Afghanistan’s Energy Sector will be Transformed by World Bank Spurring Private Investments

The World Bank Group’s announcement of a $98.8m financial package to support the development of two gas-to-power energy projects – Sheberghan Phase 1 (40 megawatts (MW) and Mazar-e-Sharif (58.6MW) – in Afghanistan, will be crucial in addressing the key challenges within the country’s energy sector, says GlobalData, a leading data and analytics company.

Afghanistan has suffered from years of conflicts and is one of the least developed nations in the world, with the country reliant on foreign aid to facilitate development initiatives. According to GlobalData, the country currently has an installed capacity of 642MW, which is dominated by hydropower. Developing the hydrocarbons sector is critical for the overall development and long-term energy security of the nation.

Nirushan Rajasekaram, Power Analyst at GlobalData, comments: “Afghanistan holds substantial oil and gas reserves and yet it imports most of its energy requirements from neighbouring countries. Power sector development is primarily blighted due to economic and political uncertainties. The government initiated a number of measures pertaining to the energy sector such as establishing Afghanistan Oil and Gas Regulatory Authority (AOGRA) and is also collaborating with international entities to stimulate the investment market to fully exploit the numerous opportunities that the country has to offer.”

Building new infrastructure is a key priority for the government, as proposed in the National Infrastructure Plan, with focus placed on diversifying its generation mix, by utilizing the abundant gas and renewable resources, to reduce energy imports. In addition, the government has outlined its objective to build a National Grid, connecting the various regions of the country, which will require substantial investments in power generation, transmission, and distribution infrastructure. In the future, approximately 370MW of new capacity is expected to be added in the country. Of this, 200MW will come from Sheberghan project (with 40MW coming up in the Phase 1) and 58.6MW from the Mazar-e-Sharif project.

The World Bank’s financing package, consisting of guarantees, a loan and swaps, aims to increase power self-sufficiency and spur private investments into the country’s energy sector.

Rajasekaram adds: “Attracting private investments is necessary to help lay the foundation for sustainable economic growth. The endowment provides a level of insurance against commercial risks, with successful deployment illustrating market viability and creating a standard for future power generation projects. Moreover, these projects will demonstrate the potential for gas based power generation and increase the utilization of domestic resources. Encouraging private sector involvement will not only transform the energy sector, but also enhance prosperity and overall quality of life in Afghanistan.”