VZCZCXRO9847
RR RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #2852/01 2621327
ZNR UUUUU ZZH
R 191327Z SEP 09
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 1549
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS SECTION 01 OF 02 KABUL 002852 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS AID/ANE; AID/EGAT 
 
E.O. 12958 N/A 
TAGS: EAID ENRG ECON SENV EINV AF
SUBJECT: Delayed Commercialization of Electric Utility 
 
REF: Kabul 2670 
 
¶1. (SBU) Summary: Ministry of Electricity and Water (MEW) delays are 
threatening completion of the much-needed commercialization of the 
electricity utility DABM (Da Afghanistan Breshna Mosesa).  The 
utility subsidizes electricity prices for all customers and supplies 
electricity to numerous non-paying users, thus creating a severe 
drain on the Afghan government's budget.  Asian Development Bank and 
the World Bank representatives have said the DABM's continued 
inability to recover costs could undercut international donor 
support for projects to import power and increase electricity 
generation capacity in Afghanistan.  USAID estimates gross losses 
will reach USD $200 million by 2015, if current conditions continue. 
 To address this problem and at the instigation of the World Bank, 
the Afghan government this summer launched DABS (Da Afghanistan 
Breshna Sherkat), a semi-autonomous commercialized utility. 
However, MEW continues to drag its feet with the result that if the 
transfer of assets from the public utility does not take place 
before October 6, the DABS may dissolve, setting back efforts to 
stop these revenue losses.  Embassy Kabul and other donors are 
working with the Government of Afghanistan to encourage the transfer 
of assets before this deadline.  End summary. 
 
- - - - - - - - - - - - - - - - - - - - - - 
Inefficient Utility Needs Commercialization 
- - - - - - - - - - - - - - - - - - - - - - 
 
¶2. (U) The DABM government electric utility is widely considered 
inefficient and corrupt.  Even under the most optimistic modeling 
assumptions, DABM is projected to show losses over the next ten 
years.  The DABM receives no payment for between 35 to 60 percent of 
electricity supplied, but with commercialization these losses can be 
reduced to approximately 25 percent.  USAID, the World Bank, and 
others have pledged to fund a commercialization and loss-reduction 
program for DABS to cut both technical losses (physical leakage of 
electricity from distribution systems) and commercial losses 
(inadequate metering, billing, and collections).  The loss-reduction 
program should save an estimated $482 million between 2008 and 2015. 
 
 
¶3. (U) The USAID-facilitated commercialization contract will 
introduce new metering, billing, and collection systems, in addition 
to some capital improvement projects.  A more regular flow of income 
to the utility will then allow for improved operation, maintenance, 
and staff development, and training.  Customers will benefit from 
increased availability, reliability, and safety of power supplies. 
There will also be a strengthened social compact with the utility in 
which customers expect to pay and demand a corresponding level of 
service. 
 
- - - - - - - - - - - - - - - - - - - - - - 
Tensions among MEW, Presidency, and Utility 
- - - - - - - - - - - - - - - - - - - - - - 
 
¶4. (SBU) The semi-independent, commercialized (but not private) 
utility entity DABS (Da Afghanistan Breshna Sherkat) is ready for a 
transfer of physical assets and personnel from the current public 
utility DABM (Da Afghanistan Breshna Mosesa).  Asset transfer will 
require Ministry of Finance approval.  Minister of Economy Mohammad 
Jalil Shams, who is also the President and CEO of DABS, told Emboffs 
that the MEW is reluctant to hand over assets and transfer people as 
agreed, using the elections and possible run-offs as a delaying 
tactic. 
 
¶5. (SBU) Many donors in Kabul worry MEW's reluctance stems from the 
loss of a potential revenue stream from illegal electricity 
connections.  In an August 30 Inter-Ministerial Commission for 
Energy (ICE) meeting, MEW Deputy Minister Ghulam Faruq said the 
transfer timing is a "political decision."  Tawab Asifi, Energy 
Advisor to President Karzai, replied the transfer of assets from MEW 
to DABS was decided by Presidential decree and is an Afghan 
government commitment.  Asifi recommended the Ministry of Finance, 
which was not present at the meeting, transfer the assets "now." 
 
- - - - - - - - - - - - - - - - - 
Donor Anxiety Gets MEW Attention 
- - - - - - - - - - - - - - - - - 
 
¶6. (SBU) Under the legislation that created DABS, the corporation 
must be capitalized within 90 days of its creation.  Without an 
infusion of capital, DABS could be dissolved October 6 and the 
reform of the power sector and efforts to increase the reliable 
supply of electricity - important to supporting job creation and 
stabilization efforts - will suffer.  At the August 30 
inter-ministerial meeting, the Asian Development Bank representative 
warned if the delay of the asset transfer led to a failure of the 
commercialization program, it would affect future donor funding 
decisions.  The World Bank representatives agreed.  MEW officials 
were clearly concerned by these warnings. 
 
 
KABUL 00002852  002 OF 002 
 
 
¶7. (SBU) The Asian Development Bank (ADB) representative told other 
donors at a private meeting September 14 that $570 million in loans 
may be redirected or lost if DABS dissolves, because ADB's board of 
directors is insistent the money go to DABS and not the inefficient 
DABM.  The World Bank representatives added their concerns saying 
the World Bank is reluctant to proceed with energy sector 
investments without DABS.  The donors, including USAID, agreed to 
lobby the ministries of Energy and Water and Finance as a group, to 
express their concerns. 
 
- - - - 
Comment 
- - - - 
 
¶8. (SBU) The approaching October 6 deadline has raised donor 
concerns.  The Embassy, along with other donor representatives, will 
continue to lobby intensively at multiple levels in the Afghan 
government to urge the transfer of assets and resulting 
capitalization of the DABS electric utility company.  End comment. 
 
 
Eikenberry