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Bringing Power to the Poor in the Pamirs

Tajikistan Pamir Private Power Project

High in the Pamir mountains, deep in the interior of one of the poorest countries of the world, lies an isolated and impoverished region - the Gorno Badakhshan oblast in eastern Tajikistan.

A Bleak and Impoverished Land

Few in this region have seen benefits from the transition to a market economy. Villagers still 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 the costs.

Burning Wood for Fuel Leads to Deforestation and Respiratory Illnesses

With the collapse of the Soviet Union in 1991, the old system ground to an abrupt halt. Many power plants were destroyed in the ensuing civil war, while others fell into a state of rapid decline. Now, almost half the villages receive no power at all in winter. Others undergo frequent power cuts, forcing schools, hospitals and small family businesses to shut down. To survive, people hack down the forests for firewood. And when these too, are gone they are left with no alternative but to cut down fruit trees, adding to the already grave shortage of food. The deforestation has been so widespread since 1991 that 70 percent of the region’s already sparse forest cover has been destroyed, and smoke inhalation has led to a sharp increase in respiratory disorders.

A Desperate Need for Power

Electric power is no luxury in this inhospitable terrain. To a people long used to heating and cooking with electricity, it is a vital necessity. But attracting investors to restart the region's power supply proved a formidable obstacle. The people's extremely low incomes and inability to pay the full cost of the electricity, the country's high political risk and the area's difficult logistics, combined to deter investment. It was then that 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.

An Unusual Challenge

To the IFC, bringing energy to this remote and impoverished region, posed an unusual challenge. Taking a proactive approach, they developed the Pamir Private Power Project from its early stages, together with AKFED, the main sponsor. To begin with, the best technical method for delivering electricity was established, with the help of Swiss trust funds. Once a solution was found for the adverse environmental implications of the original design, the best method 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 an affordability study was carried out to determine customers' ability to pay for the electricity.

An Innovative Solution for Affordable Energy

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 concessional financing from the International Development Association, which will support the project by keeping tariffs within the narrow limits of what people in the region can pay. IDA'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.

Bringing Energy to the People

The US$ 26 million project will enable 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 a partly constructed Soviet - era power plant, in addition to taking over other plants. Electricity supply will also be augmented by improving transmission and distribution facilities and adding a regulatory structure to a nearby lake to ensure adequate flow in the winter months, when the glacier- fed streams freeze over, and demand for power is at its highest. IFC will invest US$8 million in Pamir Energy, of which US$3.5 million will be in equity and US$4.5 million in debt. AKFED will invest US$8 million in equity. The remaining US$10 million will be financed through an IDA credit.

Preserving Lakeside Pastures The design of the project ensures that the environment will not be adversely affected by the draw down of water from the lake. Measures have been taken to prevent the drying up of lakeside pastures so that yaks, vital to the survival of the people, can continue to graze on the banks as they have done for centuries.

A Model of Public- Private Partnership

Despite its high risk, the Project represents an opportunity for the World Bank Group to support a private sponsored company which will meet the critical energy needs of the most impoverished region of one of the poorest countries of the world. It is a model of collaboration between private and public partners, between IFC and IDA and between the World Bank Group and donors, and its example can be successfully followed in other difficult regions of the developing world.

Bank's Team Lead: Raghuveer Sharma
For more details of the project, please click here.
For more details of the World Bank in Tajikistan , please click here.

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