VZCZCXRO0624
RR RUEHDBU RUEHPW RUEHSL
DE RUEHBUL #0664/01 0540731
ZNR UUUUU ZZH
R 230731Z FEB 10
FM AMEMBASSY KABUL
TO RUEHC/SECSTATE WASHDC 5777
INFO RUCNAFG/AFGHANISTAN COLLECTIVE

UNCLAS SECTION 01 OF 02 KABUL 000664 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR S/SRAP, SCA/A AND EEB/ESC 
PASS AID/ASIA/SCAA; AID/EGAT 
 
E.O. 12958 N/A 
TAGS: EAID ENRG SENV AF
SUBJECT: Energy Minister Khan Undermines Utility Progress 
 
REFS: A. 09 KABUL 2852 
      ¶B. 09 KABUL 3186 
 
¶1. (SBU) Summary:  Dr. Jalil Shams, CEO of the Afghan national 
utility DABS, has called for President Karzai's help in maintaining 
the utility's independence in the face of increasing interference 
from Acting Minister of Energy and Water Ismail Khan.  Dr. Shams 
tells us that President Karzai was receptive and agreed to issue a 
decree clearly stating that DABS is an independent agency.  Without 
independence, DABS faces a loss of donor support (including USD 570 
million from the Asian Development Bank) and will not be able to 
combat the corruption and inefficiency that currently plague the 
sector.  End summary. 
 
Progress on DABS Independence 
- - - - - - - - - - - - - - - 
 
¶2. (SBU) Following the February 18 Inter-ministerial Commission for 
Energy (ICE) meeting, Dr. Shams thanked the Embassy for our 
continuing support on the issue of DABS' autonomy and for 
coordinating donor support on this important subject (Refs A and B). 
 Dr. Shams said Acting Minister Khan treats DABS like another 
Ministry of Energy and Water (MEW) department, intruding in daily 
affairs and threatening its chief officers, including Dr. Shams. 
 
¶3. (SBU) Dr. Shams said that in his meeting with President Karzai, 
he informed the President of DABS' lack of independence and asked 
that he intervene.  Reportedly President Karzai said he would issue 
a decree clearly stating that DABS is an independent agency and that 
MEW should not interfere in its operations.  According to Dr. Shams 
this decree should be drafted on February 22.  Dr. Shams added that 
if he does not have clear support from the President, then he will 
step down as CEO of DABS.  He understands that the President wants 
Khan as Minister of Energy and Water, but DABS' autonomy must be 
maintained. 
 
Situation Still Critical 
------------------------ 
 
¶4. (SBU) Progress on the North East Power System (NEPS) has allowed 
for an increase in the import of electricity from Uzbekistan, which 
grew from 70 megawatts (MW) during 2009 to 120 MW during 2010. 
About 30 MW of this power stays in the North (in Mazar-e-Sharif) 
while the balance comes to Kabul.  Expanding NEPS has dramatically 
increased the availability of electricity in the capital and 
demonstrated GIRoA's ability to improve public services.  Further 
improvement will be possible when USAID completes the reactive power 
compensation facilities in December 2010.  At that time, depending 
on further power purchase agreements, Kabul should be able to 
receive over 125 MW of Central Asian electricity, a significant 
increase in low-cost power supply. 
 
¶5. (SBU) In addition to increased electricity for Kabul, in December 
2010 a new transmission line from NEPS to Nangarhar funded by the 
ADB will be available.  This line will make it possible to double 
electricity supply to Jalalabad, and with additional investment in 
transformers and transmission, it will be possible to supply 
low-cost NEPS power to the Jalalabad Highway economic corridor. 
USAID is rehabilitating Jalalabad's present power source (the 
Darunta Hydro-Power Plant), planning for additional NEPS priority 
projects in the region, and designing a new activity to improve the 
efficiency of the Nangarhar utility. 
 
¶6. (SBU) To achieve these dramatically positive developments, GIRoA 
must continue to reform the national utility DABS (Da Afghanistan 
Breshna Sherkat).  The power struggle between reform-oriented and 
anti-reform Afghan officials continues, and Acting Minister of Water 
and Energy Ismail Khan is slowing and in some cases opposing efforts 
to reduce corruption and improve financial sustainability of the 
Afghan electricity sector. 
 
¶7. (SBU) As they did in September 2009 (Ref B), donors have come 
together to present a united and urgent front, insisting on DABS' 
independence and good governance.  If recent progress is reversed, 
the Afghan electrical system will not have the funds needed to 
maintain facilities put in place by donors, to fuel diesel 
generators, or to pay for large volumes of Central Asian 
electricity. 
 
MEW: Reform Delays and Obstruction 
- - - - - - - - - - - - - - - - - - 
 
¶8. (SBU) Acting Minister Khan has a long history of blocking the 
corporatization of DABS; his reluctance to sign the required 
documentation almost brought about the collapse of the independent 
utility in September 2009.  At that time, only a unified donor 
approach and the threat of loss of donor support forced Khan to 
concede to the formal creation of DABS.  Throughout the DABS 
corporatization process, there was widely reported opposition from 
 
KABUL 00000664  002 OF 002 
 
 
Khan: Khan's MEW staff successfully resisted efforts to produce 
complete financial statements, to implement improved metering, 
billing and collection practices, and to introduce new management 
practices. 
 
¶9. (SBU) Following the signing of the DABS transfer on September 30, 
2009, donors hoped that GIRoA would allow DABS to begin operation as 
an autonomous, commercialized national electricity utility.  In 
support, USAID quickly launched a new USD 48 million activity to 
improve utility technical and commercial efficiency within Kabul, 
its largest distribution network.  Unbeknownst to the donors, 
however, during the September 30 meeting, Acting Minister Khan 
executed a "side agreement" that effectively (illegally) transferred 
some control of DABS to MEW. This side agreement also redirected 
ADB- and World Bank-funded capital projects from DABS to MEW, in 
violation of signed agreements between GIRoA and both of these donor 
agencies. 
 
Comment 
- - - - 
 
¶10. (SBU) President Karzai's willingness to defend DABS' 
independence is a positive sign, but recent history has shown us 
that donors must be watchful for MEW incursions in the utility's 
independence.  Experienced observers suspect that millions of 
dollars are taken from the electricity sector annually by high-level 
officials; coupled with technical and commercial losses, this leaves 
the utility DABS in the red with little hope of becoming 
self-sufficient in the near future.  The Embassy has met with Acting 
Minister Khan to explain our support for the Ministry of Energy and 
Water and to urge respect for the utility's separate role. 
 
¶11. (SBU) We've also briefed other reform-minded partners about our 
concerns over DABS, including Minister of Finance Zakhilwal, 
Minister of Mines Shahrani, and Minister of Economy Arghandewal, who 
currently chairs the Inter-Ministerial Commission on Energy.  Major 
donors, including the World Bank, the Asian Development Bank, the 
German Development Bank (KfW), and the USG are working together to 
provide increased access to electricity for millions of Afghans, and 
we will continue to work diligently to promote reform in the face of 
delays and obstruction.  For success, we'll need renewed commitment 
and vibrant leadership to emerge from within the highest levels of 
the GIRoA. 
 
EIKENBERRRY