OREANDA-NEWS. September 20, 2011. China National Petroleum Corp., or CNPC, offered the highest royalty and a refinery to win Afghanistan’s first oilfield auction last month, using a strategy that helped Chinese companies gain access to African resources.

CNPC will pay 15 percent royalty on oil from three blocks in northern Afghanistan and 30 percent corporate tax and also build a refinery, Abdul Jalil Jumriany, policy director at the mines ministry in Kabul, said. Australia’s Buccaneer Energy proposed 10 percent royalty and was second.

The deal, to be completed in a month, will boost China’s position as its neighbor’s biggest foreign investor after a state company won the right in 2007 to mine the biggest copper deposit in Afghanistan by pledging to build a coal mine, power plant, smelter and railroad. In Africa, producer of 12 percent of the world’s crude, Chinese companies promised billions of dollars in aid, investment and loans for energy supplies.

Afghan President Hamid Karzai’s cabinet late last month approved the mines ministry’s decision to allow CNPC to drill for oil in three blocks of the Amu Darya basin, a geological zone that extends into Turkmenistan and Uzbekistan.

While CNPC’s oil deal, for blocks that hold an estimated 80 million barrels, is relatively small, its win may give the company an advantage in chasing bigger Afghan reserves. The Afghan-Tajik Basin, a geological zone in the northeast, is estimated to hold 1.9 billion barrels of undiscovered oil and natural-gas liquids along with gas deposits equivalent to 1.5 billion barrels of oil, based on U.S. Geological Survey data.

The government will hold its next oilfield auction in the area in February.

A refinery is crucial for Afghanistan, which imports almost all its fuels and has seen supplies halted by border closures with Iran and Pakistan. In January, Iran blocked as many as 1,900 fuel tanker trucks at its border for a month, forcing a spike in transport and food prices across Afghanistan.

Afghanistan’s only working refinery, opened last year on its northern border with Uzbekistan, has a capacity to produce 500 tons (3,650 barrels) of fuels a day, according to its owner, the Kam Group. The nation uses 46,000 barrels of petroleum products each day, Jumriany said.