Afghanistan - Unlocking investment opportunities

FINANCING FOR DEVELOPMENT- Unlocking Investment Opportunities

AFGHANISTAN- Unlocking private investment opportunities through IDA integration

By BHASKARNIL HAZARIKA,India

Historical perspective• Pre-1919: Acted as a buffer state between

British and Russian Empire• 1919 : End of 3rd Afghan war, declared as

independent sovereign state• 1919-78 : Amanullah khan to Zahir Shah –

kingdoms and progressive governments.• 1978-89: Marxist revolution and Soviet

war• 1992- 2001: Afghan Civil war and rise of

religious extremism and Taliban.• 2001- 04: US led war on Taliban• 2004-present: Democratically elected civil

Government.

AFGHANISTAN: Country at a glance

• Population: 33.37 Million• Surface Area : 652,864 Sq. Km• Population density: 51.1 per Sq. Km• Population growth rate : 3.0% per annum• Capital City : Kabul• President: Ashraf Ghani• Currency : AFN (Afghani)• GDP (2014) : 21,122 million USD• GDP growth rate (2015): 2.2%• Balance of Payment: -6855 million USD• Trade balance : -7126.7 million USD• Mobile Cellular penetration : 74.9%• Net ODA received (2014) : 23% of GNI• GINI index : 29 (low)• HDI index : 0.465

Opportunity for Private sector investment in Development

Overview : Energy Sector

• Only 10-15% of the Afghan population have access to electricity, one of the lowest inthe world• About 3 % households are connected to the national grid ( About 650.000)- most ofthem in the large cities: Kabul, Mazar-i-Sharif, Herat, Kandahar, Jalalabad etc.• 340,000 customers are connected to the public power grid, of which 182,000 are inthe Kabul area• Per head total energy consumption is less than 25 kWh/year (in comparison to: India 520 kWh/year, Germany 6200 kWh/year, world average 3060 kWh/year)• Continuously rising energy demand, but power station mostly older than 40 years and need to be rehabilitated• 85% from energy demand are covered by traditional biomass (for example Wood,Dung)

Afghanistan : Energy sector Energy generation and Utilization

Energy efficiency Measurement

Available Renewable Resources Hydro power potential for Afghanistan is in excess of 23,000 MW (large, medium and micro hydro power plants ) Solar power potential is best in Southern Afghanistan (see map) Wind power potential best in the Western Region of Afghanistan USAID has provided support for the establishment of a Clean Energy

Program in Afghanistan. Program has developed pilot projects: ‐ Solar pilot projects have been implemented at 6 schools in Bamyan

and Nuristan, and 2 clinics in Ghazni ‐ Solar pilots for water pumping and solar heaters also being developed ‐ Mini hydro rehabilitation project was implemented in Panjshir‐ ‐ Wind water pumping projects also planned in Heart and Balkh

Provinces

Status and Potential of Renewable Energy Utilization

Wind Energy : (Possible max 158 GW)• Wind resources in Afghanistan show promise on the basis of satellite data158 GW Electricity production theoretical possible• High theoretical potential particularly in the West like Herat, Farah (at the border to Iran with its 120 days- Winds ( at wind speeds above 7 m/s in 50 m height )• Very dependent on micro climate; projects need long lead time for measurements• Household systems (e.g. up to 500W) are more complicated in maintenance (sand, dust) than solar-photovoltaic systems; solar- wind-hybrid systems most feasible• Big wind power needs a power grid to feed in the electricity

Solar Energy• Afghanistan also has significant solar resources,

averaging 300 days of sunshine per year. That’s average 6.5 kWh per square meter per day

• Solar heaters and solar photovoltaic cells could be important sources of energy for Afghanistan,

• Current biggest program is the National Solidarity Program : more than 2000 individual projects for the dissemination of Solar Home Systems in the range 20 till 40 W implemented; in total about 103 kW electricity for lighting supplied.

• Some small single projects (per example Schools, Hospitals, Police buildings, Mosques, etc.)

• Very high technical potential but economically feasible only in absence of hydro resources/ main grid

Hydro power

Investments for ImprovementThe following factors will help in the improvement of the energy sector -1. Increased Private Sector

Provision of Energy2. Better Sector Governance3. Increased trade with

neighbouring countries, focusing on the transmission of energy

4. Expand the availability of electric power

5. Develop a Master Plan for Rural Energy; and Establish market-based tariffs with a clear timetable to phase out subsidies

Investment environment in Afghanistan

The top 3 markers for investment scenario are : ( with latest review data)1. Ease of doing Business : Rank 183, due to lower growth in infrastructure and low

GDP2. Business Enterprise survey : Among 15 areas of business environment, political

instability is being rated as the biggest obstacle, followed by corruption, access to land and available finance.

3. Transparency international index : 169 out of 176 countries ; Corruption in Afghanistan is fueling the ongoing war and undermining the effectiveness of billions of dollars of international aid. As the country faces critical threats from insurgents, curbing corruption is vital for the survival of the state

To create investment environmentGovernment of Afghanistan with help from World Bank expertise ,has to create a suitable and conductive business environment for investments to kick in –1. NDP ( National Development Plan)

to set macroeconomic scenario for investment strategies

2. Policy reforms3. Establish Rule of law4. Good institutions for reviewing &

maintaining policy guidelines5. Political stability6. Consistency in policy framework7. Effective use of DRM

• The Afghan Investment Support Agency (AISA) is responsible or registering all foreign and domestic businesses in Afghanistan and assisting companies with navigating the multitude of profitable investment opportunities in Afghanistan.

• The World Bank’s Doing Business Survey has consistently rated AISA’s ability to register a new business among the best in the world, with fewer procedures than any other developing country.

• The Afghanistan Chamber of Commerce and Industry is the leading private sector organization in Afghanistan. They can also assist prospective investors to find partners and navigate the exciting Afghan market.

• The

ODA For Development• ODA- Official Development Assistance by

World Bank• IDA – International Development

Assistance for poor/conflict area countries• Afghanistan is the highest recipient of IDA,

with a 3 year average of 5584 Million USD i.e. 4.2% of total IDA in this period.

Government Initiatives for Private Investments - Energy Sector

Afghanistan Govt. assistance• 30 projects in 20 provinces• Land in provided by the

government• Tax incentivized.• 25% subsidy or PPP• Security assistance for project

implementation• Long term Power Purchase

Agreement (PPA).• Attractive tariff – based on the

project location, type of technology and source of energy

Domestic Projects Available for Investments

1. Kukcha Hydro-Electric Power Station - 445 MW

2. Kunar Hydro-Electric Power Station – 798 MW

3. ADB North-South Power Transmission Enhancement Project -225 Km, 500 KV

4. Turkmenistan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline

5. Turkmenistan-Uzbekistan-Tajikistan-Afghanistan-Pakistan Power Interconnection Project

Opportunity for Private investors in Rural Renewable Energy sector

Private investment opportunity

• Ownership of energy kiosks /energy centres

• Ownership of energy generation systems of energy centres

• Suppliers and installers of renewable energy components and systems – market is already developing

• Suppliers of other materials (cement for construction etc)

• End use customers of energy generated

• Managers of decentralised mini grids• Off takers

Business Model

Untapped Potential

Financing solution

IDA integration approach• Use of Blended Finance• Private sector can leverage

benefits of IDA sponsored projects

• Governments for risk sharing and mitigation.

• Innovative finance modules such as long term bonds, MIGA

• Asset based green bonds for Renewable energy sector projects

• Result based finance

Investment Requirement of Energy sector

Afghanistan Has tremendous untapped potential for growth, it’s time to unlock Investment opportunities.

THANKS