Afghanistan’s First Privately Financed Power Plant Generates Promise
A road in Kabul, Afghanistan, where rates of electricity consumption are among the world’s lowest. Graham Crouch/WB
Countries with a recent history of war and violence are used to making headlines, but it’s rarely for reasons that citizens and their leaders would hope for. That might be finally starting to change in Afghanistan, a country that has experienced three decades of continuous conflict.
The Mazar Independent Power Plant (IPP), supported by IFC and private sector participants, makes news for all the right reasons. The 50-megawatt plant is expected to supply electricity to around 1 million Afghans and boost the country’s domestic power generation by 20 to 30 percent. The project will also result in the creation of almost 200 direct and many more indirect jobs.
In addition, the Mazar IPP will be the first private power project to use domestically produced natural gas—a clean-burning and affordable fuel source with less than half the carbon emissions of coal. The plant is expected to pave the way for greater collaboration between the Afghan government and the private sector to develop key infrastructure. Start of operations in 2019 will mark the first time a power plant in Afghanistan is fully financed, designed, built, and operated by the private sector.
Power Comes To a Fragile Country
Increasing access to basic public services—electricity foremost among them—will be a major achievement for Afghanistan, which imported an estimated 80 percent of its electricity last year.
The recently signed agreement, brokered by IFC, sets out the main terms under which the Ghazanfar Group, the leading private Afghan conglomerate developing the plant, will be contracted to build, own, and operate the gas-fired power plant near the city of Mazar-e-Sharif. It will sell electricity over the next 20 years to Da Afghanistan Breshna Sherkat, the country’s national utility company.
Private investment in Afghanistan’s power generation sector will change the situation many Afghans face today. Less than half of the country’s population have access to electricity, and up to 90 percent of Afghan citizens in rural areas are cut off from the grid. The average Afghan uses just 176 kilowatt-hours of power annually, a figure among the lowest in the world and about 40 percent of that in neighboring countries.
In fact, Afghanistan has one of the lowest rates of electricity usage globally. This has implications not only for citizens’ quality of life and health prospects, but for national economic potential as well. In the World Bank Group’s Doing Business Report, for example, Afghanistan ranked 159 out of 187 countries for the ease of getting electricity—a huge impediment for businesses and entrepreneurial activity.
Focusing on Conflict-Affected States
As the largest private sector development financial institution in the world, IFC has a long and successful track record of investing in pioneering projects across some of the most challenging markets. Over the past three years, IFC has offered advisory solutions and invested $2.5 billion in fragile and conflict-affected states.
IFC's support for the Mazar IPP is an important part of this broader work. Afghanistan is a high-priority country for the World Bank Group. We have provided advice aimed at improving the country’s investment climate and facilitating greater private sector investment. IFC has also invested around $140 million in a number of sectors in Afghanistan, including the telecommunications, hospitality, and financial sectors.
Going forward, IFC aims to increase our engagement in Afghanistan, particularly in the critical energy and infrastructure sectors.
Given the scale of Afghanistan’s needs, the private sector has the potential to be transformative in supporting the country’s infrastructure development. In particular, the Mazar IPP’s generation capacity can multiply its positive impact on Afghanistan’s economy. As a template for sustainable private investment in the country’s power sector, the Mazar IPP makes powerful headlines all its own.
To learn more about IFC’s work in Infrastructure, visit: www.ifc.org/infrastructure
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Published in November 2016