Afghanistan inviting foreign investors for its energy sector

Although the first independent power producer deal is small-scale, it represents progress after previous Afghan efforts grounded to a halt.

Afghanistan has taken a small step towards attracting international investment for its energy sector, a US government-backed move aimed at convincing prospective investors of the central Asian country’s potential.

The first deal, for a relatively small 10 megawatt solar power operation in Kandahar province, was won by the Indian company Jaguar Overseas, with a bid just below 8 US cents per kilowatt hour.

Although the first independent power producer (IPP) deal is small-scale, it represents progress after previous Afghan efforts grounded to a halt.

“The business environment in Afghanistan is obviously a challenging one, and no one wants to sugar-coat what those challenges are,” said Michael McKinley, the US ambassador to Afghanistan, who was in Dubai yesterday to lobby potential investors.

“There are risks with security,” he said. “But there have been major transformations in terms of investment in infrastructure, in energy projects, building a nat­ional grid, telecommunications and efforts to invest in development of light industry, including agriculture.”

Despite the progress, the country is still near the bottom of the global league table in providing energy for its population of 30 million. The World Bank says only a quarter of the population has a regular power supply.

The US government has pumped more than $2 billion into developing the transmission infrastructure since it invaded the country in late 2001 and it plans further investments, particularly in the solar sector, via the US Agency for International Development (USAID), the government’s development arm.

For the Kandahar project, USAID is providing $10 million of “viability gap funding” to get it off the ground. The model, which used a reverse auction bidding process (the lowest feed-in price wins), will be repeated for proposed projects at Ghazni and Gardez, Farah City and a 100MW solar park at Naghlu, near the site of Naghlu dam and the country’s largest power plant.

“The focus on renewables … is to look at what is not only affordable but [also] projects that can be developed quickly,” said Mr McKinley.

Previous efforts to kick-start the renewable energy sector were stymied by inadequate power purchase agreements (PPA), which were presented to investors a year ago. “They were a bureaucratic mess,” said Fahim Hashimy, principal at Arrow, an Afghan investment company. “The government designed the PPA as if they were the only power purchaser in the world.”

They were forced to start afresh.

Investors want some level of assurance on security but just as important is confidence that there is a clear and transparent set of rules for doing business, Mr McKinley said.

But other potential projects that Da Afghanistan Breshna Sherkat (Dabs), the power and water utility, has on the drawing board will really make the difference – more than a dozen hydro and natural gas initiatives. Its chief executive, Qudratullah Delawari, told Dubai investors that he would soon award the first IPP contracts for a gas-fired plant.

Much will depend on the long-delayed Turkmenistan-Afghanistan-Pakistan-India gas pipeline, said Jim Gregory, operations manager at PanAmerican Geophysical, who five years ago ran the first seismic survey of the country for more than 30 years. The Turkmenistan leg of the $10bn project has been completed, and if it progresses it could make Afghanistan a regional gas transit hub, making the prospects of developing indigenous gas resources more attractive.

Those dreams have been on hold for decades.

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Published: September 18, 2016 04:00 AM


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