Aynak Tender Process History

A Summary

The Aynak tender process identified the two strongest proposals and successfully arrived at an agreement between the Preferred Bidder and the Government of Afghanistan (“Government”) to develop the world-class Aynak copper deposit. The bid process conformed to international best practice for mineral deposit tenders.  Despite allegations to the contrary the confidential process was objective and transparent.  Both Parties report satisfaction with the Mining Contract negotiated by the Parties and believe the negotiation process was objective and fair to both the Preferred Bidder and the Government. 
In the spring of 2006, Gustavson Associates, LLC was selected to be the Aynak Transaction Advisor to the Ministry of Mines.  The selection was conducted by the Project Management Unit (PMU) of the World Bank in Kabul.  Gustavson started working on the Project in early August, 2006, completing the assignment in August, 2010.  The responsibilities included:

• preparation of the Request for Expressions of Interest,
• Preparation of the Bid Package (RFP),
• Short listing of qualified companies,
• Managing the Bidder Due Diligence, Bid Submission, Bid Evaluation and recommendations of the Preferred and Reserve Bidders. 

Once the Preferred Bidder was selected, Gustavson was responsible for advising the Ministry in the negotiations and for the drafting of the final Mining Contract.

The advertised tender attracted 13 major companies to submit Expressions of Interest (EOIs).  A screening of the EOIs identified 9 companies who were invited to submit bids.  An initial screening of the documents submitted by the international bidders ensured that the bid proposals were satisfactory and in compliance with the Aynak Request for Proposals (RFP), containing realistic and reasonable technical plans supported by appropriate financial plans.  The Technical and Financial Bids were considered simultaneously, recognizing the necessarily intricate and inseparable nature of the technical and financial approaches to Aynak.  Of the five bidders who submitted responsive proposals, two provided significantly more detail as to how they would develop the project and the benefits that would accrue to Afghanistan.  Pursuant to the terms of the RFP, the bidder with the highest scoring proposal was selected as the Preferred Bidder and invited to undertake mining contract negotiations with the Government.  The bidder who made the second ranked proposal was identified as the Reserve Bidder in the event the mining contract negotiations with the Preferred Bidder did not succeed.  After extensive negotiations in the Winter and Spring of 2008, a mining contract was agreed to by the Parties.  The next step is to develop the project, with appropriate monitoring and verification of the project development.

The evaluation process scored the proposals in broad areas specified in the RFP.  The technical proposals were scored to determine which best satisfied the requirements identified by the Ministry of Mines in the RFP.  The financial proposals were scored to determine the most attractive and financially sound.  The Preferred Bidder was the one that offered the maximum benefits to the country from amongst the most attractive technical and financial proposals.

The RFP explained that the Preferred and Reserve bidders would be selected according to the following areas (based upon Article 17 of the Minerals Law at the time):

(a) Proposed plan of work;
(b) Financial and technical capacity;
(c) Evidence of previous mineral exploration and international mining experience in the copper mining industry;
(d) Evidence of commitment to environmental protection and sustainable development;
(e) The socio-economic benefits that may accrue to Afghanistan; and
(f) Proposed financial benefits to Afghanistan.

Bid Evaluation Matrix:
The evaluation matrix allowed an objective assessment of the Bids.  The matrix was based on Section 8.0 of Part One of the RFP which defined what each bid must include.  The scoring matrix allowed scoring of items on a scale of 1 to 5, with 5 being the highest.  These scores were not ranks – that is, one or more bidders may receive the same score for an item, depending on the merits of their individual Bid in the particular area being scored.  These scores were multiplied by a weight from 1 to 10 (with higher weights indicating relatively greater importance of a line item), and the weighted scores were accumulated in the appropriate grouping at the end of the matrix.

The Groupings and their relative importance (weights) were determined at the March 27, 2007 meeting of the Inter Ministerial Committee (IMC).  The weights were designed to reflect the expectations of Afghanistan in terms of what the development of the Aynak Project would provide.  The Groupings with the relative importance (weight) percentages were:

Evaluation Grouping Weight

A Technical Mine Development Program 20%
B Financial Benefits to Afghanistan 25%
C Social/Economic Development  25%
D Infrastructure Development 10%
E Environmental Consideration 20%

There were some scored items in the matrix whose focus was similar in all Groupings above, and the relative weight was reduced for these scoring items where they appeared in the matrix to reduce the overall weight given to that question.  For example, Risk Management was scored in several of the Groupings and the weight in the Groupings was reduced.
After the weighted scores were accumulated in the Groupings, the Grouping scores were weighted by the accepted IMC weights to yield a numerical score between 0.0 and 5.0, which was then converted to a percentage score between 0% and 100%.

Bid Evaluators:
The Evaluation Process proceeded with approximately 40 potential evaluators, selected by the Minister of Mines, who received training on the details of the Aynak Tender Process, the technical specifics of the future development of the Aynak Project, the bid scoring methodology to be employed and a general discussion on the setting of Afghanistan’s expectations for benefits to the country.  After some training, the evaluator group was reduced to 20 participants from the Ministry of Mines, including members who have been direct involved with the evaluation of the EoI.

Bid Evaluation Process:
1. Starting on May 28, discussions were held with the Minister of Mines concerning the scoring matrix, weights for individual line items in the matrix, the methodology to be followed for scoring the line items, using one of the following methods:

a. Consider a Company’s bid in a Grouping as a whole, scoring vertically then moving to the next company;
b. Consider all 5 company’s responses on a particular line item, scoring each company before moving to the next (horizontally); or
c. As in (b) above, but wait to score the line item until all 5 company’s relevant submissions were heard and described before scoring that line.

Method (b) was selected despite being the most time consuming.

2. All Bids were received by May 28 at 1600 hours as prescribed in the RFP, except for the Strikeforce bid that was mistakenly sent by the chosen courier to a U.S. destination in error.  A letter of explanation from the Courier company was accepted and the Strikeforce bid was allowed to be received after the due date and time.  The only other discrepancy was that Kazakhmys did not submit their USB hard drive at the deadline.  This was not considered material to the validity of the bid.  The Drive was subsequently received.
3. All Bids were opened on June 2, 2007, after 1408 hours.  Each page of each Original bid was initialed by the Minister of Mines, William J Crowl, Transaction Advisor and James R. Yeager and these Originals were locked in a safe to serve as a “true” source document in case of disputes.
4. Security was maintained in the MoM Conference Room at all times.  The Bid Bonds and Irrevocable Letters of Credit from the Bidders were under the control of the Ministry of Mines.  No handwritten notes or printed materials were allowed to leave the Conference Room at any time, save those materials needed by the Transaction Advisor and Mr. James Yeager.
5. At the end of each session, the individual Score Sheets for each evaluator were collected and placed in sealed envelopes for eventual opening during the scoring tabulation.
6. From June 3 to June 5 the Executive Summaries of the bids were distributed to the Evaluators and reviews of the documentation continued.
7. On June 6, a compliance review was conducted of the bids.  All bids were accepted and the evaluation proceeded.
8. From June 6 through June 25, an evaluation of the bids proceeded using the Scoring Matrix and agreed procedures.  At all times, the Minister of Mines was in attendance when the Bids were under discussion.  The Transaction Advisor and/or Mr. James Yeager explained each Bidder’s submission under a particular scoring item, referring to multiple places in the Bids to provide as clear an explanation of the bid as possible, recognizing the necessity for an objective consideration of each bid in each area.  Comments by Crowl and Yeager on various issues were provided to the Evaluators with respect to the technical, financial and practical aspects of the Bid being discussed.  The presentations of Crowl and Yeager were interpreted into Dari.  The Minister of Mines generally expanded on the Advisor’s comments.  Following the comments, the Evaluators independently and individually scored the item for the particular company.  The Minister of Mines did not participate in the scoring.  The procedure was time-consuming, but provided the training component to the scoring effort that the Minister stressed throughout our discussions.
9. On June 26, the scoring sheets were tabulated on 4 separate computers simultaneously in the MoM Conference Room, to avoid any chance of tabulation error.  The tabulation team consisted of a Transaction Advisor team (William Crowl, James Yeager and Dr. Stan Coats of the British Geological Survey), the Minister’s secretaries, and 9 members of the Evaluator Team as observers.

The final scores represent a true tabulation of the scoring carried out by the Evaluators.

10. Discussions were held with the Minister of Mines late on June 26 and early on June 27 as to the next step in the process.  The Minister recognized that the results of the Evaluator scoring must be passed on to the Inter-Ministerial Committee (IMC).
11. The IMC met several times to consider the results of the Aynak Tender Process.  It asked the bidders to clarify additional benefits to their offer and invited them on short notice to be available to answer any questions that the IMC might have at their meeting scheduled for 17 to 19 September, 2007.  The Transaction Advisor team (William Crowl and Simon Handelsman) traveled to Kabul on short notice to advise the Minister of Mines and provide answers any questions that the IMC might have at that meeting.
12. All of the Bidders met with IMC on September 19, 2007.  The IMC posed several questions to each bidder.  The Transaction Advisor team (William Crowl and Simon Handelsman) were first invited into the room.  The slide presentation on the details of the Aynak Tender Process prepared, at the Minister of Mines request, was not required.  IMC asked the Transaction Advisor team to explain the merits and shortcomings of the original bids - there were a number of very frank exchanges concerning the spectrum of bids and bidders.  The team concentrated on providing advice on issues that were unique to mining.  The team questioned the very high royalty offered by one bidder, doubting the viability of it being sustained in a low price regime.  The team brought to IMC’s attention that all except one Bidder had included a statement, as requested in the RFP, that it would adopt and implement all World Bank Environmental and Social Safeguard Policies, the Equator Principles, and the Voluntary Principles on Security and Human Rights.  The IMC asked for the name of that bidder.  There was an extensive discussion of taxes and royalties. The IMC members seemed receptive to the team’s explanations of various issues.
13. The IMC accepted the decision based on the results of scoring system as to the Preferred and Reserve Bidders.
14. The Preferred Bidder was invited to negotiate a mining contract to develop the Aynak Copper Deposit.

A summary of the bids, published in several locations since the completion of the Tender displays the disparities between the bids from the various participants, follows:

Mining Contract Negotiations:

1. The Mining Contract negotiations commenced in December, 2007 with a kick-off meeting in Kabul.  The purpose of the kick-off meeting was to select negotiation procedures and time periods.  The RFP required the Parties to conduct negotiations within a sixty (60) day period with a sixty day extension period, if necessary.  The Parties agreed to on a procedure for counting days that reflected the Ministry’s regular work and holiday calendar and the holiday calendars of the Preferred Bidder and advisors. 
2. The Parties commenced substantive negotiations in January, 2008.  Negotiations proceeded slowly in order to give the Government sufficient time to develop its positions on issues raised during the negotiations.  The negotiation sessions were interspersed with preparation days where the Advisors met with the Ministry and other Government officials to review the draft mining contract and the negotiation positions of the Preferred Bidder.  These preparation days were crucial to efficient negotiations with the Preferred Bidder.  Negotiations continued through the Winter and Spring of 2008.  Negotiation sessions typically lasted four to five hours per day, with the exception of Mondays where Minister Adel and other IMC Ministers attended weekly Cabinet meetings.  The Parties were required to invoke the sixty day extension period for the Aynak negotiations provided by the RFP.  Future mining contract negotiations should provide adequate time for negotiations and take into account the particular circumstances which attend to negotiations in Afghanistan.  In addition, to improve the efficiency and attainment of tender process and negotiation goals, the Advisors recommend that the Ministry and PMU designate individuals responsible for day to day organization of efforts when the Advisors are not in Kabul. 
3. As the Aynak Mining Contract evolved during the course of negotiations, it became clear that several ancillary agreements would be necessary to achieve the shared goals of the parties within overall Project time frames.  The Advisors communicated these developments to World Bank representatives.  While the PMU had representatives present at the negotiations, the Advisors recommend that regular, bilateral communications with the Bank during future negotiations will allow for greater planning and input concerning coordination with other Bank projects in the region.

Ancillary Agreements:
From May, 2008 to August, 2010, the Ministry of Mines, with Gustavson’s assistance, negotiated with MCC and signed 5 Ancillary Agreements to the Aynak Mining Contract, including contracts dealing with security, water, power and coal mines, other minerals and, finally a railway.  These Ancillary Agreements completed the Mining Contract and paved the way for the Project to proceed on a number of fronts simultaneously.  Of major importance was the completion of the railway agreement that commits MCC to build a railway in Afghanistan servicing the Aynak Project and many other parts of Afghanistan.  The commitment is conditioned on the feasibility of the railway project.  The power and coal mining ancillary agreement memorializes the mandate for MCC to build and operate a 400MW coal fired power plant and the coal mine to feed it.  Transmission lines will be constructed to deliver 200MW to Aynak while the other 200MW will be distributed on the national grid for use by rate payers.

As Transaction Advisor to the Ministry of Mines for the Aynak Tender Process, Gustavson Associates stressed that the Tender Process would be conducted transparently and without prejudice for or against any particular bidder.  The process followed international best practices for transparency and fairness.  The Scoring Matrix directly reflected the requirements of the RFP and it was emphasized repeatedly that the winning bidder would be required to deliver on all promises made in the bid.  Varying degrees of commitment were expressed by individual bidders with respect to adhering to World Bank Environmental and Social Safeguard Policies, the Equator Principles and the Voluntary Principles on Security and Human Rights.  The Mining Contract was viewed as the vehicle for ensuring the Bidder would be held accountable in terms of complying with international standards.
At all times during the Evaluation process, there were observers present in the MoM Conference Room.  These observers were from the Government of Afghanistan, including the Ministries of Finance, Commerce and Economy, Foreign Affairs and National Environment Protection Agency (NEPA), as well as from Parliament, and others from Logar Province.
We are unaware of any overt attempts at unduly influencing the process in favor of one or another bidder.  We noted that there were occasions of outliers in the scoring, where the scores assigned were not always commensurate with the facts as we understood them.  The affect on the overall scoring effort of these outliers is considered to be minimal, given the large number of evaluators (20) and the result that the two strongest proposals emerged in first and second place.
A successfully developed Aynak Copper Mine and the related infrastructure will provide a very large revenue stream to the Government in terms of royalties and taxes, employment for thousands of Afghans and will stimulate economic growth country-wide.