ADB approves $1.2bn grant for Afghanistan’s energy sectorDecember 8, 2015
MANILA, PHILIPPINES: The Asian Development Bank (ADB) has approved $1.2 billion in grants to reinforce ongoing energy projects in Afghanistan and to provide new funds to boost energy supply, improve power sector efficiency, and promote cross border trade in energy.
The grants include $750 million from ADB’s Special Funds resources, and up to $450 million from the Afghanistan Infrastructure Trust Fund, which will be administered by ADB. The funds will be disbursed in multiple tranches with the first tranche of $275 million earmarked for release in 2015. The remaining tranches are expected to follow through to 2025.
“Insufficient energy supplies and a demand-supply imbalance constrain growth and income opportunities and create economic disparities that can fuel ethnic and regional tensions and insecurity,” said Asad Aleem, Senior Energy Specialist in ADB’s Central and West Asia Department. “This assistance will support the government’s national energy supply program of more than $10 billion, which aims to expand power supply to boost economic growth and cut poverty.”
Afghanistan has seen energy demand grow by almost twice its economic growth rate from 2005 to 2012, and it taps around 80% of its total supplies from neighbouring countries. The reliance on energy imports, small size of the domestic market, limitations in transmission and distribution networks, and governance and financing weaknesses leave energy security highly vulnerable. The national grid is also not synchronized with the systems of the four countries (Iran, Tajikistan, Turkmenistan, and Uzbekistan) which Afghanistan imports power from, resulting in higher costs and reduced reliability of supply.
In its first tranche, ADB will fund the last missing links for an expanded Turkmenistan-Afghanistan power interconnection, allowing the country to increase electricity imports for year-round supplies from its neighbour. This will include constructing over 300 km of a 500 kilovolt (kV) transmission line connecting Sheberghan to Dashte Alwan, and over 60 km of a 220kV line from Andkhoy to Sheberghan. Support will also be given to develop a business plan and tariff framework for the state power utility, Da Afghanistan Breshna Sherkat.
Subsequent tranche assistance will focus on further transmission network upgrades, as well as support for domestic renewable energy projects and measures to boost both domestic gas production and imports via the Turkmenistan- Afghanistan-Pakistan-India gas pipeline. Assistance for building up the human resource capabilities of relevant agencies, and to introduce regulatory reforms, will also be provided.
ADB’s is Afghanistan’s largest development partner in the energy sector with cumulative grant assistance of nearly $2.2 billion, all of which is on budget with the government. Its support is crucial given the government’s limited resources and the constraints on private investment. The program is supporting targets of the government’s national energy supply program, which include increasing the country’s electrification rate from 30% to 83%, and lifting the share of domestic generation from 20% to 67% by 2030.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2014, ADB assistance totalled $22.9 billion, including cofinancing of $9.2 billion.