Tajikistan Pamir Private Power Project
High in the Pamir mountains lies an isolated and impoverished region - the Gorno Badakhshan oblast in eastern Tajikistan. Villagers eke out a living working the dry hillsides to scrape together an existence. Winter is particularly harsh. Temperatures fall to –30C and icy winds sweep across the plateau, making it impossible to survive without adequate heating.
During the Soviet era, the region's strategic location along the border with Afghanistan made it an important outpost, and electricity, generated by small diesel - fueled plants, was cranked out to the farthest villages through an extensive network of transmission lines.
The system was heavily dependent on subsidies from the center and fuel to run the plants was sometimes ferried by helicopter from Osh in the neighboring Kyrgyz Republic, regardless of cost.
| | Frequent power cuts or no power at all
With the collapse of the Soviet Union in 1991, the old system ground to an abrupt halt. Many power plants were destroyed in Tajikistan's ensuing civil war, while others fell into a state of rapid decline. Many villages received no power at all in winter. Others had frequent power cuts, forcing schools, hospitals and small family businesses to shut down.
There are major social problems caused by a lack of essential services such as electricity. Households are forced to use noncommercial fuels causing health problems and degrading the environment. The health of children and other vulnerable groups suffers significantly. Economic development is stalled. | | Attracting investors proved difficult
To a people long used to heating and cooking with electricity, power is a vital necessity. But attracting investors to restart the region's power supply was tough. The people's extremely low incomes and inability to pay the full cost of electricity, plus the country's high political risk and the area's difficult logistics, combined to deter investment.
Innovative solutions for provision of essential services
Now, the Pamir Private Power Project is restoring reliable electricity supply to the population. This has been achieved through an innovative combination of | | private investors and multilateral financial institutions. It is backed by a donor-funded social protection program to ensure that the electricity remains affordable. At the same time, the government of Tajikistan has been centrally involved in facilitating and supporting the reforms necessary for the new framework to work.
An unusual challenge for IFC
It started when the Aga Khan Fund for Economic Development (AKFED), which has remained active in the region throughout the years of civil war, approached the International Finance Corporation (IFC) for help. To the IFC, bringing energy | | | to the region posed an unusual challenge. Taking a proactive approach, IFC developed the Pamir Private Power Project from its early stages, together with AKFED, the main sponsor. The best technical method for delivering electricity turned out to be the completion of a Soviet - era power plant. Swiss and IFC trust funds enabled the Tajik government to get legal help to negotiate a concession with AKFED and the IFC, and a study was carried out to determine customers' ability to pay for the electricity. | |
The World Bank joins the project
Income levels, however, are so low that achieving even a modest return on investment requires tariffs that most of the population cannot afford. Therefore, an innovative solution was called for to provide affordable energy while ensuring a commercial return to private investors. At the IFC's request, the World Bank joined the project with some US$10 million in IDA financing. This is supporting the project by keeping tariffs within the narrow limits of what people in the region can pay. The Bank's involvement also assists the Government in meeting its social obligations through the use of the spread between the IDA interest rate to the Government, and the rate at which funds are lent on to the project company. These funds, together with a Swiss Government grant of US$5 million, will cover the costs of subsidizing a minimum "lifeline" level of consumption for some ten years without being a burden on the Government, after which the Government will meet costs from its own resources.
A new energy company created
The US$26 million project has enabled the creation of a new energy company to generate and supply electricity to the 250,000 residents of the region. The new company, Pamir Energy, with equity holding of 70 percent by AKFED and 30 percent by IFC, will double the capacity of the completed Soviet - era power plant, in addition to taking over other plants. Electricity supply will also be augmented by improving transmission and distribution facilities, among other activities. IFC is investing US$8 million in Pamir Energy, of which US$3.5 million will be in equity and US$4.5 million in debt. AKFED is investing US$8 million in equity. The remaining US$10 million is being financed through the IDA credit.
Encouraging people to pay their debts
The Pamir Energy Company has found innovative ways to encourage people to pay for electricity consumption. Those who have fully paid their debts are allowed to participate in raffles for such goods as television sets, refrigerators, videos, and other household electrical appliances. Some consumers have also been awarded certificates for free consumption of electric power. During the establishment of the company, payments for electricity were only 3 percent; now payments for electricity consumption are up to 70 percent. In addition, revenues from electricity sales for the second quarter of 2003 were 38 percent above budget. A metering plan has been prepared and will soon be implemented.
Factors behind success
A number of driving factors have been behind the success of this project. These include the political commitment to rapid economic development after the 1997 Peace Agreement, the engagement of influential groups such as the Aga Khan Foundation, and the early involvement of multilateral financial institutions such as the ADB, IFC, IMF, and the World Bank. The local government and regulatory agencies did not fully understanding their role under the concession approach at the start, but these problems have been resolved with the active, timely and intensive involvement of the Bank and the IFC in the supervision of the Project. Indeed, the project is a model of collaboration between private and public partners, between IFC and IDA, and between the World Bank Group and donors. Its example can be successfully followed in other challenging regions of the developing world. Pilot projects are already underway in West Africa, and an electricity distribution project is being developed in the Kyrgyz Republic along similar lines.
October 2004 |
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