Afghanistan has a vast unmet need for energy, despite having substantial natural gas reserves of its own. Only 34 percent of Afghans have access to grid electricity: those who do can experience blackouts of up to 15 hours a day. A lack of infrastructure investment, combined with an underdeveloped and fragmented system of transmitting and distributing power, means Afghanistan imports about 75 percent of its power from its Central Asian neighbors. Many people are left to rely on expensive, polluting diesel generators.

A pioneering IFC-led investment in a 59-megawatt gas-to-power plant will bring change, boosting the country’s current total domestic generation by up to 30 percent. The Mazar-e-Sharif project was conceived as the first long-term private investment in Afghanistan’s energy sector and the first long-term public-private partnership in the country.

At an estimated cost of $89 million, the project is expected to create about 200 direct jobs, plus many more indirectly, while demonstrating that internationally bankable long-term public-private partnership contracts are possible in a conflict-affected country.

The project will be implemented by Afghan Power Plant Company, established by the Afghan conglomerate, the Ghazanfar Group, in partnership with HA Utilities, the utilities investment and development arm of Hassan Allam Holdings.

“If you don’t have power, you cannot educate people. If you don’t have power, you don’t have health. All hospitals, all education systems, and all industry — all that is around you needs power,” explained Ismail Ghazanfar, Chairman and CEO of Ghazanfar Group. “This is not a one- or two-year project. We in the Ghazanfar Group are thinking it’s a long-term investment by our company, and we are committed to invest in Afghanistan.”

IFC spent over six years turning an idea — to find a way to use Afghanistan’s significant gas reserves to meet the country’s energy needs — into reality. The Mazar-e-Sharif project demonstrates IFC’s commitment to creating markets by working Upstream, in collaboration with the World Bank.

World Bank Group support for the project includes IFC long-term debt financing, a guarantee from the International Development Association (IDA), political risk insurance through the Multilateral Investment Guarantee Agency (MIGA), as well as use of the IDA Private Sector Window (PSW).

IFC’s financial support for the project from its own resources includes a $21.2 million senior loan and a $1.5 million client risk-management swap. In addition, as the mandated lead arranger for the project, IFC mobilized $41.2 million in parallel loans from other lenders, including DEG, the German development finance institution, and the Asian Development Bank.

The financing package also includes political risk insurance from MIGA amounting to $48.7 million. IFC’s financing and MIGA’s investment guarantees will be covered in part by the IDA PSW’s risk-mitigation facility as well as the MIGA guarantee facility. This is the first time the private sector window’s risk mitigation facility has been used.

For Ismail Ghazanfar, the investment is essential to Afghanistan’s energy future. “We have gas. We have rivers. We have the opportunity of solar, with 300 days a year of sun in Afghanistan,” he said. “It makes sense to invest in Afghanistan’s energy sector to develop the country’s capacity.”