1. INTRODUCTION
Afghanistan is one of 52 countries worldwide currently implementing the Extractive Industries Transparency Initiative (EITI). Afghanistan joined the initiative as a candidate country in 2010 and is currently awaiting an assessment of the implementation by the international EITI Board.
Afghanistan has now produced five EITI reports. This latest report covers the period January 2014 to December 2015 (fiscal years 2014 and 2015).
This is a summary of the information contained in the full EITI report produced by an Independent Administrator, which all stakeholders are encouraged to read, and to seek any clarifications
· from the AEITI Secretariat at ; or
· through Facebook at facebook.com/AEITI ; or
· via Twitter: @afghanistanEITI.
2. WHAT IS THE EITI?
The Extractive Industries Transparency Initiative (EITI) is a global Standard to promote the open and accountable management of natural resources. It seeks to strengthen government and company systems, inform public debate, and enhance trust. In each implementing country it is supported by a coalition of governments, companies and civil society working together.
In each country, the EITI process is overseen by a multi-stakeholder group, which directs the implementation of EITI. The members of the AEITI multi stakeholder group are:-
Companies / ACCI / Civil Society / IWAACCI / HOLD
Brotheran Khoshak / NMA
MCC China / WADAN
CNPCI Watan / ACSFo
Vacancy / Vacancy
Government / MOF (Co Chair)
MOMP (Co Chair)
MoF-DG Revenue
MoF-DG Customs
MoTCA-Admin/Finance
MoM-Policy
MoM-Cadastre
MoM- Admin/Finance
Natural resources, such as oil, gas, metals and minerals, belong to a country’s citizens. Extraction of these resources can lead to economic growth and social development. EITI promotes greater transparency around how a country manages its natural resource wealth to ensure that these resources can benefit all citizens.
Natural Contracts & Production Revenue Revenue Social & Public
Resources licences collection allocation economic benefit
spending
The full EITI report for Afghanistan is available at
http://aeiti.af/en/documents/category/reconciliation-reports.
3. EITI BENEFITS
Implementation of the EITI in Afghanistan brings these benefits:-
· greater transparency in management of the extractive sectors, resulting in increased understanding of the process by civil society and other stakeholders
· strengthened government accountability
· identification of improvements required to licensing, record keeping and tax collection systems
· improved revenue collection
· promotion of greater economic stability
· improved investment climate
4. IMPORTANCE OF EXTRACTIVE SECTOR
Afghanistan is considered to have extensive mineral potential, with recent estimates indicating substantial value in the mineral reserves.
These estimates refer mainly to the value of minerals in the ground, and there would need to be improvements in the infrastructure to link mines to global markets and to realise the untapped value.
If this potential can be realised, dependence on grants from international donors can be reduced and the prosperity of Afghanistan’s population will improve, with increased revenue available for the Afghan State to invest in improved infrastructure – e.g.
v education
v health
v roads
5. EITI REPORT 2014 and 2015
The EITI Report contains information relating to 2014 and 2015 on
· tax payments and other government revenues
· contracts and licences for exploration and extraction of minerals, oil and gas
· production
· other key elements relating to resource extraction
Tax payments and other government revenues
v Government departments reported amounts received from extractive companies
v Companies making the largest payments were selected by the AEITI multi stakeholder group to report amounts paid to government
v Amounts reported by government and companies were reconciled by an independent accounting firm, called the Independent EITI Administrator
The amounts reported by government were:-
2012AFS millions / (9 mo) / 2013 / 2014 / 2015
Receipts from companies included in the EITI reconciliation / 4,251.9 / 2,028.2 / 2,123.3 / 2,676.9
Number of companies included in the EITI reconciliation / 12 / 12 / 28 / 28
The largest contributors to government revenues were:-
Receipts reported by governmentAFS millions / 2014 / 2015
Northern Coal Enterprise / 1,162.4 / 2,003.7
CNPCI Watan Oil and Gas / 378.4 / 306.7
Licences for exploration and extraction of minerals
Licences are granted by the Ministry of Mines and Petroleum. Licence types under the 2014 Minerals Law are:-
1. Reconnaissance Licence*
2. Exploration Licence**
3. Exploitation Licence**
4. Small-Scale Mining Licence**
5. Artisanal Mining Licence*
* granted based upon application
** granted based on bidding
Contracts for exploration and extraction of minerals
Exploration and exploitation of oil and gas reserves requires a contract, issued by the Ministry of Mines and Petroleum following an open bidding process.
Publication of licences and contracts
The website for the Ministry of Mines and Petroleum contains copies of licences and contracts, although the Independent Administrator observed that records may not be complete or up to date.
The Government made a public commitment at an international conference in Brussels in October 2016 to publish mining contracts.
Economic contribution
The total Gross Domestic Product[1] for the years covered by the report is:-
AFS millions / 2014 / 2015GDP at current prices / 1,209,267 / 1,239,382
The contribution[2] of the mining sector to national GDP was:-
AFS millions / 2014 / 2015Mining and quarrying contribution at current prices / 8,756 / 8,610
The profits for the two extractive sector SOEs (Northern Coal Enterprise and Afghan Gas Enterprise) reported[3] by the Ministry of Mines and Petroleum were:-
AFS millions / 2014 / 2015Profit from SOEs / 2,068 / 1,963
Production
The Ministry of Mines and Petroleum reported information on production for inclusion in the report. The Independent Administrator commented that this was incomplete.
Production reported by MOMP2014 / 2015
Coal / Tonnes / 1,845,902 / 1,603,132
Gravel & stone / Tonnes / 125,120 / 125,120
Cement / Tonnes / 62,469 / 158,883
Fluorite / Tonnes / 4,700 / 4,108
Salt / Tonnes / 53,869
Gold / Grams / 7,573 / 4,877
Copper
Lapis
Marble talc
Gas
Crude oil / Barrels / 372,304 / 267,974
The Central Statistics Organisation published information for production, sourced from the Ministry of Mines and Petroleum:-
Indicator / Unit / 2015 / 2014Total / Mn Afs / 2,026.1 / 1,836.7
Coal / Thousand tons / 1,364.8 / 1,517.4
Mn Afs / 955.4 / 1,062.2
Gas / Mn M3 / 146.2 / 141.9
Mn Afs / 234.3 / 227.0
Salt / Ton / 88,183.2 / 87,014.0
Mn Afs / 75.3 / 74.3
Marble / Ton / 31,035.6 / 42,756.2
Mn Afs / 25.7 / 35.4
lime / Ton / 18,338.0 / 9,921.4
Mn Afs / 11.9 / 6.4
Stone mortar / Thousand M3 / 225.8
Mn Afs / 7.7
Sand and Gravel / Thousand M3 / 1,920.4 / 520.2
Mn Afs / 54.9 / 17.6
Other Minerals / Mn Afs / 660.9 / 413.8
Which parts of government were asked to participate?
The government ministries receiving the flows selected by the MSG for inclusion in the report were:-
1. Ministry of Finance
a. Revenue Department
b. SOE Department
c. Customs Department
2. Ministry of Mines and Petroleum
a. Revenue Department
b. Cadastre Department
c. Provincial Directorate
Sub national government entities were not asked to report receipts.
Which companies were asked to take part?
The companies selected by the MSG for inclusion in the report were:-
1. State Owned Enterprises
a. Northern Coal Enterprise
b. Afghan Gas Enterprise
2. Oil/gas companies
a. CNPCI-Watan Oil and Gas Afghanistan Limited
b. Turkish Petroleum
c. Dragon Oil
d. Dragon Oil (Mazar-i-Sharif)
3. Mining and quarrying companies
a. Afghan Investment Company
b. AIC (Afghan Coal)
c. AIC (Cement Ghory)
d. Amaniya Minning
e. Amin Karimzai
f. Ayzeen Central Mining Services Company
g. Belal Mosazai Company
h. Hashimy Group
i. Humayon Company
a. Khushak Brothers Company (Herat)
b. Lajaward
c. Mahmand Shamal
d. Marajuding Shamse
e. MCC-JCL Aynak Mineral Company
f. Misaque Sharq
g. Mohammad Faisal Company
h. Pameer Khorasan
i. Shair Pawan Company
j. Shamsheer Zameer
k. Technologist
l. West Land General Trading (Norabah)
m. Wisco International
What was reported?
The companies and government entities completed reporting templates showing the amounts respectively paid and received in respect of the material flows selected by the MSG from the mining and oil/gas sector, namely:-
Payable to Ministry of Finance / Payable to Ministry of Mines and PetroleumIncome Tax / Royalties
Business Receipt Tax / Premium and Bonuses
Withholding on salary / Bid Fees
Withholding tax on Rent / Penalties and Fines
Withholding tax on contract / Land Fees
Withholding Tax - Other items / Licence Fees
Penalties / Permitting Fees
Other (transferable share, shares, others) / Bid and other securities
Lease of Government Land
Imports Duties / Rent of Government Buildings
BRT / Miscellaneous Revenues
Fixed Tax on imports
Other Receipts
Summary of results
The amounts reported and the results of the reconciliation are set out on the following pages. The results are analysed in two tables:-
a) by reporting company
b) by type of financial flow
AEITI Summary Report - textPage 2 of 20
Reconciliation results by company: 2014 (1393)
Reconciliation results by company: 2014 (1393) - continued
Reconciliation results by company: 2015 (1394)
Reconciliation results by company: 2015 (1394) - continued
Reconciliation results by type of financial flow: 2014 (1393)
Reconciliation results by type of financial flow: 2015 (1394)
AEITI Summary Report - textPage 2 of 20
6. WHAT ELSE IS IN THE FOURTH EITI REPORT FOR AFGHANISTAN?
Information on the extractive industries in Afghanistan
The report contains detailed information on
· oil, gas and minerals deposits in Afghanistan;
· contribution of the extractive sector to the economy
· oil and gas in Afghanistan
· overview of legislation
· production figures
· the companies which are licensed to exploit Afghanistan’s minerals
· government institutions with responsibility for the sector
· the process for award of licences, and the types of licences granted
· types of revenue received by the Government from the sector
· state owned enterprises
The extractive sector is an important part of Afghanistan’s economy - nationally, 8% of Afghanistan’s employed population was working in construction, mining, and quarrying between 2007 and 2008.
The World Bank projects that the Aynak mine could create 4,500 direct jobs, 7,600 indirect jobs, and 62,500 induced jobs, once operations reach the projected capacity of 250,000 tons of copper each year; and suggests that the Hajigak project will have a similar impact upon employment.
Recommendations for improvements
One of the benefits of EITI is that there is a review of the operation and management of the oil, gas and mining sector. The 2014-2015 EITI Report makes a number of observations on the timeliness and reliability of government information, and of the need to improve the reporting systems in the state owned enterprises.
In particular, the report contains comments on action taken to implement recommendations made in previous report, and makes recommendations for improvements, which the AEITI MSG will consider and take forward. The main recommendations are:-
1. All reporting entities – both companies and government – should improve their systems for keeping records of transactions.
2. The accounting systems, capacity of finance staff and audit environment in the two extractive SOEs are inadequate, and MOF and MOMP should prepare a plan to improve these areas and implement the necessary actions.
3. The MSG should engage with MOMP so that the reporting of production, which is currently inadequate, is improved. Information on production is an important gauge to business activity and the collection and safeguarding of government revenue – not only royalty but also income taxes, BRT, customs duties as well. MOMP should improve transparency in this area by publishing production data regularly on a timely basis.
4. MOMP and MOF should improve their manual record keeping systems as a matter of priority, and should introduce computerised accounting information systems to improve control over data and revenue.
5. MOMP should conclude its upgrade of the licence register and should make the information readily available to the public.
6. The Supreme Audit Office should be strengthened.
7. The government should introduce legislation requiring larger companies to produce regular accounts independently audited under international standards.
The full report and its Appendices are available at http://aeiti.af/en/documents/category/reconciliation-reports
The Report contains:-
1 Introduction
2 Executive Summary
3 Afghanistan’s extractive industries
4 Exploration and production
5 Overview of flows reported and reporting entities
6 Approach, methodology and work done
7 Results of the reconciliation
8 Recommendations
Appendices
9.1 Terms of Reference for the Independent Administrator for the Fifth AEITI Report
9.2 Reconciliation analysed by company
9.3 Licences awarded or transferred in 1393 (2014) and 1394 (2015) – MOMP
9.4 English contracts database published by MOMP (Oct-16)
9.5 Dari contracts database, with (unofficial) English translation published by MOMP (Oct-16)
9.6 MOMP contract list: First database (Dari) (Mar-17)
9.7 MOMP contract list: Second database (Dari) (Mar-17)
9.8 MOMP contract list: All contracts database in this site (Dari) (Mar-17)
9.9 Data collection templates (English)
9.10 Data collection templates (Dari)
9.11 Taxpayer Identification Numbers (TIN) & licence details for participating companies
9.12 Shair Pawan contract for collection of extractive revenues
7. CONTACT US
We welcome your feedback and look forward to answering your questions.
Contact us and visit our website http://aeiti.af for regular updates on EITI implementation in Afghanistan.
You can find us at:-
Address: Ministry of Finance, Pakhtoonistan Watt, Kabul
Telephone: + 93 744 282 111
Email:
Facebook: facebook.com/AEITI
Twitter: @afghanistanEITI
AEITI Summary Report - textPage 2 of 20
[1] Source: Asian Development Bank – Statistics for member countries
[2] Source: Asian Development Bank – Statistics for member countries
[3] Source: Central Statistics Organisation, Afghanistan