VZCZCXRO8338
OO RUEHDBU RUEHIK RUEHLN RUEHVK RUEHYG
DE RUEHBUL #1033/01 0880325
ZNR UUUUU ZZH
O 290325Z MAR 07
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7146
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 0417
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 03 KABUL 001033 
 
SIPDIS 
 
STATE FOR SCA/A, SCA/FO (A/S BOUCHER, GASTRIGHT, DEUTSCH), F FOR 
MWONG 
STATE PASS USTDA FOR DSTEIN/SGREENIP 
STATE PASS OPIC 
OPIC FOR MOSBACHER/ZAHNISER/STEELE 
MANILA PLEASE PASS ADB/USED 
NSC FOR AHARRIMAN AND BCAMP 
USAID FOR JKUNDER, MWARD 
TREASURY FOR ABAUKOL 
OSD FOR SHINN, SHIVERS 
CENTCOM FOR CFC-A, CG CJTF-76, POLAD, JICENT 
OMB FOR ESHORTINO 
 
SENSITIVE 
SIPDIS 
 
E.O.12958: N/A 
TAGS: ENRG EAID ECON EPET ETRD KPWR PGOV AF
SUBJECT: KABUL POWER SUPPLY - LATE BREAKING DEVELOPMENTS AND 
FINANCING PLAN 
 
Refs:  A) Kabul 936/935; B) Kabul 692/317/274/162; C) 06 Kabul 
5353/5194/4319 and previous 
 
(U) This message contains SENSITIVE BUT UNCLASSIFIED information. 
Please protect accordingly.  Not for internet distribution. 
 
1.(U) This is an action request message - see para 12. 
 
¶2. (SBU) SUMMARY: Post met on March 26th with key GoA officials to 
reiterate and discuss the USG proposal to assist the procurement of 
100MW of genset-produced electricity for Kabul prior to the winter 
of 2008-2009. Estimated cost is $130 million. GoA officials repeated 
their commitment to provide $20 million if the deal goes forward. 
Additional analysis of recurrent costs was requested by the Minister 
of Finance within the coming days to inform the final GoA decision. 
This is underway. Embassy sent a letter on March 27th reiterating 
the final proposal; GoA was given until April 9th to formally 
respond, including acceptance of the conditions which have been 
discussed for some weeks. None appear to be deal-breakers. Post 
proposes to Washington to finance the balance of the cost, estimated 
at $110 million, using reprogrammed power sector funds now with 
USAID in Kabul, and funds in the FY 2007 supplemental request 
already intended for addressing Kabul's power problem and to be 
redirected from provincial roads in the insecure south. Post 
requests State/SCA and AID/ANE to begin Congressional consultations, 
and if deemed necessary, formal notification. Please note to 
Congress that the actions are essential, that thre is no duplication 
or wastage of resources, and that we are leveraging major GOA policy 
changes and burden-sharing as a counterpart.  END SUMMARY. 
 
---------- 
BACKGROUND 
---------- 
 
¶3. (SBU) REFTELs document the discussions both within the Country 
Team and the GoA which began in late January 2007 concerning the 
need to provide Kabul with additional capacity to provide reliable 
electricity both before the anticipated delayed arrival of energy 
via NEPS from Central Asia, as well as afterwards due to supply 
constraints and system vulnerabilities. This consideration responded 
to a GoA initiative led by the Minister of Economy, who heads the 
Inter-ministerial Commission on Energy (ICE) established with USG 
support. The issue of Kabul power figured prominently both in the 
Strategic Partnership prosperity working group meeting in February, 
and the Partnership plenary session held in Kabul earlier this 
month. 
 
¶4. (SBU) USAID power sector consultants, Black & Veatch (B&V), on 
March 11, 2007 submitted a technical assessment of adding 100 MW 
generating capacity to Kabul. The recommended technical solution is 
large reciprocating engines (diesel generators) in the nominal size 
unit of 7 MW to 12 MW. The estimated installed cost, done on a 
conservative basis including an allowance for contingencies, is 
$1,300/kw, or $130 million. This cost includes one year of O&M to be 
provided by the vendor. 
 
¶5.  (SBU) The GoA publicly stated in the Strategic Partnership 
meeting held earlier this month that if the gensets are procured 
that they would contribute $20 million towards the capital cost. 
COMMENT: USAID has suggested these funds be used for the initial 
downpayment upon ordering if at all possible. END COMMENT. The GoA 
is also providing $15 million to refurbish the NW Kabul diesel-fired 
generating plant to increase its reliability and lower its operating 
costs through conversion to heavy fuel oil (crude). 
 
¶6. (SBU) The remaining capital expense to be covered by the USG is 
thus estimated to be $110 million. A portion of the total cost, 
notionally $20-$30 million, would be required at the point of 
ordering before the end of April, while the balance would be due in 
 
KABUL 00001033  002 OF 003 
 
 
tranches upon delivery and when installation is complete. 
 
---------------- 
NEW DEVELOPMENTS 
---------------- 
 
¶7. (SBU) On March 26th an Embassy delegation headed by the 
Ambassador met with the President's Senior Economic Advisor, Dr. 
Nadiri, Finance Minister Ahady, Economy Minister Shams, and other 
Afghan officials to discuss the B&V recommendations, the conditions 
precedent for USG assistance, an analysis of the recurrent costs of 
the extra 100MW, and the financing package discussed below. 
 
¶8. (SBU) Minister Shams reiterated his strong belief that a single 
100MW package of 7MW-12MW gensets delivered in late fall of 2008 is 
preferable to a split of 20 1MW gensets this coming winter followed 
by the remaining 80MW of 7MW-12MW gensets in 2008. He also contested 
the AID calculation of recurrent costs (O&M and fuel) for the 
addition of 100MWs, noting that another analysis he had reviewed 
indicated the cost to be lower. 
 
¶9. (SBU) Minister Ahady responded that the MoF has budgeted $50 
million for O&M (including fuel) in the next Afghan fiscal year, 
1387, which is higher than even the B&V estimates. Although it 
appears that the recurrent cost concern may well be resolved, Dr. 
Nadiri asked that Minister Shams meet with AID and its consultants 
in the coming few days to resolve the differences and report back to 
the others. There was no disagreement on the GoA's part with the 
proposed conditions, although Minister Ahady questioned the cost of 
complying with them. AID's consultant replied that cost had been 
calculated and was factored into the recurrent cost figures provided 
to the GoA. 
 
¶10. (SBU) The Ambassador stated the USG offer was on the table until 
April 9th, the day before his anticipated departure from Post, 
explaining he could not commit to arrangements after this date. He 
asked if the Embassy should send a letter to the GoA containing the 
final proposal and required GoA actions before this date, 
specifically a letter from the Minister of Finance reiterating the 
request for assistance to procure the gensets, accepting the 
conditions and the financing arrangements. Minister Ahady responded 
affirmatively, noting the issue would need to be discussed within 
the Economic Cabinet. Embassy will transmit this letter on March 
27th. Although these steps are still necessary, Post feels confident 
that the deal will go through and thus requests the Washington 
actions described in para. 
 
----------------------------- 
FINANCING THE GENSET PURCHASE 
----------------------------- 
 
¶11. (SBU) Post proposes to finance the $110 million using a 
combination of resources already appropriated for the reconstruction 
program in Afghanistan, and some contained in the FY 2007 
supplemental request currently before Congress. The financing plan 
is as follows: 
 
-Resources at Post: 
 
We would reprogram $26,000,000 of the $76 million currently slated 
for the Kajaki transmission line. $50,000,000 would remain for 
design work and fabrication of the power line pylons beginning this 
summer. The $26,000,000 is intended for installation of the 
transmission lines and is not needed at this time due to the 
security environment in northern Helmand and parts of Kandahar 
province. These funds were originally part of the FY 2005 
supplemental destined for Sheberghan and were reprogrammed to Kajaki 
last spring with Congressional approval. The $26 million would be 
back-filled with a portion of the FY 2008 $143 million base request. 
 
KABUL 00001033  003 OF 003 
 
 
COMMENT: Post proposes these funds be used for the initial payment 
upon ordering in April 2007, should the process of USAID accepting 
the $20 million contribution from the GoA prove impracticable in the 
short time available. END COMMENT. 
 
-Supplemental Resources: 
 
$18,000,000 requested for "keeping the lights on" in Kabul. 
$66,000,000 requested for "strategic provincial roads," out the 
total planning level of $186,000,000 (district road funding is not 
affected). The $66 million can be redirected due to the extreme 
security conditions where three of the four roads are located in 
northern Kandahar, northern Helmand and eastern Farah provinces. 
When these particular roads were identified in collaboration with 
the Coalition last spring, conditions on the ground were quite 
different. Since then, the Taliban center of gravity has shifted to 
precisely the area where these three roads are located. NATO/ISAF 
will have a job on its hands providing the security environment 
needed to allow the Kajaki dam, road and transmission line work to 
proceed. Under these conditions work on the three roads therefore 
cannot be undertaken as rapidly as anticipated. The $66 million 
would be back-filled with FY 2008 base and GWOT funds, depending on 
the conditions on the ground and road sector priorities at the time. 
 
 
----------------- 
REQUESTED ACTIONS 
----------------- 
 
¶12. (SBU) Congressional Consultations and Notification: Although the 
deal is not yet cinched, Post requests the following actions in the 
coming days. The ability to use the $26 million in resources already 
at Post should only require Congressional consultations since they 
were originally notified for the power sector. Having said this, the 
reprogramming of the entire $76 million from Sheberghan to Kajaki 
was contained in the broad May 2006 post-budget scrub 
re-notification involving FY 2005 supplemental and base funds. Post 
requests that State/SCA and AID/ANE confirm if consultation is 
sufficient in this case. If so, they should be undertaken in 
conjunction with discussions over the final use of the $66 million 
requested for provincial roads before the House-Senate FY 2007 
supplemental bill conference. If not, Post requests that State and 
AID Desks work with F, H and AID/LPA to prepare a formal 
notification for the $26 million reprogrammed from Kajaki, while 
proceeding at once with the supplemental consultations. 
 
¶13. (SBU) It is important to stress to Congress that: 
 
- We are meeting a critical economic and political need and need to 
do so before the 2009 election. 
 
- The capacity we propose to install will be needed in any event; 
there is no duplication or wastage of resources. 
 
- We are insisting on major cost sharing and policy from the GOA as 
a condition of our actions.  The most basic of these changes are: 
 
a) commitment to provide $20 million for the purchase of the 
generators; 
 
b) agreement to pay for fuel and operations and maintenance of the 
equipment by an internationally reputed operating contractor; and 
 
c) commitment to corporatization of DABM and outsourcing or other 
mechanism for managing of the metering and collection of electrical 
bills. 
 
NEUMANN