Nilofar Ghazanfar describes herself as fortunate. She’s the fourth generation to work in her family’s business, the Ghazanfar Group, which has operated in Afghanistan for over 100 years. She sees her role as breaking down barriers in a field vital to Afghanistan’s future – energy.
“I can proudly say that I am one of only a few women working in the energy sector in Afghanistan,” she says. “I hope my participation will encourage more women to come into the sector. We believe that energy is the future of Afghanistan and that’s how we’re going to develop from 50 years of war.”
Afghanistan has an enormous need for energy. Only 34 percent of Afghans have access to grid electricity, and even people whose homes or businesses are connected to the grid suffer from frequent power blackouts of up to 15 hours a day. It’s a situation that leaves citizens with little option but to rely on expensive and polluting diesel generators.
While Afghanistan has substantial natural gas resources of its own, the land-locked mountainous country imports about 75 percent of its power from its Central Asian neighbors. The country’s ability to make use of its natural resources has been hindered by a lack of investment as well as an underdeveloped and fragmented system of transmitting and distributing power.
But that may be changing. Nilofar Ghazanfar has been appointed by her family’s company as the project coordinator for the 59-megawatt Mazar-e-Sharif power project—a trailblazing new gas-to-power initiative in Afghanistan that is expected to boost the country’s current total domestic generation capacity by up to 30 percent.
The power project was conceived as the first long-term private investment in Afghanistan’s energy sector and the first long-term public private partnership (PPP) in the country.
Worth $89 million, the power project is expected to create about 200 direct jobs, plus many more indirectly, while setting a precedent showing that internationally bankable long-term PPP contracts are possible in a conflict-affected country like Afghanistan.
To help Afghanistan deliver on its ambitions to move away from reliance on electricity imports and meet its growing demand for energy, the project will benefit from a combination of World Bank Group support.
“All that is around you needs power”
The project’s journey began at conference in Dubai in 2013 when development partners asked IFC to look at the best ways to develop Afghanistan’s significant but under-used domestic gas reserves to tackle a pressing development need in the country.
But it was no easy task. After considering a number of alternatives and locations, a way forward was identified: find a company willing to build, own, and operate a gas-fired power plant near the city of Mazar-e-Sharif. The city lies not too far from the country’s operating gas fields at Sheberghan, yet close to the transmission lines and demand centers and in an area described as “relatively peaceful.” On paper, the concept sounded straightforward; not so much in implementation.
While the World Bank has long been working with the Afghan government to develop the country’s electricity and gas sector through regulatory and governance reforms, private investors were not flocking to Afghanistan.
“No-one in the private sector was interested in investing in energy in Afghanistan, despite all the work with World Bank colleagues on regulations, making it easier for the private sector to look at this market,” says IFC’s senior country officer in Afghanistan, Wagma Mohmand.
Image: Lack of investment has been an obstacle in Afghanistan’s development.
Initially, IFC unsuccessfully explored and then abandoned the idea of an international company. Instead, it turned to a domestic company, with an interest in venturing into an energy project in an untested environment like Afghanistan.
This is when the Ghazanfar Group came in. Ismail Ghazanfar, the father of Nilofar, was interested when IFC raised the idea of developing a gas-to-power project that would help boost Afghanistan’s energy independence. Established in 1910, Ghazanfar Group is a large Afghan conglomerate headquartered in Mazar-e-Sharif with diversified business interests in energy transportation and construction, as well as the banking sector.
“We thought, okay! Power is everything right now in the world and Afghanistan really needs power,” says Ismail Ghazanfar. “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– so that’s why we thought about power. This is not a one- or two-year project. So, we in the Ghazanfar Group are thinking it’s a long-term investment by our company and we are committed to invest in Afghanistan.”
Despite his clear intentions, Ismail Ghazanfar readily admits it was a challenge to move from concept to project reality.
“This project was a first of its kind and it had to meet international standards. The government had no track record of doing a project like this with the private sector so there was work to help the government understand all the elements needed, drawing on IFC’s international experience,” he says. “So, it was a big challenge.”
The new project helps Afghanistan’s businesses satisfy a growing demand for energy.
IFC worked with Ghazanfar on appointing advisors to deal with technical and legal requirements and to structure the Mazar-e-Sharif power project to meet international standards. IFC supported Ghazanfar Group in finding an equity partner on the project, Hassan Allam Holdings, which is also the engineering, procurement, and construction contractor for the project. IFC then worked on a financing package to enable the project to go ahead. Funding was mobilized from Germany’s development finance institution, DEG, as well as from the Asian Development Bank.
World Bank Group support 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).
The Role of Risk
In a conflict-affected country like Afghanistan, a key challenge was dealing with country and political risks.
“The lack of a payment track record by the utility under a domestic PPP structure, and the highly donor- dependent financial condition of the government, presented a significant risk challenge to mitigate,” says Kamal Dorabawila, IFC’s Principal Investment Officer and team lead for the project.
“This is where we brought in the IDA PSW to complement the IDA guarantee requested by the government,” says Dorabawila. The IDA PSW is a $2.5 billion facility created in 2017, with these kind of projects in mind, to help spur private sector development and job creation in the world’s least developed countries, especially those affected by fragility and conflict.
Businesses and institutions across Afghanistan rely on electricity imports to power their services.
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.
While these instruments addressed the longer-term impacts of payment risk, a $12 million IDA guarantee from the World Bank provided at the request of the Afghan government will help backstop the ongoing payment obligation of the power utility, Da Afghanistan Breshna Sherkat (DABS), which will be buying the power generated from the project.
“This project was the first one to spark interest,” Mohmand says. “This will mark the first long-term private investment in the energy sector and we’re already seeing other investors now looking to Afghanistan. This project has really been a game-changer in Afghanistan.”
The project has already spurred interest from the Afghan government in developing other private sector energy projects, including in renewable energy. Benefitting from the template set by this trailblazing project, a few other power generation projects have already been realized.
Ismail Ghazanfar sees this as just a start for a company with a long history in Afghanistan.
“We have gas. We have rivers. We have the opportunity of solar, with 300 days a year of sun in Afghanistan. It makes sense to invest in Afghanistan’s energy sector to develop the country’s capacity and invest in the energy sector in Afghanistan.”
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Published in June 2020