LA HULPE, Belgium: Indian and Chinese bidders are front-runners for deals to mine Afghanistan's vast iron ore and oil deposits, the country's mining minister said on Wednesday, worrying Western firms who have hesitated to invest in the war-torn region.

Afghanistan is estimated to harbour up to three trillion dollars in mineral wealth from gold, copper, iron ore and precious stones to oil, gas and rare earth minerals.

Such riches have attracted risk-friendly investors despite security concerns as Western governments prepare military pull-outs, in particular from India and China where demand for energy and industrial inputs is booming.

Two Indian bidders have emerged as “the most potential companies” among a short list of six to win a contract for the vast Hajigak iron ore project in early November, Afghan Minister of Mines Wahidullah Shahrani told Reuters on the sidelines of a mining conference in Belgium.

One of the bidders is an independent company and one a consortium that includes India's powerful Mittal family, he said.

An oil and gas contract in northern Afghanistan's Amu Darya field will most likely go to a Chinese bidder in early December, Shahrani said.

“Those companies that get into Afghanistan early will have good opportunities,” the minister added.

EU firms cannot compete

Asian investors are threatening to dash long-term hopes of Western firms holding out for greater safety and business transparency before putting funds into a country with vast raw materials reserves. The investments are also provoking criticism that India and Chinese governments give guarantees to their private firms, unfairly aiding their bids.

“At the front these bids are private but behind them is government funding,” Ramon Mushrief, Interim President at the newly opened European Union Chamber of Commerce in Afghanistan, told Reuters.

“These companies can afford to take risks that European companies cannot. And there is nothing we can do,” he added.

No Indian or Chinese investors were present at the conference to comment.

Transparency

Afghanistan has promised legal and fiscal reforms to attract foreign investment that will help develop industry and eventually wean the country off foreign development aid.

The World Bank, investment funds and European and US executives on Wednesday called on Kabul to implement governance and fiscal reforms. They warned that lax laws could foster corruption and stop the benefits of mineral wealth reaching a population in need of steady jobs and income.

International resource activist group Global Witness reserved particular criticism for Afghanistan's practice of publishing details of mining contracts only once they have been finalised.

“The extractive sector requires the early and full assessment of its impact...contracts made public before they are signed,” said Global Witness Director Patrick Alley.

Afghanistan will publish in mid-2012 details of a copper mining contract that has gone to a Chinese consortium — but only once subsidiary agreements have been completed, Shahrani said.

EU-Afghanistan agreement in sight

In the absence of immediate large investments, the EU wants to sign a treaty with Afghanistan to formalise diplomatic, human rights, trade and investment relations and lower the risk of a security vacuum as international troops withdraw from the country.

EU Special Representative for Afghanistan Vygaudas Usackas, also attending the conference, told Reuters the EU will start talks for such a treaty before an international conference on Afghanistan's future taking place in Bonn, Germany, on December 5.