VZCZCXRO4722
PP RUEHIK RUEHPOD RUEHPW RUEHYG
DE RUEHBUL #2546/01 2611150
ZNR UUUUU ZZH
P 171150Z SEP 08
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC PRIORITY 5553
INFO RUCNAFG/AFGHANISTAN COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEKJCS/OSD WASHINGTON DC
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RUEABND/DEA HQS WASHINGTON DC
RHMFIUU/HQ USCENTCOM MACDILL AFB FL
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 04 KABUL 002546 
 
DEPT FOR SCA/RA, SCA/A, EEB, EEB/ESC/IEC (GRIFFIN) 
DEPT PASS AID/MARK WARD, AID/ANE, OPIC 
DEPT PASS USTR FOR LILIENFELD AND KLEIN 
DEPT PASS OPIC FOR ZAHNISER 
DEPT PASS TDA FOR STEIN AND GREENIP 
CENTCOM FOR CG CFC-A, CG CJTF-76, POLAD, JICENT 
NSC FOR JWOOD 
TREASURY FOR ABAUKOL, BDAHL, AND MNUGENT 
MANILA PLEASE PASS ADB/USED 
PARIS FOR USOECD/ENERGY ATTACHE 
OSD FOR SHIVERS, SHINN 
COMMERCE FOR DEES, HAMROCK, AND FONOVICH 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958 N/A 
TAGS: ENRG EFIN ETRD KPWR EAID PGOV AF
SUBJECT: AFGHANISTAN: UPDATE ON USG AND OTHER ENERGY PROJECTS - 
POWER PROJECTS EXHIBITING RESULTS 
 
¶1. (SBU) Summary. Over the past six weeks, long and meandering 
negotiations on Power Purchase Agreements (PPA) with Afghanistan's 
neighbors have been successfully concluded, and positive 
developments with regard to Kajaki, the 100MW GENSET plant, and 
related distribution systems have occurred.  Current total power 
capacity in Afghanistan is estimated at 450MW with 75% of this 
capacity operational.  Thirty percent of power produced is lost in 
distribution.  If current plans materialize, by January 2009, an 
additional 220MW of power will come online, representing an almost 
50% increase.  Furthermore, spring 2009 will see another 35MW 
online, and by April 2010, another 450MW of imported power will be 
delivered, resulting in more than a doubling of total power 
availability within 18-20 months.  In addition, initiatives 
concentrating on electricity distribution efficiency and revenue 
collection are in process or being fast-tracked.  This progress is 
noteworthy and highlights that the significant investment the USG 
has made in the energy sector is providing tangible results. 
Nevertheless, any enthusiasm should be tempered, as cooperation by 
many actors will be required to realize current plans; further focus 
and intensity are required to keep the energy train on track. End 
Summary. 
 
------------------------------------- 
KABUL 100 MW GENERATOR SETS (GENSETS) 
------------------------------------- 
 
¶2. (SBU) - Delivery of the GENSETS is now scheduled in two segments, 
mid-September and again 2-4 weeks later, representing a delay of 4 
weeks.  Delay will not affect the production of 70MW by end of 2008 
or an additional 35MW in spring of 2009.  Other preparations, 
including delivery of smaller parts and construction of camp, fuel 
tanks, and related buildings, are on schedule.  Emboffs will visit 
the plant within the next week to monitor and report on progress 
towards completion. 
 
--------------------------------- 
FUEL FOR GENSETS REMAINS AN ISSUE 
--------------------------------- 
 
¶3. (SBU) - The Islamic Republic of Afghanistan (IRoA) maintains its 
current budget will not allow for purchase of the required $45 
million in fuel (to run 100MW Kabul GENSETS only) through the end of 
the IRoA fiscal year (March 31, 2009).  In talks with senior Afghan 
officials, Embassy Kabul has stressed that the IRoA made a written 
commitment to purchase fuel as part of the agreement for USAID to 
fund GENSETS and other plants and that it must fulfill this 
commitment.  We hope to learn more about Afghan intentions following 
a budget review slated for late September. Delivery of electricity 
to Kabul during the critical winter months is imperative to boost 
recognition that the IRoA and Coalition efforts at development are 
producing tangible results.  IRoA backsliding on funding the fuel 
requirements of GENSETS could set a negative precedent for future 
cooperative funding agreements.  Afghan funding constraints are 
related to poor billing of and tariff collection from customers on 
existing electricity distribution.  The USG will therefore seek a 
strong policy commitment by the IRoA to support a USAID initiative 
to commercialize the Kabul Electricity Division of DABS, the IRoA's 
national electrical utility (see para 7), which aims to strengthen 
billing and collection. 
 
--------------------------------------------- ----- 
NORTH EAST POWER SYSTEM (NEPS) - TURKMEN COMPONENT 
--------------------------------------------- ----- 
 
¶4. (SBU) - A recent Joint Working Group (JWG) meeting has laid the 
foundation for a $160 million USAID/Afghanistan investment to 
 
KABUL 00002546  002 OF 004 
 
 
construct transmission lines and substation for import of up to 
300MW of power by early 2011.  The next working group meeting will 
be held in October 2008 (in Ashgabat), with a goal of working toward 
finalizing an Afghan-Turkmen PPA by March 2009. 
 
---------------------- 
NEPS - UZBEK COMPONENT 
---------------------- 
 
¶5. (U) - Negotiations on funding for the construction of a 43 Km, 
220kV transmission line were concluded in late August.  The IRoA 
will pay $19 million to the Uzbeks, and if the construction schedule 
holds, 150MW of power should begin to flow into the NEPS and Kabul 
by the end of January 2009.  The transmission line on the Uzbek side 
of the border will be owned by the IRoA, but maintained by the 
Uzbeks.  Under an existing ten-year power PPA between the IRoA and 
the Government of Uzbekistan, the IRoA currently pays $0.04/kWh for 
28MW of imported power which is supplied to Mazar-e-Sharif via an 
existing 110kV line.  The energy price under this PPA is 
renegotiated annually, in December of every year.  We understand 
that this PPA will also be utilized to govern the sale of the 150MW 
to be supplied starting in January 2009 based on a new price to be 
negotiated in December 2008.  The IRoA and the Government of 
Uzbekistan plan to negotiate a new PPA in May 2009 which will govern 
the import of all power from Uzbekistan once an additional 150MW is 
added by the end of 2009. 
 
--------------------------- 
NEPS - TAJIKISTAN COMPONENT 
--------------------------- 
 
¶6. (U) - In late August, an IRoA delegation headed by Minister of 
Energy and Water (MEW) Khan, concluded a PPA with Tajikistan for the 
import of 300MW of power from April through October each year, 
effective April 2010, at $0.035/kWh.  The initial term of the PPA 
will run through 2014 with a 2% price increase per year, at which 
point the PPA will be reviewed for a possible increase in power 
and/or extended delivery schedule.  The PPA signing immediately 
releases Asian Development Bank (ADB) funding for the construction 
of the transmission line on both sides of the border under the 
supervision of Snowy Mountains Engineering Corporation (SMEC) of 
Australia.  Line completion is expected in April 2010. 
 
--------------------------------------------- --- --------NEPS 
INSTALLATION OF NATIONAL LOAD CONTROL CENTER (NLCC) 
--------------------------------------------- --- -------- 
 
¶7. (SBU) - Contract award for the procurement of the NLCC was 
executed on June 10 with an expected completion date of February 28, 
¶2010.  The contractor, Louis Berger/Black & Veatch (LBG/B&V), is 
working on an Invitation for Bids (IFB) for the NLCC building which 
is projected to be awarded by December 2008.  Since Uzbek power is 
expected to flow by the end of January 2009, a temporary, less 
complicated, system will be put in place to handle the necessary 
dispatch, communications, and control until the NLCC has been 
completed.  The overall objective is for the NEPS voltage level to 
be maintained within international permissible limits, for system 
losses to be minimized, and to maximize the power transmitted over 
the NEPS. 
 
--------------------------------------------- ---- ------- 
COMMERCIALIZATION OF DABS, THE NATIONAL ELECTRIC UTILITY 
--------------------------------------------- ---- ------- 
 
¶8. (SBU)- Improving the ability of the IRoA to pay for electric 
power imports, diesel fuel, salaries for utility staff, and other 
 
KABUL 00002546  003 OF 004 
 
 
operating and maintenance costs of providing electricity services to 
customers will mitigate their reliance on donor assistance and help 
DABS become a viable and financially self-sufficient entity.  Hiring 
an operating contractor and putting the firm in charge of the Kabul 
system will lead to improved system management, more effective 
billing and collection, and enhanced revenues to cover costs. To 
that end, USAID has received informal IRoA agreement to assist DABS 
with the award of an operating contract, dubbed the Kabul 
Commercialization Contract (KCC),for the Kabul Electricity 
Distribution (KED) system.  Tender documents with specific operating 
contract terms are expected to be ready by the end of November 2008. 
 A commercialization contractor for the Kabul network should be on 
board within the next six to nine months. 
 
------------------------------ 
SOUTH EAST POWER SYSTEM (SEPS) 
------------------------------ 
 
¶9. (SBU)- In one of the largest logistical operations of its kind 
since World War II, a combined NATO force delivered the 8 large 
pieces of Turbine #2 to the Kajaki Dam site in early September. 
The 100-vehicle convoy travelled at 5 Km per hour, reaching Kajaki 
five days after departing Kandahar.  Work on bringing Turbine #2 
online is expected to last 14-18 months and will add an additional 
18.5MW of output to the dam.  Work on Turbine #3, currently being 
rehabilitated, will be completed in April 2009.  Total output of the 
dam will be 51MW by September 2009, 16.5MW of which is being 
produced now, and will ultimately benefit up to 1.7 million people 
in southern Afghanistan.  In conjunction with the turbine work, 
USAID has released an RFP to rehabilitate the 110 kV transmission 
line from Kajaki to Kandahar and the 20 kV line to Musa Qala.  The 
bids are due mid September, with an award anticipated by the end of 
the month.  Such work is crucial to mitigate the estimated 30-40% 
loss of power currently being experienced.  The length of time to 
rehabilitate the line will be determined by an initial assessment to 
be performed by the contract awardee, including an evaluation of the 
degree to which security is permissive along the corridors where 
work is to be performed. 
 
----------------------------- 
SHEBERGHAN GAS FIELDS TESTING 
----------------------------- 
 
¶10. (SBU) - ARAR, the Turkish-American subcontractor chosen for the 
gas well testing, will commence drilling o/a October 1.  The revised 
timeline and cost structure for work notes that fewer wells than 
originally anticipated will be re-opened and tested within the time 
frame and budget authorized under the Task Order, though these 
should provide sufficient information on commercial viability of the 
gas field.  The test results will be reported o/a April 15, 2009. 
Once gas reserves have been established (overall consensus remains 
that these wells will be productive based on the fact they lie in 
the same basin as very productive Turkmenistan gas wells), well 
rehabilitation will need to proceed to re-establish natural gas 
production.  Moreover, options for construction of a gas power plant 
will need to be explored, including reaching out to other donors 
such as ADB, OPIC and the private sector for construction of a power 
plant which would provide electricity to northern Afghanistan and 
Kabul through the NEPS.  In a recent meeting with Minister Adel of 
the Ministry of Mines (MOM), Econoff and EconCouns learned that the 
MOM has in reserve $26 million from an ADB loan to test and develop 
the gas fields.  Minister Adel remains keen to move forward with 
project(s) and seemed open to OPIC participation.  Minister Adel was 
confident significant natural gas reserves would be found.  Econoff 
is currently following up on a request for submission of technical 
questions to OPIC made by Bearing Point advisors to the Minister of 
 
KABUL 00002546  004.3 OF 004 
 
 
Finance.  Those questions should jump start seemingly dormant talks 
regarding OPIC participation in project. 
 
WOOD