In the second major award involving Amu Darya Basin oil, no U.S. companies even bothered to compete. But two Western companies were among the finalists.
One was our client Tethys Petroleum -- a publicly-traded British firm with many large U.S. investors. The winner was the China National Petroleum Corporation (CNPC), a state-owned company.
As evidence that Chinese companies "have not gotten the only big early resource deals in Afghanistan," LeVine notes that a consortium led by JP Morgan secured a gold contract in Afghanistan. Though a positive development, the contract is relatively small. And despite JP Morgan's involvement, most of the investors in the deal are not American.
It is certainly ironic that Chinese firms are at an advantage over Western companies due to Defense Department procedures. The Pentagon's Task Force for Business Stability Operations is spending some $20 million of American taxpayers' money to organize the bidding rounds for Afghan mineral resources.
Obviously, the Pentagon team does not seek to hand Afghanistan's mineral resources to the Chinese. But flaws in the Pentagon-backed process mean that state-owned Chinese companies are at an advantage over private companies.
Because they are not accountable to shareholders, Chinese firms can offer better commercial terms based on geopolitical motives rather than profit-driven necessities. The process also does not give points for good business practices in areas such as transparency, local employment, and the environment.
Pentagon rules do not check a bidder's past record in actually fulfilling the promises it makes up front to get a contract. And they does not consider the need for Afghanistan to diversify its investors -- it is not in any country's interest to give its business disproportionately to companies from just one foreign country.
To add insult to injury, Pentagon-paid consultants -- along with CNPC management and the Chinese ambassador to Kabul -- participated in signing ceremonies and photographs celebrating the agreement. U.S. officials in effect endorsed the deal with the American seal of approval.
The U.S. government needs to assist American companies seeking to compete in frontier markets. As Secretary Clinton noted in a recent address, U.S. strategic and economic interests are intertwined in unprecedented ways -- "the economic is strategic and the strategic is economic." Economic statecraft is especially critical in Afghanistan, where important rare-earth minerals contracts will open for bidding in the near future. How these tenders are allocated will implicate core U.S. interests, consolidating gains amidst the withdrawal from Afghanistan, adapting to balance of power changes in Asia, and preserving U.S. economic leadership. Smart U.S. government policies and regulations could leverage Western companies on behalf of these strategic objectives. In assisting Western firms, Gryphon Partners and similar private consultants are doing their part.
The Obama administration and Congress should review what happened in the recent tender and reassess the current Pentagon methodology. At the very least, the United States should not harm itself by financing a bidding process slanted toward state-owned foreign competitors, and then celebrating its outcomes when Americans lose. It is not inevitable that Afghanistan's valuable resources fall into the hands of the Chinese.
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