Promoting Private Investment in Afghanistan’s Power Sector

Javid Sadaat

September 3, 2015

Afghanistan’s historical power supply(GWh)

(GWh))78% of power supply relies imports)

ImportsDomestic

916 923 915 1073 1114

2455 3022 31293881

4169

Current domestic power supply is around 1,073GWh (operational capacity of 470MW) or 22% of total supply

Power imports from Central Asia account for 78% of total supply

Domestic power generation is crucial for Afghanistan’s future development

Uncertainty over long-term availability of imported power and the expected increase in future demand

Rationale:Severe Power Shortage & Heavy Reliance on Imported Power

Power Supply by Sources (2014)

30%10%

15%

22%

22%

Project Overview:Key Highlights

Location Close to existing Northern Fertilizer Power Plant (NFPP) site at Kude-Berg near Mazar-e-Sharif (subject to further discussion with stakeholders)

Size 50MW / c. 380GWh (phased with expansion potential) – will equate to around 30% of Afghanistan’s current indigenous power supply

Fuel Natural Gas from Sheberghan via existing pipeline, need for 300,000 mcm/day

Power Purchase Agreement

Off-take agreement with DABS for 20 years

Electricity tariff Preliminary estimate at 7.5-9.5 Usc/kWh

Gas price at the Well-head

US$ 110-140 per mcm (subject to further discussion)

Investors Consortium of local investors including the Ghazanfar Group and Cummins Power Generation, with support from International Financial Cooperation (IFC)

Project Overview:Key Advantages 1 Certainly of Long-term

Electricity SupplyMazar IPP will add long –term year-round certainty to Afghanistan’s domestic electricity supply and hence will result in significant economic benefits for the country

2 Leverages Indigenous Natural Resources

Existing gas fields in Shberghan with increasing production, along with a refurbished pipeline with excess capacity will allow Mazar IPP to efficiently utilize the country’s natural resources

3 Strong Economic Viability

Mazar IPP will generate elctricity at less than the “true” cost of imported power in the country over the long-term

4 Can Facilitate Increased Power Supply to Kabul

Mazar IPP will meet a significant portion of current local demand in Mazar region, hence making available imported power which was previously utilized locally, for increased supply to Kabul

5 Establishes a Template for future IPPs

With support from the World Bank Group, Mazar IPP will establish a balanced, sustainable and bankable project structure for future IPPs in Afghanistan

6 Will Encourage Greater Interest in Afghanistan’s Power Sector

Demonstrating the success of one IPP in a relatively secure part of the country, will result in a significant increase in interest from local/international investors for future IPPs

Managing IPP:Key Elements

Best Practices Thailand, Mexico and Egypt as “best practices” for IPP model

Transparency and Regulatory Capacity

Improved transparency and regulatory capacity is needed to manage the sector effectively

Reforming Institutions

Reforming the relevant institutions; e.g. AGE

Regulatory Body Establishing an independent regulatory body to regulate the sector

Engaging Relevant Institutions

Engage multi-lateral institutions to identify issues and obstacles to the concept

Develop a national energy plan

Develop a national energy plan that prioritizes energy security and indigenous supply, and domestic manufacture

Thank You!