Cablegate: Delayed Commercialization of Electric Utility

DE RUEHBUL #2852/01 2621327
R 191327Z SEP 09




E.O. 12958 N/A
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.

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Inefficient Utility Needs Commercialization
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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

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Tensions among MEW, Presidency, and Utility
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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

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."

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Donor Anxiety Gets MEW Attention
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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.

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- - - -

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.


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