ISLAMABAD (May 28 2009): Washington is pressing both Islamabad and Kabul to import 1000 megawatt electricity from Central Asia, despite the fact that Asian Development Bank (ADB) has withdrawn from the project, according to official documents made available exclusively to Business Recorder.
At a recent tripartite meeting in Washington, there was general consensus that energy constraints faced by Pakistan and Afghanistan were limiting the growth potential of the two countries. However, a number of concerns were raised on the viability of the project, particularly by Pakistan's and Afghan officials.
Some key concerns mentioned in the meeting were:
(i) the adequacy of World Bank financing, given ADB's reported withdrawal from the project;
(ii) even though a report confirms the economic viability of the project which includes 500 kV AC interconnection between Kyrgyzstan and Tajikistan and a 500 kV DC interconnection from Tajikistan to Pakistan via Afghanistan such that 1300 MW can be exported from Tajikistan and Kyrgyzstan with 1000 MW imported by Pakistan, yet concerns about surplus energy remain;
(iii) the impact of transit fees and power purchase tariff rates on the economic viability of the project; and (iv) risk coverage arrangements, ensuring continuity of supply on long term, sustainable basis.
The Cabinet has already vetoed the project titled 'Central Asia-South Asia', (CASA) until the project's tariff, economic feasibility and other issues are resolved. The United States has fully supported this project and, during the Bush administration it pressured the regional governments, including Pakistan, to seek energy from Central Asia instead of other sources, particularly Iran.
Responding to the concerns raised by the officials of Pakistan and Afghanistan, Robert Deuttsch, Senior Advisor on Economic Integration, US Department of State, said that it would be necessary to set up an "outage reserve fund", and adequately capitalise it, to ensure cash flows in the eventuality of disruption of supply on account of sabotage.
According to sources, he further clarified that IFC has developed an economic model for the project and suggested a framework for the power purchase agreement. Preliminary details have been shared with power generation companies of the two countries.
After detailed discussion on CASA, it was agreed that:
1) Definition of outage reserve fund will be finalised by the US, in consultation with CASA partners including IFC and MIGA, by the end of July, 2009.
2) US will solicit support of other donors for the reserve fund. Information on the initiative will be shared with Afghanistan and Pakistan by the end of October, 2009.
3) Process of contributions to the fund will be held by MIGA and are likely to be concluded by the US by December 2009.
4) Afghanistan and Pakistan will convene an inter-governmental council meeting with Tajikistan and Kyrgystan by June 15, 2009 to agree on revised project timing. IFC joint project development agreement will also be signed by this date.
5) Afghanistan and Pakistan will conclude agreement with other CASA partners on term sheets for commercial contracts, power purchase and opening concession/investments by end of July, 2009.
6) World Bank will issue Request for Proposal (RoP) for the project based on country agreed documents by end of October, 2009. The Ministry of Water and Power had submitted a summary to the Cabinet for ex post facto approval to the MoU and agreement for import of electricity from the CASA market, which was not cleared by the Cabinet in its meeting on April 8, 2009, sources added.
"The Cabinet observed that the decision to import electricity could be taken only after its tariff/import price was estimated, and its economic feasibility conclusively established, in comparison with the existing sources including rental plants," sources said.
Official documents, obtained by this correspondent, show that Pakistan's team, IFI consulting teams, and the representatives of the US government had met over July 3l-August 2, 2008 to discuss the CASA 1000 MW project, and reached the following consensus, which is to be considered as a recommendation to the IGC for endorsement.
INSTITUTIONAL STRUCTURE: The concession would now also include the Kyrgyz-Tajik link (aka AC facilities). The concession company would develop, construct and operate Tajik-Afghan-Pakistan transmission system (aka the DC facilities) as well as construct Kyrgyz-Tajik link. A decision on whether to also include the operations and maintenance of the AC facilities in the concession is under consideration.
TRADING ARRANGEMENTS: In the first IGC meeting over VC, it was considered in principle that Barki Tojik (Tajikistan) could be the consolidator in the initial phase which would require Kyrgyz Genco to sell power to Barki Tojik (at the Tajik-Kyrgyz border) on the Kyrgyz-Tajik link (which is part of the CASA 1000 mw project) and Barki Tojik will then sign a single PPA each with DABM/DABS and CPPA. But this was subject to further discussion.
The documents further said that decision was reached to consider concluding a joint commitment of energy from Kyrgyz Republic and Tajikistan. While they may conclude separate direct PPM with the purchasers, they will make arrangements for close co-operation on energy delivery and storage to meet their joint commitment.
LEGAL FRAMEWORK: There will be a single concession agreement. The legal advisors will examine the need for host country agreements, one with each country, to capture the country-specific rights and obligations (eg tax, labour laws) and concessionaire's rights and obligations to that country (environmental, social).
ENERGY FLOWS: Until additional exportable capacities are developed, Kyrgyz Republic and Tajikistan should together firmly commit 5 TWh flow on average per year through the line during the operating period of the concession agreement (which will be 25-30 years) to be delivered during the summer months. Roughly speaking, Tajikistan should commit to 3 TWh and Kyrgyz Republic to 2 TWh.
Exporting countries will invest to cover the load growth and, in doing so, they can maintain the summer surplus. Once the line is constructed, the options for additional generation include upgrading existing facilities and constructing new generation projects.
This could include thermal projects which would allow for non-summer power to be exported. The long-term objective of all the parties is to stimulate additional low cost generation to expand the CASA regional electricity market and all parties agree to ensure the conditions for early implementation of new generation capacity.
INVESTMENT AND FINANCING: The inter-government negotiators had recognised that there had been increases in costs, in part because of demand for electricity equipment and in part because of commodity price increases (eg for steel and aluminium). The final project cost will be determined through the bidding process.
For purposes of determining the threshold to be used during the tendering process, the EPC cost to be used will be $774 million (DC: $574 million, AC: $200 million) as estimated by SNC (June 2008 prices).
In addition, other costs are included in the total project cost in the model such as supervision by owner's engineer, interest during construction, environment and social mitigation costs, and other financing costs.
ADB has noted that this EPC price does not include contingencies. Both components are to be financed 100 percent under CASA-1000 mw project. Additional financiers will be needed to be brought in to fill any financing gaps.
PROJECT TENDERING TRANSMISSION TARIFFS: Average transmission tariff estimates for the TSA will be the ones calculated by IFC/Infra Ventures incorporating the assumptions referred to in the investment and financing section.
These tariff estimates will be adjusted once the final EPC is determined during the tendering process. IFC/Infra Ventures will recommend options for transmission service pricing between sellers and buyers as a basis for TSA negotiations.
WORKING ARRANGEMENTS: The countries agree to authorise their advisors to meet for the purposes of advancing the agreement on commercial terms of the project without the presence of IGC members and the need for formal meetings. However, each country's advisors will be responsible for seeking necessary approval of all proposed contractual terms.
