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Update No: 078 - (01/06/08)

Hungry for revenue
The government is slowly issuing contracts for the exploitation of mineral resources. The latest concerns a gold mine in Takhar, whose contract has been won by an Afghan company which promises to invest US$40 million. Half of the profits would go to the government, but there is growing scepticism at the auctioning of exploitation contracts after several of the privatised factories were all won by Karzaiís family. Similarly the private security company owned by the Karzais is seen as being favoured by the Ministry of Interior at a time when others have suffered in a crack down. 

Of course the biggest ambition of Kabulís government is to see the Turkmenistan-Afghanistan-Pakistan (TAP) pipeline become reality, expecting as much as US$400 million a year in transit fees. On this front there were two items of good news recently, that is Indiaís agreement to become part of the project - and so perhaps now (TAPI). Also, Turkmenistanís move to have its gas reserves properly audited by a British firm (Gaffney, Cline & Associates Ltd). That will show whether or not Turkmenistan even has the gas supplies to service a TAPI international project. However, the bad news badly outweighs the good ones. The Turkmen president has now made clear that his country will price its gas in line with how it prices to Central European countries. Since there are high transit costs involved, the new prices might be unaffordable for the Pakistanis. Apart from these price considerations, the pipeline would likely not be ready before 2018 and the estimated cost keeps rising, now being at US$6 billion. It is also unclear whether any commercial investors will be forthcoming for such a problematic venture, given the vulnerability of a pipeline which can be held to ransom by every petty warlord, through whose territory it will go. Recent pipeline experience with armed militants in Chechenya, and latterly northern Iraq, does not encourage.

The Iranians moreover are aggressively marketing their own alternative Iran-Pakistan-India (IPI) pipeline project and hint that it might start operations on the Iran-Pakistan segment as early as 2011. This is an important aspect given that Pakistan and even more so India are already sort of gas supplies, but on Iran weighs the Damoclesí sword of American sanctions. These projects are not mutually exclusive. India in particular could probably welcome supplies through both, but US objections aside (which might not survive the change of administration in Washington), the IPI pipeline looks much more viable.

Food price turmoil begins
The rise in the prices of basic food commodities is beginning to create turmoil in Afghanistan. Although the government has allocated US$50 million towards the purchase of food from neighbouring countries, this seems to have had a very modest impact as prices continue to rise. Karzai, whose popularity was already in steep decline last year, is being widely blamed for his failure to take any measures. Some small-scale demonstrations have occurred in a few localities, but the main sign of unrest has been demonstrations by teachers demanding an increase in salary to face higher food prices, as well as the payment of back salaries. The police cracked down on the demonstrators, carrying out a number of arrests. It is worth noting that teachers had been one of the social categories, most supportive of the new post-Taliban order in Afghanistan. 

Two droughts: water and investment
One positive aspect of the rise in food prices is that many farmers are replacing the poppies with wheat this year. There has been overproduction of poppies for at least a couple of years and prices are now very low, which gives a disincentive to farmers to plant them. This, combined with drought and with localised success in preventing plantation, seems to be leading towards a significant drop in the poppy harvest this year. In terms of supply no change is likely, since there appears to be huge stocks which will make up for any shortfall in production.
Anecdotal evidence suggest that investment levels might be dropping further this year, after having record a strong drop already last year. Many Afghan businessmen with double citizenship are leaving the country as a result of a wave of kidnappings, which targets wealthy Afghans. Some kidnappings have occurred in the very centre of Kabul, despite the heavy presence of police and private security guards. Allegations that high ranking police officers are involved are plentiful.

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