U.S. Says High Cost of Railway May Quash a Pillar of Kabul's Economic Strategy
By DION NISSENBAUM
WASHINGTON—Afghanistan's hopes of transforming its $1 trillion in mineral deposits into an economic engine could be derailed by obstacles to the construction of a railway system needed to transport minerals out of the country, according to a draft report by the U.S. military.
Researchers working for the U.S. military have concluded that it could cost more than $54 billion to build and run a railway network across Afghanistan, a price the report says could make some large-scale mining economically unviable in one of the world's poorest countries.
The conclusions, found inside an 80-page draft report commissioned by the Department of Defense that was viewed by The Wall Street Journal raise major questions about Afghanistan's ambitious plans to convert its valuable mineral deposits into a reliable economic base.
Janan Mosazai, a spokesman for Afghanistan's Foreign Ministry, questioned the high price-tag and predicted that the benefits of a nationwide rail network would outweigh the costs in the long run.
"Connecting Afghanistan to the region's established railway networks is a critical component of realizing the vision of an economically integrated heart of Asia region, with Afghanistan at its center," Mr. Mosazai said.
U.S. officials declined to comment on the preliminary report.
As the U.S. war effort in Afghanistan winds down and billions of dollars in aid dwindles, American and Afghan leaders are working to fuel the South Asian nation's anemic economy with money from oil, natural gas, copper, iron and other mining deals.
Afghan officials hope to generate $300 million from mining projects—about 15% of the civilian budget—by 2016. Over the next 12 years, Afghan leaders hope mining revenue will make up half of the country's GDP. Afghanistan has no large-scale mining projects in operation yet.
Backed by U.S. Defense Department strategists, the Afghan government has been aggressively selling off its biggest mineral interests to companies from China, India, Canada and the U.S., from whom it hopes to collect licensing fees and royalties.
The U.S. began touting minerals as a possible economic savior for Afghanistan in 2010, when it trumpeted its estimate that the nation was home to nearly $1 trillion in potential resources.
But Afghanistan's mining prospects have been delayed by a series of complications—from bribery allegations that sidelined one mining minister to insurgent attacks that pose a security challenge to development.
One of the biggest evolving projects—plans by India's government and a private Canadian company to develop a massive iron-ore deposit in central Bamiyan province—will require a reliable railway system in a country with virtually no rail.
Chinese officials are conducting their own analysis of the country to determine if it makes sense for them to build a railway as part of their copper project at Mes Aynak, a site outside Kabul that Chinese state-owned companies have pledged to spend $3.5 billion to develop.
But the U.S. military's researchers, who warned that the new draft study was based on a variety of unpredictable measures that could alter the dim projections, outlined hurdles that will be difficult to overcome.
Getting iron ore out of the country would require construction of up to 3,000 miles of track through 16,000-foot mountain ranges that, in some places, would need a large number of bridges and tunnels, the report concluded.
Because of the daunting terrain between Bamiyan and Kabul, it would cost nearly $7.5 billion to build one 600-mile section of rail, including double tracking in mountainous areas.
The report concluded that there appeared to be no good rail route to transport iron ore out of Bamiyan, the remote province at 9,000-feet that was home to towering Buddha statues destroyed by the Taliban in 2001. "Neither the segments between Kunduz to Bamiyan or Bamiyan to Kabul showed grade profiles conducive to heavy-haul iron ore traffic," the draft study says.
The best alternative, the researchers found, would be a 2,260-mile rail network linked to Pakistan that would cost more than $45 billion by 2040. Even in that case, the study concluded, the project would cost $10 billion more than it was worth.
If investors were to build the rail to Pakistan, Western officials said that the neighboring nation's railroad system is so dysfunctional that linking Afghanistan's mineral routes to Pakistan would be a gamble in itself.
"I don't think it is very realistic to think about Pakistan as a railway route," said one Western official in Afghanistan who works on mining issues. "Pakistan is a mess."
Afghanistan is also constrained by the fact that neighboring nations use three different types of track, which complicates its own ability to build a rail route that could link to the adjacent countries.
Western officials familiar with the report's contents privately questioned the research estimates and said Afghanistan will be able to pursue some major projects—including the Chinese copper deal—that can use trucks rather than rail, to transport the minerals.
Researchers are considering other potential routes out of the country as the iron-ore project moves forward. The Indian-Canadian project developers are expected to spend at least three years exploring the 1.8-million ton iron deposit before they decide if it is worthwhile to extract the minerals and transport them out of the country.
While the Afghan government has been pushing China to complete its study and build the rail line, there is a growing consensus among Western officials involved in mining that China is unlikely to build rail in Afghanistan because it isn't essential to move its copper out of the country.
Moreover, no rail line in Afghanistan will be worth building, the military report concluded, unless it would transport the iron ore.
"A general-purpose railway is never going to be economic in Afghanistan," said the Western official in Afghanistan. "If the Afghan authorities are keen on that they are essentially saddling themselves with a liability."
Write to Dion Nissenbaum at dion.nissenbaum@wsj.com
By DION NISSENBAUM
WASHINGTON—Afghanistan's hopes of transforming its $1 trillion in mineral deposits into an economic engine could be derailed by obstacles to the construction of a railway system needed to transport minerals out of the country, according to a draft report by the U.S. military.
Researchers working for the U.S. military have concluded that it could cost more than $54 billion to build and run a railway network across Afghanistan, a price the report says could make some large-scale mining economically unviable in one of the world's poorest countries.
The conclusions, found inside an 80-page draft report commissioned by the Department of Defense that was viewed by The Wall Street Journal raise major questions about Afghanistan's ambitious plans to convert its valuable mineral deposits into a reliable economic base.
Janan Mosazai, a spokesman for Afghanistan's Foreign Ministry, questioned the high price-tag and predicted that the benefits of a nationwide rail network would outweigh the costs in the long run.
"Connecting Afghanistan to the region's established railway networks is a critical component of realizing the vision of an economically integrated heart of Asia region, with Afghanistan at its center," Mr. Mosazai said.
U.S. officials declined to comment on the preliminary report.
As the U.S. war effort in Afghanistan winds down and billions of dollars in aid dwindles, American and Afghan leaders are working to fuel the South Asian nation's anemic economy with money from oil, natural gas, copper, iron and other mining deals.
Afghan officials hope to generate $300 million from mining projects—about 15% of the civilian budget—by 2016. Over the next 12 years, Afghan leaders hope mining revenue will make up half of the country's GDP. Afghanistan has no large-scale mining projects in operation yet.
Backed by U.S. Defense Department strategists, the Afghan government has been aggressively selling off its biggest mineral interests to companies from China, India, Canada and the U.S., from whom it hopes to collect licensing fees and royalties.
The U.S. began touting minerals as a possible economic savior for Afghanistan in 2010, when it trumpeted its estimate that the nation was home to nearly $1 trillion in potential resources.
But Afghanistan's mining prospects have been delayed by a series of complications—from bribery allegations that sidelined one mining minister to insurgent attacks that pose a security challenge to development.
One of the biggest evolving projects—plans by India's government and a private Canadian company to develop a massive iron-ore deposit in central Bamiyan province—will require a reliable railway system in a country with virtually no rail.
Chinese officials are conducting their own analysis of the country to determine if it makes sense for them to build a railway as part of their copper project at Mes Aynak, a site outside Kabul that Chinese state-owned companies have pledged to spend $3.5 billion to develop.
But the U.S. military's researchers, who warned that the new draft study was based on a variety of unpredictable measures that could alter the dim projections, outlined hurdles that will be difficult to overcome.
Getting iron ore out of the country would require construction of up to 3,000 miles of track through 16,000-foot mountain ranges that, in some places, would need a large number of bridges and tunnels, the report concluded.
Because of the daunting terrain between Bamiyan and Kabul, it would cost nearly $7.5 billion to build one 600-mile section of rail, including double tracking in mountainous areas.
The report concluded that there appeared to be no good rail route to transport iron ore out of Bamiyan, the remote province at 9,000-feet that was home to towering Buddha statues destroyed by the Taliban in 2001. "Neither the segments between Kunduz to Bamiyan or Bamiyan to Kabul showed grade profiles conducive to heavy-haul iron ore traffic," the draft study says.
The best alternative, the researchers found, would be a 2,260-mile rail network linked to Pakistan that would cost more than $45 billion by 2040. Even in that case, the study concluded, the project would cost $10 billion more than it was worth.
If investors were to build the rail to Pakistan, Western officials said that the neighboring nation's railroad system is so dysfunctional that linking Afghanistan's mineral routes to Pakistan would be a gamble in itself.
"I don't think it is very realistic to think about Pakistan as a railway route," said one Western official in Afghanistan who works on mining issues. "Pakistan is a mess."
Afghanistan is also constrained by the fact that neighboring nations use three different types of track, which complicates its own ability to build a rail route that could link to the adjacent countries.
Western officials familiar with the report's contents privately questioned the research estimates and said Afghanistan will be able to pursue some major projects—including the Chinese copper deal—that can use trucks rather than rail, to transport the minerals.
Researchers are considering other potential routes out of the country as the iron-ore project moves forward. The Indian-Canadian project developers are expected to spend at least three years exploring the 1.8-million ton iron deposit before they decide if it is worthwhile to extract the minerals and transport them out of the country.
While the Afghan government has been pushing China to complete its study and build the rail line, there is a growing consensus among Western officials involved in mining that China is unlikely to build rail in Afghanistan because it isn't essential to move its copper out of the country.
Moreover, no rail line in Afghanistan will be worth building, the military report concluded, unless it would transport the iron ore.
"A general-purpose railway is never going to be economic in Afghanistan," said the Western official in Afghanistan. "If the Afghan authorities are keen on that they are essentially saddling themselves with a liability."
Write to Dion Nissenbaum at dion.nissenbaum@wsj.com
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