Getting the foundations right: Amendment of the mining law and its fundamental weaknesses

Sayed Ikram Afzali,  Executive Director, Integrity Watch Afghanistan

Fixing the gaps in Afghanistan’s mining law is absolutely critical to reducing the massive corruption, revenue loss and conflict around the sector which have made it a source of harm as much as of hope for the Afghan people. And during the last couple of years, the Afghan Government has been working to amend it. But that effort has not been without its problems.

The process itself has been one issue. Civil society organizations have been able to input into the law multiple times – which has been very welcome. However, the consultation process has sometimes felt like more of a “box-ticking” exercise than a meaningful engagement. Rather than a sustained and substantive discussion on the key issues – which would help to expose and address weaknesses on all sides, including among our own proposals – there has been a series of more or less one-way opportunities to input into six successive drafts. Each one has been starkly different from the others, with little clarity about where the changes were coming from and why, and avoidable mistakes popping up several times. That has led to frustration for everyone involved.

Despite these weaknesses, there have been some significant improvements so far – such as the publication of contracts as a condition for their validity, and a shift from a contract-based to a license-based system to manage the sector. The government deserves real credit for these changes, some of which put it ahead of many more developed countries. But there are still some fundamental weaknesses that, if not addressed, could greatly increase the risks for corruption and conflict.

As the government puts it, the amendments of the mining law are around four major priorities: (1) institutional arrangements for decision-making, (2) the bidding process, (3) classification of licenses, and (4) introducing fixed royalties. There are arguments for and against putting fixed royalties in the law itself, and there are limitations in the classification of the licenses (notably in that they put artisanal mining under small-scale mining). But the major weaknesses are related to institutional arrangements and inadequacy of measures to ensure transparency – which unfortunately was not among the four core priorities.

The institutional arrangements vests enormous power in the hands of the President and the High Economic Council (HEC). The proposed Mining Technical Committee (MTC) is assigned the responsibility of technical evaluation of all the bids and applications for licenses. The MTC would be composed of representatives of Ministry of Mines and technical experts hand-picked by the President. A late amendment has set out some safeguards in the appointments process, but recent reports suggest a selection committee has been proposed to the President consisting entirely of government representatives, without any representation from civil society or other independent actors. The MTC would therefore be open to political interference.

The HEC for its part is open to political influence as well. Since it is not defined in law, the President can in theory pick all members of the HEC without constraints. The National Procurement Commission (NPC) and the National Procurement Authority (NPA) have been given an oversight function which are again not independent from the government and are prone to political influence. Therefore, in the absence of an independent institution, the whole process is at risk of political influence and abuse. An Independent Mining Regulatory Commission based on the model of independent Access to Information Commission would minimize political influence in giving away mining concessions and ensure apolitical regulation of the mining sector.

Although some very welcome transparency measures have been taken into account such as mentioning beneficial ownership and publication of contracts, there are still major loopholes in the definition of terms and transparency mechanisms. The beneficial ownership definition is not based on the standards adopted by the Afghan Extractive Industries Transparency Initiative (EITI), that the government has committed to implement. Publication of the business registry has not been mentioned either, although the government has made this committed in several forums including the London Anti-Corruption Summit in 2016. And an ombudsman for complaints has been included, but has neither powers nor independence. A requirement in the current law for companies to take part in EITI has been removed.

Perhaps the most important missed opportunity is in the transparency of payment and production data. We had proposed that the government simply require all mining-related payments to be made through a designated sub-account of the main treasury account, and for the sub-account statement itself to then be published. That would provide a uniquely powerful guarantee for the publication of the fundamental source data on revenues from individual mining contracts. It would require minimal changes and very little capacity, but would make publication automatic, and in a form where the data is comprehensive, detailed, and very difficult to falsify.

So far the government has neither provided a convincing argument against the proposal, nor has it come up with a equivalent alternative. They have proposed a coding system which, while it is certainly worth considering, would quite possibly take years to implement, would be more vulnerable to technical errors, and would require more capacity. Coding has been unable to prevent mismatches in data provided by Ministry of Mines and Ministry of Finance, or major data gaps in the EITI reports. We don’t object to this or any other reporting measures – but the single account is desperately needed as a foundation and a backstop guarantee. Everything in our experience shows how easily both lack of capacity and direct corruption can undermine transparency otherwise.

At the moment, mining is the second largest source of funding to the armed opposition, while the loses to the government budget are estimated in the hundreds of millions of dollars. Afghanistan cannot afford to be unambitious about the new legislation: to have any chance of reforming the sector, we need to be ruthless about putting in the strongest possible protections. Amendments such as those suggested above are critical to ensure much needed transparency and effective governance. We welcome the effort the Afghan government has made, but if they want to build a solid foundations for the sector, they need to address the weaknesses that remain.