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Eleven years after its first big mining privatisation, the Afghan government has abruptly cancelled the contract, highlighting the unpredictable nature of investing in a sector seen as crucial to the country's economic development.

 

The Ghori factory in northern Baghlan province is the country's only significant cement producer, and the four million tonnes of cement Afghanistan imports each year is a heavy drag on its aid-reliant economy.

 

As one of the largest selloffs since the Taliban fell in 2001, it is also a barometer for doing business in Afghanistan, where the conflict with Islamist militants already makes it a daunting place to invest.

 

The government says it was not properly notified about a change in ownership at Ghori last year, and the company owes it millions of dollars in unpaid taxes and fees since it was privatised in 2006.

 

"This is a very big legal concern," said Zabihullah Sarwari, a spokesman at the Ministry of Mines and Petroleum.

 

He said authorities were informed of the sale of the original shareholdings only once it had gone ahead, and had not met or approved the new owner by then.

 

The government must be notified of ownership changes in advance, in part to prevent front investors buying on behalf of hidden interests.

 

"The ministry was notified by a simple letter that this person is now the shareholder," Sarwari said, adding that substantial royalties and lease payments were also due.

 

The new owner was Afghan businessman Javid Jaihoon, who bought out shareholders in Afghan Investment Co (AIC), a group of investors including the brother of then-president Hamid Karzai which had the right to operate the Ghori cement works.

 

Ever since the initial acquisition in 2006, the project has been dogged by disputes over broken promises, unpaid levies and contract violations. The involvement of Karzai's brother Mahmoud added a political dimension.

 

"This (the cancellation) was a political decision, although I had paid all government fees and have left cash in an Afghan bank that the government can take," Jaihoon told Reuters. He said he was not acting on behalf of the previous owners.

 

According to Jaihoon, the decision to cancel the contract was taken without formal arbitration or legal process, and he only found out about it while on a trip to Turkey.

 

He added he had invested almost $60 million in Ghori and brought it to near-full capacity. It employees 1,500 people and produces 1,200 tonnes of cement a day.

 

"If you don't like me, OK, but why touch the factory?"

Source:DNA India