By Ernesto Londono
Washington Post Staff Writer
Tuesday, December 14, 2010

KABUL - The Afghan government on Monday awarded a small but potentially path-breaking crude oil contract, marking the first phase of an effort that U.S. and Afghan officials say could bring the cash-strapped government significant revenue.

The six-month deal for crude from the Angot field in Sar-i-Pol province in Afghanistan's north was designed as a confidence-building venture for one of the world's least-attractive foreign-investment markets.

If successful, Afghan and U.S. officials hope the deal will put Afghanistan on the hydrocarbon industry map and attract direly needed private investment to this landlocked country, which is kept solvent by international donors.

"This is just the beginning," Afghan Mines Minister Waheedullah Shahrani said in an interview. "But the potential is great."

Angot is among a handful of developed fields in the Amu Darya Basin, which straddles Afghanistan and Turkmenistan. The Afghan side of the basin has an estimated 80 million barrels of proven crude reserves, according to the U.S. Geological Survey. The nearby Afghan-Tajik Basin could hold as much as 1.5 billion barrels worth of crude, according to a study that the agency commissioned in 2006. Together, the two areas have the potential to generate hundreds of millions of dollars per year in government revenue over the next two decades, U.S. officials estimate.

If the Afghan government manages to attract energy companies to develop its oil sector over the next few years, the country could meet its own fuel needs and perhaps export oil sometime in the next decade, U.S. officials said.

"This step means that Afghanistan is now an oil-producing nation, creating jobs for Afghans and an environment that will enable future investment in developing the oil sector," said U.S. Deputy Undersecretary of Defense Paul A. Brinkley, who oversees the Pentagon's business stabilization efforts in Iraq and Afghanistan.

Brinkley's office has invested nearly $1.5 million in devising the strategy to revive Afghanistan's oil sector, which has been paralyzed for decades because of war and poor governance.

American officials acknowledge the challenges are huge. The country remains mired in a nearly decade-long war. Its entrenched culture of corruption has long dissuaded foreign investors. Its politics remain volatile. And its regulatory and legal sectors are arbitrary and vulnerable to cronyism.

"There's huge room for error," said a senior American official involved in the effort who spoke candidly on the condition of anonymity. "The whole thing could fall flat on its face."

Ben Lando, who runs the Iraq Oil Report and has studied emerging oil markets, said, too, that oil wealth can be destabilizing in the short term. "There's a good chance Afghanistan could be stricken by the resource curse rather than come to use its oil for the benefit of its citizens," Lando said. "Oil wealth has a history of having a deteriorating effect on unstable governments with underdeveloped institutions and institutionalized corruption."

But U.S. officials say tapping the crude reserves would help start weaning Afghanistan's dependence on foreign aid as the international community disengages in the years ahead. The potential revenue involved is small, but significant, Afghan and U.S. officials say. The Afghan government spends $3.3 billion a year but collects only $1 billion in revenue.

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