Cablegate: Progress in Electricity Sector Commercialization

DE RUEHBUL #3186/01 2830646
R 100646Z OCT 09




E.O. 12958 N/A
SUBJECT: Progress in Electricity Sector Commercialization

REF: Kabul 2852

1. (SBU) Summary: In a very positive development, the
Ministers of Energy and Water, Economy, Finance, and Urban
Development, accompanied by Ambassador Wayne and USAID
Director Frej, held a signing ceremony on September 30, 2009
to liquidate the state-run power utility Da Afghanistan
Breshna Mosesa (DABM) and fully establish the new national
electricity utility Da Afghanistan Breshna Sherkat (DABS).
Ambassador E. Anthony Wayne and representatives of other
international donors sat at the dais with the ministers for
the ceremony. The move is a significant breakthrough in
Afghan government and donor efforts to modernize and begin to
commercialize the national electricity sector. It also came a
week before a deadline which would have dissolved DABS if the
transfer had not taken place Q- and followed strong lobbying
by the U.S. Embassy and other donors. The Afghan governmentQs
decision to set up the new utility also supports efforts to
meet public enterprise reform and electricity sector subsidy
elimination targets established in the IMF-sponsored
QComprehensive AgreementQ and other Afghan government
commitments. End summary.

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Establishment of the New Utility, DABS
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2. (SBU) The performance of the old government-owned national
electricity utility, Da Afghanistan Breshna Mosesa (DABM), was
poor (ref). Electricity losses were high, there were
extensive instances of customers not paying their bills -Q and
reports of personnel skimming off money coming into DABM, and
past donor efforts to improve the situation were unsuccessful.
Under a Presidential Order signed November 2, 2006, the Afghan
government became committed to liquidating DABM and
establishing a new corporatized public electricity utility, Da
Afghanistan Breshna Sherkat (DABS).

3. (SBU) Elimination of the growing energy subsidies is an
important objective. Afghan officials are well aware that
neighboring Pakistan has not been able to make the same bold
step of commercializing its electricity distribution sector,
and energy subsidies now consume a significant share of
PakistanQs national budget, reducing fiscal space for critical
health, education and other priority expenditures. The GIROA
decision to proceed with establishing DABS indicates a clear
commitment to dealing with this problem thus promoting greater
social and economic stability.

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Coordinated Donor Engagement
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4. (SBU) The U.S., World Bank, Asian Development Bank, and
other donors actively pushed for the reform. During a July 26
meeting of energy sector donors, USAID advocated for a uniform
message on the importance of DABS to the Government of
Afghanistan and particularly to two key shareholders: Finance
Minister Omar Zakhilwal and Energy and Water Minister Ismail
Khan. In late September, Ambassador Eikenberry advocated for
DABS with President Karzai, Ambassador Wayne conferred with
Minister Zakhilwal on moving ahead, and a follow up meeting
with Minister Khan was held with Ambassador Wayne and USAID
Mission Director Frej (septel).

5. (U) Bolstered by the international donor community, the
Ministry of Finance announced that DABM would be officially
transferred to DABS. The Ministers of Finance, Energy and
Water, Economy and Urban Development signed the agreement in a
public ceremony on September 30, 2009. Ambassador Wayne made
remarks during the ceremony along with Minister Zakhilwal,
Minister Khan, and Minister of Economy Shams, who serves as
the Chief Executive Office for DABS.

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Help from International Donors
- - - - - - - - - - - - - - - -

6. (U) The DABS has a competent senior management team and
approximately 90 staff, a forward-looking business plan for
the current fiscal year, and the commitment of support from
the World Bank, ADB, and USAID to help the process of

7. (U) USAID's program includes an advisory contract to
provide planning and management support to DABS and two
additional years of support beginning in November 2009.
Additional USAID capacity building resources to support DABS
are also available.

KABUL 00003186 002 OF 002

8. (U) USAID support of DABS focuses on Kabul to introduce new
metering, billing, and collection systems, and new management
practices and systems to improve commercial performance and
reduce high electricity losses. Improved cost recovery
systems will enable DABS to improve the quality of electricity
supply, pay operating costs, and to provide incentives for
staff. The program does not require rate increases in the
near future. With improved commercial performance and
service, DABSQs Kabul division should achieve cost recovery
over a period of 3 to 4 years. 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. Additional USAID support will
begin this month to promote commercialization in Kandahar and
will work to identify key hardware and management requirements
that will result in improved electricity service in this
volatile area.


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