VZCZCXYZ0000
RR RUEHWEB

DE RUEHBUL #1788/01 1900053
ZNR UUUUU ZZH
R 090053Z JUL 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 0044
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS KABUL 001788 
 
DEPARTMENT FOR SRAP, SCA/FO, SCA/A, EUR/RPM 
STATE PASS TO AID FOR ASIA/SCAA 
USFOR-A FOR POLAD 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAID ECONENRG AF
 
SUBJECT:  Baghlan Industry and Energy Sector Poised For Expansion 
 
¶1. (SBU) Summary: Baghlan Province is well positioned to take 
advantage of its energy production and industrial potential, though 
some of its business leaders seem overly ambitious.  With its intact 
hydropower plants and location along one of Afghanistan's primary 
electrical backbones, Baghlan almost has the energy it needs to both 
power its capital city, Pul-i-Khumri, and its myriad of industrial 
enterprises.  Though Baghlan's dominant business conglomerate, 
Afghan Investment Company, operates at a loss, it plans to construct 
new cement plants and a large coal burning power plant within the 
next few years.  It remains unclear if Baghlan's coal mines have the 
infrastructure or the coal to keep up.  End Summary 
 
Baghlan Hydropower - Still Working But Not Enough 
--------------------------------------------- ---- 
 
¶2. (SBU) Pul-i-Khumri has two hydropower energy plants which harness 
the energy of the Kunduz River.  The first plant (PK-1) was built in 
the 1941 has three turbines, each with 1.6 MW capacity.  In the 
early 1960s, a 5.5 kilometer canal was dug connecting PK-1 to a new 
plant with still greater capacity.  Because the twenty meter wide 
and four meter deep canal has never been cleaned or dredged, water 
often backs up, causing the pressure at PK-1 to drop.  Because of 
this (as well as use of primarily original equipment), despite its 
4.8 MW capacity, PK-1 is only able to produce a maximum of 2.1 MW of 
energy, all of which is distributed to Pul-i-Khumri city residents. 
Pul-i-Khumri's second plant (PK-2) also has three turbines with a 
total capacity of 9 MW.  From November through April, there is not 
enough water to run all of the turbines, though the plant manages to 
generate a minimum of 3 MW, enough to feed the energy needs of 
Baghlan's four coal mines and the Baghlan Cement Factory.  Any power 
generated above this 3 MW minimum is distributed to Pul-i-Khumri's 
general power grid.  From May to October, the three turbines 
generally run 24 hours a day, meaning a surplus 6 MW are distributed 
to the public.  As a component of USAID's Renewable Energy Project, 
the U.S. Army Corps of Engineers is working jointly with USAID to 
restore and develop hydroelectric resources in Pul-i-Khumri through 
rehabilitation projects projects on both plants.  Technical 
assessments were completed in April 2008 and it is expected that the 
contract will be awarded in November or December 2009.  Once work 
begins, it is expected to take 12 - 16 months to complete the 
project. 
 
 
Imported Energy From Uzbekistan Makes An Impact 
--------------------------------------------- -- 
 
¶3. (SBU) On June 8, Water and Energy Minister Ismael Khan 
inaugurated a new 220-Kw substation near the Pul-i-Khumri.  The 
substation feeds off the new Heyraton-Kabul energy backbone, which 
currently carries up to 150 MW of power imported from Uzbekistan. 
Baghlan has placed a new transformer at the substation to siphon off 
up to 16 MW of this energy.  According to local Water and Energy 
Department head Haidar Sidiqi, Kabul has agreed to allow Baghlan 
access to up to 32 MW, though it has not yet funded a second 16 MW 
transformer.  Of this 16 MW, 1 MW is now being pushed north along 
newly laid power lines to Fabrika and Baghlan-i-Jadid, 6 MW are for 
public consumption and 9 MW are destined to power the newly built 
second cement factory. 
 
How Much Power Does Pul-i-Khumri Need? 
-------------------------------------- 
 
¶4. (SBU) At any given time, the city is subject to rolling brown 
outs, particularly from January through March when the water level 
in the canal remains low.  According to the Chief of Baghlan's 
Department of Energy, Pul-i-Khumri is wired to distribute 
electricity in a radius of 15 kilometers around the city center.  In 
order to keep the city lit for 24 hours a day, the system requires 
around 13 MW of power.  The Department of Energy is now expanding 
the network of power lines out to Fabrika, home of Baghlan's sugar 
and cheese factories, and Baghlan-i-Jadid.  This extended network 
would need 30 MW to remain fully charged.  With the Uzbek 
electricity now on line, the cement factories and mines are slated 
to receive a steady 12 KW, while the general population will receive 
anywhere from 8 to 14 MW of power, depending upon the season. 
 
Baghlan Cement Factory 
---------------------- 
 
¶5. (SBU) The Baghlan Cement Factory dominates Pul-i-Khumri, from its 
chimneyed skyline to its privileged access to energy.  The Afghan 
Investment Company (AIC) was organized in 2007 to purchase and run 
the cement factory (Afghan Cement LLC), the nearby coal mines and 
the city hospital.  In addition to private investors, both Kabul 
Bank and the NAF Group are corporate sponsors of AIC.  The first 
cement factory, Ghori 1, named after its location within 
Pul-i-Khumri city, was built in the early 1960s and currently has 
the capacity of producing up to 400 MT of "wet process" portland 
cement per day.  Begun in 2007, a second wet process portland cement 
factory (Ghori 2) is now 92 percent complete and is slated to begin 
production later this year.  Once Ghori 2 goes on-line, both 
facilities together will be able to produce up to 1400 MT of 
portland cement per day.  Furthermore, according to Abdul Karim 
Farokh, Afghan Cement General Manager, and Abdul Hadi, AIC 
Controller, a third facility (Ghori 3) able to produce 4000 MT of 
"dry process" cement per day will soon break ground and is planned 
to be completed in two years.  The factory's high quality cement has 
been used to build Baghlan's University of Agriculture building and 
Ghori 2's chimneys. 
 
All This Cement, But No Buyers 
------------------------------ 
 
¶6. (SBU) Although once Baghlan's major export item, today the cement 
factory has trouble unloading its product.  Farokh and Hadi lay the 
blame on stiff competition and unfair business practices by the 
Pakistani cement industry.  First, they argue Pakistan dumps its dry 
cement.  Pakistani "Fuji" brand cement sells for $74/MT in Pakistan, 
while in Afghanistan it goes for $60/MT,  priced low enough to drive 
AIC out of the market.    AIC's manufacturing cost is $80/MT, but 
they sell it for $70/MTin order to maintain market share.  In 
addition, Pakistan deliberately spreads disinformation about their 
"wet process" cement, saying that the longer curing period (28 days 
versus 14 days for dry cement) is a sign of poor quality.  Finally, 
they allege, Pakistani manufacturers bribe their way into project 
contracts, which often will specify Pakistani brands of concrete to 
use.  Although President Karzai encourages GIRoA and Afghan 
businesses to "buy Afghan," they have only been able to convince 
Baghlan Governor Barakzai to commit to using AIC cement on 
development projects.  Despite the millions of metric tons of cement 
sold in Afghanistan, they lament, AIC cannot unload its modest 400 
MT per day.  Pakistan meddling has also gone beyond the price wars, 
they contend.  The final stage of Ghori 2's construction is the 
installation of 175 containers full of Indian made equipment. 
Although they originally tried shipping this equipment through 
Pakistan, bureaucratic snarls and fears of sabotage forced them to 
route the containers through Iran and Turkmenistan, at much greater 
expense. 
 
The Karkar Coal Mines 
--------------------- 
 
¶7. (SBU) Simultaneous with its construction of the Ghori 3 dry 
cement plant, AIC plans to build a coal burning power plant capable 
of producing 32 MW of electricity.  The success of this project 
depends upon the smooth functioning of the AIC's coal mines, located 
just outside of Pul-i-Khumri.  The four functioning mines, at 
Dudkash, Karkar, Ohandara and Khordara, were all privatized two 
years ago with a 50 year lease granted to AIC.  AIC pays out $25 
thousand per month to the Ministry of Mines and Industry to rent the 
mine facilities and an additional $53 thousand per year to lease the 
land.  Three of the mines are currently in operation, employing some 
406 employees and producing between 170 and 180 MT of coal per day. 
Miners are paid 4000 Afghanis per month and receive housing and 
hospital care.  Karkar and Dudkash coal is dark grey with a calorie 
range of around 5500, while Ohandara and Khordara produce a 
crystalline coal with a calorie range of 6000 to 6500.  The mines 
themselves pull power from PK-2 to run its electrical and exhaust 
systems.  The Ghori 1 cement plant consumes 70 MT per day and Ghori 
2 will need around 400 MT to fully function when it comes on line 
before the end of the year.  With Ghori 3 and the power plant in the 
planning stages, the mines will need to produce up to 2000 MT per 
day in order to meet AIC's ambitious demand.  Engineer Munir hopes 
to have production up to 600 MT per day by the end of the year. 
 
How To Meet Demand? 
------------------- 
 
¶8. (SBU) Exactly how the mines will keep up with demand is unclear. 
Engineer Munir admitted the miners continue to excavate by hand, 
though AIC's management has apparently promised $7.3 million in new 
excavation equipment from India.  Run as an independent company, 
AIC's coal operation sells its product directly from the mine to 
both the cement factory at a special rate of 1900 Afghanis per MT 
and to private brokers for 2500 per MT.  The coal costs 
approximately 2300 Afghanis per MT to extract and since its largest 
customer pays well below cost, the mines have yet to turn a profit. 
In order to meet its 600 MT per day goal, the mines will need to 
install the promised equipment from India and employ up to 1500 
extra workers, explains Munir.  The Karkar mine has a lot of methane 
gas and has suffered two major accidents in its 70 year history; the 
first, 55 years ago killed forty.  A second explosion 28 years ago 
left 125 dead.  As it is, the mines are primitive, using what little 
1930s technology that remains after years of looting.  During a 
visit to Karkar, PRTOff observed several miners struggling to keep a 
carload of coal on its tracks while pushing it up and out of the 
primary shaft.  An additional problem is that nobody is really sure 
exactly how much coal there is in the Baghlan.  Engineer Munir 
admits as much, noting that a fully professional assessment needs to 
be conducted.  When confronted directly with this question, AIC 
officials Farokh and Hadi disagreed with each other.  When Hadi 
expressed some doubt as to whether the current mines had enough coal 
to provide a steady supply, Farokh interrupted, assuring the PRTOff 
that unnamed experts believe Baghlan's coal vein runs well into 
Bamyan province. 
 
Comment 
------- 
 
¶9. (SBU) Despite its apparent setbacks, and inability to generate a 
profit, AIC seems poised to forge ahead with its ambitious plans. 
Clearly, a full survey of Baghlan's coal fields needs to be 
conducted before moving ahead with its coal burning power plant. 
However, Baghlan's ability to tap its hydro, coal and imported 
energy power places it far ahead of other provinces in the Northeast 
who either depend on unsteady, expensive energy from Tajikistan or 
generators.  This steady supply of power will undoubtedly prove 
attractive to future investors willing to take a chance on 
Afghanistan's future. 
 
EIKENBERRY