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18 November 2010

Special Report on Infrastructure in Afghanistan

The Rise of the Afghan Rails

Regional Railway Linkages and Economic Growth in Afghanistan

Stefanie Nijssen Assistant Knowledge Manager, Afghanistan Team

stefanie.nijssen@cimicweb.org www.cimicweb.org 

This report examines ongoing plans to develop Afghanistan‟s railways and the potential impactin the broader economic context. Further information is available at www.cimicweb.org.1 Hyperlinks to source material are highlighted in blue and underlined in the text.

On 22 September 2010, attempts to re-establish the ancient Silk Road, which ran across Afghanistan between the 2nd century BC and 14th century AD, were pushed forward when theGovernment of the Islamic Republic of Afghanistan (GIRoA ) signed an agreement with theChina Metallurgical Group Corporation (known as MCC). This agreement committed MCC and itsowner, the Chinese government, to construct a 718 km railway connecting the   Aynak coppermine in central Afghanistan to both Pakistan to the East and Uzbekistan to the North. The MCCline is perhaps the most economically significant route of a series of rail lines currently beingplanned or constructed in Afghanistan. Totalling some 2,000 km and costing at least USD 6billion these railway lines are projected to decrease prices of goods and provide the economicconditions necessary to bring Afghanistan back on the map as a major trade transit hub.

Railways are not only expected to make mining more cost-effective by reducing transport costs,they are also projected to facilitate the import and export of commercial and agricultural goods.

 According to Hamidullah Farooqi, a Kabul University economics professor and former Minister of Transport, this plan will reduce the economic isolation experienced by the country for the pasttwo decades. Projected economic improvements, however, are based on long-term estimatessince the feasibility study for the Chinese-funded cross-country rail line will not be completeuntil at least 2012 and actual construction of the MCC line could take an additional three years. 

Railway Lines

The future of an effective railway network  in Afghanistan is largely reliant on MCC‟scommitment to build a cross-country railway. Already having extensive involvement inneighbouring Pakistan‟s railway development, the Chinese state-owned company aims toconnect any tracks it lays in Afghanistan to the state-owned Pakistan Railways network so as to

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expedite the transfer of equipment, technology and extracted minerals. The MCC‟s rail route isprojected to run south-east from Mazar-e Sharif to Torkham at the Pakistan border. A separatebranch will connect the Aynak copper mine in Logar  province with the main corridor.2 

 Afghanistan‟s national railway development plan also includes the intent to construct anotherrailway corridor, funded primarily by the Asian Development Bank ( ADB), between the city of Herat and the Sherkhan Bandar border crossing with Tajikistan (see Figure 1). A separatebranch will split off  near Mazar-e-Sharif and connect to Hairatan at the Uzbekistan border and asimilar branch will link to Aqina at the Turkmenistan border from Andkhoi. In the South, 

Pakistan Railways has completed a feasibility study for a third corridor between the cities of Chaman in Pakistan and Kandahar in Afghanistan via the Spin Boldak border crossing.

Figure 1. Planned Railway Corridors in Afghanistan  

Though the majority of railway lines are still in the assessment and planning phases,construction of   the shorter 75 km railway  connecting Mazar-e Sharif in Balkh  province withHairatan commenced in May 2010 and is expected to be completed by the end of 2010. The

2 Complementing Chinese funding, the World Bank  will provide USD 1.5 million for the feasibility study of the rail link for the section connecting Jalalabad in Afghanistan to Peshawar in Pakistan.

Source: ©   ADB, 2009  , with modifications by the author 

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  ADB has provided a USD 165 million grant  to the GIRoA for the project.3 The GIRoA hascontracted Uzbekistan‟s national railway (known as UTY ) to design and construct the Hairatanto Mazar-e Sharif line; once tested and commissioned, UTY will also be in charge of  operationand maintenance of the railway as part of what is known as a „build-own-operate‟ contract. Thesecond leg of this journey, the 1000 km long route from Sherkhan Bandar to Herat, will take aminimum of  five years4 to build and will run with an initial daily capacity of 25 tonnes per axel and a speed of 100-160 km per hour.

Effects on Economic Development

In 2008, MCC agreed to assist in building a major rail lineto export ores as part of a bid to own the rights to

 Afghanistan‟s largest copper mine. The railway network 

will not only facilitate the export of extracted minerals butwill also be designed to carry transport equipment andother heavy loads (e.g. copper cathodes, copperconcentrates) to and from the mining site. It was alsoagreed that this railway would be constructed under the

 “BOOT” model – build, own, operate, transfer  – with theChinese firm eventually handing the line over to the

 Afghan government, after recovering capital costs throughtransport fees.5 According to Minister of Mines WahidullahShahrani, "[t]he construction of this railway will increasethe value of such mines for investors in the future."6 Whileit has been noted that the railway may enable the export

of Afghan products and humanitarian supplies, MCC's andthe Chinese government's decision to finance theconstruction of the railway is inseparable from andcontingent upon the anticipated economic benefits of controlling the Aynak mining rights.

The existing transport infrastructure in Afghanistancontinues to be pressured  by high levels of imports andhumanitarian relief supplies.7 Accounting for 50% of allcommercial imports, and having reached its toll capacity of 4,000 tonnes per month, the bordertown of  Hairatan is unable to cope with Afghanistan‟s expanding volume of trade (which is

3 The ADB grant also funds operational and management costs.4 However, if different sections of the line are constructed separately, it (including feasibility study and design) couldtake up to 9 years to complete.5 It is unknown how long it will take for MCC to recover such costs as the details of the BOOT agreement will not benegotiated until the GIRoA has approved the feasibility study prepared by an MCC-funded independent contractor.6 The US Geological Survey (USGS) states that Afghanistan also has more than 150 million barrels of oil reserves andmore than 4.5 trillion cubic feet of gas.7 In 2009 the ADB recorded a total 25 km of railways inside Afghanistan.

Hairatan to Mazar-e Sharif 

Length: 75 km Estimated Cost: USD 170 millionFunding Provider: ADB (USD 165million); GIRoA (USD 5 million)Start Date: January 2010Completion Date: June 2011

Herat to Sherkhan Bandar

Length: 1,105 kmEstimated Cost: USD 7 billionFunding Provider: ADB (USD 6.9billion); GIRoA (USD 63 million)Start Date: under study  Completion Date: 2015-2019 

Mazar-e Sharif to Torkham

Length: 718 kmCost: USD 4-5 billionFunding Provider: MCCStart Date: under study  Completion Date: 2015-2016

Information on the Kandahar to Spin Boldak line is not yet available 

 Afghanistan’s Railways  

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projected to increase from 25,000 to 40,000 tonnes per month over the next few years).8 Therail connections will thus ease the bottleneck of trade at Hairatan and, according to ADBPresident Haruhiko Kuroda, will also help  “speed the flow  of much-needed humanitarianassistance.” Furthermore, a US embassy official in Kabul stated that this connection is capableof transforming Mazar-e Sharif, a city of more than 300,000 people, into a major transport hub,promoting business development    “crucial to Afghanistan‟s economic development andstabilization.” By allowing Afghanistan access to ports on the Indian Ocean and to Europeanand Asian markets, the creation of this new transport corridor has the potential to substantiallyincrease the country‟s trade volume with a 15% rate of return9 on the Mazar-e Sharif line and a13.5% rate of return on the Sherkhan Bandar-Herat line.

By increasing regional and internal connectivity, these new links will more than double shipment of fuels, food grains, consumer goods and construction materials, especially considering three

of Afghanistan‟s four primary export partners  are nearby India, Pakistan and Tajikistan.Railways will also link up to the transportation networks of  Afghanistan‟s primary importsuppliers (Pakistan, India, Germany and Russia). The lines will not only assist in thedevelopment of those parts of the country most endowed with natural resources, but they arethe first step in linking Central Asia to seaports in Iran. The future completion of an Iran-fundedrailway  line10 connecting Iran to Herat could give Afghanistan the shortest rail link yet fromCentral Asia to Iranian seaports. As such, Afghanistan could take on the role as the South-Asianconduit for access to warm-water ports in Pakistan and the Caspian Sea for trade with Europeand the Middle East. This rail system is a key priority for the Central Asia Regional EconomicCooperation Programme (CAREC), a partnership of eight Central Asian countries and sixmultilateral organisations which has sought to develop a system of  transport corridors throughout the region. These projects are also in accordance with the Afghanistan NationalDevelopment Strategy ( ANDS) and the regional cooperation strategies of both the ADB and theWorld Bank.

Minister Shahrani also stated that the railways will enable the creation of  thousands of jobs for Afghans and an increase in government incomes. While exact employment numbers are not yetavailable, Reuters reports that the MCC has committed to employ Afghan labour at all levels of the project and will provide a training programme  for Afghan workers to operate the railwaybefore the handover.11 The training will range from basic functions to high-level executivemanagement. However, the Carnegie Endowment for International Peace reports that Chinesecompanies investing in areas lacking strong rule of law and a predictable regulatoryenvironment have previously been plagued with a lack of transparency  and disputes arising

over “terms of resettlement, working conditions, and biased hiring and procurement policiesthat create isolated Chinese enclaves and bring limited benefit to the local population.” In order

8 Companies suffer as much as a month‟s delay in getting rail shipments transferred to trucks at Hairatan. Uzbekistanoften closes the border for two weeks at a time because of this congestion.9  Rate of return  is generally calculated by expressing the economic gain as a percentage of the capital used toproduce it.10 A feasibility study is currently underway with Iran financing the cost of  USD 1.2 million. 11 Exactly how many Afghan jobs the MCC project will create is yet unknown as MCC is still in the process of fundinga competitive tender for a feasibility study.

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to establish coordinated and transparent railway procedures, Pakistan has stated it too willprovide technical support, including training Afghan railway management, engineers andtechnical personnel. Although the relatively short Hairatan-Mazar-e Sharif line will also utiliselocal labour during construction, a sizeable portion of the workforce will come from unspecifiedlocations abroad.12 An ADB initial assessment report further states that  “the influx of a largenumber of  foreign workers  into a small rural community that is religiously and sociallyconservative can lead to conflict”  and has thus prompted contractors to plan communityconsultation efforts with the public should disruptions arise. 13 While Afghanistan accommodatesthe employment of foreign workers, Afghan labour laws require that priority be given to Afghanworkers when they are equally qualified. Currently, however, the government lacks theadequate capacity to  enforce labour regulations.   A feasibility study by a Bangladeshi firmindicates that public land acquisition in connection with the Hairatan-Mazar-e Sharif line will bekept to a minimum but the Afghan government is providing USD 5 million to cover

compensation packages for affected families as “entitlement for their losses” . 

Challenges Moving Forward

Despite the economic potential railways present in Afghanistan, Zou Jianhui, president of theChinese mining company MCC, is sceptical as to whether its sizable railway investment will goahead as planned given the unsettled security situation. Although MCC has stressed itscorporate commitment to the security of  investors‟ assets, an assessment of how to moveforward will not occur until the initial two-year feasibility study is complete. The present securityclimate poses a significant challenge as the conflict in Afghanistan moves further north, leavingrailway routes exposed to potential attacks from insurgents and criminal groups. According toBloomberg , Taliban spokesman Zabihullah Mujahid has said that “[i]f NATO uses this railroad to

import their supplies we will attack   them 100 percent, and we‟ll block the railroad.” NATOsources cited by Reuters  suggest there had already been some insurgent threats against theHairatan-Mazar-e Sharif railway, but that Afghan and international security forces had beenincreased in the area.

Furthermore, railway development could also potentially overburden the Afghanistan CustomsDepartment ( ACD) by making it harder to inspect shipments or prevent drug smuggling  inborder towns such as Spin Boldak. To address this potential challenge at the Afghan-Uzbek border, modernised customs facilities are scheduled for construction in Hairatan with EUR 13million  (USD 17.3 million) in support being provided by the European Commission (EC).Challenges may also be partly offset by recent investments in improved customs  and border

management.14

Such investments, which included the opening of the Afghan National Customs

12 Exact figures on how much employment the railway construction will provide are unavailable. According to the  Afghan Embassy in Washington, D.C. the entire Aynak mine project (including railway construction) will directlyemploy 8,000 Afghans and indirectly employ 30,000 more once landmines are cleared.13 The ADB has recommended placing construction camps 5 km away from local communities to minimize interaction.14 In 2008, Japan pledged to provide USD 10.6 million for reconstruction of a customs building in Takhar province,while in 2009 the World Bank approved USD 6.81 million in  additional grant assistance  for Afghanistan‟s ongoingEmergency Customs Modernisation and Trade Facilitation Project, aimed at supporting government efforts toestablish a more efficient customs and transit regime.

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 Academy ( ANCA ) in Kabul, have led to significant increases in customs revenue. Kandaharcustoms officials, for instance, note that current year customs revenues are 57% higher than in2009 while Herat customs revenue has increased by 36% over the past six months.

Technical challenges will also present difficulties for the rail lines, including the need to adaptthe railways to the three different-sized rail gauges of adjoining countries. For instance, theHairatan-Mazar-e Sharif line is anticipated to use a Russian-size gauge (1,520 mm) whereas theHerat-Sherkhan Bandar line will be an extension of the new line from Iran which is currentlybeing constructed using a European-size gauge (1,435 mm). Where gauge change is necessary,transshipment (i.e., moving goods from boxcars on one rail line to boxcars on another line) willlikely be required.

Conclusion

The temporary closure of a key border crossing after an accidental, yet fatal, NATO attack  onPakistan soil in early October 2010 highlights both the importance of the security context in thedevelopment of railways and the potential for reducing the dependence  of Afghanistan andNATO forces on Pakistan through the development of alternate routes for trade. Questionsabout the future of railways in Afghanistan persist, however, with Asia Times reporting that thequality and costs of transport services throughout Afghanistan and Central Asia do not measureup to the successes of  alternative forms of transportation, especially maritime shipping.

Supporters of plan, however, contend that, when combined with the proximity of the airportand the Ring Road, the railways can play a large role in creating an integrated transport facility able to enhance national and regional economic competitiveness. Until recently the

development of rail infrastructure has been hampered both by lack of funding and a degree of institutional fragmentation. It is hoped that the agreement with the Chinese and the completionof the ADB-funded Hairatan-Mazar-e Sharif line will provide the necessary push to kick-startfurther railway development. Despite the long-term nature of Afghanistan‟s railwaydevelopment project, a revived Silk Road has the potential to connect continents, cultures andperhaps even provide the confidence necessary to propel economic development forward,challenging the poverty which has thus far shaped visions of an uncertain future.  

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