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Viewing cable 07KABUL2070, Afghanistan Energy: Revisiting NEPS

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Reference ID Created Released Classification Origin
07KABUL2070 2007-06-27 12:41 2011-08-24 01:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kabul
VZCZCXRO7159
OO RUEHDBU RUEHIK RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHBUL #2070/01 1781241
ZNR UUUUU ZZH
O 271241Z JUN 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8845
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0502
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
UNCLAS SECTION 01 OF 07 KABUL 002070 
 
SIPDIS 
 
STATE FOR SCA/A, SCA/FO (A/S BOUCHER, GASTRIGHT, DEUTSCH) 
STATE PASS USTDA FOR DSTEIN/SGREENIP 
STATE PASS OPIC, USAID 
OPIC FOR MOSBACHER/ZAHNISER/STEELE 
MANILA PLEASE PASS ADB/USED 
NSC FOR AHARRIMAN 
USAID FOR JKUNDER, MWARD 
TREASURY FOR ABAUKOL 
OSD FOR SHINN, SHIVERS 
CENTCOM FOR CFC-A, CG CJTF-76, POLAD, JICENT 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: ENRG ECON EPET ETRD KPWR EAID PGOV AF
SUBJECT: Afghanistan Energy: Revisiting NEPS 
 
Ref:  A) Kabul 1583/1206/1033/936/935/692 
B) Kabul 317/274/162 C) 06 Kabul 5353 and previous 
 
1.  (SBU) Summary: The North East Power System (NEPS) is at the 
center of the GOA strategy to provide affordable and reliable 
electricity to the Afghan people, a high economic and political 
priority for the GOA and the donor community.  NEPS transmission 
lines were designed to import 300MW of power from each of 
Afghanistan's three northern neighbors and to be supplemented by 
some domestic generations.  During the last few months some of the 
assumptions underlying NEPS have changed.  There may be less than 
expected electricity imports from Tajikistan and Uzbekistan and the 
timeline could be delayed beyond the end-2008 target date for 
completion of NEPS.  Turkmenistan says it has more electricity to 
export but wants to transmit it over a line not compatible with 
NEPS.  This has raised some routing and financing questions and 
reopened some decisions, which could delay electricity imports from 
Turkmenistan as well as increase the cost of construction of the 
transmission line.  The backbone transmission line from north 
central Afghanistan to Kabul has capacity to carry less power than 
originally expected.  Completion of the Sheberghan power plant has 
been pushed back to 2010 due to delays in gas field development and 
because we had to move funds to purchase generators for Kabul.  With 
the likelihood of delays in some pieces of NEPS, the USG decision 
this year to go ahead with 100MW of generation capacity in Kabul 
appears to be even more justified and prescient. 
 
2.  (SBU) These shifting NEPS assumptions do not endanger the 
project.  It remains a multi-donor, diversified power source 
flagship program designed to provide a major supply of power to 
Kabul and to communities along the way.  We must, however, respond 
to some of these changes quickly and encourage donors to do so as 
well.  The Inter-Ministerial Committee on Energy (ICE) has become a 
highly effective vehicle to identify these changes and respond to 
them by coordinating donor and GOA resources.  Embassy believes that 
the sixth meeting of the Joint Coordination and Monitoring Board in 
Kabul in September 2007 presents an excellent opportunity for GOA to 
increase awareness among donor representatives about the inherent 
uncertainty of NEPS, to alert them to slippage in some of the NEPS 
timelines, to mobilize support for a renewed momentum on NEPS, and 
to seek donor assistance to fill some of the funding gaps in NEPS. 
The third Regional Economic Cooperation Conference in Islamabad 
(dates TBD) and the CASA100 conference in Kabul this September offer 
other opportunities for NEPS discussions.  Embassy Kabul appreciates 
the support for NEPS provided by Embassies Dunshanbe, Tashkent, 
Ashgabat and Delhi and the SARI/E and REMAP programs.  Given the 
somewhat opaque operating environment, we are working NEPS with 
imperfect information.  Your continued reporting and assistance is 
very valuable to us.  End Summary. 
 
Energy: A High Priority For Afghans 
----------------------------------- 
 
3.  (SBU) Electricity is one of the most politically sensitive 
issues in Afghanistan (reftels).  Surveys show that Afghans view 
electricity as one of their highest priorities.  Only about 10 
percent of the population has access to public power.  Even more 
disquieting is that the supply of electricity in the country has not 
improved during the last five years, raising serious political 
fall-out for the GOA as well as the USG and the international 
community.  President Karzai and other GOA leaders have singled out 
support for the power sector as one of the most pressing needs of 
the country.  To address these political and economic imperatives, 
we are working with the GOA and the donor community to build a 
sustainable network that delivers affordable and reliable 
electricity to Afghans.  Such a network would also advance Afghan 
economic growth, prosperity and stability, high priority strategic 
USG objectives in Afghanistan. 
 
NEPS: Shifting Assumptions 
-------------------------- 
 
 
KABUL 00002070  002 OF 007 
 
 
4.  (SBU) The multi-donor North East Power System (NEPS) project is 
at the core of our power sector strategy for Afghanistan.  Together 
with the smaller USG-funded South East Power System (SEPS) project, 
NEPS would provide access to electricity in areas covering about 60 
percent of Afghanistan's population.  During the last four months 
some of the assumptions underlying NEPS have changed (see paras 
9-22).  It does not mean that NEPS is endangered.  It remains a 
multi-donor, diversified power source flagship program designed to 
provide a major supply of power to Kabul and to communities along 
the way.  We must, however, respond to some of the shifting 
assumptions and encourage other donors to do so as well.  We must 
also re-energize our NEPS efforts and continue to urge Afghans to 
establish a homogenous overall vision.  As a result of the NEPS 
changes, there is likely to be slippage in the 2008-2009 target date 
for NEPS completion, although if we address selected issues, power 
can begin to flow by end-2008.  With the likelihood of delays in 
some pieces of NEPS, the USG decision this year to go ahead with 
100MW of generation capacity in Kabul appears to be even more 
justified and prescient. 
 
ICE: Highly Effective 
--------------------- 
 
5.  (SBU) The Inter-ministerial Committee on Energy (ICE), 
established by Presidential decree in November 2006 (ref B), has 
been a highly effective vehicle to respond to these changes.  While 
still trying to find its organizational legs, ICE has already become 
a very productive coordinating body on energy issues both within the 
GOA and between the GOA and donors.  Under Economy Minister Jalil 
Shams, ICE has also become an important player in providing high 
level policy direction in the energy sector.  It is through the 
ICE-convened coordinating meetings that the GOA and donors as a 
group have been able to identify the some of the changes in NEPS 
assumptions and to deliberate on how best to respond to these 
changes.  ICE has taken the lead role in mobilizing the Ministry of 
Energy and Water (MEW) and donors to systematically prioritize 
energy sector development projects, to identify funding and resource 
gaps and to seek funding alternatives. 
 
Opportunities to Reenergize NEPS 
-------------------------------- 
 
6.  (SBU) Embassy believes that the sixth meeting of the Joint 
Coordination and Monitoring Board (JCMB-VI) to be held in Kabul in 
September 2007 offers an excellent opportunity for the GOA to 
increase awareness among donor representatives about the inherent 
uncertainty of NEPS, to alert them to slippage in some of the NEPS 
timelines, to mobilize support for a renewed momentum on NEPS, and 
to seek donor assistance to fill some of the funding gaps in NEPS. 
Other targets of opportunity to push forward on NEPS with regional 
states and donors are the third Regional Economic Cooperation 
Conference in Islamabad (dates tbd) and the CASA1000 conference in 
Kabul September 5-6. 
 
7.  (U) Embassy Kabul appreciates the support for NEPS provided by 
Embassies Dunshanbe, Tashkent, Ashgabat and Delhi and the SARI/E and 
REMAP programs.  Given the complexities of various pieces of NEPS 
and the somewhat opaque environment in some Central Asian states, we 
are working NEPS with imperfect information.  Your continued 
reporting and assistance is very valuable to us.  We suggest even 
more invigorated coordination and exchange between the Embassies and 
the SARI/E and ReMAP programs.  Such coordination will allow us to 
deliver a consistent and synchronized message to the NEPS players 
and to influence their actions so that NEPS becomes a reality in a 
timely manner.  In particular, we would appreciate any information 
on the availability of surplus power in Tajikistan, Uzbekistan and 
Turkmenistan. 
 
Original NEPS 
------------- 
 
8.  (U) NEPS was conceived in 2003 as a cross-border project in 
 
KABUL 00002070  003 OF 007 
 
 
which 220kv transmission lines would be built to import 300 MW of 
power each from Tajikistan, Uzbekistan and Turkmenistan.  These 
cross-border arrangements would be locked in with power purchase 
agreements (PPA) drafted according to international best practices. 
The three lines would converge at Pul-e-Khumri in north central 
Afghanistan, from where another transmission line would be built 
over the Hindu Kush mountains and the Salang Pass to Kabul.  NEPS 
would also be fed by a 100 MW thermal plant to be built by USAID at 
the Sheberghan gas field near Mazar-e-Sharif.  Of the proposed 1000 
MW thus flowing into NEPS by end-2008, 600 MW would be transmitted 
to Kabul and the adjoining areas, with 400 MW to be absorbed by 
communities along the transmission lines in northern Afghanistan. 
If other domestic sources of electricity were to be developed in the 
future, they could also be fed into NEPS.  In this manner, NEPS was 
envisaged as a transmission backbone for a large part of the 
country. 
 
Tajikistan Connection: ADB 
-------------------------- 
 
9.  (SBU) The Asian Development Bank (ADB) is responsible for the 
142km $35 million transmission line from the Tajik border to 
Pul-e-Khumri.  The ADB is also responsible for construction of the 
line on the Tajik side of the border.  Completion of the 
transmission line for Tajik power has been delayed and, when it is 
built, it is expected to carry less power than originally 
anticipated.  A fundamental difficulty about the Tajik connection is 
uncertainty about the amount of surplus power available within 
Tajikistan. 
 
-- The line has been delayed beyond 2008 because power purchase 
agreement negotiations are taking longer than expected and ADB will 
not begin construction until a PPA is in place; 
 
-- Instead of the expected 300 MW to be imported year-around, the 
Tajiks are willing to only agree to 100 MW and only during 5-6 
months in the summer; in their latest offer they are unwilling to 
make any commitments on firm supply or to lock in a price; 
 
10.  (SBU) Embassy recommends a multi-pronged effort to push the 
GOA, the Tajiks and the ADB as well as the World Bank (both of which 
are providing consultation advice to the Tajiks and the Afghans on 
the PPAs) to: 
 
-- conclude the PPA at the earliest so construction can begin on the 
transmission line; 
 
-- encourage the Tajiks to be more forward leaning on providing 
guarantees on supply and price; 
 
-- encourage the ADB, the GOA and the Tajiks to agree to begin 
construction on the line without a finalized PPA; and 
 
-- reinvigorate our USAID-funded consultation services for the PPA 
and technical aspects of the transmission links. 
 
Uzbekistan Connection: ADB 
-------------------------- 
 
11.  (SBU) The ADB is responsible for the 192km $55 million line 
from the Uzbek border to Pul-e-Khmuri.  Construction of the line is 
on schedule for completion by end-2008.  There are serious 
questions, however, about transmission capacity on the Uzbek side of 
the border which may both delay and severely limit power supply from 
Uzbekistan.  Instead of the expected 300 MW, there may be no 
electricity supply into the NEPS network from Uzbekistan unless 
there is some investment soon in transmission capacity on the Uzbek 
side of the border. 
 
-- The GOA and the donor community recently learned that there is no 
220kv connection line on the Uzbek side of the border to feed power 
to the 220kv line being built within Afghanistan by the ADB.  The 
 
KABUL 00002070  004 OF 007 
 
 
existing connection within Uzbekistan is a 110kv line which feeds 25 
MW into a 110kv line to Mazar-e-Sharif.  The 110kv connections are 
not part of the 220kv NEPS transmission system. 
 
-- In order to get any power from Uzbekistan, NEPS needs a 50km 
220kv transmission line from the border to Surkhan within 
Uzbekistan.  This new line would allow 150MW of power we believe is 
available at Surkhan to flow into NEPS. 
 
-- In order to get an additional 150MW (for a total of 300MW) at 
Surkhan, transmission connections will also have to be built from 
Surkhan to northern Uzbekistan; we do not know the detailed systems 
configurations for this connection. 
 
-- A recent ADB mission to Uzbekistan recommended that ADB consider 
assistance on transmission lines within Uzbekistan to enable import 
of electricity by Afghanistan.  We understand, however, from ADB 
staff that its project approval procedures make it highly unlikely 
that either the line from the border to Surkhan or the one from 
Surkhan to northern Uzbekistan can be built before 2010. 
 
12.  (SBU) Embassy believes that our immediate aim should be to find 
a means to fund the 50km 220kv line from the border to Surkhan soQthat it can be completed before end-2008 and 150MW can begin to flow 
into NEPS.  Without this line, we are unlikely to have any power in 
NEPS by end-2008 even though key pieces of NEPS -- Uzbek border to 
Pul-e-Khumri to Kabul -- will be completed by then. 
 
-- GOA Funding: The most promising option for the Surkhan-to-border 
line appears to be one where the GOA fronts the $20 million needed 
for this line to the Uzbeks as prepayment for the power they will 
import and the Uzbeks fast track construction of the line.  In a May 
27 ICE meeting, the GOA told donors that it had reached internal 
agreement on this approach.  Energy and Water Minister Ismail Khan, 
Economy Minister Shams and Deputy Finance Minister Shahrani plan to 
visit Tashkent to make this offer to the Uzbeks.  Embassy will press 
the GOA to make this visit at the earliest. 
 
-- Korea: We understand Korea has expressed some interest in 
providing assistance within Uzbekistan to support Afghan-related 
projects.  If the GOA-funded, Uzbek-built proposal is not finalized 
soon, we should encourage the Koreans to assist with the 
Surkhan-to-border transmission line.  For the Koreans, such a 
project would have multiple advantages: assistance to Uzbekistan, 
assistance to Afghanistan, and a seat at the high table by becoming 
stake-holders in NEPS, the flagship multi-donor energy program in 
Afghanistan.  In any approach we make to the Koreans, we should 
underscore the urgency of this piece of the NEPS puzzle. 
 
-- ADB:  We should encourage the ADB to work on a parallel track on 
funding the transmission lines beyond Surkhan to northern Uzbekistan 
so that up to 300 MW of electricity would be eventually available 
for import from Uzbekistan into NEPS. 
 
-- USG: Due to constrained Uzbek relations with the United States, 
the USG should remain in the background on the Uzbek-Afghan energy 
trade issue.  We should, however, continue to provide consultant 
support to the GOA on the proposed PPA as well as the technical 
aspects of the transmission links. 
 
Turkmenistan Connection: USAID 
------------------------------ 
 
13.  (SBU) Under the original NEPS structure, USAID is responsible 
for the 267km $57 million transmission line from the Turkmenistan 
border to Sheberghan.  Due to the ADB's decision in 2006 not to fund 
the Sheberghan-Mazar connection, this section was also added to 
USAID's program.  The Turkmenistan connection appears to be the most 
bedeviling at this point because recent developments have reopened 
some fundamental decisions that had been made.  It appears now that 
more than 300MW of power may be available from Turkmenistan but the 
transmission line from Turkmenistan will cost more and will be 
 
KABUL 00002070  005 OF 007 
 
 
delayed beyond end-2008 because Afghan-Turkmen discussions on the 
technical aspects have not yielded results to date. 
 
14.  In a June 2007, Afghan Minister of Energy and Water Ismail Khan 
and the Turkmen Minister of Energy and Industry signed a "Protocol 
of Intention" under which: 
 
-- Turkmenistan is willing to supply electricity on a 500kv line 
(Note: We understand that 500kv is the standard the Turkmen now use 
for all new lines on their grid. NEPS standard is 220kv); 
 
-- each country would fund transmission lines within its territories 
from its own funds; 
 
-- Turkmenistan agreed to supply 300MW of power (Note: we have heard 
that the Turkmen privately told the Afghans that they could supply 
more.) 
 
-- the terms of the power trade would be defined by a PPA. 
 
15.  (SBU) Donors will receive a complete read-out of the GOA visit 
to Turkmenistan at the next ICE meeting scheduled for June 28.  The 
connection to Turkmenistan presents the largest true construction 
problem.  Turkmenistan's offer of more power on a 500kv line raises 
several questions and reopens some previous decisions: 
 
-- Who will fund the additional $30 million for a substation to step 
down the voltage from 500kv to 220kv? 
 
-- Given the opportunity to receive more power from Turkmenistan (to 
make up in part or in whole for less power from Tajikistan and 
Uzbekistan), is it more appropriate to build a larger capacity 500kv 
line within Afghanistan as well? 
 
-- Who will fund the excess cost of a 500kv line within Afghanistan 
relative to a 220kv line budgeted for by USAID? 
 
-- What is the optimal border crossing point for the Turkmenistan 
connection? 
 
-- If the transmission line from the Turkmenistan border were 500kv, 
where should it terminate within Afghanistan?  Pul-e-Khumri, 
Naibabad, Mazar, Sheberghan or Andkhoy? 
 
16.  (SBU) USAID currently has $57 million for the originally 
proposed line from Turkmenistan to Mazar.  If the decision is to 
build a 500kv line along the original alignment within Afghanistan, 
then either USAID will need additional funding or the GOA and donors 
will have to seek other funding sources.  The GOA is also 
considering asking the Turkmen to build the line within Afghanistan 
because they claim to be able to build transmission capacity cheaper 
and quicker than the international community.  This option would 
raise questions about whether to risk the GOA and Turkmenistan 
building this crucial line. 
 
17. (SBU) We understand that Turkmenistan believes that an elaborate 
PPA is not necessary for cross-border electricity trade and the 
existing MOU will be adequate.  We should encourage the Turkmenistan 
Government to engage in serious PPA discussions with the GOA because 
it is in its self-interest to enter binding agreements that promise 
to bring in a significant and steady stream of revenue over a long 
period of time.  The USG should continue to provide consultant 
support to the GOA on the proposed PPA. 
 
The Pul-e-Khumri to Kabul Backbone: India 
----------------------------------------- 
 
18.  (SBU) The Indian Government is responsible for the 201km km 
220kv line from Pul-e-Khumri to Kabul.  Construction is ahead of 
schedule, with completion expected in October 2008.  This line, 
however, will only have the capacity to transmit 250MW instead of 
the originally conceived 600MW because mountainous terrain and 
 
KABUL 00002070  006 OF 007 
 
 
difficult weather conditions pose constraints on the volume. 
 
-- The GOA and donors should begin discussion about a second line in 
the medium term from Pul-e-Khumri to Kabul to enable more power to 
be transmitted to Kabul and provinces to the south and east of 
Kabul. 
 
Sheberghan Power Plant: USAID 
----------------------------- 
 
19.  (SBU) The proposed 100MW USAID-funded power plant at Sheberghan 
is a critical piece of the Afghan electricity strategy because it 
represents the only planned domestic source of power in NEPS at this 
point.  The project has been delayed to 2010 for several reasons. 
USAID had to initially wait for ADB's project to rehabilitate gas 
wells at Sheberghan before it could move ahead on its project. 
After two aborted ADB tenders to find a service contractor for the 
gas well rehabilitation, USAID decided in late 2006 to move ahead 
itself on a $12 million project to verify reserves and rehabilitate 
seven wells so it can begin the design and construction the power 
plant.  The task order has been issued to USAID contractor Black and 
Veatch, which is looking for service provider.  We expect the 
verification and rehabilitation work will begin in October 2007, 
with design work on the power plant to commence in 2008 after proof 
of availability of gas for 20-25 years has been established. 
Separately, we are discussing with ADB a proposal to combine the ADB 
and USAID natural gas projects at Sheberghan to launch a more 
comprehensive development of the gas fields in the Sheberghan region 
(septel).  Another reason for the delay on the Sheberghan power 
plant is that USAID had to reprogram money allocated for the power 
plant to purchase the generators for Kabul (Ref A: 07 Kabul 936 and 
07 Kabul 692). 
 
Funding/Other Gaps in NEPS 
-------------------------- 
 
20.  (SBU) Working closely with donors, ICE has systematically 
identified funding and other gaps in NEPS over the last four months. 
 Some of those gaps have been plugged: 
 
-- India has agreed to fund substations at Doshi and Charikara; 
 
-- Germany will fund substations at Mazar and Konduz; 
 
-- GOA will reallocate $27 million from the Afghanistan 
Reconstruction Trust Fund for a partial upgrade of the Kabul 
distribution system. 
 
21.  (U) There are, however, several areas that need urgent 
attention: 
 
-- $5 million for a reactive power compensation system 
 
-- Additional funding for the distribution system in Kabul to stop 
leakages and to enable it to absorb the additional 250MW when NEPS 
come on line 
 
-- $27.5 million Load Dispatch and Control Center and a NEPS 
Operations and Maintenance contractor 
 
-- $4.5 million for an Emergency Restoration System 
 
-- $6.0 million for Operations and Maintenance 
 
-- Distribution systems in Doshi, Charikar, Mazar, Pul-e-Khumri, 
Khulm and Aybak. 
 
Comment on Power Purchase Agreements 
------------------------------------ 
 
22.  (SBU) According to feedback from MEW and international 
consultants helping with the power purchase agreements, the 
 
KABUL 00002070  007 OF 007 
 
 
prospective NEPS suppliers -- Tajikistan, Uzbekistan and 
Turkmenistan -- are reluctant to enter into binding power purchase 
agreements.  The commercial approach of these countries is heavily 
influenced by their soviet-era roots in which commercial relations 
did not need contractual agreements laying out in detail the rights 
and obligations of the contracting parties.  Utility officials in 
these states also do not appear to have the capacity to fully 
understand the PPAs drafted to international best practice standards 
by international consultants that are being offered to them.  We 
should continue to press vigorously on all sides for the countries 
to enter into these PPAs at the earliest and continue robust USAID 
consultant support for these PPA processes.  However, we should be 
prepared to accept that it may not be possible to finalize the PPAs 
in a timely manner and that the actual cross-border flow of NEPS 
power may have to begin under the existing non-binding MOUs that 
Afghanistan has in place with Tajikistan, Uzbekistan and 
Turkmenistan.  We believe that once electricity begins to flow into 
NEPS in sufficient volumes, there will be increasing incentive for 
the trading partners to formalize the arrangements into binding 
agreements.  The only line that is contingent on a PPA at this time 
is the Tajikistan connection, where the ADB will not begin 
construction of the line until a PPA is in place.  We should 
encourage the ADB to loosen this conditionality. 
 
Wood