Editor in Chief: Moh. Reza Huwaida Friday, March 29th, 2024

The Dormant Hydro-Power Industry

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The Dormant  Hydro-Power Industry

Afghanistan is well-endowed with abundant surface water resources. For an electricity-starved country with a growing economy, these surface waters are a unique resource. Afghanistan is, thus, well-placed in a unique position to harness these resources and generate energy not only for its growing domestic consumption but also for its immediate neighbors such as Pakistan. According to Afghanistan's Academy of Sciences, the country's running surface waters are sufficient for generating up to 23,000 MW of electricity per year.

To put this massive energy generation potential in perspective, it would be useful to know that this figure, 23000 MW of electricity, can sustain a country of 120 million people with a fairly developed economy. To put it through another example, this electricity generation potential is enough to sustain a country with a Gross Domestic Product of $150 billion.

This is so while Afghanistan's formal GDP stands at around $18 billion. At least theoretically, Afghanistan, through relying on its domestic hydro-power generation potential, can increase its GDP seven fold. Looking at the prevailing socio-economic and political conditions in Afghanistan, the actual installed capacity for hydro-power generation cannot increase unless foreign companies enter this industry with Foreign Direct Investment (FDI) and taking up building large dams – a task which the government of Afghanistan has been unable to do over the past one decade.

The current installed and operational hydro-power generation capacity in the country is only around 300 MW – only 1.3% of the total hydro-power generation potential of Afghanistan. The country, therefore, is a fertile ground for a quantum jump in this vital sector since the unharnessed potential is significant as discussed. The a) policy and b) institutional arrangements are a must before the government of Afghanistan can increase the country electricity output by relying on this dormant potential.

As discussed, Afghanistan can have a highly lucrative and profitable hydro-power generation industry with Pakistan and Iran ready to serve as importers and customers. Pakistan, in particular, is already grappling with severe power shortage with power cuts undermining its industries and causing social unrest in some of its largest cities.

Hydro, thermal and renewable options of Afghanistan
All across the world, the sources of energy generation fall under three categories excluding nuclear power generation and a number of other smaller sources. Hydro, thermal and renewable sources of power generation are all attractive options for Afghanistan.

Some international NGOs present in Afghanistan have been promoting small hydro and solar power generation projects all across Afghanistan. In some of the Eastern provinces such as Nangarhar, western such as Herat and central such as Bamiyan large small hydro-power projects have been developed with the assistance of international NGOS which have benefited small communities at the village level.

However, these initiatives are limited in both geographical expanse and power generation. Apart from lighting homes, these projects can contribute almost nothing to regional or local economic and business and trade development.

The government of Afghanistan, through its Ministry of Water and Power, has completed feasibility studies for a number of large hydro-power projects such as the Kunar Hydro-power Project, The Upper Kokcha Power Project and Upper Amu power Project.

Each of these projects are very expensive propositions, each having a total cost of over $1 billion. The donor governments and agencies have shown no willingness to fund such mega-large projects. The government of Afghanistan has neither the money nor resources and expertise to develop them.

The only feasible alternative is the participation of foreign, private sector companies. Given the continued difficult conditions in Afghanistan and the country's poor record of "business environment" and the fact that Afghanistan remains off the radar screen of international investors and financiers, no foreign private sector company has been willing to take up any of these large projects.

Thermal power generation involves the use of fossil fuels such as coal, gas and diesel for the purpose of running the turbines and generating electricity. This industry has been notorious for being responsible for much of the CO2 and other greenhouse gas emissions and causing environmental pollution.

However, more than 50% of the global electricity output comes from these sources whose relatively inexpensive and economical cost of production makes it a very attractive for countries especially those in the developing world.

From Badakhshan in the Northeast to Herat in the West, a long stretch of fossil fuel deposits makes it viable for Afghanistan to have its own share of thermal power generation – through participation of foreign companies such as China's CNPC if not by itself.

China's National Petroleum Corporation has won the tender to develop some oil blocks of the Amu Darya oil basin as well as the Hajigak iron ore mine in Logar province. CNPC's cooperation can be extended to include developing a number of thermal power plants in the Northern regions.

Public Private Partnership in Afghanistan's power sector
Currently, the policy as well as the institutional arrangements in Afghanistan are deficient and fail to adequately facilitate the participation of foreign private sector companies in the country's energy industries. Afghanistan ranked at the bottom of the international list of countries with the best 'business environment'.

At the plan and policy level, the government of Afghanistan, as it is the case across the developing world, must be able to demonstrate that it is capable of being a partner to any foreign energy company that decides to invest heavily in Afghanistan. This requires the government in Afghanistan partly guaranteeing their financial investments in Afghanistan as well as teaming up with them and sharing some of that huge financial burden.

The strategy of choice in other similar countries has been Public-Private partnerships (PPP) with a Special Purpose Vehicle (SPV) created by both the concerned government agency and the private sector company or a consortium of such companies.

The financial burden is born by both the parties and the private companies receive the right to operate and financially benefit from the completed projects and thus realize the returns on their investments. This PPP model can be extended also to other sectors such as infrastructure.

It is clear that the only way before the government of Afghanistan and its Ministry of Water and Power is to take the route of PPP to attract the unwilling foreign companies. Otherwise, Afghanistan's ambitious and monstrously expensive hydro-power projects will remain good only on paper.

The author is the permanent writer of the Daily Outlook Afghanistan. He can be reached at outlook afghanistan@gmail.com

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