Public Disclosure Authorized

Document of
The World Bank

FOR OFFICIAL USE ONLY

Report No: 83250-SAS

Public Disclosure Authorized

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A PROPOSED GRANT IN THE AMOUNT OF SDR 206.3 MILLION

(US$316.5 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF AFGHANISTAN

A PROPOSED CREDIT IN THE AMOUNT OF SDR 25 MILLION

(US$38.25 MILLION EQUIVALENT) AND A PROPOSED GRANT IN THE AMOUNT OF
SDR 4.4 MILLION (US$6.75 MILLION EQUIVALENT) TO THE KYRGYZ REPUBLIC
Public Disclosure Authorized

A PROPOSED CREDIT IN THE AMOUNT OF SDR 78.3 MILLION

(US$120 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF PAKISTAN

AND A PROPOSED GRANT IN THE AMOUNT OF SDR 29.4 MILLION

(US$45 MILLION EQUIVALENT) TO THE REPUBLIC OF TAJIKISTAN

FOR A

CENTRAL ASIA SOUTH ASIA ELECTRICITY TRANSMISSION AND TRADE PROJECT

(CASA-1000)

March 7, 2014
Public Disclosure Authorized

Energy Sector Units

South Asia Sustainable Development Department
Europe and Central Asia Sustainable Development Department

This document has a restricted distribution and may be used by recipients only in the
performance of their official duties. Its contents may not otherwise be disclosed without World
Bank authorization.
 CURRENCY EQUIVALENTS

(Exchange Rate Effective January 31, 2014)

Currency Unit = Afghan Afghani (AFN)

Pakistani Rupee (PKR)
Kyrgyz Som (KGS)
Tajikistani Somoni (TJS)

AFN 55.8 = US$1

PKR 105 = US$1
KGS 50.4 = US$1
TJS 4.76 = US$1
SDR0.65 = US$1

FISCAL YEAR
July 1 – June 30

ABBREVIATIONS AND ACRONYMS

AAA Analytical & Advisory Activities CDD Community-Driven Development

AC Alternating Current CE Chief Engineer
ACG Arab Coordination Group CHPP Combined Heat Power Plant
ADB Asian Development Bank CIPA Certification for International
AF Additional Financing Professional Accountant
AFMIS Afghanistan Financial CoI Corridor of Impact
Management Information System COO Chief Operating Officer
ARDS Afghanistan Reconstruction & CPPA Central Power Purchasing Agency
Development Services CPS Country Partnership Strategy
ARIS The Community Development CQS Consultant Qualification Selection
and Investment Agency of the CSE Construction Supervision Engineer
Kyrgyz Republic CSP Community Support Program
ARTF Afghanistan Reconstruction CY Calendar Year
Trust Fund DABS Da Afghanistan Breshna Sherkat
BoD Board of Directors DC Direct Current
BT Barki Tajik DfID UK Department for International
CAGR Cumulative Annual Growth Rate Development
CAP Certificate in Accountancy DISCO Electricity Distribution Companies
Program DPO Development Policy Operation
CAPS Central Asia Power System DS&I Design, Supply and Installation
CAREC Central Asia Regional DSCR Debt Service Coverage Ratio
Economic Cooperation E&S Environment and Social
CAS Country Assistance Strategy EDB Eurasian Development Bank
CASA-1000 Central Asia South Asia EBRD European Bank for Reconstruction and
Electricity Transmission and Development
Trade Project EDTIP Electricity Distribution and
CASAREM Central Asian South Asia Transmission Improvement Project
Regional Energy Market EFF Extended Fund Facility
CDC Community Development Council EIB European Investment Bank

i
EIRR Economic Internal Rate of Return IsDB Islamic Development Bank
ELRP Energy Loss Reduction Project ISIAC Independent Social Impact
EMP Environmental Management Plan Consultant
ESIA Environmental and Social Impact JBIC Japan Bank for International
Assessment Cooperation
ESMAP Energy Sector Management JICA Japan International Cooperation
Assistance Program Agency
FATA Federally Administered JSC Joint Stock Company
Tribal Areas JWG Joint Working Group
FBS Fixed Budget Selection KfW Kreditanstalt für Wiederaufbau
FESTI Fuel and Energy Sector KGS Kyrgyz Som
Transparency Initiative km kilometer
FIRR Financial Internal Rate of Return KPK Khyber Pakhtunkhwa Province
FMIP Financial Management kV kilovolt
Improvement Program kWh Kilowatt-hour
FOB Free on Board LARPF Land Acquisition and Resettlement
GDP Gross Domestic Product Policy Framework
GENCO Power Generation Company LCS Least Cost Selection
GHG Greenhouse Gas M&E Monitoring and Evaluation
GNI Gross National Income MDTF Multi-Donor Trust Fund
GoA Government of Afghanistan MEW Ministry of Energy and Water
GoK Government of the MoF Ministry of Finance
Kyrgyz Republic MP Management Plans
GoP Government of Pakistan MRRD Ministry of Rural Rehabilitation and
GoT Government of Tajikistan Development
GPS Global Positioning System MUV Manufacture Exports Unit Value
GTAC Governance Technical MW Megawatt
Assistance Credit NATO/ISAF North Atlantic Treaty Organization
GWh Gigawatt-hour / International Security Assistance Force
HGA Host Government Agreement NBT National Bank of Tajikistan
Hm3 Cubic Hectometer NCB National Competitive Bidding
HO Head Office NEGK National Electric Grid Company of
HPP Hydropower plant Kyrgyzstan
HSD High Speed Diesel NEPRA National Electric Power Regulatory
HSFO High Speed Fuel Oil Authority
HVAC High Voltage Alternating Current NEPS North-East Power System
IA Internal Audit NGO Non-governmental Organization
IBA Important Bird Areas NPL Non-Performing Loans
IBRD International Bank for NPV Net Present Value
Reconstruction and Development NSP National Solidarity Program
IC Individual Consultant NTC National Transmission Company
ICB International Competitive Bidding NTDC National Transmission & Despatch Co.
IDA International Development Agency OCGT Open Cycle Gas Turbine
IDC Interest During Construction ORAF Operational Risk Assessment Framework
IGA Inter-Governmental Agreement OTL Overhead Transmission Line
IGC Inter-Governmental Council PAC Project Affected Communities
IMF International Monetary Fund PAP Project Affected People
INT Integrity Vice-Presidency PDO Project Development Objective
IPP Independent Power Producer PEO Project Environmental Officer
IPSAS International Public Sector PEPCO Pakistan Electric Power Company
Accounting Standard PFM Public Financial Management

ii
 PforR Program for Results SDU Special Disbursement Unit
PIA Project Implementation Agreement SECPO World Bank Corporate Secretariat
PIP Public Investment Program SEO Site Environmental Officer
PIU Project Implementation Unit SIA Social Impact Assessment
PKR Pakistani Rupee SIEPAC Central American Electrical
PMF Project Management Firm Interconnection System
PMU Project Management Unit SOE State-Owned Enterprise
PPA Power Purchase Agreement SSO Site Social Officer
PPU Procurement Policy Unit SSS Single Source Selection
PQ Pre-Qualification T&D Transmission and Distribution
PRAMS Procurement Risk Assessment TAPI Turkmenistan-Afghanistan-Pakistan-
Management System India pipeline
PSC Project Steering Committee tCO2 tons of CO2
PSO Project Social Officer TJS Tajik Somoni
PU Procurement Unit TL Transmission Line
QBS Quality Based Selection TOR Terms of Reference
QCBS Quality and Cost Based Selection TPP Thermal Power Plant
RAP Resettlement Action Plan US$ United States Dollars
REA Regional Environmental USAID United States Agency for International
Assessment Development
ROW Right of Way US¢ United States Cents
RPF Resettlement Policy Framework VAT Value Added Tax
s/s Substation VIP-3 Village Investment Project 3
SBD Standard Bidding Documents WACC Weighted Average Cost of Capital
SDDP Stochastic Dual Dynamic WAPP West African Power Pool
Programming WTO World Trade Organization

South Asia Region Europe and Central Asia Region

Vice Presidents Philippe H. Le Houerou Laura Tuck
Country Directors Rachid Benmessaoud Saroj Kumar Jha
Robert J. Saum
Salman Zaheer
Sector Managers Julia Bucknall Ranjit J. Lamech
Sector Directors John Henry Stein Laszlo Lovei
Task Team Leader Sunil Kumar Khosla
Co-Task Team Leaders Abdulaziz Faghi Mirlan Aldayarov

iii
 COUNTRY
Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT ................................................................................................. 1

A. Regional and Country Context ....................................................................................... 1
B. Sectoral and Institutional Context .................................................................................. 2
C. Higher Level Objectives to which the Project Contributes ............................................ 4

II. PROJECT DEVELOPMENT OBJECTIVE .................................................................. 5

A. PDO ................................................................................................................................ 5
Project Beneficiaries ............................................................................................................. 5
PDO Level Results Indicators .............................................................................................. 6

III. PROJECT DESCRIPTION.............................................................................................. 6

A. Project Components ........................................................................................................ 6
B. Project Costs and Financing ......................................................................................... 10
C. Lessons Learned and Reflected in the Project Design.................................................. 12

IV. IMPLEMENTATION ..................................................................................................... 13

A. Institutional and Implementation Arrangements .......................................................... 13
B. Results Monitoring and Evaluation .............................................................................. 19
C. Sustainability ................................................................................................................ 20

V. KEY RISKS AND MITIGATION MEASURES .......................................................... 21

A. Risk Ratings Summary Table ....................................................................................... 21
B. Overall Risk Rating Explanation .................................................................................. 21

VI. APPRAISAL SUMMARY .............................................................................................. 24

A. Economic and Financial Analysis ................................................................................ 24
B. Technical....................................................................................................................... 28
C. Financial Management.................................................................................................. 29
D. Procurement .................................................................................................................. 31
E. Social (including Safeguards) ....................................................................................... 33
F. Environment (including Safeguards) ............................................................................ 34

iv
 Annex 1: Results Framework and Monitoring ......................................................................... 39

Annex 2: Detailed Project Description ...................................................................................... 42

Annex 3: Implementation Arrangements.................................................................................. 49

Annex 4: Operational Risk Assessment Framework (ORAF) ................................................ 75

Annex 5: Implementation Support Plan ................................................................................... 82

Annex 6: Economic and Financial Analysis .............................................................................. 86

Annex 7: Governance and Management of Export Revenues .............................................. 122

Annex 8: Social Safeguards and Community Support Program .......................................... 125

Annex 9: Macroeconomic and Sectoral Context of the CASA-1000 countries.................... 130

Project Map................................................................................................................................ 143

List of Figures
Figure 1: Project Implementation Arrangements ............................................................................ 13
Figure 2: Project Institutional Architecture and Commercial Framework ..................................... 16
Figure 3 Project EIRR Sensitivity................................................................................................... 26
Figure 4 Project EIRR Sensitivity to Construction Delays ............................................................. 26
Figure 5: Project FIRR Sensitivities ............................................................................................... 27
Figure 6: Project FIRR Sensitivity to Construction Delays ............................................................ 27
Figure 7: CASA-1000 Project Schematic ....................................................................................... 46
Figure 8: Institutional Arrangements Diagram ............................................................................... 50
Figure 9: Flow Chart of Joint Decision-Making Process................................................................ 63
Figure 10: NTDC’s Procurement Management Structure .............................................................. 67
Figure 11: Forecast Summer Power Supply and Demand for the Kyrgyz Republic ...................... 89
Figure 12: Surplus Summer Power Available for Project from the Kyrgyz Republic ................... 89
Figure 13: Forecast Power Supply and Demand for Tajikistan ...................................................... 90
Figure 14: Surplus Summer Power Available for the Project from Tajikistan ............................... 91
Figure 15: Combined surplus summer power available for project from Kyrgyz Republic and
Tajikistan......................................................................................................................................... 91
Figure 16: Base-Case Power Demand Forecast for Kabul Region ................................................. 92
Figure 17: Base-Case Demand Forecast for PEPCO system .......................................................... 93
Figure 18: Project EIRR Sensitivities ............................................................................................. 97
Figure 19: Construction Delays EIRR Sensitivity .......................................................................... 98
Figure 20: Project FIRR Sensitivities ........................................................................................... 100
Figure 21: Sensitivity of FIRR to Construction Delays ................................................................ 101

List of Tables
Table 1: Project Costs ..................................................................................................................... 10
Table 2: Indicative Project Financing Plan ..................................................................................... 11

v
Table 3: Sensitivity Analysis and Economic Appraisal Results for the Project ............................. 25
Table 4: Switching Value Analysis of Economic Appraisal Results for the Project ...................... 25
Table 5: Financial Sensitivity Analysis of the Project .................................................................... 27
Table 6: Switching Value Financial Appraisal Results for the Project .......................................... 27
Table 7: Summary of Disclosure of Safeguard Documents............................................................ 38
Table 8: Summary of Cost for Component B ................................................................................. 47
Table 9: Reporting Summary for each Implementing Agency ....................................................... 56
Table 10: Summary of Audit Reports for Each Implementing Agency ......................................... 59
Table 11 Allocation of Afghanistan IDA Grant Proceeds .............................................................. 60
Table 12 Allocation of Pakistan IDA Credit Proceeds ................................................................... 61
Table 13 Allocation of Tajikistan IDA Grant Proceeds.................................................................. 61
Table 14 Allocation of Kyrgyz Republic IDA Credit and IDA Grant Proceeds ............................ 61
Table 15: Summary of Procurement Risk Mitigations ................................................................... 69
Table 16: Thresholds for Procurement Methods and Bank Prior Review (values in US$) ............ 71
Table 17: Estimated Resources Required for Project Supervision ................................................. 84
Table 18: Skills Mix Required ........................................................................................................ 85
Table 19: List of Partners................................................................................................................ 85
Table 20: Total Economic Investment Costs .................................................................................. 94
Table 21: Sensitivity Analysis of Economic Appraisal Results for the Project ............................. 97
Table 22: Switching Value Analysis of Economic Appraisal Results for the Project .................... 98
Table 23: Estimated WACC for the Project and Individual Countries........................................... 99
Table 24: Total Financial Costs (US$m) ........................................................................................ 99
Table 25: Project Financial Sensitivity Analysis .......................................................................... 100
Table 26: Switching value analysis of financial appraisal results for the project ......................... 101
Table 27: Ratio Analysis for NEGK ............................................................................................. 102
Table 28: Balance Sheet Projections for NEGK (figures in million Soms) ................................. 102
Table 29: Income Statement Projections for NEGK (figures in million Soms) ........................... 103
Table 30: Key Financial Ratios of BT .......................................................................................... 104
Table 31: Balance Sheet Projections for BT (figures in million Somoni) .................................... 105
Table 32: Income Statement Projections for BT (figures in million Somoni) .............................. 105
Table 33: Key Financial Ratios of DABS..................................................................................... 106
Table 34: Balance Sheet Projections for DABS (figures in million Afghanis) ............................ 107
Table 35: Income Statement Projections for DABS (figures in million Afghanis) ...................... 108
Table 36: Key Financial Ratios of NTDC .................................................................................... 109
Table 37: Balance Sheet Projections for NTDC (in million Rs) .................................................. 109
Table 38: Income Statement Projections for NTDC ..................................................................... 110
Table 39: Base-Case Power System Expansion Plan for Afghanistan (in MW) .......................... 111
Table 40: Base-Case Power System Expansion Plan for Pakistan (in MW) ................................ 112
Table 41: Fuel Price Forecast ....................................................................................................... 113
Table 42: Detailed Assumptions underlying Economic and Financial Appraisal ........................ 116
Table 43: Flow of Economic Costs and Benefits for the Project .................................................. 119
Table 44: Flow of Financial Costs and Benefits for the Project ................................................... 120
Table 45: The Five Main Targets of the National Power Policy 2013 ......................................... 131
Table 46: Key macroeconomic indicators and projections ........................................................... 140

vi
 PAD DATA SHEET

Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) (P145054)
PROJECT APPRAISAL DOCUMENT
.

SOUTH ASIA AND EUROPE AND CENTRAL ASIA

SASDE / ECSEG

Report No.: PAD826

.

Basic Information
Project ID EA Category Team Leader
P145054 A - Full Assessment Sunil Kumar Khosla
Lending Instrument Fragile and/or Capacity Constraints [ X ]
Investment Project Financing - Fragile States - Small States
- Fragile within a non fragile
country
Financial Intermediaries [ No ]
Series of Projects [ No ]
Project Implementation Start Date Project Implementation End Date
27-Mar-2014 31-Dec-2019
Expected Effectiveness Date Expected Closing Date
15-Oct-2014 30-June-2020
Joint IFC Joint Level
Complementary or Interdependent project requiring
Yes
active coordination
Sector Manager Sector Director Country Director Regional Vice President
Ranjit J. Lamech John Henry Stein Salman Zaheer Philippe H. Le Houerou
.

Borrower: Islamic Republic of Afghanistan, Republic of Tajikistan, Islamic Republic of Pakistan,

Kyrgyz Republic
Responsible Agency: Da Afghanistan Breshna Sherkat
Contact: Eng. Shekeeb Nessar Title: Chief Operations Officer
Telephone: +93700294722 Email: [email protected]
Responsible Agency: National Electric Grid of Kyrgyzstan
Contact: Mr. Medetbek Aitkulov Title: Director General

vii
Telephone: +996312661001 Email: [email protected]
Responsible Agency: Barki Tajik
Contact: Mr. Ali Nazarov Title: Chairman
Telephone: +992 372358766 Email: [email protected]
Responsible Agency: National Transmission and Despatch Company (NTDC)
Contact: Mr. Muhammad Zia-ur-Rehman Title: Managing Director
Telephone: 924299202229 Email: [email protected]
.

Project Financing Data(in USD Million)

[ ] Loan [X] Grant [ ] Guarantee
[X] Credit [ X ] IDA Grant [ ] Other
Total Project Cost: 1,170.00 Total Bank Financing: 526.50
Financing Gap: 173.00
.

Financing Source Amount

BORROWER/RECIPIENT 134.50
International Development Association (IDA) 158.25
IDA Grant 368.25
Islamic Development Bank and ACG 250.00
Bilateral Agencies (unidentified) 31.00
Afghanistan Reconstruction Trust Fund 40.00
US Government 15.00
Total 997.00
.

Expected Disbursements (in USD Million)

Fiscal Year 2015 2016 2017 2018 2019 2020 0000 0000 0000
Annual 30.00 40.00 100.00 155.00 115.00 86.50 0.00 0.00 0.00
Cumulative 30.00 70.00 170.00 325.00 440.00 526.50 0.00 0.00 0.00
.

Proposed Development Objective(s)

The objective of the project is to create the conditions for sustainable electricity trade between the
Central Asian countries of Tajikistan and Kyrgyz Republic and the South Asian countries of Afghanistan
and Pakistan.
.

Components
Component Name Cost (USD Millions)
A. Transmission Infrastructure 945.00
B. Technical Assistance and Project Implementation Support 30.00
C. Community Support Program 70.00
.

viii
 Institutional Data
Sector Board
Energy and Mining
.

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)
Major Sector Sector % Adaptation Mitigation Co-
Co-benefits % benefits %
Energy and mining Transmission and 100
Distribution of
Electricity
Total 100
I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information
applicable to this project.
.

Themes
Theme (Maximum 5 and total % must equal 100)
Major theme Theme %
Trade and integration Regional integration 60
Environment and natural resources Climate change 40
management
Total 100
.

Compliance
Policy
Does the project depart from the CAS in content or in other significant Yes [ ] No [ X ]
respects?
.

Does the project require any waivers of Bank policies? Yes [ ] No [ X ]

Have these been approved by Bank management? Yes [ ] No [ ]
Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]
Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ]
.

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X
Natural Habitats OP/BP 4.04 X
Forests OP/BP 4.36 X
Pest Management OP 4.09 X
Physical Cultural Resources OP/BP 4.11 X

ix
Indigenous Peoples OP/BP 4.10 X
Involuntary Resettlement OP/BP 4.12 X
Safety of Dams OP/BP 4.37 X
Projects on International Waterways OP/BP 7.50 X
Projects in Disputed Areas OP/BP 7.60 X
.

Legal Covenants .

Name Recurrent Due Date Frequency

Core Construction Agreements 31-Dec-15
Description of Covenant
The contracts for the HVDC converter stations will be signed by December 31, 2015. The
contracts for the HVDC transmission line will be signed by December 31, 2015. The contracts
for the HVAC transmission line will be signed by December 31, 2015. The operations and
maintenance contracts will be signed by June 30, 2016. The Core Construction Agreements
shall not be amended, suspended, abrogated or waived by any party thereto in a manner that
would affect materially and adversely the carrying out of the Project.
Name Recurrent Due Date Frequency
Project Monitoring X
Description of Covenant
Each Participating Country shall: (a) coordinate with IGC to ensure that IGC shall take actions
within its authority to facilitate the carrying out of the Project and (b) to this end shall provide
to the Association, on or about each quarter, a report on the progress of the project including
recommended actions to ensure timely implementation of specific targets and milestones
relating to the Project and setting out the recommended actions to ensure the efficient carrying
out of the Project during the period following such date, and (c) thereafter, take all necessary
actions to implement the recommendations as agreed with IGC and the Association.
Name Recurrent Due Date Frequency
Revenue Management X
Description of Covenant
Tajikistan and the Kyrgyz Republic shall adopt and implement a transparent revenue
management program by no later than 12 months after the Effective date.
Name Recurrent Due Date Frequency
Project Audit Reports X
Description of Covenant
Timely Audits of the project financial statements prepared by each Implementing Agency.
Name Recurrent Due Date Frequency
Co-financing 15-Oct-15
Description of Covenant

x
Additional Co-Financing for Parts A and B of the Project (for Tajikistan, Kyrgyz Republic and
Pakistan) shall be secured in a manner satisfactory to the Association by no later than 12
months after the Effective Date.
Name Recurrent Due Date Frequency
Guidelines for Community Support Programs 30-Jun-15
Description of Covenant
Prior to the commencement of construction work for the HVDC transmission line, the
operational manual for the Community Support Programs for Pakistan and Afghanistan will be
finalized and financing secured, for the purpose of implementing said component, in form and
substance acceptable to the Association.
Name Recurrent Due Date Frequency
Off-take Arrangements for Sustainability of the 15-Oct-15
Project
Description of Covenant
The Core Commercial Agreements (PPAs, Master Agreement, the Coordination Agreement,
Host Government Agreements, Technical Code and the Account Bank Agreement), with terms
and conditions satisfactory to the Association, shall: (a) become effective by the date which is
12 months after Effective Date; and (b) not be amended, abrogated or waived by any party
thereto in a manner that would affect materially and adversely the carrying out of the Project.
Name Recurrent Due Date Frequency
Inter-Governmental Agreements X
Description of Covenant
Additional Event of Suspension. Any of the Host Government Agreements, the Coordination
Agreement, the Inter-Governmental Agreement, or any IGC Resolution has been amended,
suspended, abrogated or waived so as to affect materially and adversely the ability of any of the
Participating Countries or the IGC to carry out their respective responsibilities in connection
with the Project.
Name Recurrent Due Date Frequency
Core Financing Agreements X
Description of Covenant
Additional Event of Suspension. The right of any of the Participating Countries under any of
the Core Financing Agreements to withdraw the proceeds of such financing is suspended,
canceled or terminated, in whole or in part, pursuant to the terms of such agreement.
Name Recurrent Due Date Frequency
Legislation of National Transmission Companies X
Description of Covenant
Additional Event of Suspension. Any National Transmission Company’s Legislation has been
amended, suspended, abrogated, repealed or waived so as to affect materially and adversely the
ability of the Project Implementing Agency to perform any of its obligations under the Project.

xi
Name Recurrent Due Date Frequency
Performance under Subsidiary Agreements X
Description of Covenant
Additional Event of Suspension. Any of the parties to the Subsidiary Agreements (between
the Participating Countries and National Transmission Companies) has failed to perform any of
its obligations under its respective Subsidiary Agreement.
.

Conditions
Name Type
Power Purchase Agreements and the Master Agreement Effectiveness
Description of Condition
The Power Purchase Agreements (PPAs) and the Master Agreement have been signed by all
parties, in form and substance agreed with the Association.
Name Type
Financing Agreements Effectiveness
Description of Condition
The Financing Agreements between the four Participating Countries and IDA have been
executed and all conditions precedent to their effectiveness have been fulfilled.
Name Type
Co-Financing Agreement Effectiveness
Description of Condition
The IsDB Co-financing Agreement has been executed and all conditions precedent to its
effectiveness have been fulfilled.
Name Type
Subsidiary Agreements Effectiveness
Description of Condition
The Subsidiary Agreements have been executed on behalf of the participating countries and the
respective National Transmission Companies.
Name Type
Revenue Management Program Effectiveness
Description of Condition
For Tajikistan and Kyrgyz Republic, the Recipients have submitted to the Association a
program for transparent revenue management satisfactory to the Association.
Name Type
Project Management Firm Disbursement
Description of Condition
For Afghanistan, the hiring of a Project Management Firm for Component B of the Project.

xii
 Team Composition
Bank Staff
Name Title Specialization Unit
Abdul Hameed Quraishi Operations Officer Operations Officer SASDE
Abdulaziz Faghi Senior Energy Specialist Co-Task Team Leader SASDE
Adam Shayne Lead Counsel Lead Counsel LEGLE
Afsana Afshar Consultant Power Engineer SASDE
Angela Nyawira Senior Social Senior Social ECSSO
Khaminwa Development Specialist Development Specialist
Ani Balabanyan Senior Energy Specialist Senior Energy Specialist ECSEG
Anjum Ahmad Senior Energy Specialist Senior Energy Specialist SASDE
Anna C. O'Donnell Social Development Social Development SASDS
Specialist Specialist
Anwar Ali Bhatti Financial Analyst Financial Analyst SACPK
Arcadii Capcelea Senior Environmental Senior Environmental ECSEN
Specialist Specialist
Artur Kochnakyan Energy Economist Energy Economist ECSEG
Arun Manuja Sr Financial Sr Financial SARFM
Management Specialist Management Specialist
Asha Narayan Sr Financial Sr Financial SARFM
Management Specialist Management Specialist
Asif Ali Senior Procurement Senior Procurement SARPS
Specialist Specialist
Asta Olesen Senior Social Senior Social SASDS
Development Specialist Development Specialist
Boonsri Prasertwaree Program Assistant Program Assistant SASDO
Kim
Chaohua Zhang Lead Social Lead Social SASDS
Development Specialist Development Specialist
Chau-Ching Shen Senior Finance Officer Senior Finance Officer CTRLN
Dung Kim Le Program Assistant Program Assistant ECSSD
Evgenij Najdov Senior Economist Senior Economist ECSP1
Faruk Khan Lead Economist Lead Economist SASEP
Fouad Muhammad Khan E T Consultant Environmental Specialist SASDI
Galina S. Kuznetsova Sr Financial Sr Financial ECSO3
Management Specialist Management Specialist
Gregory Scopelitis E T Consultant Energy Finance SASDE
Specialist

xiii
Heather B. Worley Senior Communications Senior Communications ECSEG
Officer Officer
Javaid Afzal Senior Environmental Senior Environmental SASDI
Specialist Specialist
Joseph Paul Formoso Senior Finance Officer Senior Finance Officer CTRLA
Joseph Walter Mik Investment Officer Investment Officer CEUPP
Khalid Bin Anjum Procurement Specialist Procurement Specialist SARPS
Kishor Uprety Senior Counsel Senior Counsel LEGAM
L. Panneer Selvam Lead Environmental Lead Environmental SASDI
Specialist Specialist
Leiping Wang Lead Energy Specialist Lead Energy Specialist SASDE
Marina Bakanova Sr Country Economist Sr Country Economist ECSP1
Martin Sobek Senior Investment Senior Investment CEUPP
Officer Officer
Mirlan Aldayarov Senior Energy Specialist Co-Task Team Leader ECSEG
Mohammad Arif Rasuli Senior Environmental Senior Environmental SASDI
Specialist Specialist
Muhammad Waheed Economist Economist SASEP
Nagaraju Duthaluri Lead Procurement Lead Procurement ECSO2
Specialist Specialist
Nurbek Kurmanaliev Procurement Specialist Procurement Specialist ECSO2
Richard Jeremy Spencer Country Sector Lead Energy Specialist SASDE
Coordinator
Saeeda Sabah Rashid Sr Financial Sr Financial SARFM
Management Specialist Management Specialist
Salma Omar Senior Social Senior Social SASDS
Development Specialist Development Specialist
Samina Mussarat Islam Consultant Social Development SASDS
Specialist
Sunil Kumar Khosla Lead Energy Specialist Task Team Leader ECSEG
Takhmina Operations Analyst Operations Analyst ECSEG
Mukhamedova
Yuriy Myroshnychenko Senior Energy Specialist Senior Energy Specialist ECSEG
Zamir Chargynov E T Consultant E T Consultant ECSEG
Non Bank Staff
Name Title Office Phone City
Iftikhar Khalil Advisor Lahore

xiv
Budak Dilli Consultant Ankara
John E. Besant-Jones Consultant London
.

Locations
Country First Administrative Location Planned Actual Comments
Division
Afghanistan Parwan Parwan X
Afghanistan Nangarhar Nangarhar X
Afghanistan Laghman Wilayat-e Laghman X
Afghanistan Kunduz Kunduz X
Afghanistan Kabul Wilayat-e Kabul X
Afghanistan Wilayat-e Baghlan Wilayat-e Baghlan X
Kyrgyz Republic Osh Osh Oblasty X
Kyrgyz Republic Batken Batken Oblasty X
Kyrgyz Republic Jalal-Abad Jalal-Abad Oblasty X
Pakistan Khyber Pakhtunkhwa Peshawar X
Province
Pakistan Federally Federally Administered X
Administered Tribal Tribal Areas
Areas
Tajikistan Viloyati Sughd Viloyati Sughd X
Tajikistan Khatlon Viloyati Khatlon X

xv
I. STRATEGIC CONTEXT

A. Regional and Country Context

1. The Central Asia-South Asia Electricity Transmission and Trade Project (CASA-1000)
aims to facilitate electricity trade between hydropower surplus countries in Central Asia and
electricity deficient countries in South Asia by putting in place the commercial and institutional
arrangements and the transmission infrastructure required for this trade. The four countries
participating in the project – Afghanistan, Kyrgyz Republic, Pakistan and Tajikistan – are of
considerable geostrategic importance by virtue of their location at the crossroads of China, India,
Russia and the Middle East. Sustained efforts to promote institutional development and socio-
economic prosperity in the CASA-1000 countries are therefore a very high priority, not only for
the countries themselves, but also for the stability of the Central and South Asia regions more
broadly. The CASA-1000 countries vary significantly in terms of population numbers, economic
size and development trajectories, but also share several key characteristics and have
complementary development needs and goals, especially in the energy sector, which form the
basis for the CASA-1000 project described in detail later in this document.

2. With per capita GNIs under $1,000, Kyrgyz Republic and Tajikistan are among the
poorest countries in Central Asia. Both have relatively small populations (Kyrgyz: 5.6 million
and Tajikistan: 8 million), are landlocked, prone to exogenous geographic and economic shocks,
and have suffered from significant social strife. Despite inheriting well-developed infrastructure,
both countries have suffered significant declines in living standards since the break-up of the
Soviet Union as a result of disruption in established trade and broader relations with other Soviet
Republics. Poverty levels are currently extremely high – 38 percent of the Kyrgyz population
and 46.7 percent of the Tajik people live below their respective national poverty lines and both
countries have launched economic stabilization and structural reform initiatives to promote
growth, in part with support from the International Monetary Fund (IMF), the World Bank and
other International Financial Institutions (IFIs) and bilateral partners. Key elements of the
structural agenda in the two countries concern improving the business climate to attract new
private investment as well as diversifying economic production and exports, including electricity
(given the countries’ abundant hydropower, especially during summer).

3. The South Asian participants in the CASA-1000 project, Afghanistan and Pakistan, have
much larger populations – about 30 million and 180 million respectively – and substantially
larger economies. With a GNI per capita of US$570, Afghanistan is the lowest income country
in South Asia and emerging from over three decades of conflict. It remains an extremely fragile
state with weak state and civil society institutions and faces enormous development challenges,
including high levels of poverty (36 percent) and unemployment. Despite the ongoing conflict
and insecurity, there have been some significant advances in institutional strengthening and rapid
economic growth of 9 percent per year in 2000-2010, driven in large measure by huge foreign
aid flows of close to US$16 billion per annum. With foreign aid set to decline from 2014 with
the withdrawal of international forces and the labor force expanding by about 300,000 per year,
the Afghan economy urgently needs to find ways to sustainably accelerate broad-based growth in
the medium term - implying, inter alia, adequate and stable electricity supply to meet expanding
demand. Even under reasonably optimistic scenarios, growth in Afghanistan is projected to fall
from a 10-year average of over 9 percent to between 5 and 6 percent over 2011–18. Additionally,

1
unemployment, already at 8 percent in 2009–10, is projected to rise further, with potentially
destabilizing effects. In this context, Afghanistan is actively seeking ways to accelerate growth
through increased private and public investment, with a particular focus on addressing the
country’s severe infrastructure bottlenecks.

4. Of the four countries participating in CASA-1000, Pakistan is by far the largest and
possesses important strategic endowments and huge development potential. Realization of this
potential has, however, been severely limited by the country’s significant economic, governance,
and security challenges. There is evidence that poverty has been rising again in the past few
years (after significant improvements over the 2001-2008 period) as a result of the continued
security problems, two major floods, unresolved structural issues and overly expansionary fiscal
policies. The goal of absorbing the country’s rapidly growing youth labor force – a key element
of strategies both to reduce poverty and to maintain reasonable political stability - implies the
need for real economic growth of at least 7 percent per annum in the medium- to longer term,
nearly double the rates achieved over the past decade. Recent analysis by the IMF and the Bank
indicates that the prospects for accelerated growth are not good, unless urgent policy action is
taken to: (i) strengthen fiscal management, (ii) reform the energy sector to reduce shortages and
curb untargeted subsidies, and (iii) implement financial policies aimed at reducing inflation and
external vulnerabilities and strengthening the financial sector.

B. Sectoral and Institutional Context

Inter-Regional Energy Initiatives

5. Over the past decade or so, various countries in both the South Asia and Central Asia
regions have engaged in a broad dialogue to create a regional energy market based largely on the
export of gas and electricity from Central Asia to South Asia, in particular to Afghanistan,
Pakistan and India. This inter-regional dialogue and the specific projects emerging from it are
being supported by a number of multilateral and bilateral partners, notably the Asian
Development Bank (ADB), the Islamic Development Bank (IsDB) and the World Bank as well
as the Governments of the USA, UK and Australia, among others.

6. In addition to the CASA-1000 project, which is the subject of this document, a number of
other important inter-regional gas and electricity projects are being developed at the present time.
For example, Turkmenistan is pursuing gas exports to Afghanistan, Pakistan and India (called
the “TAPI” project from the initials of each country). TAPI is estimated to cost about US$10
billion and is being developed with support from the ADB. Turkmenistan, Uzbekistan and
Tajikistan have already begun exporting small quantities of electricity to Afghanistan and are
studying ways of expanding the trade to other South Asian markets, especially Pakistan. The mix
of thermal-based power from Turkmenistan and Uzbekistan and hydro-based power from
Kyrgyz Republic and Tajikistan allows for a good seasonal mix in supply, thereby enabling all
countries to benefit. Pakistan is also exploring various additional energy import opportunities,
including a natural gas pipeline with Iran and an electricity interconnection with India. For its
part, Afghanistan has developed a Power Sector Master Plan, which, inter alia, suggests the
option of developing the Afghan grid to export power to Pakistan, after satisfying domestic
demand. However, this plan implies the need to sufficiently adapt Afghanistan’s domestic power
system before it can cater to significant power trading from neighboring countries.

2
Genesis of CASA-1000

7. Against the background of the broader Central Asia South Asia dialogue on energy, the
Central Asian countries of Kyrgyz Republic and Tajikistan and the South Asian countries of
Afghanistan and Pakistan began a series of discussions on the creation of a regional electricity
market – the Central Asia South Asia Regional Electricity Market (CASAREM) – to link the
Central Asian countries’ surplus electricity resources with the South Asian countries’ unmet
demand for electricity, thereby alleviating the persistent shortages that have acted as a brake on
growth, jobs and population welfare. In May 2006, a ministerial level meeting was held in
Islamabad, Pakistan at which the four countries collectively declared their intention of pursuing
electricity trade opportunities. The declaration also left open the possibility that other countries
could join the initiative as the trade expands.

8. At a subsequent conference in Dushanbe, Tajikistan in October 2006, the four countries

signed a memorandum of understanding in which they committed to pursue the development of
the first phase of CASAREM by establishing the necessary transmission and trading
infrastructure and systems to enable a trade of roughly 1,300 megawatts (MW) of electricity
between Central Asia and South Asia – including 1,000 MW to Pakistan and 300 MW to
Afghanistan – terming the project CASA-1000. In August 2008, the countries entered into a
formal inter-governmental agreement to set up an Inter-Governmental Council (IGC) and an
associated Secretariat to steer the development of the project. Since then, cooperation between
the four countries has intensified. Working closely with international partners, including IFIs and
bilateral donors, the IGC has spearheaded the conduct of required analytical work to establish the
technical, economic, environmental, social and commercial feasibility of the CASA-1000. The
ADB funded the original Feasibility Study for CASA-1000 and the Bank provided support for
the update of the Feasibility Study in 2011 and subsequent studies with other development
partners. ADB is earmarking resources originally proposed for this project to other regional
initiatives developed under the Afghanistan Power System Master Plan that are complementary
to CASA-1000. In 2011, the four countries requested the International Finance Corporation
(IFC) to actively participate in project structuring and implementation and subsequently in 2012
the four countries each signed a Financial Advisory Services Agreement with IFC to act as lead
advisor for the selection of the developer and operator for the project.

9. As already mentioned, the two South Asian countries (and the South Asia region as a
whole) face tremendous energy challenges, with about 400 million people still deprived of
reliable access to electricity, social unrest related to energy shortages arising nearly every year
(especially in the scorching Pakistan summers), and the vast majority of urban firms pointing to
energy shortages as one of the most binding constraints to business operations and expansion.
Moreover, rising oil prices and the heavy reliance on fuel oil for power generation in both
Afghanistan and Pakistan have placed increased burdens on an energy sector that is already in
need of reform. For them, cleaner and cheaper electricity imports from Central Asia will enable
improved coverage, reduce shortages over the critical summer period and lessen financial
pressures deriving from fuel imports.

10. For their parts, the two Central Asian countries involved in CASA-1000, Kyrgyz
Republic and Tajikistan, have abundant hydropower, which is the source for over 90 percent of

3
domestic energy needs. The natural hydrology driven by snow melts results in heavy water flows
during the summer and significantly reduced flows during the winter –leading, in turn, to surplus
power in the summer and perennial power shortages in winter. The water released in the summer
is used for electricity generation up to the level of domestic demand and export, and the rest is
spilled without passing through turbines. Obligations to meet summer water needs for irrigation
in downstream countries and limited water storage capacity precludes the generation of adequate
hydropower to adequately meet winter energy needs. At the present time, the seasonality of
electricity supplies combined with low tariffs and under-maintenance of energy assets causes
severe economic disruptions, with negative implications for productivity and population welfare.
With support from ADB, European Bank for Reconstruction and Development (EBRD) and
other development partners, the countries have committed specific investments for the
rehabilitation of several aging hydropower plants (HPPs) and Kyrgyz Republic is embarking on
the construction of one new HPP. Export of the countries’ relatively low cost, clean surplus
summer electricity would help both governments to generate the revenues needed to bolster their
respective budgets, which could then help finance fuel resources for winter energy needs,
promote energy efficiency programs and undertake other measures to deal more effectively with
their winter energy crises in the medium to long term.

11. Given the above context, the CASA-1000 project is seen as a “win-win” proposition by
all the four countries involved, with its robust economic viability derived from not needing to set
up any new generation capacity in exploiting a currently missed opportunity for regional energy
trade. Furthermore, by establishing an “open access” regime, the Project enables other suppliers
(for example in neighboring countries) to avail of unutilized transmission capacity to access
electricity markets in the CASA-1000 countries. The project is, therefore, expected to: (i)
alleviate summer electricity shortages in Pakistan and Afghanistan and/or reduce their
dependence on costly and polluting oil-based generation; (ii) establish an additional, steady
source of revenues to Tajikistan and the Kyrgyz Republic; (iii) help strengthen Afghanistan’s
role as a viable transit country, leveraging a key comparative advantage and enhancing its
growth prospects; and (iv) set the stage for expanded energy trade between Central Asia and
South Asia. Further details regarding each country’s energy sector context, including current
development and reform initiatives are available in Annex 9 of this document.

C. Higher Level Objectives to which the Project Contributes

12. The proposed CASA-1000 project contributes to key strategic outcomes outlined in the
Country Partnership Strategy (CPS) of each of the four participating countries (and Interim
Strategy Note for Afghanistan.) It also serves to expand economic cooperation in a sub-region
where security concerns dominate relations between neighbors. The project’s success can pave
the way for greater economic cooperation, contributing to growth, the elimination of extreme
poverty and the boosting of shared prosperity.

13. By investing in the CASA-1000 project, the exporting countries would be able to bring a
stable export revenue stream for a number of years from electricity export. This is critically
important in both countries which have experienced chronic large trade deficits and low levels of
foreign reserves. For Afghanistan, the project is a demonstration of the country’s ability to
facilitate safe transit of trade through its territory that could spur future investments within

4
Afghanistan – for example in the country’s abundant natural and mineral resources - and help
create further linkages between the two regions.

14. In Tajikistan, the project clearly responds to the expected result of improving the
reliability/efficiency of electricity services and increasing energy export potential (Objective II
of the Tajikistan CPS FY10–13). It also helps reduce poverty and vulnerability by maintaining
fiscal stability and access to critical public services (Objective I of the CPS). In the Kyrgyz
Republic, the project would also support the CPS objectives of accelerating growth and
implementing essential reconstruction and rehabilitation of the country’s damaged infrastructure
by generating valuable export revenues and diversifying its current export market. A CPS for
Kyrgyz Republic (FY13-17) was discussed by the World Bank Board in July 2013 and refers to
CASA-1000 as a project of focus for the government.

15. Both the Pakistan CPS (FY10–13) and Afghanistan Interim Strategy Note (FY12–14)
highlight regional cooperation as an area of engagement for the Bank in light of its potential for
enhancing both countries’ efforts to promote inclusive growth and jobs. In particular, the CASA-
1000 project could help Afghanistan rebuild its traditional connections to its neighbors in trade
and transit, energy and water management. This, in turn, would help reduce poverty and promote
socio-political stability. Moreover, the enhanced availability of energy once the CASA-1000
project is operational would directly contribute to relieving Pakistan’s and Afghanistan’s
summer electricity shortages, which are currently a significant constraint to enterprise
development and job creation.

II. PROJECT DEVELOPMENT OBJECTIVE

A. PDO

16. The objective of the project is to create the conditions for sustainable electricity trade
between the Central Asian countries of Tajikistan and the Kyrgyz Republic and the South Asian
countries of Afghanistan and Pakistan.

Project Beneficiaries

17. The project will benefit all four countries. The import of power to Pakistan and
Afghanistan will benefit households and businesses who suffer from chronic power cuts during
the summer months. If the Central Asian electricity imports are used to displace high cost oil-
based generation, they will also lessen the need for fiscal subsidies to the power sector, thereby
freeing up budgetary resources for other priority expenditures. In turn, revenues from power
sales will provide a new stream of public revenues for the Kyrgyz Republic and Tajikistan that
they could use to invest in energy solutions, including measures to alleviate the winter energy
deficit in those countries.

18. In addition, the countries have proposed the implementation of targeted Community
Support Programs (CSPs) in each country as part of the CASA-1000 project. The aim of these
programs would be to improve livelihoods of the corridor communities and increase the shared
prosperity associated with the project. This represents a departure from usual practice since,
given the relatively modest ecological and social impacts of high voltage transmission lines,

5
 people living along the transmission corridor are not typically provided with special benefits. In
this instance, however, taking into consideration the special, multi-regional nature of the CASA-
1000 Project, and the fact that its benefits will accrue predominantly to grid-connected electricity
consumers and national budgets, the IGC has decided to establish a mechanism to directly share
project benefits during the operation phase with the (approximately 670) poor communities
living along the CASA-1000 corridor in the four countries. The CSPs will first be implemented
during the project’s construction phase to help create a more supportive environment for the
project, especially among conflict-affected and vulnerable populations. The IGC decision to
create a mechanism for the provision of direct support to the communities during the project’s
operation phase will ensure continued funding to the CSPs that will be established as part of
CASA-1000 during construction.

19. Telecommunications companies and their customers could also be potential project
beneficiaries if they avail of the excess fiber optic capacity embedded in the 1,200 km of CASA-
1000 transmission lines. While a small part of this capacity is needed for transmission system
operations, unused capacity of hundreds of gigabits per second will potentially be available to
national, regional, and global telecommunications entities and could be used to boost
connectivity, improve reliability and cut telecommunications costs.

PDO Level Results Indicators

20. Sustainability. Commercial framework agreements in place for electricity trade between
the four countries (and being adhered to); Operations and Maintenance (O&M) contract in place
for transmission infrastructure (with capacity development of national transmission companies);
and community support programs for inclusive growth have been developed and are being
implemented in Afghanistan, the Kyrgyz Republic, Tajikistan and Pakistan.

21. Infrastructure development. Construction contracts awarded to qualified contractors;

Transmission infrastructure allowing electricity trade between the two regions has been
established and is functional.

22. Institutional development. Inter-Governmental Council and its Secretariat are

functioning effectively in facilitating efficient and timely project implementation; capacity of
participating countries' transmission utilities has been strengthened, enabling them to undertake
large cross-border infrastructure projects, negotiate and implement technical and commercial
agreements.

III. PROJECT DESCRIPTION

A. Project Components

23. The Project would be comprised of three components: Component A – High Voltage
Transmission Infrastructure, Component B – Technical Assistance and Project Implementation
Support, and Component C – Community Support Programs. Component A costs in parenthesis
are inclusive of contingencies and exclusive of applicable taxes, environmental and social costs
and Interest During Construction (IDC).

6
Component A. Construction of High Voltage Transmission Infrastructure (US$945
million 1, of which Bank financing is US$518.5 million). This component is comprised of the
following four sub-components:

a. Sub-component A1 – High Voltage Direct Current (HVDC) Transmission Line

(US$295 million, Bank financing- US$216.5 million). Construction of about 750
km of 500 kV HVDC overhead transmission line to interconnect the electricity
network of Tajikistan from the Sangtuda converter station, to the Pakistan network at
the Peshawar converter station, and the Afghanistan network at the Kabul converter
station. The line will have a transmission capacity of 1,300 MW in either direction,
using a bipolar and earth-return configuration and consists mainly of self-supported
lattice tower structures, conductors, and insulators. About 120 km of the line will be
in Tajikistan, 560 km in Afghanistan, and 70 km in Pakistan.

b. Sub-Component A2 – HVDC Converter Stations (US$385 million, Bank

financing- US$257 million). Engineering design, construction, and commissioning
of three HVDC converter stations: at (i) Sangtuda (1,300 MW) in Tajikistan; (ii)
Kabul (300 MW) in Afghanistan; and (iii) Peshawar (1,300 MW) in Pakistan. These
convert power from Alternating Current (AC) into Direct Current (DC), and vice
versa, as required. The converter stations include specialized converter transformers,
breakers, filtering equipment, inverters, controls, ground electrodes, and static and
dynamic compensation equipment.

c. Sub-component A3 – High Voltage AC Transmission (HVAC) Interconnection

between the Kyrgyz Republic and Tajikistan (US$200 million, Bank financing-
US$45 million) – Construction of about 475 km of 500 kV HVAC overhead
transmission line to interconnect the electricity network of the Kyrgyz Republic at
Datka substation (s/s) to the Tajikistan network, at the Khudjand s/s. About 450 km of
the line will be in the Kyrgyz Republic and 25 km in Tajikistan.

d. Sub-component A4 (US$65 million, Bank financing- US$0 million) – Tajikistan

grid reinforcement. This includes the construction of about 115 km of 500 kV line
from Regar s/s to Sangtuda s/s and other parts of the network necessary, along with
associated substation equipment to ensure transfer of Tajik and Kyrgyz export power
to the Sangtuda converter station.

Component B. Technical Assistance and Project Implementation Support (US$30 million,

Bank financing - US$8 million).

24. This component will finance the support for project implementation and technical
assistance (TA) required to the four country-specific Project Implementing Agencies as well as
for the IGC and IGC Secretariat. The component will be financed by donors through a multi
donor trust fund (MDTF), which is being established specifically for CASA-1000. In addition,

1
An estimated amount of US$20m in environmental and social costs (including land acquisition) are added to this
component and presented in the financing plan as part of the project Base Costs.

7
the proposed IDA Grant to Afghanistan will finance the relevant activities in that country. This
component aims to strengthen technical, contract and safeguards management, and the
supervision capacities of the Project Implementing Agencies, as outlined below:

a. Sub-component B1 – HVDC and HVAC Owner’s Engineers (US$12 million).

This will support consultancy services of Owner’s Engineers, including for third-
party monitoring and supervision during construction. It is expected that separate
Owner’s Engineer’s will be hired for the HVDC and HVAC portions of the project
given the nature of the technology and scope of work required for each. The Owner’s
Engineers will be contracted by and report to the Implementing Entities.

b. Sub-component B2 – Environment and Social Management Support (US$4

million). This will strengthen capacity of the implementing agencies to develop and
supervise the implementation of environmental and social safeguards, such as
country-specific Environmental and Social Impact Assessments and Resettlement
Acquisition Plans (RAPs). It is expected that individual consultants (or in some cases
firms) will be hired by each Implementing Agency separately to fill in any capacity
gaps where needed.

c. Sub-component B3 –Audits, Financial and Revenue Management (US$3

million). This will finance the annual audits of the project accounts in all the four
countries and support for transparent financial management of expected revenues.
Furthermore, it may also finance the entity audits of the implementing
agencies/transmission companies in cases where these audits are not financed from
other sources as well as other financial management improvement programs, as
needed.

d. Sub-component B4 – Project Management Support (US$4 million). This will

finance general project management costs of the implementing agencies including
procurement and contract management, financial management, monitoring and
evaluation of project performance and results as well as operating costs such as travel,
office consumables and miscellaneous project supervision costs. In addition, it will
provide the implementing agencies with requisite training and capacity building
focusing on HVDC operations and maintenance and power dispatch. It will also
finance any commercial and legal advisory support required for the countries.

e. Sub-component B5 – Coordination (US$3 million). This will support strengthening

of the IGC Secretariat which will be coordinating all the multi country aspects of the
project, including procurement and contract implementation, monitoring and
evaluation of project, reporting, etc. This component will finance technical,
commercial and legal consultants needed to support the IGC Secretariat as well as
cover some incremental operating expenses.

f. Sub-component B6 – Project Communications (US$2 million). This will finance a

communications campaign and information-sharing activities directed to relevant
stakeholders within each of the four countries, with a special emphasis on outreach to

8
 communities in the project areas. A multi-media communications strategy will be at
the core of information sharing efforts, designed with the aim of ensuring that
information on the project’s implementation progress and impacts is conveyed to
interested members of civil society and the citizenry more broadly. To ensure that
CSP communities living in the CASA-1000 corridor are effectively reached, the
communications strategy will take into account their infrastructure access, literacy
rates, and language. In addition, it will also ensure that feedback loops between the
corridor communities and the implementing agencies are put in place and regularly
utilized.

g. Sub-component B7 – Capacity Building (US$2 million). Strengthening the

institutional capacity of the Project Implementing Agencies and relevant government
officials to manage cross-country and inter-regional electricity transmission initiative
and trade mechanisms aiming to develop sustainable regional electricity markets as
well as any other capacity building support for related activities as needed by the
countries.

Component C. Community Support Programs (US$70 million for construction phase,

Bank financing- US$0 million.)

25. This component will develop and implement CSPs in each of the CASA-1000 countries
during the project’s construction period to create a more supportive environment for project
implementation by improving livelihoods among the approximately 670 (largely poor)
communities living along the CASA-1000 corridor. The CSPs will be predicated on a
community driven approach – i.e. community-led decision making for identification and
implementation of the selected schemes is a key principle for the programs. The IGC agreed to a
mechanism to directly share the benefits of the project with these communities during the
operation phase through continued funding of some of these activities. Further details are given
in Annex 8.

26. The preparation and implementation of the CSPs will be phased, with the Afghanistan
CSP activities being prepared first. CSPs for the other three countries will be prepared over the
course of CY14 in readiness for implementation by mid-2015, to align with the construction
phase of the transmission line. The CSPs will be designed independently for each country to
allow for tailoring to country-specific circumstances and to enable the incorporation of lessons
from similar Community-Driven Development (CDD) projects. The World Bank-managed
Afghanistan Reconstruction Trust Fund (ARTF) will finance the Afghanistan portion of the CSP
component at an estimated cost of US$40 million. The MDTF being set up for CASA-1000 with
donor support would be the main vehicle for funding of the planned CSP activities in the other
three countries. The estimated cost, to be firmed up after detailed designs are completed, is
expected to be US$10 million for each country. The scope of each country component may have
to be adjusted depending on the level of available funding. Specifically, in the Kyrgyz Republic
and Tajikistan, where the funding is limited, it is possible that commencement of the CSPs
during construction may not be completely aligned with the construction phase; however, this
should not have a significant impact on the project risks. The implementation and fiduciary
arrangements would be finalized during preparation of the country specific CSP projects. The

9
experiences and lessons learned from the construction phase CSP activities will be taken into
account in designing the benefit-sharing mechanisms for the operational period of the project.
Detailed designs for the operations phase benefit-sharing schemes will be finalized before project
completion to avoid gaps in these community programs, including arrangements for annual
planning, implementation, monitoring and evaluation.

B. Project Costs and Financing

27. The project will be financed by the participating countries with support from IFIs and
bilateral donors. The cost allocation for the investment component is based on the principle that
each country will finance assets in its own territory. The project costs are based on the Feasibility
Study Update completed in 2011 by an international consulting firm. The estimate was re-
examined taking into consideration possible price variations in input costs for transmission lines
from 2010 to 2013. For the HVDC converter stations, the cost was compared with recent
procurements in the South Asia Region. The feasibility cost estimates are deemed to be in line
with current market prices. Taking into account the perception of possible increases in security
risks in Afghanistan post-2014 as well as the possibility of relative cost increases based on the
final route alignment, the contingency amount has been estimated at 25 percent of the total cost
for Afghanistan and 15 percent for the other three countries. Exact financing needs would be
known after finalization of all the contracts. The project cost is presented in Table 1.

Table 1: Project Costs

Country Afghanistan Pakistan
Tajikistan Kyrgyz Project
Republic
US$m US$m US$m US$m US$m
A. Transmission Infrastructure 242 159 240 160 801

B. Project Implementation 8 7 8 7 30
Support

C. Community Support Program 40 10 10 10 70

(construction phase)

Environmental and Social Costs 13 3 3 1 20

Total Base Costs 303 179 261 178 921
Contingencies 61 24 36 24 145
Taxes and IDC 2 40 29 4 31 104
Total Project Cost 404 232 301 233 1170

28. Component A is proposed to be financed by the World Bank, IsDB, and the Arab
Coordination Group (ACG) 3. Based on current indications of expected financing levels, the IFIs
would together cover roughly 75 percent of the construction costs. The Government of Tajikistan

2
Taxes and duties on equipment and installation services for the Project in Tajikistan (estimated to be US$45
million at current rates) are assumed to be exempted as indicated by the Government of Tajikistan.
3
The ACG currently includes: the Saudi Fund for Development, the Kuwait Fund for Arab Economic Development,
the Abu Dhabi Fund for Development and the OPEC Fund for Development.

10
has allocated US$15 million from its own budgetary resources to support construction costs
within its territory. Activities under Components B and C are proposed to be financed from a
separate MDTF that is currently in the process of being set up. The financing plan assumes
tentative contributions by bilateral partners through this MDTF for funding the CSP activities in
Pakistan as well as the TA components for Kyrgyz Republic, Pakistan and Tajikistan. In the case
of Afghanistan, Components B and C are proposed to be financed by the IDA Grant and the
ARTF, respectively. Similar to ARTF-funded activities, the MDTF will be administered by the
World Bank as a mechanism to channel grant funds from development partners to the CASA-
1000 countries.

29. Due to the perceived security risks in Afghanistan and Northwest Pakistan supplementary
security arrangements will be needed. In Pakistan, the Government has agreed to cover all
security costs from domestic resources. In Afghanistan, the contractors will make their own
security arrangements in accordance with the pertinent national regulations and the costs will be
included in the contract values. This is reflected in the higher contingency factor for Afghanistan.
The environmental and social costs, mainly consisting of land acquisition (including any
resettlement costs and related social costs), project related taxes and IDC will be financed by the
respective Governments and/or their Implementing Entities.

30. Financing Gap and Potential Financiers. Based on the decision made by the CASA-
1000 IGC on the project contractual structure, each individual country will own the portion of
the project assets on its territory and, therefore, all financing -regardless of its source- would be
routed to individual countries. The project financing plan and contribution by financier is
presented in Table 2.

Table 2: Indicative Project Financing Plan

Country Afghanistan Pakistan Tajikistan
Kyrgyz Total
Republic Project
Costs and Sources of Financing US$m US$m US$m US$m US$m
Total Project costs (including 404 232 301 233 1170
contingencies, Taxes and IDC)
IDA Credits and Grants 316.5 120 45 45 526.5
IsDB Financing 4 0 35 70 50 155
ACG 5 0 0 55 40 95
Donors and Trust Funds 40 17 15 14 86
Recipient/Implementing Agency 47.5 32 22 33 134.5
Total Financing Sources 404 204 207 182 997
Financing Gap 0 28 94 51 173

31. The financing requirements of Afghanistan are expected to be met from the IDA Grant 6
with Recipient contributions for Components A and B and from ARTF for Component C. In

4
IsDB amounts are pending approval of the IsDB Board.
5
ACG amounts are tentative and are pending written commitment for such amounts.
6
IDA Amounts include funds cancelled from other Afghanistan projects available for recommitment, namely:
Emergency Irrigation Rehabilitation Project, Strengthening Higher Education Project, Financial Sector
Strengthening Project and Expanding Microfinance Outreach and Improving Sustainability Project.

11
Pakistan, financing requirements are expected to be met from the IDA Credit and IsDB with co-
financing from the Recipient. A financing gap remains with respect to activities in Pakistan, the
Kyrgyz Republic and Tajikistan. Discussions with bilateral and multilateral financiers are
ongoing to explore ways of bridging this gap. In the case of Pakistan, it is possible that the gap
can be met from additional Recipient contributions. The IDA Grant for Tajikistan as well as the
IDA Credit and IDA Grant for the Kyrgyz Republic are proposed to finance Component A
activities in each country, respectively. The European Investment Bank (EIB) officially
confirmed its interest to finance the CASA-1000 project and is targeting an approval of a
financing package by June 2014 subject to internal approvals of its Board. Other IFIs, such as
EBRD and the Eurasian Development Bank (EDB), have initiated specific discussions with
Tajikistan which are currently ongoing. The modalities for the provision of financing will be
negotiated with each financier and can be directed through either the proposed MDTF or through
separate financing arrangements with each country. The financing requirement will be reassessed
after all contracts have been awarded and, in the event that a residual gap remains, the Bank will
propose to cover it from a subsequent IDA Additional Financing operation.

C. Lessons Learned and Reflected in the Project Design

32. The unique character of this regional project limits the pool of projects around the world
from which to draw lessons. In 2010, the Energy Sector Management Assistance Program
(ESMAP) did a review of regional power integration projects across the globe. The review
suggests that, given the unique circumstances of the regional projects studied, there are
considerable differences between them in terms of design and outcomes. The report concludes,
therefore, that there is no single recipe for success in a regional trade initiative and the right
approach depends heavily on the motivations of the countries in entering into such arrangements.
In this context, the relevant lessons, which have guided the design of CASA-1000 Project
include:

a. Establishing the appropriate regional institutions to guide project design and resolve
issues as they arise and ensuring continued high level Government support for
successful development and implementation of multi-country projects;

b. Involving donor agencies in the provision of advisory support and required technical
analysis to underpin key project decisions;

c. Allowing participating countries to develop their domestic power system at their own
pace while allowing regional trade as in the case of the Central American Electrical
Interconnection System (SIEPAC); and

d. Avoiding undue complexity in projects involving many financiers by clarifying the

applicable guidelines, processes and timing well in advance.

33. The West African Power Pool (WAPP) is an example of a project being implemented in
four fragile states with limited technical and commercial knowledge of carrying out such large
regional projects. In WAPP, a special purpose vehicle was created, aligning the four countries’
interests and creating a sustainable coalition as equal shareholders of the project. In the case of
CASA-1000 while the countries opted for a different governance structure (as described in

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 subsequent paragraphs) a similar alignment of interests and coalition were established through
various institutional mechanisms and contractual arrangements.

34. Given the long gestation period of large regional infrastructure projects, advanced
procurement of major construction packages was considered to be important to ensure that while
the institutional and commercial frameworks were being negotiated, commencement of
construction would be aligned with the finalization of these agreements. In addition, close
coordination amongst the participating financiers and concomitance of their support to the
countries were critical to reach financial closure as well as to provide comfort to the various
stakeholders of the project.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

35. The project will be implemented by the National Transmission Companies, namely:

a. In Afghanistan – Da Afghanistan Breshna Sherkat (DABS)

b. In the Kyrgyz Republic – Joint Stock Company (JSC) National Electric Grid of
Kyrgyzstan (NEGK)
c. In Pakistan – National Transmission and Despatch Company (NTDC)
d. In Tajikistan – Open Joint Stock Holding Company Barki Tajik (BT)

The overall Project implementation arrangements are outlined in Figure 1.

Figure 1: Project Implementation Arrangements

Project Implementation Oversight and Coordination

36. The governments of the four participating countries, namely Afghanistan, the Kyrgyz
Republic, Pakistan, and Tajikistan have entered into various Memoranda of Understanding and
an Inter-Governmental Agreement (IGA) relating to the CASA-1000 Transmission Project. The

13
IGA, signed in August 2008, is an umbrella agreement for the legal framework for the CASA-
1000 Project and confirms the commitment of the participating countries to implement the
Project in full cooperation.

37. Inter-Governmental Council (IGC). Within the framework of the IGA, the countries have
established a ministerial-level IGC, for steering the development of the CASA-1000 project. The
IGC provides guidance on strategic and policy issues and is responsible for taking such decisions
as may be necessary regarding the operation of the CASA-1000 Transmission Project. Each
country has one vote and decisions are based on consensus. The IGC meets periodically to
discuss important project related issues. IFIs and other partners are invited to the IGC meetings
as observers.

38. Joint Working Group (JWG). The project preparation and implementation activities for
the CASA-1000 project are led by dedicated working groups established in each country since
November 2011 and collectively known as the JWG. The JWG meets regularly through virtual
and face-to-face meetings to discuss overall progress and agree on the key decisions needed to
advance project implementation.

39. IGC Secretariat. Assisting the IGC in the performance of its obligations is a full-time
Secretariat, headed by an Executive Director. The IGC Secretariat is responsible for steering the
development of the CASA-1000 project including coordination between the four countries.
During the project implementation, the IGC Secretariat will additionally assume a role of overall
Project Coordination and its functions will include (i) coordination among all relevant
institutions to streamline the Project’s implementation and help resolve issues encompassing
more than one country; (ii) serving as a single-point for joint procurements and tracking of the
progress of implementation; (iii) monitoring overall project costs and financing; and (iv)
preparing reports for the Governments of four CASA-1000 countries and financiers, according to
the agreed results monitoring plan. Capacity of the IGC Secretariat will be strengthened with the
addition of fiduciary staff to support project implementation.

40. Finance Committee. The IGC has established a Finance Committee for achieving
financial closure as per the timeline agreed by the JWG. The Committee comprises up to two
members per country, including a senior official from the ministry of finance and/or a senior
official from the respective line ministry. The Finance Committee is tasked with exploring
potential sources of financing and engaging with interested financiers to fill the remaining
financing gap, as well as with finalizing the discussion vis-à-vis the committed financiers.

41. Procurement Committee. The IGC, through a resolution, has established a Procurement
Committee, consisting of senior technical and procurement staff designated by each country to
carry out all the work needed on behalf of the parties to IGA and IGC, to bring conclusion to the
procurement process leading to award of the contracts by the national transmission companies.
This has helped in streamlining the joint procurement process. The National Transmission
Companies (NTCs) will follow their respective corporate procedures for internal clearances of all
procurement and contract awards and assist this committee.

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42. Procurement Consultant. The four CASA-1000 countries have selected a Procurement
Consultant through the IFC, to manage the selection process for the Design, Supply and
Installation (DS&I) and O&M contractors. The Consultant is responsible for support to the
bidding process for all joint procurements including for the HVDC converter stations and the
HVDC and HVAC transmission lines. The Consultant reviews the designs, prepare technical
specifications and tender documents for approval, and assist with the tendering process and
contract awards. The Consultant’s team leader reports to the JWG and the IGC Secretariat via
IFC. The Procurement Consultant would provide these services throughout the entire
infrastructure and Owner’s engineer procurement process.

43. Owner’s Engineer Consultants. Two consultancy firms (one for the HVDC and another
for the HVAC system) will be selected through a competitive process. The Consultants will be
responsible for assisting the CASA-1000 countries in supervising the DS&I contracts until
handing over and commercial operation of the facilities, certifying contractors’ payments, and
assisting the IGC Secretariat with coordination among all relevant institutions.

44. In-Country Project Implementation Units. Implementation of project activities will be the
responsibility of the NTCs in each country and the relevant line ministries where appropriate.
Each NTC will have its own Project Implementation Unit (PIU) or Project Management Unit
(PMU) that will be responsible for project implementation within its national borders. The NTCs
will respond to country-specific engineering, technical, procurement and financial management
issues, manage the Project’s country-specific financial flows and environmental and resettlement
matters, communications, country-specific M&E and reporting, etc. The PIUs/PMUs will be
closely coordinating with IGC Secretariat and relevant consultants.

Project Implementation and Commercial Framework

45. The four countries have decided to implement CASA-1000 as a public sector project
through their respective NTCs with support from IFIs and other donors. All the Project assets
will be owned by the respective NTCs within the boundaries of their own country. This
implementation mechanism of Contractual Joint Venture was preferred over setting up a separate
legal entity (a Project Company) that would be responsible for the contracting and management
of the DS&I and O&M contracts. The project countries rejected the latter option since they
considered that the process for the establishment of a separate entity would likely be an unduly
lengthy one and that the likelihood of major private project financing would be low. The selected
implementation arrangements were subsequently reflected in the key IGC resolution, and
formally approved in September 2013, at the Islamabad, Pakistan IGC meeting. The key
commercial principles for the Project core agreements described below were also approved by
the countries and formally signed at the September 2013 Islamabad IGC meeting. The Project
institutional architecture is given in Figure 2.

15
Figure 2: Project Institutional Architecture and Commercial Framework

46. The Contractual Joint Venture within the countries comprises a number of commercial
agreements (referred to as the “Core Project Agreements”) outlined below:

a. Four Power Purchase Agreements (PPAs) as follows:

(i) a PPA between Electric Power Plants (EPP) of the Kyrgyz Republic and NTDC
/ Central Power Purchasing Agency (CPPA) of Pakistan
(ii) a PPA between EPP of the Kyrgyz Republic and DABS of Afghanistan
(iii) a PPA between Barki Tajik of Tajikistan and NTDC / CPPA of Pakistan
(iv) a PPA between Barki Tajik of Tajikistan and DABS of Afghanistan

b. A PPA between DABS of Afghanistan and NTDC/CPPA of Pakistan that will cover
the sale of electricity generated in Afghanistan, and provide for the on-sale of
electricity purchased by DABS from EPP of the Kyrgyz Republic and Barki Tajik of
Tajikistan.

Each of the PPAs shall be for an initial term of fifteen (15) years divided into three five-
year blocks for the purpose of specifying electricity quantities and prices. At the end of
this initial term, each of the PPAs will continue for a further five (5) years unless the
parties to that PPA decide not to extend. Electricity will be supplied over the period from
May 1 to September 30 in each year (the “Supply Period”). The supply quantities would
be contracted in two tiers. Tier-1 quantities would be firm on a monthly and annual basis,
while Tier-2 quantities would be committed for a block of five years. This two-tiered
approach would help manage the variability in actual hydrology. There will be liquidated
damages for the guaranteed supply of electricity and off-take. The prices in the PPAs are
bundled prices (i.e., covering both the electricity sold as well as the allocated proportion

16
of all associated costs under the project for the transmission of that electricity, including
recovery of investment costs, in accordance with the Master Agreement).

The draft model PPA, prepared by the Project Legal Counsel supporting the IGC
Secretariat has been the basis for on-going negotiations within the country teams. The
countries are supported by international and local commercial and legal advisors for these
negotiations.

c. A Master Agreement between the parties to the PPAs and the NTCs (if not already a
signatory to the PPAs). The Master Agreement will, among other things, provide for:

i. the standard terms and conditions to apply to all the PPAs;

ii. provisions relating to the operation and maintenance of the AC facilities that are
part of the project by each of the NTCs;
iii. the allocation of transmission capacity on the DC facilities for each Supply Period
(capacity is allocated to the countries for their PPAs on an agreed basis);
iv. any capacity that the parties do not use may be allocated to other parties subject to
open access rules, with the resulting revenues from fees to be shared between the
parties;
v. safeguards to mitigate against any adverse impact of change of law and change of
tax;
vi. implementation of a set of principles on which certain costs and risks will be
allocated between the parties (“Cost and Risk Allocation Principles”), as follows:
o the fees of the DC operator (including security costs during the operation
phase)
o Account Bank fees
o operation and maintenance fees of the AC facilities (except for operation
and maintenance of the Pakistan AC facilities)
o recovery of investment costs (excluding Pakistan assets and the HVDC
converter station at Kabul)
o provisions relating to transit fees
o a Common Fund to provide for unplanned outages, meet any other
common expenses, and meet the variability of cash flows for the DC
operator.

All of the costs referred to in the subparagraph above are to be charged on the basis of
the actual level of electricity sales under the PPAs (that is, on a basis of US cents per
kWh). The draft Master Agreement has been prepared and is being negotiated by the
country teams.

d. A Coordination Agreement between entities designated by the governments of the

Kyrgyz Republic and Tajikistan. This agreement will provide for all technical and
commercial aspects of the wielding of power for the project and for operational
coordination with the operator of the DC facilities (“DC operator”).

17
 e. A Technical Code (under development) to cover all operational requirements such as
dispatch, metering, curtailments, and others.

f. An Account Bank Agreement between the Account Bank and the parties to the PPAs,
and the coordination agreement between the entities designated by the governments
of the Kyrgyz Republic and Tajikistan. All payments under the PPAs are to be made
into designated bank accounts with the Account Bank, envisaged to be located in a
jurisdiction outside any of the four participating countries and having a long-term
credit rating from a reputable credit rating agency (such as Standard & Poor’s,
Moody’s, or Fitch). The fees of the Account Bank arising shall be paid by each of the
Parties through their respective bank accounts established with the Account Bank.
The scope of the Account Bank Agreement will include the following:

i. establishment of separate bank/sub bank accounts with the Account Bank:

o for each PPA for the receipt of all payments under the relevant PPA
o for the receipt of fees payable by third parties under the open access rules
o establishment of a bank account for the Common Fund
ii. irrevocable standing payment instructions by each PPA party to the Account Bank
authorizing the Account Bank to debit and credit such accounts in accordance
with:
o an agreed cost allocation model that reflects the Cost and Risk Allocation
Principles agreed under the Master Agreement
o the agreed order of payments (“Payment Waterfall”).

g. An agreement between each government and its designated entities (“host

government agreements” or “HGAs”). Each HGA will, among other things, reflect
the obligations of the governments to each other under the IGA, such as:
i. maintenance of land rights and rights of way
ii. non-interruption of activities relating to the project
iii. non-discrimination in relation to all goods, works, technology, and services
associated with any activities relating to the project
iv. provision of information to lenders, international financial institutions, and
insurers
v. carrying out of the project in accordance with applicable technical, safety, and
environmental standards.

All the agreements have been drafted and are currently under negotiation among the countries
and some of the terms are being defined such as mechanisms to be used in case of war, acts of
terrorism or civil disturbances. Negotiations are expected to be finalized in the first half of
calendar year 2014, though Government approval of these documents may take some more time.

Partnership Arrangements

47. The Project is supported by a number of multi- and bilateral development partners.
Financing is expected to be provided by the World Bank, IsDB, ACG, US Government, DfID,
EIB and potentially other partners expressing support including the Russian Federation,

18
European Bank for Reconstruction and Development. The financing arrangements have taken
into consideration the need to guard against the introduction of undue complexity in procurement
arrangements because of the involvement of multiple co-financiers while also taking into account
the financiers’ constraints with regard to their available allocations for each country. Both the
World Bank and IsDB have country specific allocations, which limit the design options for
procurement packaging. In light of this, the World Bank and IsDB are coordinating closely on
preparation activities to maximize efficiency in project implementation.

48. Various financing institutions are expected to finance discrete parts of the project (e.g.
HVAC lines, HVDC lines and HVDC converter stations) on a parallel financing basis, and will,
therefore, follow their own procurement procedures. The largest financing gap of all project
activities is for the HVDC converter stations (sub-component A2). Considering the size and
technical complexity of these converter stations and the need to maintain consistency in
specifications and technical compatibility amongst the three units, they must be procured as a
single package with the responsibility for execution resting with the same party. With limitations
on the amount of financing available for each country, it is proposed that IDA will finance the
Pakistan portion of this sub-component with Recipient/implementing agency co-financing or
from other concessional resources available to the Government of Pakistan. For Tajikistan, in
addition to the pooling of available resources from IDA, US Government and its own funds, the
Government of Tajikistan is exploring options to secure the required finances with support from
other donors who have expressed interest in financing the project through grant and concessional
sources. Discussions are being held with EIB, EBRD, and EDB amongst others. There is a
possibility that a portion of this gap can also be filled from the MDTF or from some members of
the ACG who may be willing to co-finance directly with IDA. Another source of finance for
Tajikistan is IDA17 which would be processed as an Additional Finance operation.

49. A number of development partners have been working in a coordinated fashion with the
CASA-1000 countries to support project preparation. Several of these international partners are
expected to contribute to a World Bank-administered MDTF being set up for CASA-1000. The
overall framework for, and implementation of, the MDTF will be guided by the IGC and a
specially constituted development partners group. Bank policies do not allow for earmarking of
funds contributed to an MDTF by participating donors to specific activities or to specific
recipients. However, donors may state a preference that their contribution be used to finance one
or more specific sectors/themes which will be accommodated by the Bank to the extent feasible
(albeit without a binding commitment). The restriction on earmarking within MDTFs is needed
in order to preserve the Bank‘s ability as fund administrator to optimally manage the fund to
achieve maximum development impact.

B. Results Monitoring and Evaluation

50. A Results and Monitoring Framework has been developed by the countries together with
the IGC Secretariat and financing partners to document and measure the Project’s development
impacts. The framework identifies results indicators for the overall Project as well as
intermediate results for each component. The implementing entities have provided annual targets
for the results indicators and baseline data against which results can be measured. The primary
responsibility for M&E lies with the NTCs and the IGC Secretariat who will review the Project’s
implementation progress and outcome indicators quarterly.

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51. A mid-term review will take place approximately thirty (30) months after the
effectiveness of the World Bank financing for the Project.

52. There are three aspects to performance monitoring under the Project:

a. Firstly, achievement of the Project’s expected outcomes and intermediate outcomes

will be monitored regularly through: tracking project implementation progress – such
as signing of commercial agreements; contracting and commencement of
construction; and by the achievement of key results indicators under each of the three
Project components.

b. Secondly, the implementing entities’ financial performance will be assessed regularly

through: the establishment of governance initiatives (financial transparency and
reporting, the Account Bank agreement, revenue management); and, carrying out of
entity audits and monitoring the companies’ financial viability indicators. The Project
will monitor the entities’ financial performance annually.

c. Thirdly, the implementation of the environmental and social management plans and
Community Support Programs will be monitored through: by closely monitoring
preparation and implementation of the country-specific plans.

C. Sustainability

53. While recognizing the participating countries’ limited capacity for undertaking complex
cross-border infrastructure projects, CASA-1000 is designed to ensure that capacity gaps are
addressed and more importantly, that the augmented capacity is adequate to sustain long-term,
mutually beneficial commercial transactions. A number of countries in both regions do already
engage in bilateral cross-border trade, but this trade is predominantly undertaken on the basis of
short-term supply contracts arising from high level political agreements. In the case of CASA-
1000, political commitments have been supplemented by long-term commercial contracts being
designed for CASA-1000 that are based on widely accepted principles of equitable cost and risk
sharing mechanisms.

54. A key principle of the sustainability of the project is creating the mechanisms for the four
countries to not only relieve acute shortages of electricity which is debilitating economic
activities, but also support long term planning through additional revenues in Central Asia. The
project would help generate savings for the sector and consequently for the finances of the
respective country, by displacing more expensive (and more polluting) power in Pakistan and
Afghanistan. In addition, allowing open access to the CASA-1000 system as agreed by the four
countries creates the incentive for them to benefit from the possible future engagement of
additional power producers in inter-regional energy trade as the market grows and matures.

55. Close coordination between the countries and respective utilities will continue beyond the
project construction period through the already established IGC, IGC Secretariat, and the JWG.
These entities are expected to operate throughout the PPA period and, potentially, beyond.

20
Together the three bodies will form an institutional and hierarchical platform for discussing and
resolving any issues impeding the project’s progress. Issues impeding the project would be
handled as follows: first, the issue would be reported to and discussed with IGC Secretariat; then,
if needed, it would be considered at the JWG, which meets quarterly; and, finally, if required, it
would be further elevated to the IGC, which meets semi-annually. A formal international
arbitration of any commercial disputes would only be processed if/when it is not resolved at
JWG or IGC level. As such, these institutions would require substantial TA that initially, during
construction, will be provided through the MDTF and, further, by contributions from NTCs.
Joint procurement of assets and combining construction with operations and maintenance would
ensure assets are properly maintained and operated according to international standards.

V. KEY RISKS AND MITIGATION MEASURES

A. Risk Ratings Summary Table

Risk Category Rating

Stakeholder Risk High
Implementing Agency Risk
- Capacity High
- Governance High
Project Risk
- Design Substantial
- Social and Environmental Substantial
- Program and Donor Substantial
- Delivery Monitoring and Sustainability Substantial
Overall Implementation Risk High

B. Overall Risk Rating Explanation

56. As described in previous sections of this document, the proposed project has the potential
for tremendous medium and long-term benefits for the four countries involved and for the
Central Asia and South Asia regions more broadly. It is particularly important to note that the
project is not just a transmission line investment, but rather an initial step in a strategic
engagement that aims to link the two regions as part of the effort to promote greater growth,
political stability and security through enhanced economic cooperation. It is also a high risk
operation. As detailed in the Operational Risk Assessment Framework (ORAF), the project’s
risks are at a number of levels—including at the geopolitical, country, sector, and project levels.
The magnitude of these risks is significantly higher than for national level projects, given that
this large infrastructure development project involves four countries, comprising one fragile state
(Afghanistan) and two states (the Kyrgyz Republic and Tajikistan) with very limited experience
of developing large infrastructure under commercially sustainable frameworks.

21
57. The countries and the development partners have put together several risk mitigation
measures, but nevertheless the risks will need to be continuously reassessed and the mitigation
plan recalibrated during project implementation. The IGC and JWG mechanism have already
proven to be very useful in expeditious development of the project and amicable resolution of
several potentially polarizing issues faced during Project development. It is also planned to
continue with the well-functioning donor coordination mechanism for support to CASA-1000
preparation by formalizing the arrangement. While these initiatives are expected to help address
the main foreseeable project risks, the exceptional nature of this project in terms of the numbers
of governments, implementing entities and contractual arrangements involved as well as the
fraught political context suggests that unforeseen obstacles could arise following Board approval.
Taking this possibility into account, a number of key implementation benchmarks and remedies
have been included in the project agreements to be employed in the event that an insurmountable
stumbling block is encountered.

58. Geopolitical risks pertain principally to the project’s perceived links to future large
hydropower projects planned in Central Asia. Project endorsement and support by local
communities is also critical to the project. The political transition and elections in Afghanistan
(2014) could also impact the speed of decision making by the countries. The viability of the
CASA-1000 project does not depend on future large hydropower projects and the four CASA-1000
governments along with development partners are engaging with countries in the region to respond
appropriately. The four CASA-1000 countries have also agreed to collectively approach other
Central Asian countries as well as the Russian Federation to invite them to participate in project by
utilizing the spare capacity of the CASA-1000 line during the winter months. The IGC has created a
number of empowered committees of senior technical officials from the four countries to take
decisions on key matters related to the project which would mitigate against the risk of delayed
decision-making during the election cycle. Appropriate slack has been built in the timelines for
project milestones where government statutory approvals are required. The CSPs described
further in this section are intended to ensure support by local communities for the Project.

59. The project-related risks include:

a. Electricity flow in a predictable and efficient manner:

i. delivering the quantities of electricity supply committed under the PPAs
ii. volatility in available quantities due to hydrological variation
iii. Payment risk and credibility of off-takers
b. Implementation risks:
i. capacity constraints in the countries
ii. coordination between the countries on implementing mutually linked projects and
risk of differing pace of implementation in such projects
c. Transparency of revenue management from exports
d. First-time exposure to HVDC technology for the countries
e. Security risks related to construction and operation of the line, for the contractors,
Project authorities and the Bank staff particularly in Afghanistan and Northwest
Pakistan, exacerbated by expectations of a security decline after NATO/ISAF
withdrawal.

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60. Several of these risks are being addressed through the project’s design. For example, the
legal framework (that is, PPAs, Master Agreement, and so on) are designed to safeguard against
some of the commercial risks and volatility of supply, by defining quantity and price tiers and
other mechanisms and providing appropriate mechanism for ensuring committed supplies and
payment by the off-takers. Revenue management and fund flows would be handled through an
independent Account Bank. The project governance structure will require establishing a
transparent mechanism for the management of export revenues in the Kyrgyz Republic and
Tajikistan. The Bank has already been successful in introducing similar mechanisms in Kyrgyz
Republic through engagement under development policy operations (DPOs). To address the
coordination challenges and mitigate risks of different paces of project implementation, a
Procurement Committee has been set up by the four countries through an IGC resolution with
adequate power delegation. Additionally, Owner’s Engineers will be appointed to closely
monitor project implementation and proactively deal with any issues that arise. The JWG and
IGC secretariat would also closely interact with one another to resolve any major issues.

61. Security remains a key risk for the project and a source of concern for many stakeholders.
The areas where security risks are perceived to be the highest are in Pakistan and Afghanistan.
The four countries have developed a security management plan that outlines the key features of
security risk mitigation and that specifies how these will be handled during both the construction
phase (when the risk is highest) as well as during the operation phase. All four countries will be
responsible for ensuring the overall safety of personnel and assets during construction and have
prepared security management plans in close coordination with relevant authorities and security
forces in each country to supplement these efforts. The experience of working in fragile country
operations, including Afghanistan, will be followed throughout project implementation and
supervision to lower the risks to various personnel working on the project. Finally, in considering
the security risks to the project, it should be borne in mind that Afghanistan has successfully
built and is currently operating new 220 kV transmission lines in most of the areas of the planned
CASA-1000 corridor. These transmission lines have been functioning without problems over the
last several years. The proposed alignment of the CASA-1000 transmission line also follows
existing right of ways for the majority of its length within Afghanistan and in several areas it will
be running in parallel to existing transmission lines already in operation. It should be noted that
the risk is not spread equally across the full length of the line and most of it tends to be
concentrated in certain areas and the security plans for countries will take this into account.

62. A salient feature of the project design is the emphasis placed on establishing strong
outreach to local communities along the proposed right of way of the transmission line, which
should enhance their understanding of, and support for, the project. The support of the
communities will thus be a critical complement to the security arrangements mentioned above.
Development assistance to local communities via the CSPs is an important means of gaining
their support for the project (especially in Afghanistan and Pakistan where there is a perception
of higher risk that opposition to the project could materialize). Initial field surveys and
consultations have been carried out to assess community needs and development priorities.
Discussions with the governments over the design of the CSPs and their implementation
modalities are ongoing and will be concluded prior to commencement of construction activities
for the CASA-1000 infrastructure. A summary of the proposed concept design of these
community development schemes and funding mechanisms during construction can be found in

23
 Annex 8. In addition, the implementation of a communication strategy will ensure that accurate
and timely information on project impacts and rationale for benefits under the CSPs are widely
disseminated. The CSP for Afghanistan is at an advanced stage of preparation and is planned to
be presented to the ARTF management committee for approval in March 2014, thereby ensuring
adequate sequencing with the start of construction of the transmission line infrastructure.

63. The country and geopolitical risks are largely beyond the ability of the Bank to mitigate,
but both monitoring and dialogue at all levels will help in their management. The current
coalition at global level (the World Bank Group, IsDB, the US and UK governments, the Russian
Federation and others), the IGC, the CAREC program, and so forth are mechanisms that the
countries have engaged to manage geopolitical and in-country political risks. Other technical and
operational risks will be handled through the project design and the provision of engineering
design consultations to manage the procurement of a large DS&I package for the infrastructure
as well as third-party monitoring and supervision during construction. The O&M of the DC
facilities will be contracted to a capable O&M operator, who will coordinate with the countries
on the operational aspects of energy flow, metering, maintenance, and repairs.

64. Funding for the large majority of project costs has been firmed up, but a financing gap
remains at this time as shown in the Indicative Project Financing Plan (Table 2) presented earlier
in this document. Based on ongoing discussions with several interested international
development partners (e.g. EIB, EBRD and the Japanese International Cooperation Agency -
JICA) there seems to be a reasonable likelihood that most (or all) of the remaining financing gap
will be closed before the commencement of physical construction of project activities. The main
risk related to this aspect pertains to the HVDC converter stations where a significant financing
gap for the Tajikistan portion remains while the contract for this package is expected to be signed
in December 2014. The Bank is actively assisting the Government of Tajikistan with their
ongoing dialogue with a number of IFIs keen on supporting the project, such as EIB, EBRD and
EDB, which would substantially reduce the financing risks. In the event that some gap still
remains, it is expected that the Bank will seek to process one or more Additional Finance
operations to bridge the difference.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

65. Economic Analysis of the Project: The economic appraisal is carried out for the period
2014-2047 based on the cost-benefit analysis with and without the project and taking into
account the following assumptions:

a. Power export volumes are limited to the surplus power available from the existing
generation capacity after meeting the forecast summer power demand in these
countries. No new capacity has been assumed to be added in the Kyrgyz Republic and
Tajikistan for economic analysis. The volume to be traded is capped by the capacity
of the CASA-1000 transmission line.

24
 b. The Kyrgyz Republic continues to have the option of exporting to Kazakhstan in the
absence of the project; Tajikistan’s surplus to be exported via CASA-1000 is over and
above the maximum that can be exported to Afghanistan under the current PPA.

c. Pakistan and Afghanistan reduce their marginal generation costs by successfully

implementing their ambitious Power Sector Expansion Plan and build significant new
generation capacity to meet the forecast demand; Pakistan replaces its existing
expensive generation plants (diesel and fuel oil fired IPPs).

d. The economic benefits that would be generated for the communities alongside the
route of the transmission line through the CSP are excluded from the analysis.

66. The project economic costs include construction costs, environmental costs and land
acquisition costs, CSP costs, incremental O&M costs, and power costs. The construction costs
are based on the expected DS&I (including physical contingencies) of the HVAC/HVDC
facilities and network reinforcement in the four countries. The associated costs include the
community benefit program, additional security arrangements, and implementation support
during construction. The economic cost of power for the Kyrgyz Republic is assessed at the
opportunity cost of existing exports to Kazakhstan. In the absence of competing export
opportunities for Tajikistan for the available surplus, the economic cost of power for Tajikistan is
estimated at the marginal cost of generation. The economic benefits of the project include
reduction in the costs of meeting projected power demand in Pakistan and Afghanistan and
reduction of GHG emissions from marginal fossil fuel plants.

67. The economic analysis indicates that the project is economically viable with a Net
Present Value (NPV) of US$1,208 million with a discount rate of 10 percent and an Economic
Internal Rate of Return (EIRR) of 26 percent, even with the conservative base case assumptions.
The sensitivity analysis indicates that the project is economically robust even in case of
substantial variation of key variables (see Table 3, Table 4, Figure 3 and Figure 4).

Table 3: Sensitivity Analysis and Economic Appraisal Results for the Project
NPV EIRR
(million US$) (%)
Base-case 1,208 26%
a. 30% lower energy surplus in Kyrgyz Republic and Tajikistan 1,006 25%
b. 30% increase of total project construction cost 986 21%
c. 30% lower cost of diesel, fuel oil and natural gas 693 20%
d. 2-year delay of in-service date of project facilities 693 18%
e. Combination of a, b, c and d above 42 10%

Table 4: Switching Value Analysis of Economic Appraisal Results for the Project
Change in variable required to make EIRR=10% and NPV=0
162% increase of total project construction cost
7 years of delay of in-service date of project facilities
70% lower cost of diesel, fuel oil and natural gas
69% lower energy surplus

25
Figure 3 Project EIRR Sensitivity

Figure 4 Project EIRR Sensitivity to Construction Delays

68. Financial Analysis of the project: The financial analysis is carried out for the period
2014-2047 and is based on the financial benefits and costs that would be generated as result of
the project. The benefits and costs are inclusive of applicable direct taxes. The financial benefits
of the project include the incremental revenues from the sale of imported power in Afghanistan
and Pakistan.

69. The financial costs of the project include the tax inclusive investment costs, incremental
O&M costs, incremental cost of power generation in the Kyrgyz Republic and Tajikistan,
incremental transmission and distribution costs in the four countries, and the O&M fee of HVDC
Operator. The investment costs include expected DS&I costs (including physical and price
contingencies), transmission connection and network reinforcement costs and land acquisition
costs.

70. The financial analysis indicates that the project is financially viable with an NPV of
US$3,861 million with a financial discount rate of 2.1% and an FIRR of 25%. The project
continues to be robust in the case of substantial variation of key variables that affect its financial
viability (Table 5, Table 6, Figure 5 and Figure 6).

26
Table 5: Financial Sensitivity Analysis of the Project
NPV FIRR
(million US$) (%)
Base-case 3.861 25%
a. 30% lower energy surplus in Kyrgyz Republic and Tajikistan 3,970 23%
b. 30% increase of project construction cost 3,520 20%
c. 30% lower domestic average end-user tariff in Afghanistan 2,037 17%
and wholesale tariff to DISCOs in Pakistan
d. 2-year delay of in-service date of project facilities 3,770 19%
e. Combination of a, b, c and d 1,241 9%

Table 6: Switching Value Financial Appraisal Results for the Project

Change in variable required to make FIRR=2.1% and NPV=0
338% increase of total project construction cost
15 Year delay of in-service date of project facilities
-224% lower domestic average end-user tariff in Afghanistan
-89% lower wholesale tariff to DISCOs

Figure 5: Project FIRR Sensitivities

Figure 6: Project FIRR Sensitivity to Construction Delays

27
71. The financial condition of the implementing entities in the Kyrgyz Republic, Tajikistan
and Pakistan is overall poor largely due to insufficient revenues and/or cash collections;
however, the financial sustainability of the project (including their ability to properly operate and
maintain the infrastructure built under the project, service the debt and, for importing countries,
to make timely payments for imports) should not be jeopardized due to the following reasons: (i)
the transmission component of the bundle export tariff should ensure full recovery of
investments for the Kyrgyz and Tajik implementing agencies and recovery of the HVDC
transmission line necessary for power transit to Pakistan by DABS; (ii) the project is financially
viable for all four implementing entities and, therefore, will accrue net positive cash flows for
each of them; (iii) a larger share of the payments under CASA-1000 PPAs will come from
NTDC which represents less than 3% of its overall annual payments for power purchases, while
the remaining will represent a larger portion (less than 50 percent) of the annual payments made
by DABS, which has demonstrated a sound financial situation and a good track record for
payment for past imports; (iv) critical sector reforms in Pakistan are under discussion to
strengthen its long term financial viability; and (v) through other operations, the Bank is
supporting the participating countries with facilitating their energy tariff reforms and with
improving operational efficiency of the implementing entities, which should further improve the
financial standing of these companies.

B. Technical

72. The proposed CASA-1000 project will build a cross-border power trade facility,
comprising about 475 km of 500kV HVAC transmission lines to carry power from Kyrgyz
Republic to Tajikistan at Khudjand; a 1300 MW HVDC converter in Tajikistan and thereafter a
750km long ±500kV HVDC transmission link via a 300 MW HVDC converter in Kabul, to a
1,300 MW terminal with HVDC converter facilities in Pakistan. The AC to DC converter station
would be designed to help power trade in any direction and would offer significant emergency
system support to the national grids of the countries connected through HVDC system.

73. The concept of the CASA-1000 project was developed through a series of sector studies
and analytic work, beginning with a Phase I pre-feasibility study (2007) of the viability of such a
trade arrangement from Kyrgyz and Tajikistan through Afghanistan to Pakistan. This was further
developed through a feasibility study in 2009. This feasibility study was updated in December
2011 and is the basis of the currently proposed investment project.

74. It is well established in international practice that HVDC has significant financial,
technical and commercial advantages over HVAC. On the other hand, HVAC systems are more
appropriate for the import and export of surplus power over short distances between neighboring
countries, especially where the transmission networks are well developed. Increasingly HVDC
and HVAC systems are used in conjunction with one another to improve system reliability and to
facilitate the operation of large, regional systems. CASA-1000 does not foreclose on any of the
plans set out in the Afghanistan Power Master Plan for the period to 2032; indeed it
complements other plans for the wheeling of domestic and imported power as set out in the
Master Plan.

28
Main Technical Issues

Synchronization

75. The major obstacle to power trading in the region is the inability of the various
neighboring grids in the Central Asian countries, Afghanistan and Pakistan to be synchronized
with each other. As a consequence, several domestic Afghan grids currently operate in island
mode to facilitate power imports from Central Asia. The need for islanding is also exacerbated
because those exporters do not permit Afghanistan to synchronize its domestic generation to
their grids given the weak Afghanistan system.

HVDC technology Proposed under CASA-1000

76. When large volumes of power are to be transmitted over long distances, in excess of 600
km apart, the use of HVDC over HVAC is recommended because of the low cost of the HVDC
transmission lines and smaller overall losses. Moreover, the use of HVDC technology will also
enable Afghanistan and Pakistan to interconnect with its neighboring asynchronous systems and
will provide additional stabilizing functions.

Route selection and possible alternatives

77. The CASA-1000 feasibility study proposes a route for the line that takes into
consideration cost effectiveness, security (especially in Afghanistan and Pakistan to avoid areas
that would require significant demining), terrain to facilitate easier operations and maintenance
and minimizing social and environmental impacts. For the most part the line traverses a
manageable topography with an exception of a narrow and high mountain range in Afghanistan
known as the Salang Pass which offers the most direct route linking the North East Power
System (NEPS) with Kabul. In the possible scenario of space constraint in that area, alternative
options to bypass the Salang pass are also being studied. The final route will be designed by the
transmission line contractor within the first year of the contractor’s scope of work.
Extensive Coordination Requirement

78. One of the key technical challenges for a project of this nature is in the level of
coordination required within each member country as well as among the four countries to ensure
alignment throughout the project’s development and implementation phases in order for the
power trade to succeed. The countries are setting up implementation mechanism, like a common
Owner’s Engineer for HVDC coordination and similar one for the HVAC system that should
help with this challenge.

C. Financial Management

79. An FM assessment was carried out to ensure that the implementing entities in the
participating countries have acceptable FM arrangements with respect to the funding provided by

29
the Bank 7 to have an adequate assurance that funds are used for their intended purposes. The FM
assessment summarized below was carried out for the following implementing entities which
will be responsible for executing the project: NEGK in Kyrgyz Republic, Barki Tajik (BT) in
Tajikistan, DABS and Ministry of Energy and Water (MEW) in Afghanistan, and NTDC in
Pakistan. Overall, the project FM risk is rated as substantial largely due to the complexity of the
project requiring coordination across four countries, weak FM capacities in some of the
implementing agencies and volatile security situation in the project area limiting the ability to
conduct physical verification. However, most of the project funds will be spent on a few
construction contracts spread over several years using direct payments and special commitments.
With the agreed FM arrangements for the project as described in the PAD, they are considered
adequate and acceptable.

80. Support for project implementation and TA required by the project implementing
agencies (Component B) and for the CSPs (Component C) are to be financed through
IDA/ARTF (for Afghanistan) and the MDTF (for the other countries). Consequently, the FM
assessments for CSP and other expenditures to be funded under Component B through
IDA/ARTF/MDTF for the respective countries, as applicable will be finalized during the
preparation of the ARTF/MDTF project respectively.

81. There are varying features of the public financial performance of the participating
countries in the project, which may not play a notable role in the performance of the proposed
project as it will be implemented mainly by the public sector entities, NEGK (Kyrgyz Republic),
BT (Tajikistan), DABS and MEW (Afghanistan), and NTDC (Pakistan). Nevertheless, the
various World Bank funded operations would support the CASA-1000 project as a whole in
enhancing transparency and accountability from the country perspective. In the Kyrgyz
Republic, the preparation of a series of DPOs resulted in the Government adopting the regulatory
framework for the transparent and targeted use of export revenues in the electricity sector, which
will also be used under CASA-1000. In Tajikistan, BT is supported through a Financial
Management Improvement Program (FMIP) to improve its financial management system under
the Bank-funded Energy Loss Reduction Project (ELRP) and the activities are expected to be
continued under CASA-1000. In Afghanistan, there is an ongoing Public Financial Management
Reform Project II which enhances the fiduciary measures put in place during the past years.

82. All the implementing entities will submit quarterly Interim Financial Reports (IFRs) to
the Bank within 45 days after the end of their respective quarter. The project audited financial
statements together with the auditor’s opinions and the management letters will be provided to
the Bank within six (6) months of the end of the fiscal year, and will be made public in a manner
acceptable to the World Bank. The receipt of entity audit reports will be monitored through an
intermediate results indicator.

7
From the perspective of planning and budgeting, accounting, funds flow, internal controls, financial reporting and
auditing arrangements.

30
Disbursements

83. The activities under Component A (IDA Credits/Grants) will be financed through direct
payments by the Bank and special commitments. The documentation for the supporting
expenditures will be retained at each Implementing Agency and will be readily accessible for
review by the external auditors and periodic Bank implementation support missions. The
disbursement details are provided in the Disbursement Letter and all disbursements will be
subject to the conditions of the Credit/Grant Agreements and disbursement procedures as defined
in the Disbursement Letter. Except for selected activities in Afghanistan under Component B to
be financed from IDA, the disbursement arrangements under Components B and C would be
finalized as part of the funding of ARTF and/or MDTF projects, as applicable. It is expected that
in addition to the direct payments and special commitment, advances and reimbursements to the
Designated Accounts (DA) will be used by the implementing agencies. The DA will be audited
annually in conjunction with the audit of the project as specified in the audit arrangements.
Further details provided in Annex 3.

84. For activities under component B and C, the disbursement arrangements would be
finalized as part of IDA financing, MDTF and/or ARTF, as applicable. For Afghanistan, the
project funds will be deposited in the Designated Accounts (DA) to be opened and maintained at
the Da Afghanistan Bank (DAB) for MEW. The Implementing Agency will be responsible for
submitting quarterly replenishment applications with a reconciled bank statement and IFRs
(NTDC) or appropriate supporting documentation in accordance with the Disbursement Letters.
The implementing entities will also be submitting quarterly Interim Financial Reports (IFRs) to
the Bank. The Designated Account will be audited annually in conjunction with the audit of the
project as specified in the audit arrangements. The project audited financial statements together
with the auditor’s opinions and the management letters will be provided to the World Bank
within six months of the end of the fiscal year. Further details on this are stated in
implementation arrangements under the financial management section.

D. Procurement

85. The project procurement is complex and the nature of the major procurement packages
requires close coordination among the four implementing countries. Market conditions and
security concerns along the route of the proposed transmission line add to the complexity of the
project as do the possibility of co-financing by other multilateral institutions. Hence the project’s
implementation arrangements include an intergovernmental mechanism for the procurement and
contract management decision-making process for the joint procurement packages for the
countries. The IGC has established through a resolution a Procurement Committee, comprising
of senior technical and procurement staff designated by each country, to carry out all the work
needed on behalf of the parties to oversee and bring conclusion to the procurement process
leading to award of the contracts by the IGC and signed by the NTCs except the procurements
meant for a particular NTC, which will be handled by that NTC. The responsibly will be further
elaborated in the Procurement Plan. This has helped in streamlining the joint procurement
process. The NTCs will follow their respective corporate procedures for internal clearances of all
procurement and contract awards and assist this committee.

31
86. The main large and complex procurements under the project include the HVDC stations
in three countries, HVDC and HVAC transmission lines and O&M contracts. Although the
implementing agencies have some experience in managing large and complex contracts, they do
not have sufficient resources to help with drafting of the Pre-Qualification (PQ) / bidding
documents and the evaluation reports, hence, these functions are being facilitated by an
international engineering consulting company that has already been appointed by IFC. Progress
in the procurement process for several of these packages has already been made, with the launch
of the prequalification process for selection of the DS&I contract for the three HVDC converter
stations and Operation and Maintenance of the complete HVDC system, including HVDC line.
PQ applications were opened on January 10, 2014 and the evaluation is in progress.

87. Procurement for the Bank financed portion of the proposed project will be carried out in
accordance with the World Bank’s "Guidelines: Procurement of Goods, Works and Non-
Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers"
dated January 2011 (Procurement Guidelines); and "Guidelines: Selection and Employment of
Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated
January 2011 (Consultant Guidelines) and the provisions stipulated in the Financing Agreement.
The World Bank Guidelines on Preventing and Combating Fraud and Corruption in Projects
Financed by IBRD Loans and IDA Credit and Grants dated October 15, 2006 and revised on
January 2011, would also apply. Consultation with other potential financiers are currently in
progress and implementation arrangements for contracts financed by sources other than the Bank
will be finalized in accordance with those consultations.

88. In Tajikistan, BT, the state-owned utility responsible for generation, transmission, and
distribution of electricity, is the designated project implementation agency responsible for the
overall project implementation. Some of the project’s fiduciary functions would be outsourced to
the Central PIU. In the Kyrgyz Republic, NEGK, the state-owned Transmission Company is the
designated utility responsible for the overall project implementation, including the project’s
fiduciary functions. Within the NEGK, the External Communications and Project
Implementation Department is responsible for project implementation. In Afghanistan, DABS,
the state-owned power utility company will be mainly responsible for project implementation,
but MEW will implement some limited aspects of procurement as well. In Pakistan, NTDC, the
national electricity transmission company will be the Implementing Agency. The procurement
units in each of the agencies will be charged with carrying out procurement. Procurement
assessments for each of the implementing agencies have been carried out. While procurement
decisions related to more than one member country will be elevated to the Procurement
Committee, procurements exclusive to each member country will be carried out independently
by the respective country’s Implementing Agency.

89. Due to the complexity and the large scope of CASA-1000, the procurement risk for the
project is rated as ‘high.’ To mitigate the procurement risks BT, NEGK, DABS, MEW and
NTDC will implement measures agreed with the Bank which would include: (i) allocating
adequate human resources for the project’s fiduciary functions – including, where necessary,
hiring of procurement specialist to augment capacity; (ii) intensive training for the designated
procurement staff on the Bank’s DS&I type bidding documents and procedures prior to project’s
effectiveness; (iii) ensuring quality preparation and review of technical specifications/Terms of

32
Reference (TOR), Bid Evaluation Reports and the final deliverables; and (iv) putting in place an
efficient contract monitoring mechanism designed to maximize overall value for money of
contracting activities. More detailed findings of the assessment, the proposed procurement
arrangements, and measures to address the identified risks are presented in Annex 3. The
Procurement Plan covering the first 18 months of the project implementation is under
preparation and will be finalized by negotiations.

E. Social (including Safeguards)

90. Social surveys were carried out among representative samples of the communities along
the proposed transmission line corridor in the four project countries. The surveys provided an
ethnic and socioeconomic profile of the communities and reviewed the overall status of
development in the project areas. As part of the surveys, community consultations were
conducted on general development priorities as well as on the potential and perceived adverse
social impacts of the project. The surveys showed that the potential project area, in all countries,
is mostly rural with a low population density. Other characteristics of the communities include
high dependency on agriculture for livelihoods, limited access to energy during the winter, and
variability in access to basic social services. Groups potentially vulnerable to economic shocks
and difficulties in accessing services were identified, including female-headed households,
households with more than one family living together, rural families not involved in agricultural
production, and households with more than one family. It is anticipated that the project will
finance investments such as towers, sub-stations, and access roads, which will require the
involuntary acquisition of land, restrictions to use of land both temporarily and permanently, and
possible loss of crops and assets. It is not expected that land taking will be significant as the
broad project area is mostly rural and sparsely populated. Height of vegetation will be restricted
under the Transmission Line. Although this is expected to have limited impact on economic
crops, there may be some impacts on community infrastructure. Project design will also be
attentive to areas of potential dispute and will avoid the areas that include the Uzbek and Tajik
enclaves in the south of the Kyrgyz Republic.

91. Considering that the alignment of the corridor is yet to be finalized, country-specific
Resettlement Policy Frameworks (RPFs) have been developed in line with the relevant legal
policies in the respective countries and the World Bank OP 4.12 on Involuntary Resettlement to
guide future detailed resettlement planning and implementation. The frameworks describe the
overall possible impacts, project policies including its entitlement policies, resettlement
planning, institutional and implementation arrangements, including grievance redress and
monitoring mechanisms. The draft RPFs have been disclosed in local languages and finalized
based on the consultations. Field surveys also reflect that the ethnic communities in the project
areas do not fall under the definition of indigenous peoples as per World Bank OP 4.10 and
therefore this policy is not triggered under this project.

92. Field consultations indicate high expectations from local communities to benefit from the
project. The social surveys assessed the community development priorities and recommended
interventions to assist the communities with their development needs. On the basis of the
community feedback, CSPs will be designed and implemented in each of the four countries
within the corridor of impact of the project. These programs will assist in the governments’
poverty alleviation efforts to improve the well-being of the communities along the corridor of the

33
project transmission line, with the aim of fostering a partnership between the project agencies
and local communities and create a safer and supportive environment for the construction phase
and will be continued (albeit in a different form during future operation of this transmission line)
by means of a mechanism to share some of the project benefits as agreed to by the IGC.

93. The programs will adopt community-driven approaches in their planning and
implementation, following established institutional and operating modalities for rural
development in each of the four countries. The programs will pay particular attention to ensuring
that women are included in decision-making and are well-placed to benefit from the projects.
The recent gender diagnostic for Tajikistan, for example, points to constraints in women’s
agency in the private and public spheres. The programs will adopt appropriate methods of
ensuring that women are actively engaged in decision-making. During the project construction
phase, these programs will be funded either through extension of active programs or through
funding from other development partners. They will be supported during the operational phase
through a fund to be established with contributions from power tariff.

F. Environment (including Safeguards)

94. The CASA-1000 has been under preparation for a number of years and has therefore been
the subject of several Environmental & Social (E&S) investigations by international consultants
which include:
a. Environmental and Social input to the initial Feasibility Study (2009);
b. Environmental and Social Impact Assessment (ESIA) and Environmental & Social
Management Plan (2010);
c. Project Feasibility Study Update (2011);
d. Avian Risk Assessment and Management Study (2012);
e. Social Impact Assessment on the social and community aspects through targeted
consultation and early work around potential community support initiatives (2012);
f. Regional Environmental Assessment (REA) (2013); and
g. A range of stakeholder consultations on the project since its development concept.

95. The REA encapsulates all the above stated studies and updates with additional evaluation
and incorporation of the avifauna work and overall consultations undertaken on the cumulative
body of assessment work. The REA summarizes potential primary impacts from construction of
transmission lines within a broader corridor of two km width, and follows a framework approach
with detailed guidance for preparing country specific ESIAs and several specific Management
Plans (MPs) by independent EA consultants that would meet the requirements of respective
national laws and applicable Safeguards Policies of the World Bank.

96. The final routing/alignment of transmission lines and exact location of DC-AC
converters, substations and footings for towers would be defined later by the DS&I Contractor(s)
after carrying out detailed route surveys and a consideration of the site-specific environmental
and social aspects through further country-specific ESIAs carried out by independent consultants
which will be approved by the respective Recipients and the Bank.

97. Legal Framework. The REA presents details on the relevant legislation within the
participating countries, which show several existing discrepancies between EA/World Bank and

34
National requirements. As with all World Bank assisted projects, the standard of the safeguards
that will be applied will be the strictest of national law and those of the Bank. Any gaps or
conflicts between the two sets of standards will be fully expounded in the subsequent country-
specific ESIAs and there are mechanisms in place to ensure that the more rigorous standard is
adhered to. This is particularly the case in aspects like public consultation and potential
resettlement impacts. The following Operational Policies of the Bank are applicable to the
CASA-1000 project:

a. OP 4.01 (Environmental Assessment): The project is rated Category ‘A’ because it

involves green-field construction of more than 1,000 km of high voltage Overhead
Transmission Lines (OTL), crossing four countries with potential adverse environmental
and social impacts that in some cases might be significant due to the fact that proposed
civil works will be implemented in/or in the vicinity of environmentally sensitive areas.
The above referred environmental reports indicate that the current practices followed by
the four participating countries to maintain the right of way (ROW) free of vegetation
don’t involve use of pesticides or herbicides. The final routing and alignments in each
country would be guided by country specific ESIAs (as stated above) and will avoid any
impacts on physical cultural resources and the ESIAs will include detailed chance find
procedures.

b. OP 4.04 (Natural Habitats): The proposed project is not expected to cause significant
impact to critical and natural habitats. Also, the project is not expected to cause
significant impact to critical and natural forests as it will not include any plantation
activity, commercial harvesting or harvesting conducted by small-scale landholders or
local communities. However, the Avian Risk Assessment and Management study
identified the presence of several Important Birds Areas (IBAs) and Ramsar sites in the
vicinity of the project areas that need to be studied during the detailed design phase and
as part of country-specific ESIAs. The Kyrgyz government requires an analysis of
important avian fauna risks for the entire segment of the line within their territory and not
limited to the already identified Important Birds Areas or Ramsar sites. This will be
carried out as part of their country-specific ESIA. Furthermore, during the construction
phase (and potentially during the operations stage), there will be some removal of
vegetation for right-of-way maintenance and for access roads and other associated
facilities. The construction and operation may also cause disturbance or increased
pressures to fauna. All these potential impacts and relevant mitigation and monitoring
activities will be studied as part of the OP 4.04 requirements and included in the
respective country specific EIAs and EMPs.

98. Baseline Analysis. In general, the land across large sections of the project route is
characterized by steep mountainous terrain, often in semi-arid conditions and very limited or no
agricultural activity across large swathes. The proposed route is located in mostly remote areas
which are sparsely populated, only some areas in Pakistan (Peshawar and Machi) and in Kyrgyz
Republic (Jalal-Abad, Osh and Batken) are more densely populated. Overall the proposed
transmission line route passes through the areas which are poorly vegetated and supports low
biodiversity as well as a limited number of settlements/villages, and in some areas - cultivated
land, water courses and community infrastructure. From an avifauna perspective the project route

35
lies within two international flyways, through which bird populations traverse on seasonal
migratory movements. Within the entire TL there are five Important Bird Areas (Tigrovaya
Balka Nature Reserve in Tajikistan; Imam Sahib, Salang Kotal, Kole Hashmat Khan and
Jalalabad Valley – in Afghanistan) and one Ramsar site - Lower part of Pyandj River located at
the border between Afghanistan and Tajikistan. These natural habitats will require particular
study in the ESIA to be prepared for participating countries.

99. Analysis of Alternatives. The REA includes analysis of several alternatives for their
potential environmental and social impacts, results of which guided the initial selection of
alignment and location of towers and other key infrastructure facilities. These include: The no-
project option; alternative projects; different alignments or sections of alignment for the
Transmission Line (TL); Different locations of towers and other key infrastructure, within
operational constraints; and Different construction methods, timings and other construction-
related modifications, including those needed for minimizing potential avian risks.

100. Potential environmental impacts. The broad conclusion of the REA and previously
conducted EA studies is that overall E&S adverse impacts are considered to be limited and of
low to moderate nature, due to the lack of protected areas and high value biodiversity areas; the
general avoidance of heavily populated communities; and the existence of sufficient flexibility to
adjust the TL and infrastructure to avoid any ‘local’ sensitive features that might be encountered
during subsequent country specific ESIA work.

101. Construction related impacts are likely to be short term and site specific and can be
mitigated by applying internationally recognized best construction practices. Typically such
impacts are related to aspects such as: (i) location, establishment and operation of the
construction camps; (ii) construction of about 3000 towers required to support the TL in four
countries; (iii) routing and construction of the many access roadways required throughout the
length of the project; (iv) soil resource management and the need for erosion control; (v)
physical cultural resource; and (vi) a range of security issues (including unexploded ordnance
and land mines), particularly associated with the on-going conflict in Afghanistan and some
associated security issues in parts of Pakistan as part of working in tribal regions.

102. The Avian Risk study revealed both generic risks to birds within strategic flyways (global
or regional migratory routes used by birds) as well as individual habitat areas valuable to birds,
such as IBAs and Ramsar sites. The fieldwork recommended by the study should be done as part
of country-specific ESIAs, based on what avian risks can be clarified. Overall the preliminary
assessment concludes that by applying relevant avoidance and mitigation measures the avian
risks can be significantly reduced.

103. The REA includes an analysis of the potential downstream hydrological impacts of the
project and concludes that if the project is operated as designed, there will be no impacts on
water releases from the Toktogul and Nurek HPPs, as compared to the existing pattern of
releases from these facilities. This analysis is based on information available from the feasibility
study and other studies in the region, as well as from the public domain. The basic premise for
the CASA-1000 project is that the Central Asia countries have existing (in the Kyrgyz Republic)
or potential (in Tajikistan) surplus of clean energy in summer from their existing hydropower

36
plants without new generation, which is supported by the analysis of past exports and spillage of
water without running through turbines, that could be used to offset shortages in South Asian
countries, particularly Afghanistan and Pakistan and the planned energy exports over the CASA-
1000 to Afghanistan and Pakistan. The summer surplus is primarily linked to the operation of the
Nurek and Toktogul reservoirs, which regulate the releases in the Vakhsh River (Tajikistan) and
the Naryn River (Kyrgyz Republic) respectively, and, thus, control the generation at the cascades
on these two rivers. The designed transmission capacity of the CASA-1000 project and,
therefore, the estimated volumes of electricity export and corresponding water releases under
CASA-1000 project from both the Kyrgyz Republic and Tajikistan will remain within the range
of historic maximum and minimum parameters. Furthermore, the energy exporting countries
confirmed that water releases from the Toktogul and Nurek HPPs will be made taking into
account the irrigation requirements of the downstream countries and prioritizing supply to meet
the domestic demand. The above information was taken into account in the analysis as to
whether or not OP7.50 – Projects on International Waterways, should be applicable to the
project. In this analysis, it was considered relevant that the project would not lead to changes in
downstream flows. On this basis, it was concluded that OP7.50 is not applicable and no riparian
notification of the project is necessary.

104. The proposed project will not be financing any new dam construction or making any
modifications to existing dams and the bulk of the electricity will be from the excess power
generated by the two large dams - Toktogul in Kyrgyz Republic and Nurek in Tajikistan. On this
basis, it was concluded that OP4.37 – Safety of Dams is not applicable. The Bank has financed
the following two separate assessments under the Water and Environmental Management Project
in March 2000: (a) Nurek Dam Safety Assessment; and (b) Toktogul Dam Safety Assessment.
As a follow-up to these assessments, the Bank and ADB are currently financing additional
assessments of safety of the two dams, respectively to enhance their management. The Bank is
working closely with the Nurek dam authorities to monitor the findings, recommendations and
follow-up actions associated with this process as they may be relevant to the CASA-1000 and
will work closely with the ADB to monitor the findings, recommendations and follow-up actions
on the Toktogul Dam Safety Assessment they may be relevant to the CASA-1000.

Environmental Management Plan (EMP)

105. The EMP section of the REA contains details on the scope and methodology for the
country-specific ESIAs themselves, along with organizational elements for environmental
management and guidance on the TOR for the engagement process of the ESIA Consultant,
including guidance on deciding on alignment changes and preparation of various Management
Plans to mitigate some of specific impacts such as: site preparation and restoration, safety, health
impacts etc. The EMP provides a framework approach to guide future development of specific
EMP plans and sub-plans by the ESIA Consultant, and the DS&I Contractor. The EMP contains
guiding principles and procedures for communication, reporting, training, monitoring and plan
review to which all project personnel, contractors and subcontractors are required to comply with
throughout the preconstruction and construction phases of the project. An operation phase EMP
will be subsequently developed by the NTCs during the construction phase of the proposed
project. The funding for development of the EMP is included in sub-component B2.

37
106. Consultations to Date. A variety of consultations have occurred to date, commencing at
the project identification stage and carrying through to the Feasibility Studies, which included
preliminary environmental studies. Following this phase, a round of consultations were initiated
when IEL were commissioned to undertake the ESIA. The NTCs/ Ministries in each of the four
countries were invited and assisted to conduct consultations on the TOR for the ESIA. A web
site has been established for the project (http://www.casa-1000.org), making the project available
for web users across the participating countries. This is a useful mechanism for consultation, but
of course is limited to internet users.

107. Disclosure and Consultation. The draft safeguard instruments have been disclosed in all
four countries in English, Russian (in Tajikistan and Kyrgyz Republic) and local languages as
appropriate. The instruments have also been made available in hard copies in public locations in
relevant capital cities, regional/provincial/district headquarters in the proposed project area.
Table 7 below summarizes the disclosure for each document per country and appropriate
language. The documents have been also disclosed in the World Bank InfoShop at the time they
have been disclosed in-country. The draft REA Summary has been distributed to SECPO on
November 20, 2013. Consultations have been carried out between December 2013 and January
2014 in capital cities as well as regional centers in the proposed project areas. Relevant
Government Ministries and Departments, local and regional authorities, the NGO sector, Project
Affected Communities (PACs) and Project Affected People (PAPs) and interested parties
engaged in the process. Overall the safeguards documents have been accepted by participants
with minor revisions done on the REA and RPFs. The recommendations made will be taken into
consideration in developing the country-specific safeguards instruments to address site specific
aspects, including land take, potential resettlement, socio-economic impacts, access to work
sites, and employment aspects, etc. The final documents have been disclosed following the
conclusion of public consultations and will also be disclosed in the World Bank InfoShop.

Table 7: Summary of Disclosure of Safeguard Documents

Country Language Date of Date and location of Place of disclosure
disclosure consultations
Afghanistan English, 11/25/2013 January 7, 2014 (Kabul) Ministry of Energy and Water website:
Dari, January 8, 2014 (Jalalabad) http://mew.gov.af/en
Pashtu January 11, 2014 (Kunduz)
Pakistan English, 11/11/2013 December 23, 2013 (Peshawar); NTDC website:
Urdu December 24, 2013 (Islamabad) http://www.ntdc.com.pk/CASA_1000.p
hp and Ministry of Water and Power
website: www.mowp.gov.pk
Kyrgyz Kyrgyz, 11/15/2013 December 18, 2013 (Bishkek); Ministry of Energy and Industry
Republic Russian December 20, 2013 (Batken) website:http://www.energo.gov.kg/site/i
ndex.php?act=view_cat&id=28
Tajikistan English, 11/13/2013 December 4, 2013 (Dushanbe); Ministry of Energy and Industry website
Russian, December 6, 2013 (Khudjand); http://www.minenergoprom.tj/view_post
Tajik December 9, 2013 (Kurgan t.php?id=401
Tyube)

38
 Annex 1: Results Framework and Monitoring
Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)

Project Development Objective (PDO): to create the conditions for sustainable electricity trade between the Central Asian countries of Tajikistan and Kyrgyz Republic and the South Asian
countries of Afghanistan and Pakistan.

Cumulative Target Values Responsibility

PDO Level Results Unit of Baseline Data Source/ Description (indicator
Core

Frequency for Data

Indicators Measure (CY 2013) CY 2014 CY 2015 CY 2016 CY 2017 CY 2018-2020 Methodology definition etc.)
Collection
Indicator One: Yes/No No No No No No Yes Annual NTCs/utility NTCs Commercial flows of
Trade initiated database electricity traded
between the under at least one of
participating the PPA between at
countries least one of the
sellers and one of the
buyers.

Indicator Two: Text Not Master Master Master Account Bank All Core Project Annual NTCs/utility NTCs/IGC Number of
Commercial established Agreement Agreement Agreement Agreements agreements database Secretariat commercial
framework between and PPAs and PPAs and PPAs signed and including framework
the countries is signed effective effective Technical Account Bank, agreements signed
established and Code Finalized Technical Code and implemented.
operational finalized

Indicator Three: Text IGC IGC and IGC IGC and IGC and JWG IGC and JWG Annual IGC/JWG IGC Ensure coordination
Institutional Secretariat JWG Secretariat JWG meetings held meetings held Meetings Secretariat and decision-making
mechanism for and JWG established and JWG meetings processes and
project sustainability established strengthened held capacity are
is in place established

Indicator Four: km 0 0 0 0 700 1,300 Cumulative NTCs/utility NTCs/IGC Total extension of

Transmission lines database Secretariat new transmission
constructed under ⌧ lines constructed
the Project under the Project

39
INTERMEDIATE RESULTS
Baseline Cumulative Target Values Responsibility
Intermediate Unit of Frequency Data Source/ Description (indicator

Core
(CY CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 CY2020 for Data
Results Indicators Measure Methodology definition etc.)
2013) Collection
Component A: Construction of a High Voltage Transmission Infrastructure

Intermediate Result Yes / No No Yes Yes Yes Yes Yes Yes Cumulative NTCs/utility NTCs/IGC
indicator One: No database Secretariat
Construction
contracts signed for
HVDC converter
stations
Intermediate Result Yes / No No Yes Yes Yes Yes Yes Yes Cumulative NTCs/utility NTCs/IGC
indicator Two: No database Secretariat
Construction
contracts signed for
HVDC line
Intermediate Result Number 0 0 0 0 2 3 3 3 Cumulative NTCs / utility NTCs/IGC
indicator Three: database Secretariat
Converter stations
constructed under
the Project
Intermediate Result km 0 0 0 0 750 750 750 750 Cumulative NTCs/utility NTCs/IGC
indicator Four: database Secretariat
HVDC line
constructed under
the Project
Intermediate Result km 0 0 0 0 0 475 475 475 Cumulative NTCs/utility NTCs/IGC
indicator Five: database Secretariat
HVAC line between
the Kyrgyz Republic
and Tajikistan
constructed under
the Project
Intermediate Result number 0 0 0 0 0 27,500,000 28,500,000 30,000,000 Annual NTCs/utility NTDC, DABS Electricity consumers in
indicator Six: database Pakistan and
Indirect Project Afghanistan benefiting
⌧
Beneficiaries 8 from increased
electricity supply.

8
The mandatory core indicator ‘Direct Project Beneficiaries’ is not applicable. Direct benefits for the end-user are difficult to define due to the nature of the project which does not
finance electricity distribution. Therefore, it is more accurate to define the total customer base in Afghanistan and Pakistan as indirect project beneficiaries.

40
INTERMEDIATE RESULTS
Baseline Cumulative Target Values Responsibility
Intermediate Unit of Frequency Data Source/ Description (indicator

Core
(CY CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 CY2020 for Data
Results Indicators Measure Methodology definition etc.)
2013) Collection
Component B: Project Management and Capacity Building

Intermediate Result Yes/No No No Yes Yes Yes Yes Yes Yes n/a NTCs / IGC NTCs / IGC
indicator One: Secretariat Secretariat
Owners Engineers
hired and in place
Intermediate Result Yes/No No No Yes Yes Yes Yes Yes Yes n/a NTCs / IGC NTCs / IGC
indicator Two: Secretariat Secretariat
Timely Audits
carried out of the
Entity Audits within
9 months of the
closure of financial
year
Intermediate Result 0 0 0 10 10 40 40 40 40 Annual NTCs / IGC NTCs / IGC Number of
indicator Three: Secretariat Secretariat NTCs/national
Number of staff consultants/contractor
receiving staff involved in HVDC
knowledge transfer activities and
on HVDC Transmission dispatch
technology/ during design and
Transmission construction phases
Dispatch
Component C: Community Support Program

Intermediate Result Yes/No No Yes Yes Yes Yes Yes Yes Yes n/a NTCs / IGC NTCs / IGC
indicator One: Secretariat Secretariat
Development of
operational manual
for the Community
Support Programs
Intermediate Result Yes/No No No No Yes Yes Yes Yes Yes n/a NTCs / IGC NTCs / IGC
indicator Two: Secretariat Secretariat
Agreement on
financing for
operations phase

41
 Annex 2: Detailed Project Description
Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)

1. Background. The CASA-1000 project is based on a feasibility assessment carried out by

an international consultant on behalf of the four countries. The project envisages a transmission
interconnection between the Central Asia and South Asia Regions that would be used to export
surplus electricity in the summer from existing generation capacity in Kyrgyz Republic and
Tajikistan to energy-deficient Afghanistan and Pakistan. The feasibility confirmed the soundness
of the considerations that led to the CASAREM initiative to develop a regional market on the
basis that:

a. sufficient quantities of surplus electricity are available in the Central Asian countries
(the Kyrgyz Republic and Tajikistan), even under conservative estimates of no new
generation project;

b. a significant need for electricity imports exists in South Asia (particularly Pakistan) to
meet existing and projected demand; and

c. the differences in the cost of electricity between the importing and exporting
countries potentially provide a justifiable rationale to make transmission investments
to support the electricity trade.

2. Energy Supply. The proposed project is based on an export potential defined as the
power available from existing and committed supply in the exporting countries minus the
domestic demand and the binding commitments of exports of the seller countries. Data from
hydrological years from 1987–2009 were used to simulate possible scenarios/sequences of water
inflow based on Monte Carlo probabilistic scenarios. Based on information provided by the
Kyrgyz Republic regarding agreements with riparian states, the flow of the Toktogul HPP was
limited to 600 m3/second in the winter months (October–March). In addition, it was suggested to
have the reservoir level above a minimum value of the 10,000–12,000 Hm3 needed in the
beginning of the summer (April 1). The Nurek reservoir modeling was based on the actual
operating mode wherein the Nurek reservoir is fully filled in summer and lowered in winter so as
to utilize all the available storage and reduce as much as possible the winter deficits.

3. Import Potential of Pakistan. The generation expansion plan for Pakistan provided by
NTDC is very ambitious, showing the total installed generation capacity of 22,697 MW in 2010–
11 nearly doubling (42,350 MW) in 2015–16 and increasing to nearly three times (63,683 MW)
in 2020–21. The expansion plan includes the commissioning of the CASA-1000 transmission
line in the year 2016. In view of the huge capital requirements and implementation issues, it will
be difficult to build all the generation capacity planned, and thus the CASA-1000 or similar
import projects would be important contributors to alleviate electricity shortages in Pakistan.

4. Import Potential of Afghanistan. Significant efforts are being made to develop the
generation capacity within the country and to import electricity from neighboring countries. It is
estimated that in the initial years of CASA-1000 operation, Afghanistan may not be able to
absorb the complete share of power envisaged under CASA-1000. This has implications for the

42
optimum configuration of the project and its economic viability. As a result, the installation of a
1,300 MW converter in Pakistan, instead of a 1,000 MW converter, was considered in the
feasibility update to facilitate the use of all the available power on the CASA-1000 system.

5. Exportable Surplus. Power exports from the Kyrgyz Republic and Tajikistan are limited
to surplus power available from the existing generation capacity after meeting forecast summer
demand and that could be transmitted under the project during the evaluation period. This
conservative scenario avoids incorporating the substantial uncertainty about the future
development of power generation capacity in these countries.

6. Transmission Line Routing. Given security considerations, such as demining, and access
requirements for repair and maintenance, the feasibility update concluded that the line routing
recommended in the original study is still deemed the most suitable. For the space constraint in
the Salang Pass, it is recommended that approximately 7 km of the existing double circuit 220
kV line (part of the North East Power System (NEPS) connecting Uzbekistan through Pul-e-
Khumri to Kabul) be relocated to provide space for the CASA-1000 HVDC line. This would be
done by relocating the existing 220 kV line closer to the mountain on steel tubular poles with
insulated arms and shorter spans to limit the conductor swing, and routing the proposed HVDC
line on steel tubular poles as well but closer to the tunnel.

7. Open Access Rules and Procedures. One of the key characteristics of the project design
is the provision of open access by third-parties to the CASA-1000 transmission system for power
trading during the non-supply period (or the period where the countries have committed to fully
utilize the line). The CASA-1000 countries all agree to this principle and as such are developing
appropriate ‘open access’ rules and procedures to manage and facilitate these future transactions.
This includes defining the participants in the transaction(s), access charges, main characteristics
of the allocation mechanism of capacity to third parties, contracting arrangements, operational
planning and congestions management including responsible for dispatch and management of the
transactions. Given the limited experience in the region on third party access, it is important to
develop this in a phased manner. The CASAREM vision of a regional market is a medium to
long term vision, hence, it is critical to begin with the implementation of open access principles
with simple mechanisms including medium to long term contracts (as opposed to spot markets or
explicit auctions) although the latter models are being considered for long term implementation.
The complete rules and guidelines are being developed with the assistance of an international
consulting firm with expertise in open access systems and in the design of electricity markets.

8. Description of Project Components. Based on the analysis carried out in the feasibility
study, the project would consist of the following components. A diagram describing the scheme
is shown as Figure 7.

Component A. Construction of High Voltage Transmission Infrastructure

9. Sub-component A1 – HVDC Transmission Line (US$295 million). Construction of

about 750 km of 500 kV HVDC overhead transmission line to interconnect the electricity
network of Tajikistan, at the Sangtuda substation, with the Pakistan network, at the Peshawar
substation, via Kabul substation in Afghanistan. The line will have a transmission capacity of

43
1,300 MW in either direction, using a bipolar and earth-return configuration and consists mainly
of self-supported lattice tower structures, conductors, and insulators. About 120 km of the line
will be in Tajikistan, 560 km in Afghanistan, and 70 km in Pakistan. This would also include the
necessary line connectivity to link the HVDC converter stations with the AC systems of the
countries.

10. Sub-component A2 – HVDC Converter Stations (US$385 million). Engineering

design, construction, and commissioning of three HVDC converter stations: Sangtuda (1,300
MW) in Tajikistan, Kabul (300 MW) in Afghanistan, and Peshawar (1,300 MW) in Pakistan.
These convert AC power into DC, and vice versa, as needed. The converter stations main
equipment include specialized converter transformers, breakers, filtering equipment, inverters,
controls, ground electrodes, and static and dynamic compensation equipment.

11. The HVDC converter stations are an integral part of the CASA-1000 transmission
system. The stations primary purpose is to rectify the power (from AC to DC) in order to transfer
the Kyrgyz and Tajik power supplies through the HVDC line to Kabul and to Peshawar where
the converter stations there would invert the power from DC to AC in order to be absorbed into
the Afghan and Pakistan grids, respectively. The estimated time for completion of this
component is 36 months from the effective date of the contract.

12. The scope of works of this package shall consist of engineering, design, manufacturing,
testing, supply, installation and commissioning of the following:

a. 1,300 MW converter station at Sangtuda in Tajikistan;

b. 300 MW converter station at Kabul in Afghanistan;

c. 1,300 MW converter station at Peshawar in Pakistan;

d. Repeater stations at required locations for communication link through optical

ground wires;

e. Electrode stations at Sangtuda, Kabul and Peshawar;

f. AC line bays in the existing s/s in Tajikistan:

i. Internet and communication technology bay at New Sangtuda 500 kV s/s

ii. Supply, installation and commissioning of one 3x 167 MVA 500kV/220kV
Transformer at Sangtuda (New-HVDC Pooling point)
iii. 500 kV line bay at Sangtuda(New HVDC Pooling point)
iv. 220 kV Yard at New Sangtuda 500 kV s/s
v. 220 kV line bay and 220 kV transformer bay at New Sangtuda 500 kV s/s
vi. 220 kV line bay at existing 220 kV s/s

g. AC line bays in the existing s/s in Afghanistan and Pakistan.

44
13. The scope of this component also includes the O&M of the following facilities for 15
years (the duration of the PPAs) after successful commissioning:

a. Converter stations at Sangtuda, Kabul and Peshawar;

b. Sangtuda – Kabul – Peshawar +/– 500 kV HVDC line (construction will be under
separate contracts);

c. Electrode lines and Electrode Stations in Tajikistan, Afghanistan and Pakistan.

14. Sub-component A3 – HVAC Interconnection between the Kyrgyz Republic and

Tajikistan (US$200 million) – Construction of about 450 km of 500 kV HVAC overhead
transmission line to interconnect the electricity network of the Kyrgyz Republic, at Datka s/s,
with the Tajikistan network, at the Khudjand s/s. About 450 km of the line will be in the Kyrgyz
Republic and 25 km in Tajikistan.

15. Sub-component A4 (US$65 million) – Tajikistan grid reinforcement. Reinforcements

in Tajikistan including construction of about 115 km of 500 kV line from Regar s/s to Sangtuda
s/s and other parts of the network necessary, along with associated substation equipment to
ensure transfer of Tajikistan and Kyrgyz export power to the Sangtuda converter station.

45
Figure 7: CASA-1000 Project Schematic

46
Component B: Technical Assistance and Project Implementation Support (US$30 million)

16. This component will provide support to the four CASA-1000 countries and their project
implementing agencies, namely NTDC, BT, DABS and NEGK. It will also provide the support
needed to the JWG as well as the Finance and Procurement Committees established by the
countries to finalize the commercial agreements and selection of DS&I contractors. It will also
cover necessary technical, commercial, financial management, environment and social, and legal
support for the four countries directly or through the IGC secretariat. Areas of support and their
approximate cost are provided in Table 8.

Table 8: Summary of Cost for Component B

SN Activity Cost (US$m)
B1 Owner’s Engineers for the DC and AC facilities for third-party 12
monitoring and supervision during construction
B2 Environment and Social Management Support 4
B3 Audits, Financial and Revenue Management 3
B4 Project Management Support 4
B5 Coordination 3
B6 Project Communication 2
B7 Capacity Building 2
Total 30

Component C. Community Support Programs (US$70 million)

17. This component will develop and implement CSPs in each of the four CASA-1000
countries to create a more supportive environment for project implementation by improving
livelihoods during the construction period among the approximately 670 communities living
along the CASA-1000 corridor. They will follow a community driven approach – community-led
decision making for identification and implementation of the selected schemes is a key principle
for the programs. The IGC agreed to a mechanism to directly share the benefits of the project
with these communities during the operation phase through continued funding of some of these
activities. Further details are given in Annex 8.

Construction phase

18. Afghanistan CSP. This program will be designed following a CDD approach, and would
be closely aligned spatially and time-wise with CASA-1000 construction phase. Subject to GoA
approval, the project will be implemented by the Ministry of Rural Rehabilitation and
Development (MRRD) utilizing the existing project implementation modalities and Facilitating
Partners of its National Solidarity Program (NSP). The implementation period will span four
years. The project is proposed to be funded by the ARTF with initial funding needs estimated to
be about US$40 million.

19. Pakistan CSP. In Pakistan this program will support about 27 communities within the
CASA-1000 corridor in the Federally Administered Tribal Areas (FATA) and the Khyber
Pakhtunkhwa Province (KPK). Both regions have Provincial Project Steering Committees that

47
are currently in operation who will work with communities to lead the selection and finalization
of the schemes, designing monitoring mechanisms to ensure transparency, and coordinate among
the various stakeholders involved in the program. The estimated cost of the program is US$10
million and would be funded through the MDTF. The Environmental and Social Impact Cell of
NTDC will be responsible at the project level to coordinate, supervise and report on
implementation performance.

20. Kyrgyz Republic CSP. Discussions regarding the design of the project and
implementation arrangements are ongoing and could include electrification of rural areas. A
broader range of local development initiatives may be considered after electrification is
achieved. The dialogue with the Government will include options for extending the CSP beyond
the COI. Funding is expected to be channeled through the MDTF. Implementation arrangements
require further discussion.

21. Tajikistan CSP. The program design will pay particular attention to ensuring links with
country planning processes for rural development to ensure sustainability of investments. It is
envisioned that the program will focus on increasing efficient energy access in affected areas.
The program design will build on field-level consultations and recent studies on energy needs in
rural Tajikistan. The estimated cost of this program is US$10 million. Funding is expected to be
channeled through the MDTF.

Operations Phase

22. Although the operations phase is outside the scope of this component, a variation of the
CSP activities will continue into the operations phase, at a reduced scale of annual investment, as
a means of sharing a small portion of the project benefits with local communities. A funding
mechanism has been agreed among the four governments and would provide support through a
portion of project revenues from each unit of energy exported/imported. The amount in
US¢/kWh will be agreed as part of the tariff negotiations for the CASA-1000 energy trade. The
JWG proposed an amount of US¢0.1/kWh; however, given the significant size of the
communities in Afghanistan the countries agreed to share the total contribution by 50 percent
going to Afghanistan and the remaining 50 percent shared equally among the other three
countries. This proposal will be taken to respective country authorities for formal approval.
Based on the experiences and lessons learned from the construction phase, the operating model
will be reviewed and revised at the end of the construction phase for its continued
implementation during the operational phase, including the annual planning, implementation,
monitoring and evaluation arrangements.

48
 Annex 3: Implementation Arrangements
Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)

Project Institutional and Implementation Arrangements

1. The IGC will provide overall strategic guidance to the countries and will convene
annually (or more frequently if needed). The JWG delegated by the IGC will be responsible for
ensuring effective coordination amongst the four countries on the common aspects of the
projects including the major infrastructure contracts as well as finalization of the Core Project
Agreements. The JWG will continue to meet on a quarterly or monthly basis to advance these
activities. The project institutional arrangements are outlined in Figure 8; however, the roles and
responsibilities are expected to evolve over the project implementation.

2. The IGC Secretariat, as a common working level body, will continue to be the liaison
between all stakeholders to coordinate inter-country activities, monitor the project activities, and
consolidate progress reporting.

Project administration mechanisms

3. The project will be implemented by the four NTCs. Each NTC will utilize a PIU or PMU
that has experience in implementing projects supported by IFIs. Where needed, the capacity of
these PIUs/PMUs will be strengthened. The project administration mechanisms will be aligned
with the fiduciary arrangements for the project including the procurement strategy and financial
management.

4. For component A the bulk of the infrastructure works (be it AC or DC) would be
common to at least two countries and therefore would be procured jointly. The procurement
process will be led by the CASA-1000 Procurement Committee which includes members of all
countries and will be facilitated by the IGC secretariat, and with technical support from the IFC-
supported procurement consultants. For contracting purposes, each package would contain
individual lots depending on the location of the assets to enable each NTC to manage the
contract and works to be carried out in its territory.

5. Smaller contracts that are specific to each country and have fewer complexities (e.g.
technical assistance activities or preparation of country-specific consultancies for preparation of
safeguard documents) as well as some TA activities would be procured by the individual NTCs.

49
Figure 8: Institutional Arrangements Diagram

Financial Management, Disbursements and Procurement

Financial Management

Kyrgyz Republic

6. NEGK, a joint stock company (with 80 percent of shares belonging to the State property
Fund and a further 13 percent belonging to the Social Fund) is a power transmission company. It
is a State-Owned Enterprise (SOE) with regional branches and around 2,500 staff. NEGK
currently executes investment projects with funding from the Asian Development Bank, Islamic
Development Bank and China Eximbank. The implementation of the China Eximbank projects is
done by a PIU established within NEGK, and projects with the other donors are managed by the
external relations department of NEGK. NEGK follows the donors’ requirements for
procurement, reporting and auditing; and will need to be introduced to the Bank fiduciary
requirements. The tariff charged by NEGK does not cover all costs, especially the full cost of
capital investments and maintenance. Cash collection has improved in recent years, but, until
very recently, actual allocation of the cash paid by the customers between NEGK and the
“Electricity Stations” company was done in accordance with the Ministry of Energy instructions
irrespective of the amount of energy sold by NEGK.

7. Consequently, NEGK has issues with its cash management, and has overdue interest and
principal debt repayments, as noted from its financial statements. Following the Government

50
regulations, NEGK has prepared its financial statements in accordance with IFRS since 2003.
However due to a lack of qualified accountants for this task, the statements are not fully IFRS
compliant. A local audit company audits them on an annual basis, but the selection process of the
auditor is not transparent. Though the audit opinion is clean, the review of the financial
statements raises some questions about their reliability, particularly regarding fixed assets
valuation. NEGK has 1C accounting software in the main office and all its branches, with
separate modules (not 1C) for the accounting of fixed assets and payroll. The data from the
branches is submitted per e-mail and is consolidates manually, which significantly enhances the
risk of errors.

8. NEGK has assigned an internal PIU (which is already implementing the Datka-Kemin
project) to be responsible for the CASA-1000 implementation (including FM and disbursement
arrangements) by issuing a formal decree. The PIU head has initiated the work on the staffing
structure and responsibilities, and in consultation with the Bank, will also prepare and issue an
internal order on how the PIU will interact with all other departments within NEGK on CASA-
1000 project, which constitutes de facto the internal operational manual. Temporary staff has
already been allocated for working on CASA-1000 preparation, including specialists from the
financial department. Similar to other investment projects, the accounting entries will be one by
NEGK accounting department based on the information provided by the PIU and verified by the
finance department and/or other departments (engineers) where applicable. Details will be
described in the internal order prepared by the PIU.

Tajikistan

9. BT is a vertically integrated power generation, transmission, and distribution company.

As the largest Tajik SOE with an income of around US$210m, it plays a significant role in the
country’s economy. The entity has a long history of selling electricity at government mandated
rates that do not cover costs. BT accounts for almost 65 percent of such activities in the SOE
sector. BT is organizationally structured into a head office (HO) and 31 subsidiaries.

10. BT has experience with Bank-financed projects, in particular the FY05 ELRP (now
closed) and the FY12 ELRP Additional Financing. The auditor issued disclaimer of opinion on
the financial statements of BT for 2010, 2011 and 2012 as they were unable to verify fixed
assets, debtors and revenues of the company. The audit report for 2012 was submitted in
December 2013 with a significant delay, but was considered acceptable by the Bank for fiduciary
assurance on the Bank funding to the project.

11. ELRP includes a component to support implementation of the FMIP within BT to address
the financial management deficiencies of the company. The FMIP covers four major areas: (i)
Accounting Policies and Systems, (ii) Financial Position, (iii) Revenue Management; and (iv)
Internal Controls (including those reflected by the external auditors). The Bank also hired an
international FM consultant to support BT in the work under FMIP. The selection of a consultant
company to carry out fixed assets and debtors valuation is under way. However, the progress to
date remains limited, as neither the provision of financial resources to BT by international donors
/ the Ministry of Finance (MoF) nor management’s remuneration / contracts are linked to the

51
improvement in the company’s corporate governance, financial performance, and operational
efficiency.

12. Barki Tajik's financial standing has deteriorated and has resulted in a breach of one of the
financial covenants of the ELRP Additional Financing (regarding tariff increases and measures
to improve the collection of electricity revenues from all categories of consumers to ensure the
project Implementing Agency’s cost recovery and financial viability). The continued increases in
BT costs coupled with a deterioration in electricity payment collections (76 percent for the first
half of 2013 as compared to about 87 percent for the same period in 2012) led to sizable
increases in accounts payables to the budget (taxes, repayment of loans), and independent power
producers (Sangtuda-1 and Sangtuda-2). Moreover, the delay in timely debt service payments
results in significant penalties for delays. This issue has been discussed with Government of
Tajikistan and an action plan is under development to bring Barki Tajik's financial health back to
good standing. A sub-group has been established under the chairmanship of first Deputy Prime
Minister, to develop this action plan. Positive developments in the recent past have been the
announcement by the Ministry of Energy to an increase in tariffs and specific measures to
improve collection rates for the billed energy. This issue is being followed under the ongoing
ELRP project, which is scheduled to close at the end of 2014, and is part of sector and
development policy dialogue with Tajikistan.

13. The Bank and Government of Tajikistan had a series of meetings at various levels in the
past two months, including a meeting with the Tajikistan Prime Minister in early December, to
discuss BTs financial situation and the need for a Government-supported program/action plan
and its effective and timely implementation to restore the financial viability of the company. As a
result, the Government recently set up an Inter-Ministerial Working Group, headed by a Deputy
Prime Minister, to comprehensively examine the BT financial and operational situation and
develop measures to address the issues facing the company. This work has resulted in the
drafting of a Government Resolution, which includes several short term and medium term
measures aimed to improve BT financial performance, including measures such as cash
collections improvements, tariff increases, changes in taxation, and transfer of social and other
non-core assets from BT to other entities. The Ministry of Energy and BT have started
developing action plans for the necessary measures, the implementation of which is expected to
improve BT’s financial standing in the next few years.

14. While the responsibility for overall project implementation will rest with BT, it will be
supported by an already established external PIU (a separate legal entity, established under the
Government of Tajikistan, that was set up in 2003). Fully funded by BT, this PIU helps to
manage large investment projects with ADB, IsDB, Kreditanstalt für Wiederaufbau (KfW), etc.
and consists of 83 staff, including procurement, accounting, construction engineers, electricity
specialists, customs specialist, etc. The division of duties between BT and the PMU will be
defined in a Project Implementation Agreement (PIA) and the CSP Operational Manual.

Pakistan

15. All aspects of the project’s implementation in Pakistan will be managed by NTDC, a
public limited company carrying a license for exclusive transmission business from National

52
Electric Power Regularity Authority (NEPRA) for a term of thirty years since 2002. The
members of the Board of Directors are nominated by the government for a period of three years.
The 8 current directors comprise 4 ex-officio members including the managing director, and 4
members from the private sector selected by the government. A separate Code of Corporate
Governance (the Code) for public sector enterprises was recently issued by the Securities and
Exchange Commission of Pakistan, which is applicable to NTDC. The Board was constituted in
October 2013 and its members are conscious of the requirements of this regulation and have
initiated the preparation of action plans to achieve complete compliance. All required sub-
committees – audit, procurement, human resources, risk management and nomination
committees have been put in place and are functional.

16. NTDC is one of the implementing entities for an ongoing IBRD project – Electricity
Distribution and Transmission Improvement Project (EDTIP) which is due to close on February
28, 2014. A PMU within NTDC is in place to manage this existing Bank project. NTDC is also
managing several other externally financed projects, including projects supported by ADB,
JICA, JBIC, KfW and others. A PMU headed by a Project Director has been appointed to
implement CASA-1000. This is an existing PMU with sufficient FM capacity and is already
implementing a couple of locally funded development projects, and therefore the FM
arrangements at NTDC are considered satisfactory. NTDC annual financial statements are
prepared on accrual basis in accordance with IFRS as applicable in Pakistan, and include a
comprehensive disclosure of information for all ongoing development projects.

Afghanistan

17. The project activities will be implemented by DABS and MEW under the responsibility
of the DABS Chief Operating Officer (COO) and the MEW Deputy Minister, respectively.
DABS under the oversight of its Board of Directors will implement Component A and parts of
Component B of the project with assistance from a Project Management Firm (PMF). Some parts
of Component B will be implemented by MEW under the oversight of a project steering
committee with support from individual consultants as needed. DABS have not implemented any
Bank-financed project yet, although it has experience in implementing other donor-funded
projects. They are also currently preparing a Bank-financed project, namely Naghlu Hydropower
Rehabilitation. MEW has experience in implementing Bank projects, however the capacity
remains weak. Both the entities will receive technical assistance to support implementation of the
project and also support for the financial management functions through the services of a PMF,
the hiring of which will be a disbursement condition for Component B.

Planning and Budgeting

18. NEGK. Planning and budgeting is done manually (in Microsoft Excel) by the finance and
economics department at NEGK. The department is also responsible for the calculation of
interest and principal repayments, which it provides to the MoF. The planning and budgeting
under all investment projects is done by staff/consultants in the PIU, which provides their data to
the Finance and Economics Department. The Bank funds would be a part of the annual planning
and budgeting of NEGK when CASA-1000 is under implementation.

53
19. BT. There are issues with the project budget preparation under ELRP owing to delayed
approvals of the procurement plan, as the budget is prepared based on the activities
implementation schedule and procurement plan. The Bank funds would be a part of the annual
planning and budgeting of BT when CASA-1000 is under implementation.

20. NTDC. The budget is prepared on an incremental basis starting with actual expenditures
for the current year and new activities planned for the next year. All units submit budget
requirements to the Finance Directorate where it is vetted by the budget section. The budget
section then prepares a consolidated budget for approval by the Board of Directors. After
approval, it is communicated to all units who are required to submit monthly statements of
budget and expenditure with reasons for variance (+/- 5 percent). For donor-funded projects, the
budgets are prepared as per implementation plan for activities by the concerned PMU. These are
included in the overall entity budget for approval by the Board.

21. DABS and MEW. A Budget Committee within DABS will coordinate the preparation of
annual work plans and the derivation of annual budgets, prior to submitting them to the MoF.
The Committee will also coordinate quarterly budget reviews to ensure adequate budget
discipline and control. Similar functions within MEW will be carried out by the Planning
Directorate. DABS and MEW will ensure that project expenditures for each fiscal year are
captured in the Governmental Development Budget of that fiscal year and that carry forward
budgets are used during the initial months of the next year while waiting for Parliament’s
approval of the new budget. DABS and MEW will be supported by the PMF in preparation of
the project budget. In keeping with current practices for other projects in Afghanistan, the DA
will be operated by the Special Disbursement Unit (SDU) in the Treasury Department of the
Ministry of Finance. Requests for payments from the Designated Account will be made to the
SDU by DABS and MEW when needed. Further advances from the DA for day to day operating
expenditures may be taken by DABS and MEW, subject to periodic and timely acquittal. In
addition to payments out of these funds, DABS and MEW can also request the SDU to make i)
direct payments from the Grant Account/s to consultants, consulting firms or suppliers. These
payments will follow World Bank procedures. All project payments will be made either to
international firms or to local firms that have bank accounts in DAB, a local commercial bank, or
an overseas bank.

Accounting (including staffing and record keeping)

22. NEGK. There is a limited number of professionally qualified FM staff at NEGK (the
Chief Accountant holding a CIPA qualification; and three staff with CAP, the local accounting
certification). The accounting policy has been developed in line with IFRS (without adequate
considerations for the valuation of property, plant and equipment). 1C accounting software
implementation was completed in the HO and all branches. However, the consolidation of
information is done manually in excel. NEGK prepares its annual financial statements in
accordance with IFRS, however, the quality of these statements may not be considered fully
reliable - for example, PPE is shown at historical cost less depreciation, but for other similar
companies in the region, the revaluation is considered a more appropriate method.

54
23. BT. The accounting function at BT is weak with no CIPA or CAP qualified staff. The
accounting policy has been developed in line with IFRS. 1C accounting software implementation
is complete in the HO and a majority of the subsidiaries. An Accounting methodology division
has been established, senior accounting staff in HO and subsidiaries have been trained in the new
accounting policy, and IFRS implementation guidelines. The automation of accounting is still in
progress - the accounting package was implemented completely with full data conversion in 21
subsidiaries, while in other subsidiaries it still varies in terms of the usage of the modules and the
extent of data conversion. There is no integrated system designed, so that data is transmitted
between the 31 subsidiaries and the HO via e-mail. IT back up and security of financial data is
poor. This is becoming an important area as the BT has been actively automating its accounting
function and introducing or upgrading the billing system. At the same time, integration of the
billing system with the existing accounting system at BT was not yet considered. Under current
plans, collection procedures will be strengthened during implementation of the billing system.
There are a number of critical areas still to be addressed for IFRS compliance with respect to
PPE and inventory revaluation, and trade and other receivables and payables.

24. NTDC. The Finance Directorate in NTDC is generally well staffed at the senior and mid-
level positions but there are several vacancies at the junior and operational level against
sanctioned positions. Due to an overall ban on recruitment imposed by the government, there is
currently no plan to fill these vacancies. Most importantly, the position of CFO has been vacant
for over a year and the Finance Manager has been assigned the acting Finance Director position.
Under the Code of Corporate Governance, the Board recruits the CFO. The position has been
advertised and candidates shortlisted and interviewed. No formal job descriptions are available.
The PMU for CASA-1000 is staffed with 3 finance personnel – a Budget and Accounts Officer
supported by an Accounts Assistant and a Senior Clerk. None of this staff has previous
experience with handling a foreign-funded project, but there are several personnel within NTDC
with the requisite experience who can provide the necessary guidance and support. Positions for
two additional Accounts Assistants are vacant in the PMU but considering the level of activities
to be managed by this PMU is low, the current staff is considered adequate for the project.

25. NTDC follows approved accounting standards as applicable in Pakistan. These comprise
such IFRS as notified by the Securities and Exchange Commission of Pakistan as per the
provisions of the Companies Ordinance, 1984. A detailed Book of Financial Powers provides the
approval thresholds for various types of transactions. An accounting procedures manual is not in
place, but the accounting is completely manual but there are comprehensive procedures in place
to ensure segregation of duties and adequate review for accuracy, completeness and reliability.
For each development project, NTDC maintains a separate payment register, cash book, general
ledger and invoice register. Bookkeeping and accounting processes are entirely manual, often
leading to delays in financial reporting. The existing process is, however, considered adequate
for recording and reporting project receipts and expenditures, and the same procedures will be
followed for CASA-1000.

26. DABS and MEW. The financial management functions for the project will be carried out
by the finance departments of DABS and MEW respectively, with support from the PMF. The
Government follows International Public Sector Accounting Standards (IPSAS) cash basis of
accounting and at the central level, uses a computerized accounting system Afghanistan

55
Financial Management Information System (AFMIS) to record and report all project
disbursements, to exercise controls and generate financial statements. DABS utilize Great Plains
accounting software for its accounting and reporting, while MEW maintains subsidiary records
in Microsoft Excel currently. Through other Bank funded projects with MEW, the Bank will
finance a basic off the shelf accounting software to be used by the finance department. Both
DABS and MEW will use these systems for CASA-1000 following international accounting
standards, and reconcile their records with AFMIS records on a monthly basis. The respective
finance departments of DABS and MEW will be responsible for preparation of the relevant
documents to facilitate project payments, including locally used B27 allotment forms and M16
payment request forms. All of these functions will be facilitated by the PMF to be hired under
the project, which will work closely with the agencies’ finance departments to carry out the FM
transaction work. While original copies of required supporting documents are attached to the
Form M16, DABS and MEW are required to keep photocopies of these documents for records
retention and audit purposes. The current FM manual for DABS will be updated by 30 June 2014
by the DABS finance department under the guidance of its CFO. It will reflect the detailed FM
arrangements for the Bank funded projects (namely, (i) roles and responsibilities of FM staff; (ii)
documentation and approval procedures for payments; (iii) project reporting requirements; and
(iv) quality assurance measures to help ensure that adequate internal controls and procedures are
in place and are being followed, and approved by the Bank. At the central level, MoF system
AFMIS will be used for accounting and the project will also follow MoF chart of accounts.

Financial Reporting

27. Each Implementing Agency will prepare quarterly unaudited IFRs at the end of each
calendar quarter in the agreed format and submit to the Bank within 45 days of the close of each
quarter (Table 9). The IFR for a subsequent quarter shall also present cumulative information on
the use of funds. The submission of IFR will be monitored as a covenant in the financing
agreement. The IFR format will be finalized at negotiations. This will include necessary columns
for Bank funds and the implementing entities will have the flexibility to expand it reflecting
parallel funding from other donors. At a later stage, and taking into account the project
management needs to monitor project expenditures incurred by all donors, the Bank would
encourage the implementing entities to develop a uniform reporting format, agreed with all
donors and implementing agencies.

Table 9: Reporting Summary for each Implementing Agency

Implementing Agency IFR period Submission within 45 days of
the end of the quarter
NEGK 1 January – 31 March 15 May of the following quarter
Financial Year – 1 1 April – 30 June 15 August of the following
January – 31 December 1 July – 30 September quarter
1 October - 31 December 15 November of the following
quarter
15 Feb of the following quarter
BT 1 January – 31 March 15 May of the following quarter
Financial Year – 1 1 April – 30 June 15 August of the following
January – 31 December 1 July – 30 September quarter

56
Implementing Agency IFR period Submission within 45 days of
the end of the quarter
1 October - 31 December 15 November of the following
quarter
15 Feb of the following quarter
NTDC 1 July – 30 September 15 November of the following
Financial Year – 1 July 1 October - 31 December quarter
– 30 June 1 January – 31 March 15 Feb of the following quarter
1 April – 30 June 15 May of the following quarter
15 August of the following
quarter
DABS and MEW 21 December - 20 March 5 May of the following quarter
(consolidated IFR) 21 March – 20 June 5 August of the following
GoA Financial Year – 21 June – 20 September quarter
21 December – 20 21 September – 20 December 5 November of the following
December quarter
5 Feb of the following quarter

28. While financial information from the accounting records at NEGK, BT and NTDC will
be reported in quarterly IFRs, consolidated quarterly interim financial reports will be prepared by
the PMF on behalf of DABS and MEW based on records from three sources: (i) DABS and
MEW accounting records; (ii) expenditure statements from SDU (as recorded in AFMIS) and
reconciled with DABS/MEW; and (iii) bank statements from DAB. Also, in the case of
Afghanistan, the annual project accounts to be prepared from AFMIS (after due reconciliation to
records maintained at DABS and MEW) will form part of the consolidated Afghanistan
Government Accounts for all development projects. This is done centrally in the Ministry of
Finance Treasury Department, supported by the Financial Management Advisor.

Internal controls

29. NEGK does not have an internal audit department. At present, it has a review department
consisting of only one staff member to undertake all reviews and corrections of accounts and
financial reports, which is inadequate. Controls over expenditures in donor-supported investment
projects are performed by the staff managing the projects (external relations department/PIU
respectively). Controls mechanisms and procedures for expenditures incurred under the CASA-
1000 project will be specified in the internal regulations.

30. BT. The key weakness observed in BT is a lack of adequate corporate governance
structure with no risk and/or audit committees and internal auditor reporting to the chief
accountant. There is no risk management function in the entity. The internal audit (IA) function
has been established and currently five (5) staff members are employed. However, IA
effectiveness has been limited by the lack of required capacity, skills, and mandate. A number of
requirements stated in the IA Charter are not followed in practice, including reporting to the
Chairman (in practice to the chief accountant), conducting system audit, qualification of internal
auditors (CIPA), etc. The IA also does not have enough independence from management to
provide the expected value in improvement of the internal controls. The IA unit mainly conducts

57
reviews and corrections in accounting and financial reporting. The controls for the expenditures
under the CASA-1000 project will be specified by BT.

31. NTDC. The Book of Financial Powers documents a very detailed and comprehensive
authorization matrix which also provides for adequate segregation of duties. Management reports
are prepared at the end of each month to allow monitoring of performance and activities.
Mechanisms are in place to ensure that the reporting requirements related to all development
projects and regulatory agencies are met. Checklists are used to monitor the compliance. While
fixed assets are fully recorded, systematic coding and tagging of assets needs to be done. Sample
physical verification is conducted annually by the external auditors. Value of fixed assets at
various locations is reconciled with the control accounts. Straight line method of depreciation is
used based on estimated useful lives. Inventory management is automated and headed by a Chief
Engineer, and 100 percent physical verification of inventory is conducted annually. Internal
Audit department is in place and reports to the Audit Committee of Board of Directors. It is
headed by an experienced and qualified accountant who is supported by 30 internal auditors
covering all operations including the development projects, but several junior level positions in
internal audit are vacant due to a current recruitment ban. Bank accounts are operated by joint
signatures and the Banking Section in the Finance Directorate prepares monthly bank
reconciliations for all accounts by the 10th of the following month.

32. DABS and MEW. Adequate internal controls exist at the central level and at the level of
the implementing entities. The effectiveness of these controls will be periodically reviewed by
the Bank. Project–specific internal control procedures in DABS for requests and approval of
funds will be described in the FM Manual including segregation of duties, documentation
reviews, physical asset control, asset verification, and reconciliation and cash management. The
internal audit function for DABS will be carried out by its own internal audit department at least
on a bi-annual basis. The internal audit function within MEW is weak; however, given that there
will be minimal transactions for MEW, the lack of internal audit arrangements is not expected to
have a negative impact on the project.

External Audit

33. Overall, the project financial statements for each implementing agency will include Bank
funds. Parallel financing by other funding partners is not required to be covered by the same
audit for the Bank’s fiduciary purposes. The entity audit report will be monitored by the Bank
through an intermediate results indicator as specified in Annex 1, which will allow the Bank to
monitor the entities’ financial performance during the life of the project.

34. The project audits of NEGK and BT will be conducted by private audit firms acceptable
to the Bank on an agreed TOR and the audits will be submitted to the Bank within 6 months of
the closure of the financial year along with the auditor’s opinions and the management letter.

35. External audit for NTDC is jointly conducted by two private firms of Chartered
Accountants with international affiliation. Terms of Reference and appointment of the external
auditors is approved in the AGM on the recommendation of the Board. However delays occur in
finalization of accounts after the year-end mainly awaiting the completion of reconciliation with

58
the power producers and distributors. Under the ongoing EDTIP, NTDC has not been able to
meet the deadline for submission of entity audited financial statements within 6 months. The
audit report for FY2012-13 is overdue and an exception has been granted to proceed to
negotiations as required under OP/BP 10.00 FM processing instructions. NTDC has been
directed by its Board to finalize the financial statements by February 28, 2014. Review by the
Audit Committee and approval by NTDC’s Board of Directors will take about four weeks. As a
result, the NTDC’s FY2012/13 audited financial statements are expected to be transmitted to the
Bank not later than April 21, 2014. For CASA-1000, it has been agreed that NTDC shall submit
project financial statements audited by the Auditor General of Pakistan within 6 months of the
closure of the financial year.

36. For DABS and MEW, The Supreme Audit Institution in Afghanistan will be responsible
for the audit of Bank funds and the audit report on agreed TOR will be submitted to the Bank
within 6 months of the closure of the financial year along with the auditor’s opinions and the
management letter

37. Following the Bank’s formal receipt of the project’s annual audited financial statements
from the implementing entities, the Bank will make them available to the public on its website in
accordance with the World Bank Policy on Access to Information. In addition, the Recipient will
make these audited financial statements available to the public in a timely manner as acceptable
to the World Bank.

38. As a covenant in the Financing Agreement, the following audit reports will be submitted
by the project implementation agencies to the Bank by the agreed due dates (Table 10).

Table 10: Summary of Audit Reports for Each Implementing Agency

Implementing Agency Audit Report Agreed Due Date
NEGK Project audited financial Within six months of the end
statements along with the of each financial year – June
audit report and management 30
letter
BT Project audited financial Within six months of the end
statements along with the of each financial year – June
audit reports and management 30
letter
NTDC Project audited financial Within six months of the end
statements along with the of each financial year –
audit reports and the December 31
management letter
DABS and MEW Project audited financial Within six months of the end
(consolidated) (financial year statements along with the of each financial year - by
December 21 – December 20) audit report and the June 20
management letter

39. Implementation support. Review of agreed financial management arrangements will be

an integral part of review during Bank implementation support missions. During project

59
implementation, the World Bank will also monitor the timely submission of acceptable quarterly
IFRs and annual audit reports by the implementing entities.

40. Revenue Management by Kyrgyz Republic and Tajikistan – after the project closing
date. Although the export and other revenues will occur only after the project closure date, their
management in the energy sector remains a key concern in Kyrgyz Republic and Tajikistan.
Consequently, the arrangement for a transparent use of the revenues is seen an important risk
mitigation measure for the use of project benefits and was discussed during appraisal. The basic
underlying principles of transparent management of export revenues are as follows: (i) export
revenues should flow to a special escrow account opened in a qualifying bank; (ii) funds
accumulated in this account will be used only for the purposes stipulated in respective
agreements between the implementing agency, the bank, MoF/Ministry of Energy acceptable to
the World Bank (primarily to ensure uninterrupted operation of the CASA project that would
include timely payments for the IPPs and debt service payments); (iii) the quarterly reports
showing the receipts and payments from the account should be published on the websites of the
implementing agencies, Ministry of Energy, and the bank; (iv) there should be an annual audit of
these statements by an independent internationally recognized private auditor; and (v) the audited
statements together with the audit opinion should also be made public on the websites mentioned
above.

41. Revenue transparency. The adoption and implementation of the Revenue Management
Program is one of the legal covenants for the Kyrgyz Republic and Tajikistan financing and
should be complied with within twelve (12) months after the Project Effectiveness Date.

Disbursement Arrangements

42. Afghanistan. IDA financing of US$316.5 million will be used to finance at 100%
(inclusive of taxes) of project activities under Component A and B. ARTF funds will be utilized
to finance activities under Component C. Allocation of IDA grant proceeds is shown in Table 11.
The hiring of a Project Management Firm is a condition for disbursement under Component B.

Table 11 Allocation of Afghanistan IDA Grant Proceeds

Category Amount of IDA Percentage of Expenditures to be
Grant (in US$) Financed (inclusive of taxes)
(1) Goods, works, non-consulting 308,500,000 100%
services, consulting services for
Component A1 and A2 (ii)
(2) Goods, non-consulting services, 5,000,000 100%
consulting services, training,
workshops and incremental operating
costs for Component B
Project Preparation Advance 3,000,000
Total 316,500,000

43. Pakistan and Tajikistan. Due to the nature of expenditures and types of contracts
involved in Component A of the Project, the bulk of IDA funds will be disbursed through the

60
direct payment and special commitment. Before a withdrawal application is processed, a
consultation will be conducted to determine the types of expenditure or contract to be financed
by IDA funds and the corresponding financing percentage. The allocation of Pakistan IDA Credit
and Tajikistan IDA Grant proceeds are given in Table 12 and Table 13, respectively.

Table 12 Allocation of Pakistan IDA Credit Proceeds

Category Amount of IDA Percentage of Expenditures to be
Credit (in US$) Financed (inclusive of Taxes)
(1) Goods, works, non-consulting 120,000,000 100%
services, and consultants’ services for
Component A.1 and A.2(iii)
TOTAL AMOUNT 120,000,000

Table 13 Allocation of Tajikistan IDA Grant Proceeds

Category Amount of IDA Percentage of Expenditures to be
Grant (in US$) Financed (exclusive of Taxes)
(1) Goods, works, non-consulting 45,000,000 100%
services, and consultants’ services for
activities for Component A
TOTAL AMOUNT 45,000,000

44. Kyrgyz Republic. Disbursement for the project under this financing package will be first
drawn down from the grant at 100%. Once the grant funds have been fully disbursed, further
disbursement for the project would be drawn down from the credit, also at 100%. Table 14
specifies the allocations of IDA Credit and Grant proceeds.

Table 14 Allocation of Kyrgyz Republic IDA Credit and IDA Grant Proceeds
Category Amount of Amount of Percentage of Expenditures
IDA Credit IDA Grant to be Financed
(in US$) (in US$) (exclusive of Taxes)
(1) Goods, works, non- 38,250,000 6,750,000 100%
consulting services, and
consultants’ services for
activities for Component A.3
TOTAL AMOUNT 38,250,000 6,750,000

Procurement

45. Procurement for the proposed project will be carried out in accordance with the World
Bank’s "Guidelines: Procurement of Goods, Works and Non-Consulting Services under IBRD
Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Procurement
Guidelines); and "Guidelines: Selection and Employment of Consultants under IBRD Loans and
IDA Credits & Grants by World Bank Borrowers" dated January 2011 (Consultant Guidelines)
and the provisions stipulated in the Financing Agreement. The World Bank Guidelines on
Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA
Credit and Grants dated October 15, 2006 and revised on January 2011, would also apply. In the

61
case of some countries, in view of limited experience and the complex and time sensitive nature
of the project, assistance will be provided through Procurement Consultants to provide support
for those packages that are exclusive to each of the countries and are not being provided support
by the IFC provided consultant. The project will also provide for an Owner’s Engineer to provide
oversight of project implementation, particularly for the HVDC packages. As the CSP
component will follow a CDD approach, the procurement arrangements for that component will
be in line with the Guidance Note for Design and Management of Procurement Responsibilities
in Community-Driven Development Projects, dated March 15, 2012.

46. For each contract to be financed by the Credit/Grant, the different procurement methods
or consultant selection methods, the need for prequalification, source of financing, procurement
responsibility, estimated costs, prior review requirements, and time frame have been agreed
between the countries and the Bank and are reflected in the Procurement Plan. The Procurement
Plan will be updated at least annually or as required to reflect the actual project implementation
needs and improvements in institutional capacity.

Procurement Committee

47. In order to streamline decision making for contract packages that may include more than
one member country, a procurement committee was set up through a resolution of the IGC at its
meeting on September 16-17, 2013 in Islamabad. The committee will oversee the development
of all documentation for calls for expression of interest, management of the pre-qualification
process, issuance of requests for technical and financial proposals, arrangements for the
evaluation of such proposals and preparation of bid evaluation reports and award of contracts.
Contract signing will be done by respective NTCs for their portion of the work and based on
source of financing.

48. The committee will also have the authority to carry out the prequalification of applicants
and notify them accordingly; carry out all the other work needed on behalf of the CASA-1000
countries to bring conclusion to the procurement process leading to award of the contracts by the
NTCs; regularly liaise with the IGC Secretariat, Implementing Agencies and JWG and project
consultants; ensure that all applicable requirements of the World Bank or other applicable
financier’s procurement guidelines and procedures are adhered to; provide regular progress
reports to the IGC through the IGC Secretariat as may be requested from time to time.

49. The final decisions for the joint packages will be taken by the Procurement Committee,
formed by representatives of all four countries. The countries have nominated three
representatives to the Procurement Committee who have already participated in the Procurement
Committee meetings and endorsed the first PQ document under the project. The joint decision
making process is presented in Figure 9. The major contracts (HVDC converter stations, HVDC
line and HVAC line and associated works) will be signed by the respective NTCs for their
portion of the work and based on source of financing. The Owner’s Engineers will supervise
these contracts on behalf of the countries and those contracts will be signed jointly by the
countries signing the respective S&I contracts. The day to day contract management in the
countries will be provided by the respective Implementing Agency. The Procurement Committee

62
will be responsible for overall supervision, coordination between the countries and managing the
Owner’s Engineers and other major contracts.

Figure 9: Flow Chart of Joint Decision-Making Process

The country's
representatives
Consultant prepares draft The implementing agencies communicate those
PQ/ bid documents/ BER prepare their comments comments at the
Procurement Committee's
meetings

Document agreed upon by Consultant faciliates the

all parties, endorsed by the discussions of the
Procurement Commiittee Consultantions amongst Procurement Committee by
and sent by the IGC the relevant parties consolidating the
Secretatiat to the Bank for comments and revises the
review and no objection documents accordingly

Institutional and Implementing Arrangements for the Countries

Tajikistan

50. BT will be the designated project implementation agency responsible for the overall
project implementation, including the project’s fiduciary functions. The Implementing Agency
will be solely responsible for the procurement of small contracts and will actively participate in
the decision making process for the joint procurement packages.

51. The IGC and the Procurement Committee of JWG will be responsible for procurement of
HVDC converter stations including O&M of stations and the line, HVDC and HVAC lines, an
Owner’s Engineer to supervise the construction contracts, and project audit contracts. The GoT
has already nominated three representatives in the Procurement Committee (representatives of
the Ministry of Justice and BT chaired by a representative of the State Investment and Property
Management Committee). With regard to the day-to-day project coordination the project will be
implemented by BT through the PMU, a legal entity under the GoT. The overall responsibility
for implementation of project activities will be with BT while certain implementation functions
(including procurement) will be delegated to the PMU through the PIA. In addition, a CSP
Operational Manual will be developed by the project effectiveness date and will provide specific
details of roles and responsibilities.

Procurement Capacity and Risk Assessment

52. A Procurement Capacity and Risk Assessment of the project’s Implementing Agency was
undertaken in November 2013. The team carried out procurement capacity assessment of Barki

63
Tajik and also conducted procurement performance assessment using Program for Results
(PforR) methodology. The team has assessed risks using Procurement Risk Assessment and
Management System (PRAMS) and the Procurement Capacity Assessment and Performance
Reports has been filed in the PRAMS. Barki Tajik will have overall responsibility for the
supervision of the procurement function. The PMU will be directly responsible for day-to-day
project coordination, including ensuring timeliness and high quality of the comments to be
provided to the Procurement Committee for the high value joint procurement/consultancy
packages and will conduct actual procurement of the small value contracts envisaged under the
project. It will also ensure proper procurement planning, contracts monitoring and fiduciary
reporting.

Kyrgyz Republic

53. NEGK will be the overall responsible Implementing Agency, including for the project’s
fiduciary functions. NEGK will nevertheless have limited procurement responsibilities as the
responsibility for the procurement of major packages will rest mainly with Procurement
Committee – which would review/approve procurement packages for joint infrastructure
contracts and for selection of the Owner’s Engineer. The actual procurement documents are
prepared by an engineering consulting company appointed by IFC, which are sent to NEGK for
secondary review.

54. The Procurement Committee is composed of representatives from all four countries.
Kyrgyz Republic is represented through following members:

a. General Director of NEGK

b. Head of Foreign Relations Department and PIU of Ministry of Energy
c. Advisor to General Director of NEGK

55. NEGK will be assigned primary responsibility for procurement of minor packages. This
includes the selection of several individual consultants and selection of an audit company. Given
the comprehensive and clear instructions of consultants selection procedures under state
procurement law, as well as considerable experience in procurement procedures under ADB and
IsDB financed projects NEGK’s current procurement capacity will be sufficient for selection of
the above consultants.

56. The procurement process to be followed for large packages in Kyrgyz Republic is similar
to Tajikistan. The bidding document, PQ documents, PQ evaluation reports and bid evaluation
reports as well as required documents for selection of supervision consultant will be reviewed by
the Procurement Department in close coordination with the External Communications and
Project Implementation Department. Taking into account the relatively complex nature of
upcoming packages, a higher level of scrutiny would be required from each entity participating
in the process. Even though NEGK will provide secondary review, special attention will be paid
to providing adequate capacity building/training for NEGK’s Procurement and Logistics
Department and its External Communications and Project Implementation Department so as to
make sure that qualified opinions/comments (technical and as well as commercial) are
communicated to the Procurement Committee.

64
Procurement Capacity and Risk Assessment

57. The Recipient is implementing the project through NEGK which is a 93 percent state-
owned joint stock company managing the transmission grid of the entire Kyrgyz Republic.
NEGK is managed by General Director, reporting to a Board of Directors composed of 5
members. There are 3 deputies to the General Director. Different departments are under the
oversight of these Deputy Directors, while general management is under the responsibility of the
General Director. NEGK’s head office is located in Bishkek, and there are 6 regional offices
throughout the country. There are two responsible departments for procurement – (i) Logistics
and Procurement Department – responsible for procurement undertaken through state funds; (ii)
External Communications and Project Implementation Department – responsible for
procurement through financing of different IFIs.

58. The public procurement environment in the country is improving as the Public
Procurement Methodology Department is revising the Public Procurement Law and establishing
a Public Procurement Regulatory Body and Procurement Complaint Review Commission.
NEGK follows the Kyrgyz Law on Public Procurement.

59. A market survey was carried out and indications show that there is sufficient number of
companies on the local market in Kyrgyz Republic to undertake low voltage (110kV and less)
supply and installation of transmission lines. There are not many local companies capable of
supply and installation of transmission lines above 110kV.

60. Logistics and Procurement Department – is responsible to procurement under state funds.
Department is composed of 6 employees. All employees of the department have considerable
experience in public procurement. External Communications and Project Implementation
Department – is responsible for procurement under the projects financed by IFI’s. This
department also has procurement capacity.

61. As for Tajikistan, the Bank undertook a procurement capacity assessment of NEGK and
also conducted procurement performance assessment using PforR methodology. The team has
assessed risks using PRAMS and the Procurement Capacity Assessment and Performance Report
has been filed in the PRAMS.

62. Procurement arrangements using one of the departments referred to above were examined
with a view to creating sustainable procurement capacity. With this in mind, the Bank and
NEGK agreed that the Logistics and Procurement Department will be responsible for
procurement under the project but will work in close coordination with External
Communications and Project Implementation Department.

Afghanistan

63. DABS will be the entity that is primarily responsible for implementation of the
Afghanistan portion of the project, but some (limited) aspects of project-related procurement
may also be implemented by MEW. The key procurements here will be the contract for the

65
transmission line. Due to the market conditions and security situation in Afghanistan, there is a
risk of low participation in the bids for this contract. One of the mitigating measures being
considered to deal with the security issues is to slice the transmission line package into two or
more so that if one contractor faces issues, the work across the whole line is not disrupted. Given
the shortage of contractors in Afghanistan, this may lead to a series of direct contracts. As in the
case of the other member countries, procurement decisions affecting other members will be
elevated to the Procurement Committee. DABS will be responsible for implementation of parts
of the procurement plan exclusive to Afghanistan.

Procurement Capacity and Risk Assessment

64. The Bank has gained substantial experience and understanding of the procurement
environment in Afghanistan through its involvement in the interim procurement arrangements
put in place under the Emergency Public Administration Project (2002) and though working with
the institutions currently responsible for procurement functions, including the Afghanistan
Reconstruction and Development Services (ARDS). As part of the broader review of
Afghanistan’s PFM system, the Bank carried out two assessments, in June 2005 and September
2007, of the procurement environment in the country based on baseline and performance
indicators developed by a group of institutions led by the World Bank and Organization for
Economic Co-operation and Development – Development Cooperation Directorate
(OECD/DAC).

65. A new Procurement Law was adopted in November 2005 that radically transforms the
legal and regulatory framework. In accordance with the law, GoA established a Procurement
Policy Unit (PPU) under the Ministry of Finance to provide oversight for implementation of the
Procurement Law. At this stage, the PPU has issued several circulars regarding implementation
of the Procurement Law.

66. In the absence of adequate capacity to manage procurement activities effectively, a

central procurement facilitation unit, the ARDS-Procurement Unit has been established under the
Ministry of Economy to support line ministries and project implementing agencies. The Bank
and the Government have agreed on a program for country-wide procurement reform and
capacity building, leading to the transition from centralized to decentralized procurement
services.

67. DABS will be responsible for project implementation. This is an SOE that has good
management and is committed to best practice and capacity building. A procurement capacity
assessment of DABS was carried out in October 2013. While there is an established procurement
department, with clear lines of responsibility and clearly documented procurement processes
including service standards for various types of procurement, the assessment shows a reasonable
setup of procurement processes of DABS. There is also a Procurement Manual and regular staff
training is carried out. While there is ongoing support from USAID and ADB for institutional
development of DABS –including a procurement and inventory management system – DABS
does not have direct experience of procuring or managing large and complex projects and relies
on donor-supported consultants to execute and supervise such projects. The same approach will
also need to be adopted for CASA-1000. The assessment also found some gaps in staff

66
competencies, understanding of the market for power equipment, internal audit system and
decentralization. As in the case of the other member countries, procurement decisions affecting
other members will be elevated to the Procurement Committee. DABS will be responsible for
implementation of parts of the procurement plan exclusive to Afghanistan. MEW will be
involved for procurement under the Project Preparation Grant and will mainly be responsible for
the procurement of the Transaction Advisory Service as well as some Technical Assistance.
Mitigation measures agreed with MEW as a result of the capacity assessment are acceptable.

Pakistan

68. NTDC will be the entity responsible for implementation of the Pakistan portion of the
project. The key package here will be the portion of the HVDC package as it relates to Pakistan
and the transmission line. No market uncertainties are perceived for the transmission line
package, but the route of the line presents security issues and may lead to low contractor
participation. This is expected to be partly mitigated through the implementation of community
development projects similar to those planned for Afghanistan. As in the case of the other
member countries, procurement decisions affecting other members will be elevated to the
Procurement Committee. NTDC will be responsible for implementation of parts of the
procurement plan exclusive to Pakistan

Procurement Capacity and Risk Assessment

69. A Procurement Capacity Assessment of NTDC was carried out in November 2013.
NTDC is a state owned corporation, incorporated on Nov 6, 1998 and commenced commercial
operation on Dec 24, 1998. The procurement management structure is described in Figure 10
below. NTDC is headed by a Board of Directors (BoD) with a Managing Director (MD). The
Chief Engineer (MP&M) is responsible to oversee and manage projects/procurements, supported
by two Procurement Managers and a Material Control Manager. The Procurement function is
centralized at the department. The Chief Engineer (C.E.) (MP&M) reports to General Manager
(Projects) who directly reports to Managing Director. The Chief Engineer (Design) acts as an
internal consultant for NTDC and support C.E. (MP&M) in preparation of bidding documents,
evaluation reports, draft contracts, specifications etc.

Figure 10: NTDC’s Procurement Management Structure

GM Projects C.E. (MP&M)

Managing
Board
Director
GM Services
C.E. (Design)
Division

70. NTDC follow Public Procurement Rules for procurements using their own funds,
however they use Donor Guidelines if the project is funded by a Donor. NTDC has experience of
working with World Bank, Asian Development Bank, USAID, KfW, Kuwait Fund, etc. NTDC
has good experience of working with international donors; however, the capacity built while

67
working on these projects has not been retained or captured in a systematic way. The Chief
Engineer (Design) department has 6 managers, 30 deputy managers and 35 assistant managers
with some support staff. All these staffs are basically Engineers and learned procurement by
doing. There is no special cadre for Procurement with specialized and dedicated Procurement
position. There is no training need assessment of staff to update them as per the latest
innovations and best practices to achieve timely results. If an experienced staff leaves or
transferred then the new replacement has to again learn the process. The capacity is not
consistent and the understanding of rules and procedures vary from person to person.

71. The Bank under the Electricity Distribution and Transmission Improvement Project
proposed and helped the distribution companies (DISCOs) and NTDC to develop a detailed
Procurement Manual. The manual will standardize the Procurement Process and will help to
build consistent systems and capacity.

72. NTDC prepares Procurement Plans for donor funded projects; however, there is no such
plan for their own procurements. There is a lack of focus on meeting and monitoring the
timelines mentioned in the Procurement Plans. It was reported that there not a single contract
which was completed within the original completion time. The two contracts under Bank’s
EDTIP for Kassowal Grid Station and Transmission Line are also delayed substantially.
Normally a Transmission Line of 100km takes around 720 days for completion, similarly a Grid
Station of 220kV takes around 720 days on average for completion. NTDC informed that these
delays are largely due to weak contractor’s technical capacity for implementation. There is a
need to extend the role of procurement function beyond contract award and signature. Clarity on
the concepts of project management should be in place.

73. NTDC uses Pakistan Engineering Council bidding documents for processing
procurements through their own funds. Donor’s standard bidding documents were used for
projects funded by the Donors. The templates for evaluation by Donors are used for all
procurements.

74. In the past there was a WAPDA enlistment or pre-registration of bidders but since the
promulgation of the Public Procurement Rules, there is no such practice. NTDC checks the
bidder’s qualification during evaluation but at the time of contract award there is no practice to
recheck the qualification information. In last two years, 4 firms were debarred. There is no
standard committee for Procurement, C.E. Design notifies a committee on case to case basis.
No formal and standardized complaint redressal in place.

Summary of Risks and Risk Mitigation Measures in all four countries (

75. The key issues and risks concerning procurement for implementation of the project
include: (i) potential risk of delays in the implementation of the project, due to the complexity of
the project and the need for coordination between the countries on implementing mutually linked
projects; (ii) lack of technical/procurement expertise within the project implementation agency to
match the complexity of the procurement envisaged under the project; (iii) not sufficient contract
monitoring and management skills; (iv) different Procurement Guidelines between the World
Bank and other likely financiers, (v) the complexity of both the internal and the joint decision

68
making process to approve contract variations/ amendments during the contract implementation
that need “employer’s approval”.

76. Given the findings of the assessments the initial overall procurement risk under the
project is assessed as ‘High.’ To mitigate the identified procurement-related risks, mitigation
actions are suggested in Table 15. It is expected that, after these measures have been taken, the
risk would be reduced to “Substantial”.

Table 15: Summary of Procurement Risk Mitigations

SN Actions Deadline
1 BT, DABS and NTDC responsible for the day-to-day project Appraisal/
coordination should allocate adequate human resources for the project’s Negotiations
fiduciary functions.
2 Where necessary, additional procurement specialists or consulting firms Appraisal/
should be added to strengthen capacity and streamline implementation Negotiations
3 Training of staff involved in the project procurement activities in Bank’s Negotiations
Plant, DS&I type bidding documents and procedures ,
4 Preparation of an Operational Manual for the CSP with a detailed In coordination
chapter on procurement including a detailed description of the with the
programs’ coordination mechanisms and decision making process; finalization of
the CSP
5 Prepare a detailed procurement plan for the first 18 months of the Appraisal and
project agreed by the
Negotiations
6 Pro-active participation in the preparation of the PQ/ bidding documents Negotiations/
for the first year of project implementation to facilitate the initiation of first months of
the procurement as per the agreed Procurement Plan implementation
7 Ensure quality review of the both technical specifications/ TOR, Bid Ongoing
Evaluation Reports and the final deliverables
8 For each of the implementing entities, put in place a complaint handling Negotiations
mechanism that receives, reviews and disposes of complaints from
bidders, and monitors the process with regular reporting
9 Put in place an efficient contract monitoring mechanism designed to Ongoing
maximize overall value for money of contracting activities
10 Regular procurement support during project implementation by Bank Ongoing
procurement staff.

Procurement Implementation and Arrangements

77. Procurement of Works and Goods. The procurement under the project will include
supply and installation (including design) of HVDC converter stations in three locations:
Sangtuda – Tajikistan, Kabul – Afghanistan, and Peshawar – Pakistan , including the contract for
operation and maintenance for the HVDC facilities, supply and installation (including design) of
HVDC transmission line from Sangtuda to Peshawar, AC transmission lines supply and
installation (including design) in Kyrgyz Republic and Tajikistan. The Bank’s most recent
version of the Standard Bidding Documents (SBD) for Procurement of Plant Design, Supply, and

69
Installation for all International Competitive Biddings (ICBs) will be used and the PQ document
will be used for all planned prequalification procedures.

78. Selection of Consultants. The consultant services under the project will be mainly
needed for construction supervision, support for project implementation, audit and TA. Specific
areas where support would be needed include the provision of an Owner’s Engineer of HVDC
converter stations and HVDC line; an Owner’s Engineer for the HVAC line; design of CSP
schemes, some individual consultants for project management and supervision, audit, etc. For
specific consultancies, the short lists of consultants for services estimated to cost less than
$100,000 equivalent per contract may be composed entirely of national consultants in
accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.

79. Procurement Arrangements and Strategy: As described above, the IGC through its
Procurement Committee will be responsible for procurement of large packages shared by the
countries with other contracts required specifically for any of the Implementing Agencies being
procured by the respective Agency. The procurement plan shall also include source of financing
and responsible unit for procurement. The procurement strategy allows for multiple partners to
finance complex high value packages.

a. DS&I of HVDC converter stations shall include O&M of HVDC line and converter
station as these will be high technology assets for the project in Tajikistan,
Afghanistan and Pakistan. The procurement will follow pre-qualification and two-
stage ICB process. This package will also include electrode stations at Sangtuda,
Kabul and Peshawar. The package is designed to be financed by IDA and will
follow World Bank Procurement Guidelines.

b. DS&I of HVDC line will include associated AC sub-station work at Sangtuda,

Kabul and Peshawar and repeater station for communication link. The Afghanistan
section will be procured following post qualification procedures and will consist of
three (3) lots financed by IDA. This package will be launched immediately
following the HVDC converters package and will follow World Bank Procurement
Guidelines. The segment of the HVDC line from Sangtuda to Afghanistan’s
northern border and from the Afghan southeastern border to Peshawar will be
financed by IsDB following PQ ICB process in two lots. These packages may
follow IsDB Procurement Guidelines.

c. DS&I of the AC line from Datka to Khudjand and between Regar and Sangtuda
including associated AC sub-station work will be financed by IDA, IsDB, ACG and
other financiers. The lines will be split based on the financiers and will follow their
respective Procurement Guidelines. If all financiers agree, one PQ process will be
followed for the entire AC line, otherwise separate ICB tenders could be issued for
individual lots.

80. Specific Procurement thresholds for all four countries. Procurement under the project
will include the following categories: Civil Works, Goods and Consulting Services and the
thresholds for procurement methods and Bank prior review applied for procurement are

70
presented in Table 16. The procurement thresholds may be adjusted during the project
implementation to reflect the increased capacity of the Implementing Agency.

Table 16: Thresholds for Procurement Methods and Bank Prior Review (values in US$) 9
Expenditure Contract
Procurement Method Bank Prior Review
Category Value (US$)
>= 5,000,000 ICB All
< 5,000,000 NCB All Contracts above 1,000,000
Civil Works
<100 000 Shopping First contract
NA Direct Contract All
>= 1,000 000 ICB All the ICB contracts
<1,000,000 NCB All Contracts above 300,000
Goods
<100 000 Shopping First contract
NA Direct Contract All Direct contracts
NA QCBS, QBS, FBS, All contracts >= 200,000 for
Consultant LCS and CQS* firms; all contracts >= 100,000
Services NA SSS for individuals; and all SSS
NA IC contracts.

81. Procurement Plan. The Procurement Plan for the first 18 months of the project’s
implementation will be agreed upon and coordinated by the Procurement Committee, and sent
through the IGC Secretariat for the Bank’s review and no objection prior to project negotiations.

82. NEGK, BT, DABS and NTDC will also prepare Procurement Plans for the first 18
months of the project to reflect the country-specific procurements to be implemented in the
Kyrgyz Republic, Tajikistan, Afghanistan and Pakistan respectively, and which will be
coordinated by the Procurement Committee, and the specific procurement/selection procedures
for which the each of the companies will be solely responsible. The Procurement Plan will be
updated annually or as needed to: (a) reflect project implementation; (b) accommodate changes
that should be made; and (c) add new packages necessary for the project. Each update will be
subject to Bank’s prior review. The Procurement Plan will be published in the World Bank
website. Procurement under the project will be carried out in accordance with the agreed PP and
as updated from time to time during the implementation of the project.

83. CSP Operational Manual. An operational manual shall be developed for the CSP
component and would cover, inter alia, procurement aspects under these programs such as:
procurement implementation arrangements, procurement plan and reporting, procurement
methods and thresholds, responsibilities of procurement staff and evaluation committees,
procurement process including contract monitoring, procurement control procedures and
complaints handling procedure. The manual shall include procurement arrangements for the CSP

9
ICB – International Competitive Bidding; NCB – National Competitive Bidding; QCBS – Quality and Cost Based
Selection; QBS – Quality Based Selection; FBS – Fixed Budget Selection; LCS – Least Cost Selection; *CQS –
Selection Based on Consultants’ Qualification below US$300,000; SSS – Single (or Sole) Source Selection; IC –
Individual Consultant selection procedure; NA – Not Applicable

71
in line with the Guidance Note for Design and Management of Procurement Responsibilities in
Community-Driven Development (CDD) Projects, dated March 15, 2012. The manual will be
agreed between the countries and the Bank.

84. Post-review by the Bank. Contracts not subject to prior-review will be subject to post-
review as per procedures set forth in Paragraph 5 of Appendix 1 of the Procurement Guidelines
and Consultant Guidelines. The Bank will carry out procurement post review on an annual basis
with an initial sampling rate of twenty (20) percent. This rate will be adjusted periodically during
project implementation based on the performance of the project implementing agencies. The post
review of procurements under the CSP will be detailed in the CSP operational manual.

Environmental and Social (including safeguards)

Environment and Social safeguards

85. EMP and RPF Roles and Responsibilities: The EA issues will require joint efforts of
several parties as described below:

a. NTCs: have overall responsibility for environmental and social performance of

the Project and specifically for: (i) supervision and management of all aspects of Project
preparation and construction; (ii) coordination with local authorities to facilitate the
participation of local communities and projected affected persons during Project
preparation and implementation; (iii) ensuring that the preparation of the country-specific
ESIAs and RAPs is done by independent parties acceptable to the Bank and other
lenders, that the requirements of World Bank safeguards policies (and other IFI lender
requirements), the RPFs and national environmental laws and regulations are met, and
that all measures set out in the Project EMP, the respective ESIA, RAPs and other Project
environmental and social documentation are carried out; (iv) ensuring that Project
commitments of the construction contractors are fulfilled, including the detailed
development of Project level specific environmental and social management plans; (v)
reporting the on-going status of EMP implementation to the World Bank and other
lenders as appropriate.

b. Project Environment Officer (PEO) and Project Social Officer (PSO): The PEO
will be responsible for overall coordination of EMP implementation in each country and
should report directly to the NTC, but will be expected to be involved in regular liaison
with the wider Project team, which includes World Bank specialist assistance. The PEO
and PSO shall have the authority to monitor and stop construction works if in his/her
opinion there is/may be a serious threat or impact to the environment or local
communities caused directly or indirectly by the construction operations. His/her
authority shall also extend to emergency situations where consultation with the
Construction Supervision Engineers of the DS&I team is not immediately possible. In
addition, the PSO will be charged with managing the grievance redress mechanism under
the RPF and reporting on grievances to the wider Project team.

72
 c. Construction Supervision Engineer and Environmental Supervisor (CSE): CSE
are responsible for inspection, supervision, audits and oversight of all construction related
works and other activities undertaken by the Contractor(s), and ultimately responsible for
ensuring compliance with the environmental specification and contractual requirements.
The role of environmental personnel in the DS&I team is to provide support and guidance
to the construction personnel, whilst conducting monitoring to assess the compliance to
agreed performance, as specified in the EMP following each ESIA.

d. The Construction Contractor and Sub-Contractors: The Contractor, all employees

and sub-contractors shall adhere to the mitigation set in the EMP that will be compiled
during the forthcoming ESIAs to minimize project impacts on the environment and local
communities.

e. Contractor’s Site Environmental Officer (SEO) and Site Social Officer (SSO):
Each Construction Contractor will be required to appoint at least one competent
individual as the SEO and SSO which will be responsible for overseeing the Contractor’s
internal compliance with the EMP and RAP requirements and ensuring that the
environmental specifications and social requirements are adhered to.

f. Independent Environmental Monitoring Consultant (IEMC): To implement and be

able to demonstrate transparent compliance to environmental (and social) agreed
performance, the NTC will engage the services of an IEMC, who will monitor and assess
the overall environmental performance, and who will prepare monitoring reports on EMP
implementation, submitting them reports to the NTC for approval.

g. Independent SIA Consultant (ISIAC): To implement and be able to demonstrate

transparent compliance to RAP requirements, the NTC will engage the services of an
ISIAC, who will monitor and assess the RAP implementation and overall social
performance, and who will prepare monitoring reports on RAP implementation,
submitting the reports to the NTC for approval.

Monitoring & Evaluation

86. Monitoring and evaluation (M&E) of the project results will rely on the existing
governance structuring consisting of the IGC, the IGC Secretariat and the NTCs. The primary
responsibility for monitoring and evaluation lies with the NTCs. Each PMU will submit quarterly
reports to the IGC Secretariat, each appropriate Ministry, the Bank and other participating
financiers, no later than 45 days after the end of each quarter. The quarterly report will cover
progress reports and expected completion dates of each civil works and equipment supply
contract as well as progress on technical assistance and capacity-building components. The
report would cover financial and procurement information, including: (i) comparison of actual
physical and financial outputs with forecasts, and updated six-month project forecasts; (ii)
project financial statements, including sources and application of funds, expenditures by
category statement, and special accounts reconciliation statements; and (iii) a procurement
management report showing status and contract commitments.

73
87. Each PIU Director would prepare an annual report to be delivered to the IGC Secretariat,
each Ministry, and the Bank at a date to be agreed on during negotiations. The report would
cover progress on each project component, implementation key features, key performance
indicators, the Annual Work Plan for implementation, annual funds required for implementation
with breakdown by each participating financier, update on disbursement profile, planned actions
for mitigating negative effects during construction and target indicators for the coming fiscal
year.

88. The Bank will perform semi-annual reviews. A mid-term review of the project would be
undertaken by September 2016. An Implementation Completion Report would be submitted to
the Bank by each PIU no later than six months after the closing date.

89. M&E Consultants would be recruited by the PIUs of each NTC for M&E implementation
progress and progress impact, including the implementation and monitoring of the EMP and
RAP under TOR acceptable to the Bank. The M&E activities would provide a continuous
feedback on the project implementation performance, corrective actions that would have been
undertaken and those to be taken in a timely manner. Changes to the project, if any, would be
reflected in the implementation review aide memoires and/or communicated through an
exchange of letters between the Bank and the Governments. Bank Staff located in the country
offices or consultant will ensure regular contact with the PMUs and visit the project sites
wherever possible.

Role of Partners

90. In addition to the World Bank, the project is being supported by a number of partners
including the Islamic Development Bank and Arab Coordination Group, USAID, Australian Aid,
UK’s Department for International Development (DFID), the ARTF, Russian Federation, and
others. Parallel financing arrangements are being considered for the infrastructure sub-
components (A1 – A4) between the various financiers.

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 Annex 4: Operational Risk Assessment Framework (ORAF)
Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000) (P145054)
.

Project Stakeholder Risks

Stakeholder Risk Rating High
Risk Description: Risk Management:
1. The leadership of the four countries in moving the project forward has proved very positive
1. Although all four governments are very supportive and have in sustaining the momentum. The seriousness of the energy crisis in Pakistan, Afghanistan's
demonstrated their commitment to maintaining the political endeavor to prove itself as a viable transit country and value for diversification of export
momentum, support to CASA-1000 from each of them could sway markets in Central Asian countries is expected to sustain the support of the Governments. The
as part of normal political life. Major events such as NATO Bank remains active in facilitating internal dialogue among Kyrgyz state institutions.
withdrawal from Afghanistan by late 2014 and forthcoming
elections in Afghanistan in mid-2014 could bring some Resp: Status: Stage: Recurrent: Due Date: Frequency:
uncertainty. Both Completed Preparation 31-Dec-2013

2. Opposition might arise from neighboring countries that are not Risk Management:
yet participating in CASA-1000, either as a trading partner or as a
2. Dialogue with neighboring countries is ongoing to address their concerns. The hydrological
financier. Various interests compete for inter-regional trading flow will remain unchanged so as to limit impact on downstream countries. CASA-1000 also
opportunities in an uncoordinated manner. includes an open access scheme, which will allow any other interested party to participate. The
countries and the Bank has initiated discussions with various donors and potential financiers,
3. Opposition from civil society organizations might arise in the including EIB, EBRD, JICA, EDB and bilaterals including the Russian Federation, US, UK,
countries, including criticism from political opposition due to Germany, etc. to seek interested parties to contribute to this project. Dialogue with donors
concerns about revenue management, power deficits and foreign supporting similar energy trading initiatives is ongoing and will be deepened to allow a more
debt. This could delay approval of the Financing Agreement which strategic and cooperative approach to energy trade.
needs to be ratified.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
4. The support and buy-in from local communities along the Both In Progress Preparation 31-Aug-2014
corridor in the four countries, especially in Northern Pakistan and
Risk Management:
in Afghanistan is important for CASA-1000.
3. The countries and team monitor closely the state of support within the countries, and a
5. Security environment remains uncertain in some of the regions detailed communications strategy for the four countries helps to keep the dialogue going and
crossed by the line in Pakistan and Afghanistan. address concerns of civil society. Pro-active engagement with the Parliament and civil society
has been and remains part of project preparation via various media to communicate the
benefits of the project. Several rounds of consultations have already been conducted and
additional consultations will allow ensuring support from and inclusion of the civil society and
communities. A dedicated website allows easy access to all relevant project documentation to
lead the discussion on an informed basis. In the Kyrgyz Republic, the bilateral program

75
 addresses energy revenue management transparency.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both In Progress Both 30-Nov-2014
Risk Management:
4. The importance of the local communities was recognized very early on by the countries and
the team, as was the necessity of building strong support for the project within the
communities. Country-specific plans will be prepared to mitigate the environmental and social
impacts of the project. Additionally, community consultations along the transmission line have
been conducted in all countries to guide the preparation of a Community Support Program, in
order to strengthen community buy-in of the project. An additional round of consultations is in
progress.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both In Progress Preparation 31-Dec-2014
Risk Management:
5. The experience with implementing projects in these areas to date is positive. The four
countries agreed that provision of security is the responsibility of each Government. The
Governments have prepared security management plans to provide a secured environment via
policing. The countries agreed that in Afghanistan the cost of security arrangements by the
contractor will be built into the bid but not recovered through the PPA tariff.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both In Progress Preparation 30-Jun-2014
Implementing Agency (IA) Risks (including Fiduciary Risks)
Capacity Rating High
Risk Description: Risk Management:
1. The World Bank is working with the four utilities to make their finances more sustainable.
1. The utilities in the four countries are relatively inexperienced in Financial Management assessment and Procurement assessment have been carried out by the
managing such large international energy trade projects. They also World Bank to identify the areas where one or more of the implementing agencies could need
lack familiarity with international agreements and managing support. The four utilities will receive technical assistance to support project implementation
international contractors for the construction as well as the and develop their capacity to manage such project. Project implementation, procurement and
monitoring and execution of the long-term O&M contracts. contract management will be supervised by a reputable internationally recruited firm and the
Procurement and financial management capacity could be issues in same or another reputable internationally recruited firm will be designated as the engineer in
one or more of the implementing agencies. the Supply and Installation contract.

76
2. CASA-1000 requires a substantial level of coordination Pre-qualification has been initiated for HVDC converter stations. IFC funded consultant will
between the utilities of the four countries in finalizing the details be supporting the project until contract award.
or the specifications for procurement in a timely manner. Delays
Resp: Status: Stage: Recurrent: Due Date: Frequency:
in procurement of packages involving more than one member
country could be encountered due to the procurement and decision Both Not Yet Due Implementation Yearly
making processes of each country, in particular for the HVDC and Risk Management:
O&M contracts.
2. The Bank has worked with the IGC, NTCs and the MoFs of participating countries to sign
a resolution on procurement and contract management decision making process at the IGC
meeting in September 2013. A dedicated Procurement Committee appropriately empowered
was created and is streamlining the procurement management, coordination and decision for
the project.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both Completed Both 17-Sep-2013
Governance Rating High
Risk Description: Risk Management:
1. The corporate governance structures in the implementing agencies of Pakistan, the Kyrgyz
1. The corporate governance structure in the implementing Republic, and Tajikistan are relatively clearly defined. These agencies are independent
agencies of Pakistan, the Kyrgyz Republic, and Tajikistan are organizations with established corporate structures. In Afghanistan, DABS is a relatively new
relatively solid and clear. In Afghanistan, DABS is a relatively organization that is rapidly strengthening its governance and streamlining its decision-making
new organization that has yet to solidify its governance and processes. Recent assessments show the steep progress made in this area and the Bank will
streamline the decision processes. continue to support DABS in this effort.
2. The countries preferred continued multilateral discussions CASA-1000 is a high visibility and priority project for the four countries and for the donors
as a governance mode to the creation of a dedicated project due to its transformational potential in the region. Coordinated efforts will be made to improve
company. Therefore, reaching agreements in a timely manner and the governance of the countries’ utilities and will include annual entity audits and close
maintaining the alignment of interests might prove challenging at monitoring by the Bank.
times.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both In Progress Preparation
Risk Management:
2. An IGC was created to provide a multilateral discussion mechanism. The IGC proved to be
an efficient decision body with the full support of the four countries in accelerating project
preparation. The IGC has a fully functional secretariat that closely ensures that the multilateral
discussions sustain the momentum and keep making progress, bringing specific neutral legal,
commercial and technical expertise to inform the discussions. The JWG is given authority by

77
 the IGC to discuss and make decisions on technical, commercial, or legal matters. A Legal
Sub-Committee, a Procurement Committee and a Finance Committee are empowered to lead
discussions in these areas. A contractual framework is designed to provide a multilateral
governance structure and align the interests of the participants toward the success of CASA.
The Core Project Agreements include a comprehensive Master Agreement providing the
general terms that apply to all participants, as well as a Technical Code, an Account Bank
Agreement and long-term Power Purchase Agreements.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both In Progress Preparation
Risk Management:
3. Strengthened mitigations measures for transparent revenue management in the Kyrgyz
Republic and Tajikistan will be implemented. The mitigation measures will include annual
audits of financial reports with recommendations available to the public, escrow accounts.
Emphasis will be placed by the team on ensuring that procurement is carried out in accordance
with the Bank’s Procurement Guidelines, regular IFRs are produced in a timely manner,
project audits are carried out annually, and actions are taken on the recommendations of
auditors. In the Kyrgyz Republic Technical Assistance and investments from ADB, USAID
and the Bank aim to improve financial transparency and revenue management in the power
sector. Donors are strongly recommending establishment of an independent regulator and
settlement center. Upstream involvement of INTs Preventive Service to advise on F&C risks
and proactive steps will also be considered as an added mitigation measure.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both Not Yet Due Implementation
Project Risks
Design Rating Substantial
Risk Description: Risk Management:
1. A certain degree of flexibility is a common feature of all transmission projects until the
1. The transmission line alignment is not finalized and depending detailed design stage. The current alignment was established after studying several route
on conditions on the ground, modifications of the route might options and the Bank will keep working with the Governments, the implementing agencies and
appear necessary at detailed design stage. Such modifications the consultants to finalize the alignment and assess potential implications in cost and delays.
would have potential implications on project cost and schedule. Given high altitudes in some project areas, re-routing portions of the line would not
necessarily result in additional cost and delays. The economic and financial analysis
2. The electricity surplus available for export in the Central Asia demonstrates the robustness of the project on the construction cost and potential delays which
countries is inherently volatile, depending on yearly hydrological give sufficient comfort that a satisfying detailed design can be found.

78
flows as well as local demand growth. This translates into Resp: Status: Stage: Recurrent: Due Date: Frequency:
potential volatility in the trade volume and revenue stream. Client In Progress Preparation
3. Although the cost of the project can be reasonably estimated, it Risk Management:
can be impacted by significant risk premium depending on the 2. Volatility is a risk inherent to hydroelectricity generation, but in the case of CASA-1000,
contractors’ perception of the security risks. fast-tracking the project development and avoiding delays in implementation will allow the
countries to start trading and recovering the cost when the trading potential is expected to be
4. Afghanistan will have the possibility of buying up to 300 MW the highest, i.e., the initial years. To account for this volatility, a probabilistic approach was
from CASA-1000, but it is not obliged to and can re-export the used in project economic and financial assessment and the results show its robustness.
electricity to Pakistan, which is not obliged to purchase it. Commercial agreements have been designed to handle this volatility through a two-tier
commitment mechanism for energy sales.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Preparation
Risk Management:
3. To anticipate bidders’ concerns on the security aspects, the countries are preparing security
management plans to give a sufficient degree of comfort to bidders. The economic and
financial analysis incorporated additional provision for a potential risk premium and the results
of sensitivity analysis on cost dimensions demonstrates the robustness of the project’s
benefits/returns, even in the face of higher costs.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Preparation
Risk Management:
4. Given Pakistan’s severe energy crisis currently and (likely) in the medium term, there is
little real concern that Pakistan would not wish to purchase the cheap and clean electricity re-
exported by Afghanistan via CASA-1000. The additional 300MW brought by CASA-1000
would help Afghanistan meet its growing demand.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Preparation
Social and Environmental Rating Substantial
Risk Description: Risk Management:
1. The project environmental risks will be mitigated by: (a) careful selection of the footprints
1. Environmental risk. Overall, the environmental risks are for electric towers and stations, avoiding environmentally sensitive areas, physical cultural
not significant. Most of the impacts are likely to occur during the resources, densely populated areas; (b) following the guidance provided in the REA, each of

79
construction work and these are typically related to potential the four participating countries will engage independent ESIA consultants to prepare country-
impacts on vegetation in the ROW, soil, migratory birds within specific ESIAs, in close coordination with DS&I Contractors for finalization of the detailed
Important Birds Areas, health and safety issues relevant to design; and (c) the regular supervision and monitoring of project activities.
transmission line projects etc. These risks are mostly temporary
Resp: Status: Stage: Recurrent: Due Date: Frequency:
and reversible in nature and could be mitigated.
Client In Progress Preparation
2. Environmental risk. Inadequate monitoring of potential Risk Management:
impacts and unsatisfactory implementation of EMPs, due to
capacity constraints and a lack of experience in managing large 2. Weak institutional capacity risk will be mitigated by strengthening the institutional
contracts could become a potential risk during the construction arrangements for implementing the EMPs and will include: Project Environmental Officer; an
and operation stages. Independent Environmental Monitoring Consultant, as well as Owner’s Engineer. Before the
start of project activities, the Bank will provide training on EMP implementation to the
3. Social and security risks. Direct adverse social impacts implementing agencies. The main provisions of the EMPs will be incorporated into the tender
such as land acquisition will be limited. However, lack of support documents for future works contracts.
from the local communities may create an unfavorable Resp: Status: Stage: Recurrent: Due Date: Frequency:
environment for the construction and operation of the project, and
increase the security risks for the project. This is particularly so in Client In Progress Preparation
Afghanistan and Pakistan where security situation remains volatile Risk Management:
and risks are high. In Tajikistan and Kyrgyz Republic the
3. Resettlement Policy Frameworks/Land Acquisition and Resettlement Policy Frameworks
construction of the Transmission Line might foster discontent in
have been prepared for each country. To mitigate the security risks for project infrastructure, a
communities which suffer from energy shortages in the winter.
Community Support Program for each country is under preparation as a means to encourage
The community development program is being further developed,
support and buy-in from communities by delivering necessary development initiatives. The
including mobilization of needed funding. Timely and adequate
communication strategy will also mitigate community-level concerns regarding project
funding mobilization is critical to the community program.
impacts and benefits in the short and long term. However, the overall security risks are beyond
the project means to address and need to be tackled with thorough special security
arrangements and as part of the national strategy.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Client In Progress Preparation
Program and Donor Rating Substantial
Risk Description: Risk Management:
1. Discussion with several IFIs and bilateral donors suggest that the likelihood of reaching
1. Each country is expected to finance the portion of the financial closure is high. In-principle agreement from financiers is expected to be in place by
assets falling in its territory. The donors currently involved might Fall 2014. Discussions among the countries have recently been initiated with various
not be in a position to completely cover the financing needs. financiers to provide concessional finance for portions of the project.
Currently, there is a financing gap of US$173 million.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
2. Multiple financiers are involved in CASA-1000 and the Both In Progress Preparation 30-Apr-2014

80
number might increase to bridge the financing gap. Harmonization Risk Management:
of financing and procurement rules and procedures are an issue for 2. Issues and potential conflicts between the rules and procedures of the various financiers
timely delivery of the project. have been identified early on to allow harmonization and find creative solutions. The final
procurement strategy will take into account these considerations to facilitate the financing of
each package.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Bank In Progress Preparation 30-Apr-2014
Delivery Monitoring and Sustainability Rating Substantial
Risk Description: Risk Management:
The sustainability of CASA-1000 depends on the continuity of CASA-1000 is an important and highly visible project, demonstrating cooperation on trade
power trade among the participating countries under changing sought on a commercial basis and governed by an IGC and a solid contractual framework,
conditions over the long term. Discontinuity of trade of the project including long-term PPAs. The countries are signing long-term contracts, and the existing
for technical, political, economic or safeguard issues would framework will remain, with the support of the World Bank. O&M will be contracted via a
challenge the sustainability. single contractor for the DC portion of the line in order to ensure consistency and strengthen
the sustainability of the project.
Resp: Status: Stage: Recurrent: Due Date: Frequency:
Both In Progress Preparation
Overall Risk
Overall Implementation Risk: Rating High
Risk Description:
The technical coordination challenges and security risks remain serious implementation concerns that will require close monitoring and successful implementation
of the community support program. However, the country led coordination mechanism of IGC, JWG and Procurement Committee) have demonstrated countries’
willingness and ability to deal with current and future coordination issues. Maintaining these mechanisms during the project implementation period would be part
of the project’s financing agreement with each of the countries.

81
 Annex 5: Implementation Support Plan
Central Asia South Asia Electricity Transmission and Trade Project (CASA-1000)

Strategy and Approach for Implementation Support

1. The Implementation support plan ensures that the Bank mobilizes the required resources
to provide the four implementing agencies with the necessary support to for implement the
various components of the project on schedule, as well as the mitigation measures identified in
the ORAF.

2. CASA-1000 will require simultaneous implementation of project activities by four

utilities in four different countries belonging to two different regions of the Bank. Staff providing
support for the project will be identified in both regions.

3. The project would be a high supervision cost project and Bank management will allocate
a supervision budget considering its four-country involvement and complexity.

4. The plan will be undertaken by Bank staff and is based on three major principles: (i)
consistent review of fiduciary procedures and controls within the implementing agencies; (ii)
frequent field-based supervision of project activities; and iii) continual high-level policy dialogue
on improving institutional capacity of the implementing agencies.

a. Procurement: a Procurement Committee ensures coordination among the four

countries and final decision on joint packages. A Procurement Consultant selected
through the IFC has been assisting and will continue to assist the four countries in
managing the procurement processes in a coordinated and simultaneous manner. The
Bank will review the procurement document, provide guidance to the clients on the
Bank procurement guidelines and processes, and will monitor the procurement
progress against the detailed Procurement Plan agreed on by the Procurement
Committee.

b. Financial management: the Bank would review the project’s financial management
systems in the four countries, including but not limited to accounting, reporting and
internal controls. The Bank will also supervise contracts on a random sample basis
and work with the four implementing agencies in each country to improve financial
management and reporting.

c. Environmental and Social Safeguards: the Bank will supervise and provide support to
the implementing agencies for the implementation of the EMPs and RAPs

d. Governance: the Bank will supervise and provide support in implementation of the
transparency and accountability mitigation measures agreed on during appraisal,
including for revenue management in the Tajikistan and the Kyrgyz Republic.

e. Technical Assistance: a MDTF managed by the Bank will channel grants for
technical assistance to the four countries to provide support in (i) revenue
management and audits; (ii) legal support for commercial arrangement finalization,
(iii) Owner’s Engineer; (iv) preparation and implementation of EMPs and RAPs; and
(v) training on operations of HVAC/HVDC systems and dispatch.

82
 f. Community Support Program: through a separate and parallel project, the Bank will
work with the four implementing agencies of CASA-1000 and the four Governments
to design and implement adequate Community Support Program. A Consultant will
be hired to support the design of the program. Implementation Support will then be
provided through this project parallel to CASA-1000.

Implementation Support Plan

5. The Bank team would consist of staff located in Headquarters in Washington, DC, and in
each of the four Country Offices to ensure timely, efficient and effective implementation support
to the clients. Close support to the implementing agencies will be particularly provided by the
field offices during the first 18 months. Formal supervision and field trips, where possible, would
be carried out semi-annually or as often as rendered necessary by implementation needs.

a. Technical inputs: Power engineering expertise, in particular for HVDC and HVAC
technologies will be needed to review the procurement documents and contracts. The
Bank team will provide in-house expertise or contract individual external experts to
bring in the required expertise. During construction and until commission, technical
supervision will be required to ensure contractual obligations are met on technical
grounds. Fields visits will be carried out semi-annually by the power engineers.

b. Fiduciary requirements and inputs: The team will help the implementing agencies
identify capacity-building needs in financial management and procurement
management. Adequate training will be provided to the implementing agencies for
Procurement and Financial Management capacity. For each of the financial
management and procurement areas, a Bank senior specialist will cover the four
countries, supported by two specialists (one for Tajikistan and Kyrgyz republic and
one for Afghanistan and Pakistan).

c. Safeguards: The project’s environmental and social impacts are limited and the
implementing agencies will be responsible for ensuring that the EMPs and RAPs are
properly implemented. An environmental specialist and a social specialist for each
country will provide guidance and inputs to the implementing agencies and monitor
the progress of implementation of the EMPs, RAPs and Community Support
Program. An IEMC will provide with transparent third-party monitoring of the
environmental and social performance of project implementation and highlight any
issues as well as possible alternative solutions.

d. Operation: A specialist in each country will provide day-to-day supervision of all

operational aspects and coordination with the client and among the Bank team
members.

6. The budget for this Implementation Support Plan is estimated at US$750,000 per annum.
Table 17, Table 18 list the skills required and an estimate of resources to support the countries
with project implementation. Table 19 gives a list of partners on this project:

83
Table 17: Estimated Resources Required for Project Supervision
Time Focus Skills Needed Resource Partner Role
Estimate
First Technical Review, Power engineers 1x6 Staff Weeks Some packages will be
twelve procurement Procurement 2x6 Staff Weeks funded by other financiers.
months review, site review, Coordination with Partners
bidding documents will be critical on
procurement management.
IFC will be closely involved
in the management of the
Procurement Consultant
Design of Social specialist 4x6 Staff Weeks Funding
community Support
Program

RAP Senior Social Specialist 1x1 Staff weeks Coordination with other
Implementation Social Specialist financiers on requirements
4x2 Staff Weeks
Environmental Senior Environmental 1x1 Staff Week Coordination with other
Supervision Specialist financiers on requirements
Environmental
Specialist 4x3 Staff Weeks
Capacity-building Senior Financial 1x1 Staff Weeks Funding
Management Specialist Coordination with other
Financial Management financiers on requirements
Specialist 2x4 Staff Weeks
Senior Procurement
Specialist
Procurement Specialist 1x1 Staff Weeks

2x4 Staff Weeks

Team Leaders TTLs 2x8 Staff Weeks Coordination with other
financiers is highly
necessary
12-48 Project Power engineer 4 Staff Weeks Some packages will be
months Construction Procurement and 2x4 Staff Weeks funded by other financiers.
contract management Coordination with partners
will be critical on
procurement management.
Environmental and Senior Environmental 1x1 Weeks Coordination with other
Social Monitoring Specialist financiers on requirements
Environmental 4x2 Staff Weeks
Specialist
Senior Social Specialist 1x1 Staff Weeks

Social Specialist 4x2 Staff Weeks

Financial Financial Management 2x2 Staff Weeks Coordination with other
Management, Specialist financiers on requirements
Disbursement,
Report

84
 Time Focus Skills Needed Resource Partner Role
Estimate
Capacity-Building Financial Management 4x3 Staff Weeks Funding
Specialist
Procurement Specialist 4x3 Staff Weeks
Task Team TTL 2x8 Staff Weeks Coordination with other
Leadership financiers is highly
necessary

Table 18: Skills Mix Required

Skills Needed Number of Staff Number of Comments
Weeks Trips
TTLs 2x8 Annually Field trips International
as required
Senior Environmental specialists 1 annually Field trips International
as required
Environmental specialists 4x8 the first year Field trips Country office based
then 4x2 Annually as required
Senior Social Specialist 1 Annually Field trips International
as required
Social Specialist 4x4 Annually Field trips Country office based
as required
Senior Procurement Specialist 1 Annually Field trips International
as required
Procurement Specialists 2x10 Annually Field trips Country office based
as required
Power Engineer 6 for the first year Field trips International
then 4 Annually as required
Senior Financial Management 1 Annually Field trips International
Specialist as required
Financial Management Specialist 2x4 the first year Field trips Country office based
then 16 Annually as required
Senior Finance Officer 2x2 Annually Not N/A
Required
Communication Specialist 2x2 Annually Field trips International
as required
Trust Fund Management Specialist 4x4 Annually Field trips International
as required
Administrative and Client Support 2x6 Annual Not N/A
Staff required

Table 19: List of Partners

Name Institution/Country Role
IFC IFI Transaction Advisors for procurement
Islamic Development Bank IFI Partner financier
USAID/State Department US Partner financier
DfID UK Potential financier
EIB European Union Potential financier
Russian Federation Russian Federation Potential financier

85
 Annex 6: Economic and Financial Analysis

I. Economic Analysis

1. The economic analysis discusses the rationale for public financing of the project, the
valued added from the Bank support and description of the analysis of the project’s development
impact in terms of expected benefits and costs.

Rationale for public sector provision/financing

2. The project warrants public intervention given its economic viability for the participating
countries and the fact that private sector financing and provision is not plausible due to:

a. Limited domestic capital markets: Domestic private capital markets in the

participating countries lack the breadth and depth to mobilize the financing required
for such a large infrastructure project.

b. Prohibitively high private capital costs due to scarce capital and risks: Costs for
private capital are significantly higher than for public debt in all of the involved
countries given the macro and project-specific risks involved. Thus, in case of private
financing, the end-users of electricity in importing countries would benefit less.
Moreover, the transmission line operators in all of the project countries are state-
owned companies with limited ability for borrowing on commercial terms.

3. Thus, given the risks involved and significant social benefits (development of local
communities alongside the route of the transmission line) and externalities associated with the
project, the public financing of the project is justified.

Value added of the Bank’s support

4. The participating countries have limited capacity to prepare and implement the project
given the complexity of overall project management, technical, fiduciary and safeguards aspects.
Thus, the Bank’s additional value added will arise from the technical inputs of the staff in
helping the Recipient countries to identify and address in a timely manner all project
implementation issues related to technical aspects, procurement, financial management,
environmental and social impact mitigation.

Details of Economic Appraisal of the Project

5. The economic viability of the project is assessed through cost-benefit analysis and is
determined through:

a. Assessment of the expected economic return for the project, evaluated in terms of the
NPV and EIRR from total economic costs and benefits, irrespective of the allocation
of project costs and benefits among the four countries that would own and invest in
the project facilities.

86
6. Key Assumptions: Given the uncertainties associated with the project, the economic
analysis under the base-case scenario is based on a number of key conservative assumptions, as
follows:

a. Power exports from the Kyrgyz Republic and Tajikistan are limited only to surplus
power available from the existing generation capacity 10. The evaluation is based on
the conservative assumption that no new generation plants will be built in the Kyrgyz
Republic and Tajikistan. This conservative scenario avoids incorporating the
substantial uncertainty about the future development of power generation capacity in
these countries. The evaluation does not consider power trade between the Kyrgyz
Republic and Tajikistan.
b. The Kyrgyz Republic continues to have the option of exporting power to Kazakhstan
in the absence of the CASA-1000 project.
c. Afghanistan implements its ambitious Power Sector Expansion Plan 11 and builds
significant new generation capacity to meet the forecast demand shown in Table 39.
d. Pakistan is assumed to implement its ambitious Power Sector Expansion Plan
summarized in Table 40 as follows: (i) delaying by 3-5 years completion of new
generation capacity originally scheduled for commissioning in 2012-2016; (ii)
catching up to the original schedule of commissioning of new capacity planned after
2017 and onwards; and (iii) constructing additional gas-fired peaking plants to
replace all existing diesel and fuel oil fired IPPs. Moreover, the analysis assumes that
additional supply of natural gas will be available from Iran and Turkmenistan to fire
most of the additional thermal generation.
e. The economic benefits that would be generated for the communities through the
Community Support Program are not quantified in the economic analysis.

7. The economic life of the project is assumed to be 30 years from the estimated
commissioning of project facilities in 2018.

8. The assessment of project costs and benefits was limited for the area served in Pakistan
by the state-owned Pakistan Electric Power Company (PEPCO) and by the area served in
Afghanistan by NEPS of the Kabul Region. 12

9. The estimate of summer surplus power from the Kyrgyz Republic and Tajikistan is based
on the hydrological simulation results of the Stochastic Dual Dynamic Programming (SDDP)
Power System Simulation Program. 13 The simulations were done considering the historical
sequence of inflows to Toktogul (the Kyrgyz Republic) and Nurek (Tajikistan) reservoirs in
April-September for the period of 1987-2009. The simulations were run for the period of 2016-
2035. The surplus power for 2036-2047 was estimated by extrapolating the pattern of variation
in hydro generation derived by SDDP simulations.

10
The estimate of the surplus from the Kyrgyz Republic also includes potential summer generation by Bishkek
CHPP.
11
Afghanistan Power Sector Master Plan, Nov. 2012
12
“Afghanistan Power Sector Master Plan,” Draft Final Report, November 2012.
13
Developed by the Brazilian Power System Research. Source: CASA-1000 Project Feasibility Study Update,
February 2011.

87
10. The project costs and benefits are expressed in US$2013 price terms that are based on
average exchange rates for 2013. The economic analysis is based on estimated real prices/costs
and is exclusive of any taxes and duties that might be applicable to the project inputs and outputs
in any of the four countries. The project costs do not include IDC or any contingencies for
expected price inflation. The evaluation does not incorporate any relative movements in
exchange rates over the project evaluation period. The detailed list of other assumptions is
presented in the Table 42.

11. The base-case for economic analysis is formed from expected values for the main
evaluation variables, namely expected: (a) project construction cost and in-service date; (b)
amount of power 14 supplied under the project (based on simulated results of generation in the
Kyrgyz Republic and Tajikistan), and (c) the projected costs of fuels (Table 41) used by marginal
plants or alternative power imports that would be displaced by power imports under the project
in Pakistan and Afghanistan.

12. Power Supply and Demand in the Kyrgyz Republic: The Kyrgyz power supply system
is dominated by HPPs with total installed capacity of 2,910 MW, which account for 85 percent
of the total installed capacity of 4,750 MW. Thermal generation capacity consists of the Bishkek
and Osh combined heat and power plants (CHPPs) with total installed capacity of 530 MW,
which accounts for the remaining 15 percent of the total. The thermal plants are dilapidated and
inefficient with high variable costs, and thus they are operated mainly in winter to meet seasonal
and daily peak demand. The country’s hydropower storage capacity is sufficient to meet weekly
variations in river flows, but not seasonal variations. Thus, the Kyrgyz Republic experiences
power shortages in winter and has power surplus during summer months.

13. The amount of power available for exports under the project is estimated as the difference
between the forecast summer demand and available summer generation by existing HPPs
simulated by the SDDP model and existing TPPs. The estimate of available summer power
(Figure 11) is based only on existing generation capacity considering retirement plans. No new
generation plants were assumed to be commissioned during the evaluation period. The forecast
summer power demand was derived drawing upon the base-case power demand forecast for the
Kyrgyz Republic developed under the Power Sector Regional Master Plan for Central Asia
(2013). 15 The demand forecast assumes 8 percent annual real tariff increase until 2020. The
duration and magnitude of tariff increase might be higher depending on the Government’s plans
to bring tariffs to cost-recovery levels. This will result in larger power surplus under the project.

14
For the purposes of economic and financial analyses, all of the exported power is treated as non-firm. The project
is not expected to defer capital investments neither in Pakistan nor in Afghanistan.
15
“Central Asia Regional Economic Cooperation (CAREC): Power Sector Regional Master Plan,” Sep. 2012.

88
Figure 11: Forecast Summer Power Supply and Demand for the Kyrgyz Republic 16

Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011 and
“CAREC Power Sector Regional Master Plan,” Sep. 2012.

14. Figure 12 below presents the estimated surplus summer power available from the Kyrgyz
Republic for exports under the project. 17 Specifically, with no generation expansion and
increasing domestic demand, the surplus power is expected to decrease from 1,433 GWh in 2018
to zero from 2039 and onwards.

Figure 12: Surplus Summer Power Available for Project from the Kyrgyz Republic

Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011 and “CAREC
Power Sector Regional Master Plan,” Sep. 2012.

16
The based year of demand forecast was revised to reflect the change in the base year. The demand forecast
assumes income elasticity of 0.7 until 2015; 0.6 until 2020 and 0.5 afterwards. The price elasticity is assumed at
(0.15) until 2020 and (0.2) afterwards. Tariff is assumed to increase by 8% annually until 2020 and 0% increase
afterwards.
17
The power surplus estimates for Kyrgyz Republic are based on the “CASA-1000 Project Feasibility Study Update,
February 2011,” adjusted to include updated demand forecast.

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15. Power Supply and Demand in Tajikistan: Tajikistan’s state-owned power supply
system is dominated by HPPs with total installed capacity of 4,750 MW that is 96 percent of the
total capacity. Available thermal generation capacity of 200 MW (Dushanbe CHPP) accounts for
the remaining 4 percent. Dushanbe CHPP is currently being converted from gas-fired to coal-
fired. Nurek HPP is the cornerstone of Tajikistan’s power system. At 3,000 MW, it represents
more than 60 percent of the total installed capacity and accounts for 72 percent of annual power
generation. Moreover, there are two large IPPs, the 670 MW Sangtuda-1 HPP and 270 MW
Sangtuda-2. The country’s hydropower storage capacity is sufficient to meet weekly variations in
river flows, but not seasonal variations. As a result, Tajikistan has excess capacity during
summer with limited market opportunities for sales. Water is spilled instead of being used to
generate power during the summer as the reservoir capacity in the system is inadequate to allow
storage of the spilled water for use during the winter months.

16. The amount of power available for exports under the project was estimated as the
difference between Tajik summer demand and the available total summer generation by existing
HPPs. No new generation plants were assumed to be built during the evaluation period. The
available summer power presented in Figure 13 was estimated assuming the committed
rehabilitation of the existing HPPs, which will preclude reduction in hydropower generation due
to obsolescence of critical equipment and civil works and increase the potential power
generation, and planned retirement. The forecast summer power demand was derived drawing
upon the base-case power demand forecast for Tajikistan developed under the Tajikistan’s
Winter Energy Crisis Report (2013). The base-case forecast summer power demand also took
into account the impact of tariff increasing to the level of willingness-to-pay by 2022 and energy
efficiency improvements. 18 In case tariff increase is longer in duration or larger in magnitude, the
available surplus power will increase.

Figure 13: Forecast Power Supply and Demand for Tajikistan 19

Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011; and “Tajikistan’s
Winter Energy Crisis: Electricity Supply and Demand Alternatives,” 2013, World Bank.

18
Energy efficiency improvements at Tajikistan Aluminum Company (TALCO), loss reduction, introduction of
energy efficiency standards and labeling, and introduction of solar water heaters. Source: “Tajikistan’s Winter
Energy Crisis: Electricity Supply and Demand Alternatives,” The World Bank, 2013.
19
The demand forecast was revised to reflect the change in the base year.

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17. Figure 14 below presents the estimated surplus summer power available from Tajikistan
for exports under the project. With no generation expansion and increasing domestic demand, the
surplus power is expected to decrease from 4,117 GWh in 2018 to zero from 2044 onwards.

Figure 14: Surplus Summer Power Available for the Project from Tajikistan

Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011; and “Tajikistan’s
Winter Energy Crisis: Electricity Supply and Demand Alternatives,” 2013, World Bank.

18. The combined surplus power available from the Kyrgyz Republic and Tajikistan under
the base-case is presented on the Figure 15. The available surplus is different from the actual
power exports under the project given the transmission line capacity constraint at 1,300 MW
(4,000 GWh during summer season). The estimated available surplus is different from the
estimates in the Update of the Feasibility Study (2011) of the project and the revised demand
forecasts for the Kyrgyz Republic and Tajikistan.

Figure 15: Combined surplus summer power available for project from Kyrgyz Republic
and Tajikistan

Source: Bank estimate based on “CASA-1000 Project Feasibility Study Update,” Feb. 2011; and the relevant
demand forecasts

19. Power Supply and Demand in Afghanistan: Afghanistan’s generation capacity

includes hydro- and thermal power consisting of diesel-fired grid-connected and off-grid plants.
The total installed hydro capacity and thermal capacity are 254 MW and 221 MW, respectively,
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but this capacity is not sufficient to meet the domestic demand. The diesel-fired plants are
operated to a very limited extent given the prohibitively high unit cost of fuel, and the available
hydro capacity is reduced due to severe dilapidation of several plants. Moreover, several
industrial and commercial end-users have off-grid supply from diesel generation sets, which are
quite expensive to operate. Thus, the country depends on imports to meet a large share of its
power demand. Specifically, in 2011, the country imported 2,250 GWh of power from
Turkmenistan, Uzbekistan, Tajikistan and Iran, which corresponds to 73 percent of total served
demand in 2011. Moreover, given that the power grid is isolated and currently operates in island
mode, not all of the available plants and imports are accessible to serve the demand in the project
area. Therefore, the un-served energy in the country for existing customers connected to the
grid 20 was estimated at 10 percent of the total unconstrained demand throughout the year. 21

20. The unconstrained power demand (including un-served) 22 in the Kabul Region is
expected to increase from 2,300 GWh in 2014 to 3,300 GWh in 2018 (Figure 16). The large
increase in forecast demand is driven primarily by the expected increase in the connection rates
of households in the Kabul Region, which stood at 44 percent in 2011. The demand is assumed
to grow at a lower rate in 2033-2047 considering that connection rate is estimated to reach 97.5
percent by 2032, according to Afghanistan Power Sector Master Plan. The summer demand is
expected to increase from 900 GWh in 2014 to 1,300 GWh by 2018.

Figure 16: Base-Case Power Demand Forecast for Kabul Region

Source: Afghanistan Power Sector Master Plan, Nov. 2012; Bank estimates

21. The country will therefore require a significant increase in supply to meet the total
forecast power demand, including the forecast demand in Kabul Region, which accounts for 50
percent of the total. The total investments to meet the forecast demand by 2030 are estimated at
US$7.4 billion over same time period, which will be very challenging to finance. According to
the Afghanistan Power Sector Master Plan, the unserved power demand might be eliminated by
2020 only if the country implements all of the required investments, including sizeable
investments in transmission and distribution infrastructure. Specifically, the country will be

20
This estimate of un-served demand excludes the potential customers, which are not connected to the grid.
21
Afghanistan Power Sector Master Plan, Nov. 2012.
22
This includes only the required power that is not supplied to grid-connected customers and excludes the un-served
energy for those who are not connected to the grid.

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required to commission a total of 650 MW of new supply by 2018 and 4,400 MW by 2032
(Table 39).

22. Power Supply and Demand in Pakistan: The PEPCO system is dominated by thermal
generation accounting for 64 percent of the total capacity. Specifically, as of 2012, the total
system generation capacity was 20,433 MW, which includes 13,166 MW of thermal (including
thermal IPPs, 6,627 MW of hydro (including IPPs), and 650 MW of nuclear. 23

23. However, the country fails to fully meet the unconstrained demand primarily due to the
high average cost of power supply, including the power supplied by the thermal IPPs. The
thermal generation operates primarily on natural gas and imported fuel oil, which results in a
high cost of generation due to: (a) high-cost of fuel oil and (b) inefficiency of the existing
thermal plants. Meanwhile, technical and commercial losses at around 20 percent and bill
collection rates at 86 percent 24 create a financial drain on the state-owned utility. Consequently,
the generators struggle to finance the purchase of fuel required for thermal generation. Thus, the
country has significant unmet power demand throughout the entire year, including 6,325 MW 25
during summer peaks or 20 percent of actual consumption in 2012. 26 The unmet demand will
significantly increase if the country does not implement its Power Expansion Plan.

24. Power demand in PEPCO area of Pakistan is forecast to increase at a high rate
considering the expected economic performance and rapid increase in population (Figure 17).

Figure 17: Base-Case Demand Forecast for PEPCO system

Source: Electricity Demand Forecast for 2012-2035 based on Multiple Regression Analysis,” NTDC, May
2012; Bank estimates

25. The country will need significant new generation capacity to meet the increasing demand
and to replace existing generation plants (primarily state-owned thermal), which are close to or

23
“Electricity Market Data,” 36th Issue, NTDC, 2011.
24
“State of Industry Report 2012,” National Electric Power Regulatory Authority; Electricity Market Data, 36th
Issue, 2011.
25
Exclusive of exports to area served by Karachi Electric Supply Company (KESC). Source: “State of Industry
Report 2012,” National Electric Power Regulatory Authority; Electricity Market Data, 36th Issue, 2011.
26
Bank estimate based on demand data from NTDC.

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 beyond their economic service life and are fuel-inefficient. In order to eliminate the un-met
demand under the PEPCO system by 2020, meet the forecast base-case demand thereafter as
well as displace expensive fuel oil IPPs, the country would need to add 104,000 MW capacity by
2030 with almost 32,000 MW capacity to be added by 2020.The total cost of new generation
assumed to be commissioned by 2020 is estimated at around US$46 billion.

26. Economic Analysis of the Project: The main economic costs include the total
investment cost (construction and associated costs as described in Table 20 below), incremental
O&M, and project energy costs. The main economic benefit is the estimated value of the power
exported under the project to Afghanistan and Pakistan computed in terms of the reduction in the
costs of meeting projected power demand in these countries. The volume of trade assumed in this
analysis is based on the potential trade estimates described above and are capped by the expected
maximum capacity of the CASA-1000 transmission line. The economic analysis indicates that
the project is economically viable with an NPV of US$1,208 million and an EIRR of 26 percent.
The flows of economic benefits and costs are presented in Table 43.

27. Project Economic Costs: Project construction and associated costs are summarized in
Table 20. The construction costs are expressed in U.S. dollar price terms. The costs are projected
according to the years in which they are expected to be incurred during the project construction
period. 27 They are based on the expected: (a) DS&I costs, including physical contingencies, of
the project; (b) network reinforcements in the four countries; (c) owner’s engineer costs; and (d)
environmental and social costs. The economic costs of the project also include associated costs
comprised of community benefit program costs, additional security costs, and implementation
support during construction. The associated costs are targeted at ensuring sustainability of the
project and additional security during construction.

Table 20: Total Economic Investment Costs 28

Kyrgyz Tajikistan Afghanistan Pakistan Total
Construction Cost Republic
DS&I and local grid reinforcement US$m 160 240 242 159 801
Owner’s Engineer US$m 2 4 5 3 15
Environmental and Social Cost US$m 0.4 2 11 3 16
Contingency US$m 16 24 48 16 104
Total Construction Cost US$m 179 270 306 180 936
Associated Cost
Community benefit sharing
10 10 30 10 60
program US$m
Additional line security during
0 0 0 10 10
construction US$m
Implementation support during
2 4 4 2 12
construction US$m
Total Associated Cost US$m 12 14 34 22 82
Total Project Cost US$m 192 284 340 203 1,018

27
Project construction costs are not levelized over the operating life of the project.
28
Source: CASA-1000 Project Feasibility Study Update, Final Report, February 2011; Bank estimates. The
estimated totals might be different from the sum of individual items presented due to rounding.

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28. The total project cost is estimated at US$1,018 million, including construction cost of
US$936 million. The incremental annual project O&M and insurance costs are estimated at 2
percent for HVAC DS&I and local grid reinforcement in each country and 3.9 percent for HVDC
DS&I.

29. The economic cost of power is assessed as the economic opportunity cost for the Kyrgyz
Republic and incremental generation cost for Tajikistan. Specifically, for the Kyrgyz Republic it
is assumed to equal to average export tariff to Kazakhstan over 2009-2013 (US¢2.9/kWh) given
that exports were of comparable size in terms of kilowatt-hours. For Tajikistan, it was computed
to equal the variable cost of hydropower generation assumed at US¢0.2/kWh given that
Tajikistan does not have export opportunities competing with CASA-1000.

30. The following estimates of power trade are used for project costs and benefits: (a) the
quantity of power exports is the amount supplied at the project in-take terminals in the Kyrgyz
Republic and Tajikistan; (b) the quantity of power imports is the amount supplied at the project
off-take terminals in Afghanistan and Pakistan based on the quantity of power offloaded from the
project intake terminals less 1.5 percent of technical losses in the project transmission facilities.

31. Project Economic Benefits: Economic benefits are estimated as the economic value of (a)
power imported under the project computed in terms of the reduction in the costs of meeting
projected power demand in Pakistan and Afghanistan; and (b) reduction of GHG emissions from
marginal fossil fuel plants. The environmental benefits of the project were quantified for the
overall project and cannot be attributed to individual countries. For the purpose of this appraisal,
both countries are assumed to fully implement their respective Power System Expansion Plans
and eliminate the unmet demand. In addition to investments under Power System Expansion
Plans, Pakistan is also assumed to build around 4,000 MW of additional gas turbine plants in
order to stop buying power from existing fuel oil fired IPPs. The reduction in the cost of meeting
forecast demand was computed as the avoided cost of the marginal sources of power used to
meet summer demand in Pakistan and Afghanistan. In case the importing countries only partially
implement their Power System Expansion Plans, the project benefits would be higher given that
power imported under the project would help to eliminate the unmet demand. The CSP under the
project would also generate economic benefits for the communities alongside the route of the
transmission line; however, those were not quantified.

32. In Afghanistan, the economic value of imported power is computed as the variable
economic cost of the marginal sources in the supply mix, i.e. grid-connected diesel-fired
generation and thermal generation-based power imports. 29 The variable economic cost of
displaced grid-connected diesel-fired generation is estimated at US¢17-22/kWh, reflecting
forecast real price of diesel. Currently, the most expensive imports cost for Afghanistan is
US¢7/kWh. However, those are estimated to reach US¢8.9/kWh by 2018. 30 The project will also
help Afghanistan to reduce upward pressure on end-user tariffs since it will be displacing some
higher cost supply sources. The project will also generate a number of non-quantifiable benefits
for Afghanistan such as: (a) track record of reliable transit country in regional power trade; (b)

29
There is also significant off-grid diesel-generation with variable economic cost of around US¢32/kWh.
30
The tariff is assumed to increase further to US¢8.9/kWh by 2018. Source: Bank estimate.

95
experience with regional interconnection projects; (c) contribution to the broader agenda of
domestic and regional stabilization through economic ties and cooperation.

33. In Pakistan, the economic value of imported power is computed: (a) until 2019, as
combination of variable economic cost of marginal fuel-oil and Open Cycle Gas Turbine
(OCGT) plants displaced; and (b) from 2020 and onwards – as the variable economic cost of
these plants. OCGTs are considered marginal plants starting from 2020 since it is assumed that:

a. Iran-Pakistan and Turkmenistan Afghanistan Pakistan India (TAPI) pipelines will be

commissioned by 2017 and 2020, respectively 31;
b. Pakistan will make up on delays in implementation of its Power Expansion Plan;
c. Commission in a timely manner all new generation capacity scheduled for 2018-
2030; and
d. Construct additional OCGTs to displace fuel oil IPPs.

34. The variable economic cost of displaced fuel oil IPPs is estimated at around US¢14/kWh,
reflecting forecast real price of fuel oil. 32 The estimate is derived considering: (a) forecast fuel
costs of IPPs; (b) average variable O&M costs of IPPs as approved by NEPRA. The marginal
plants are identified taking into account: (a) the merit order for the dispatch of power plants, as
of June 30, 2012, published by the NEPRA; and (b) planned decommissioning of existing fuel
oil plants as discussed in the Power System Expansion Plan for 2012-2030.

35. The variable economic cost of displaced OCGTs is estimated at around US¢8-12/kWh,
reflecting forecast real price of imported natural gas from Iran through Iran-Pakistan pipeline and
Turkmenistan through TAPI. 33 The estimate of cost reduction is derived considering: (a) forecast
gas price; and (b) average variable O&M costs of OCGTs.

36. The environmental benefits of the overall project are computed as the total avoided social
cost of carbon due to reduction of GHG emissions from displaced marginal generation sources in
Afghanistan and Pakistan using the relevant emission factors. The avoided social cost of GHG
emissions is estimated based on conservative social cost of carbon at US$13/tCO2, 34 which is
assumed to gradually increase throughout the evaluation period.

37. Sensitivity analysis of the project: Sensitivity analysis is conducted to assess the
robustness of the estimated project economic returns to changes in the main evaluation variables.
Sensitivity analysis covers the following cases that in turn stress test the economic returns to the
project. The results of the sensitivity analyses are presented in the Table 21 below.

31
Tarbela 4th unit is under construction and Dasu is under preparation.
32
Imported High-Sulfur Fuel Oil (HSFO) with sulfur content of 3.5%, which accounts for largest share of fuel oil in
Pakistan used for power generation.
33
The Iranian section of the pipeline has already been completed. The Iran-Pakistan pipeline is assumed to be
commissioned by 2017. TAPI pipeline is assumed to be commissioned by 2020.
34
The median estimates from various studies suggest a range of US$13-US$43/ tCO2. Source: Kirk Hamilton and
Jana Stover, “Economic Analysis of Projects in Greenhouse World,” World Bank, July 2012.

96
 a. 30 percent higher project construction cost 35 with the expected in-service date and the
base-case values for the amount of power supplied under the project and the forecast
fuel prices of marginal sources displaced in Afghanistan and Pakistan.
b. A 2-year delay in the project in-service date with the base-case values for the project
construction cost, the amount of energy that would be supplied under the project, and
the projected costs of marginal sources displaced in Afghanistan and Pakistan.
c. 30 percent lower projected fuel cost of marginal sources displaced in Afghanistan and
Pakistan with the base-case values for the project construction cost and in-service
date and the amount of power supplied under the project.
d. 30 percent lower surplus energy with base-case values for the project construction
cost, the 2-year delay of project in-service date, the projected costs of marginal
sources displaced in Afghanistan and Pakistan.
e. Combination of the above three cases.

Table 21: Sensitivity Analysis of Economic Appraisal Results for the Project
NPV (million EIRR (%)
US$)
Base-case 1,208 26%
a. 30% lower energy surplus in Kyrgyz Republic and Tajikistan 1,006 25%
b. 30% increase of project construction cost 986 21%
c. 30% lower cost of diesel, fuel oil and natural gas 693 20%
d. 2-year delay of in-service date of project facilities 693 18%
e. Combination of a, b, c and d 42 10%

38. Sensitivity analysis upward and downward on these variables yields the results presented
in Figure 18 and Figure 19 below.

Figure 18: Project EIRR Sensitivities

EIRR Project EIRR Sensitivity

40.0%

20.0%

Hurdle
10%

0.0%
-30% -20% -10% 0% 10% 20% 30% Variation
Surplus available TAJ Project construction cost increase
FO cost Diesel cost

35
Cost of HVDC+HVAC and domestic grid reinforcements.

97
Figure 19: Construction Delays EIRR Sensitivity

Construction Delays Sensitivity

30.0%
25.0%
20.0%
15.0%
Hurdle
10.0%
10%
5.0%
0.0%
0 1 2 3 4 5 6 Years
EIRR

39. The results of the sensitivity analysis suggest that the project is economically robust even
in case of substantial variation of main variables that affect its viability. The project may become
economically unviable only in case of simultaneous occurrence of the above extreme sensitivity
scenarios, which is unlikely.

40. Switching value analysis of the project: Switching value analysis was conducted to assess
the changes in the key evaluation variables at which the EIRR of the project equals the social
discount rate and NPV equals zero. The results in Table 22 of the switching value analysis
suggest that project will become economically not viable only in case of significant variation of
key evaluation variables, which has a very low probability of occurrence.

Table 22: Switching Value Analysis of Economic Appraisal Results for the Project
Change in variable required to make EIRR=10% and NPV=0
162% increase of project construction cost
7 years of delay of in-service date of project facilities
70% lower cost of diesel, fuel oil and natural gas
69% lower energy surplus

II. Financial Analysis

41. The financial analysis assesses the financial sustainability of the project.

Approach to Financial Analysis of the Project

42. Key Assumptions: The financial analysis assesses the financial sustainability of the
project. The analysis adopts a number of inputs from the economic analysis, including: export
quantities, PPA tariffs, project construction schedule and life time, investment costs, and O&M.
The financial analysis excludes environmental benefits used in the economic analysis.
International US$ inflation is applied to the costs in the financial analysis since it is expected that
most of the O&M costs will be US$-denominated.

98
43. The financial costs and benefits are assessed inclusive of applicable direct taxes. To that
end, the applicable direct taxes (Value Added Tax or ‘VAT’, import duties, sales tax and income
tax) of each country are incorporated into financial revenues and expenses and related cash flows
of the relevant Implementing Agency and aggregated for the overall project level financial
analysis. The application of taxes is currently under discussion among the participating countries.

44. The weighted average cost of capital (WACC) used to assess the financial NPV for each
country is assessed based on the after-tax on-lending rates currently applicable to on-lending
arrangements between the implementing entities and their respective Governments (see Table
23). The WACC for the overall project is estimated based on the weighted average of individual
Implementing Agency’s WACCs.

Table 23: Estimated WACC for the Project and Individual Countries
Project as a whole 2.1%
Kyrgyz Republic: NEGK (transmission company) 2.25%
Tajikistan: Barki Tajik (vertically-integrated power utility) 1.13%
Afghanistan: DABS (vertically-integrated power utility) 0.98%
Pakistan: NTDC (transmission company and wholesale buyer) 5.33%

45. Financial Analysis of the Project: The financial costs of the project include the
investment costs, marginal costs of power generation in the Kyrgyz Republic and Tajikistan,
incremental transmission costs, incremental distribution costs (applicable only for Afghanistan),
the operating and maintenance costs of HVAC facilities, and the fee to HVDC Operator in
charge of O&M of the HVDC portion of the project. The financial benefits include the
incremental revenues from the domestic sale of imported power in Afghanistan by DABS and
incremental revenues from sale of imported power by NTDC to DISCOs in Pakistan. The
financial analysis indicates that the project is financially viable with an NPV of US$3,861
million and an FIRR of 25 percent. Financial flows of benefits and costs are given in Table 44.

46. Project Financial Costs: Project construction costs are summarized in Table 24. The
construction costs are expressed in U.S. dollar price terms. The costs are projected according to
the years in which they are expected to be incurred during the project construction period. 36 They
are based on the expected DS&I costs, including physical and price contingencies, of the project
and the required transmission connections and network reinforcements in the four countries. The
financial costs of the project also include the cost of land that is expected to be acquired for the
project or for resettlement of people displaced by the project.

Table 24: Total Financial Costs (US$m)

Kyrgyz Republic Tajikistan Afghanistan Pakistan Total
DS&I and grid reinforcement 183 240 271 170 863
Contingency 27 36 67 25 155
Environmental and Social Costs 0.4 2.2 12 3 18
Total Project Financial Cost 210 278 349 198 1,035

36
Project construction costs are not levelized over the operating life of the project.

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47. The financial costs include the incremental power generation and transmission cost for
the Kyrgyz Republic and Tajikistan. The incremental variable cost of hydropower generation is
assumed at US¢0.2/kWh.

48. Project Financial Benefits: Financial benefits are estimated as the incremental revenue in
Afghanistan and Pakistan from sale of the imported power. Specifically, in Afghanistan the
incremental revenue is estimated as the revenue to DABS from domestic sale of power net of
distribution costs. The revenue is estimated at weighted average billed tariff of US¢12.5/kWh. In
Pakistan, the benefits are estimated as the incremental revenue from wholesale of power by
NTDC/CPPA to distribution companies. The wholesale price is estimated at US¢10/kWh.

49. Sensitivity Analysis: Similar sensitivities to the economic analysis were run on the
project FIRR and Financial NPV and the results are presented in Table 25, Figure 20 and Figure
21 below.

Table 25: Project Financial Sensitivity Analysis

NPV (million US$) FIRR (%)
Base-case 3.861 25%
a. 30% lower energy surplus in Kyrgyz Republic and 3,970 23%
Tajikistan
b. 30% increase of project construction cost 3,520 20%
c. 30% lower domestic average end-user tariff in 2,037 17%
Afghanistan and wholesale tariff to DISCOs in Pakistan
d. 2-year delay of in-service date of project facilities 3,770 19%
e. Combination of a, b, c and d 1,241 9%

Figure 20: Project FIRR Sensitivities

FIRR Project FIRR Sensitivities

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%
Hurdle
0.0% 2.1%
-30% -20% -10% 0% 10% 20% 30% Variation
Project construction cost increase AFG tariff
PAK Wholesale tariff Surplus available KRG
Surplus available TAJ

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Figure 21: Sensitivity of FIRR to Construction Delays

Sensitivity of FIRR to Construction Delays

30.0%

25.0% FIRR

20.0%

15.0%

10.0%

5.0% Hurdle
2.1%
0.0%
0 1 2 3 4 5 6 Years

50. Switching value analysis of project: The results of the switching value analysis (Table
26) suggest that the project is financially robust even in case of substantial variation of key
variables that affect its viability.

Table 26: Switching value analysis of financial appraisal results for the project
Change in variable required to make FIRR=2.1% and NPV=0
338% increase of project construction cost
15 Year delay of in-service date of project facilities
-224% lower domestic average end-user tariff in Afghanistan
-89% lower wholesale tariff to DISCOs in Pakistan

51. Financial Performance Analysis of Implementing Entities: This section assesses the
financial performance of each of the implementing entities based on the analysis of the financial
statements- income statement, cash flow statement and balance sheet- for the last two years
(2011-2012) and financial statement projections for 2013-2018. Financial statement projections
are conducted incorporating the revenues and expenses and cash flows that would be associated
with CASA-1000 project. As part of the financial analysis, key ratios are assessed to examine the
profitability, liquidity and solvency of the company.

52. Kyrgyz Republic: The overall financial performance of the JSC NEGK has been volatile.
The company recorded positive but declining net income and operating cash flow for the 2011-
12. As a result, profitability, liquidity and debt and solvency ratios of NEGK have been overall
adequate however volatile too. It should be noted that the profitability ratios are likely overstated
as the company has been under-spending on O&M of infrastructure due to low level of tariffs. In
addition the company has assumed significant amount of long term debt with increasing
repayments starting in the 2013-18 forecasting period that will impact its financial standing in
the future.

53. The financial performance of NEGK was projected for 2013-2019 assuming the company
rehabilitates the transmission infrastructure that is in urgent need to investments due to age

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 (ending of the useful life) and condition with an estimated cost of US$160 million, proceeds with
the rehabilitation of the investment projects started with the financing of bilateral and multi-
lateral donors and commissions CASA-1000 project. The financial projections are summarized
in Table 27, Table 28 and Table 29, and assume transmission tariff increase of 10 percent
annually, which will allow the company reaching short-term cost recovery by the year 2019
(assessment based on the Power Sector Chapter of the Public Expenditure Review of the Bank,
2013). The projections also incorporate larger maintenance costs both to incorporate the
additional operational and maintenance costs associated with CASA-1000 and to ensure
adequate maintenance of the transmission infrastructure in the future years. The forecast assumes
that the historical working capital levels (in relation to sales or cost of sales) will not change in
the future.

54. With the above assumptions, the company is projected to have negative profits in early
years of projection, which will be eliminated starting from year 2018 when CASA-1000 project
enters into operational stage and NEGK starts earning Kyrgyz portion of the transmission tariff.
Despite deterioration of profitability ratios in early years of forecasting (Table 27), the liquidity
as well as debt and solvency ratios remain overall adequate, which should allow the company to
adequately operate and maintain the overall transmission infrastructure, including the Kyrgyz
portion of CASA-1000 line and to service its debt.

Table 27: Ratio Analysis for NEGK

Ratios 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Profitability Ratios
Gross profit margin 11% 11% 13% 10% 20% 20% 25% 21% 19%
Net profit margin 12% 4% 2% 1% -5% -3% -5% 2% 5%
Liquidity Ratios
Current Ratio 0.7 0.1 0.1 0.2 0.3 0.5 0.4 0.4 0.3
Quick Ratio 5.3 3.4 0.5 0.6 0.8 1.0 1.0 1.1 1.0
Solvency Ratios
Debt service coverage ratio 3.1 1.8 1.5 1.4 1.5 1.5 1.7 2.1 2.3

Table 28: Balance Sheet Projections for NEGK (figures in million Soms)
ASSETS 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Non-Current Assets
Property, Plant & Equipment 6146 14369 21552 26853 33552 36562 37404 36386 35369
Intangible Assets 2 2 2 3 4 4 4 4 4
Total non-current assets 6148 14371 21555 26856 33556 36566 37408 36391 35373

Current Assets
Cash and marketable securities 326 161 552 1,858 3,478 5,424 5,231 4,796 4,218
Inventory 300 926 692 796 1,006 1,025 1,181 1,318 1,406
Trade and other receivables 234 461 400 479 528 547 594 704 770
Other current assets 1861 4239 3509 4203 4628 4797 5210 6171 6751
Total Current Assets 2722 5787 5154 7337 9640 11793 12216 12989 13145

Total Assets 8870 20158 26709 34193 43195 48359 49624 49380 48518

102
ASSETS 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
LIABILITIES
Non-Current Liabilities
Long-term debt 4692 14744 11530 19396 29117 35146 36852 36714 37618
Other long-term liabilities 311 319 198 296 0 0 0 639 1140
Total Long-Term Liabilities 5002 15063 11728 19692 29117 35146 36852 37353 38758

Current Liabilities
Short-term debt 399 607 10579 10693 10763 10791 10859 11018 11113
Trade and other payables 90 1100 672 773 977 994 1146 1279 1364
Taxes payable 23 10 10 17 0 0 0 36 64
Total Current Liabilities 511 1717 11261 11482 11740 11786 12005 12332 12541

Total Liabilities 5514 16780 22989 31175 40856 46932 48857 49685 51299

EQUITY
Shareholder capital 1740 1752 1752 1752 1752 1752 1752 1752 1752
Retained Earnings 224 223 300 343 131 -3 -258 -121 189
Reserves 1392 1402 1667 923 456 -322 -727 -1937 -4722
Total Equity 3356 3378 3720 3018 2339 1427 767 -306 -2781
Total Equity and Liability 8870 20158 26709 34193 43195 48359 49624 49380 48518

Table 29: Income Statement Projections for NEGK (figures in million Soms)
2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Total Revenues 2677 2873 3193 3825 4211 4365 4741 5616 6143
Total Cost of Sales 1811 1952 2124 2443 3088 3144 3623 4043 4313
Depreciation expenses 295 313 400 400 862 862 1171 1171 1171
Gross profit 867 921 1069 1382 1124 1221 1118 1572 1830
Gain/Loss from Asset Revaluation -184 -69 0 0 0 0 0 0 0
Administrative Expenses -291 -317 -347 -373 -397 -421 -446 -472 -501
Other Operating Income 22 16 22 26 29 30 32 38 42
Operating Profit 413 552 744 1035 755 830 705 1138 1371
Investment Income 7 7 8 10 11 11 12 15 16
Interest Expenses 91 225 641 971 967 963 959 955 979
Gain/Loss from Foreign Exchange -18 -227 0 0 0 0 0 0 0
Other Non-Operating Income 45 35 46 55 61 63 69 81 89
Profit before tax 357 142 157 129 -140 -59 -174 279 497
Income Tax 42 40 26 21 0 0 0 46 82
Net Profit 315 102 77 43 -212 -133 -255 137 310

55. Tajikistan: The financial performance of vertically integrated power utility BT has been
poor in 2011-12. The net income and, therefore, the related net profit margin of BT has been
negative due to significant increase in costs of sales and other expenses (driven by high inflation
and significant increase in material costs) without commensurate increase in revenues. The
liquidity ratios of BT for 2011-12 are also low indicating that the company does not generate
sufficient cash or other liquid assets are not adequate to meet its short-term obligations.
Availability of cash to meet short-term obligations is very low due to inability of the company to

103
effectively convert billed revenue into cash. BT’s reliance on debt has significantly increased
during 2011-2012 without matching increase in operating income and cash flows. The increase
of long-term debt is driven by the Government borrowing from IFIs and bilaterals to finance new
capital investments and rehabilitation of existing core assets. The company’s debt service
coverage ratio has been below 1.0 in 2011 and 2012 clearly demonstrating the severe liquidity
problem it is currently facing. The cash shortfall has been dealt with by delaying payment to
creditors including IPPs and debt holders.

56. The financial performance of BT for 2013-2019 presented in Table 30-Table 32 was
forecasted assuming the company implements the following investment scenario: (a)
rehabilitation of existing HPPs (assessed at US$1.1 billion by 2020, with some projects already
under implementation); (b) scale-up of ongoing energy loss reduction projects that will enhance
its operational and, thus, financial performance; and (c) commissioning of the CASA-1000
project. The forecast of the financial performance was done assuming tariff increase to a level
sufficient to finance the above investments and ensure cost-recovery for BT by 2020.
Specifically, the average billed tariff was assumed to increase from 8.7 diram/kWh
(US¢1.8/kWh) in 2012 to 21 diram/kWh (US¢4.3/kWh) by 2020, which is a conservative
assumption considering an estimated weighted average willingness-to-pay of 35 diram/kWh
(US¢7.2/kWh) 37.

57. Based on the above assumptions, the financial performance of BT is projected to

significantly improve due to: (a) gradual increase of average billed tariff; and (b) additional
revenues from power exports under the project, which will materially improve financial standing
of BT starting from 2019 after the expected commissioning of the project. Specifically, the net
profit margin is expected to exceed 20 percent by 2018 with increased availability of cash and
other liquid assets to pay for current obligations as tariff increase picks up pace. The Debt
Service Coverage Ratio (DSCR) is expected to reach 1.2 by 2019 after significant reduction in
2014-2016.

Table 30: Key Financial Ratios of BT

Ratios 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Profitability Ratios
Gross profit margin 59% 53% 54% 56% 57% 60% 62% 64% 73%
Net profit margin (12%) (7%) (5%) 4% 8% 12% 16% 22% 42%
Liquidity Ratios
Current Ratio 0.59 0.53 0.54 0.57 0.58 0.59 0.62 0.67 0.92
Quick Ratio 0.01 0.04 0.05 0.07 0.01 (0.05) (0.05) (0.08) 0.18
Solvency Ratios
DSCR 0.66 0.62 1.36 0.85 0.01 (0.08) 0.27 0.59 1.2

37
Tajikistan’s Winter Energy Crisis: Electricity Supply and Demand Alternatives,” November 2012, World Bank.

104
 Table 31: Balance Sheet Projections for BT (figures in million Somoni)
ASSETS 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Non-Current Assets
Property, Plant & Equipment 4,637 4,812 4,796 5,216 7,287 9,550 10,675 11,113 12,332
Long-term investments 182 183 183 183 183 183 183 183 183
Other non-current assets 145 119 119 119 119 119 119 119 119
Total non-current assets 4,964 5,113 5,097 5,517 7,589 9,851 10,976 11,414 12,634

Current Assets
Cash and marketable securities 20 9 138 214 60 (168) (175) 31 758
Inventory 618 819 791 864 1,136 1,435 1,602 1,687 1,866
Trade and other receivables 187 268 424 499 556 633 716 810 1,177
Other current assets 67 104 104 104 104 104 104 104 104
Total Current Assets 893 1,200 1,457 1,681 1,857 2,004 2,248 2,632 3,904

Total Assets 5,857 6,313 6,554 7,198 9,446 11,856 13,224 14,046 16,538

LIABILITIES
Non-Current Liabilities
Long-term debt 967 1,079 2,971 3,437 5,404 7,553 8,774 9,298 10,579
Other long-term liabilities 1,818 1,803 0 0 0 0 0 0 0
Total Long-Term Liabilities 2,785 2,882 2,971 3,437 5,404 7,553 8,774 9,298 10,579

Current Liabilities
Short-term debt 403 692 0 0 0 0 0 0 0
Trade and other payables 93 112 193 216 233 252 271 289 319
Taxes payable 667 664 0 0 0 0 0 0 0
Other short-term liabilities 561 946 2,439 2,637 2,833 3,030 3,240 3,466 3,707
Provisions 0 0 83 98 109 124 140 158 230
Total Current Liabilities 1,725 2,415 2,715 2,950 3,175 3,406 3,652 3,913 4,255

Total Liabilities 4,509 5,296 5,687 6,386 8,579 10,959 12,426 13,211 14,834

EQUITY
Shareholder capital 384 384 384 384 532 691 691 691 691
Retained Earnings 940 609 460 404 310 182 83 120 989
Reserves 24 24 24 24 24 24 24 24 24
Total Equity 1,348 1,017 868 812 867 897 798 835 1,704
Total Equity and Liability 5,857 6,313 6,554 7,198 9,446 11,856 13,224 14,046 16,538

Table 32: Income Statement Projections for BT (figures in million Somoni)

2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f

105
Total Revenues 965 1099 1238 1455 1623 1848 2090 2364 3435
Total Cost of Sales 399 519 569 646 696 747 800 855 915
Gross profit 566 580 669 809 926 1101 1290 1509 2520
Selling Expenses 340 308 327 355 384 416 445 465 497
General expenses 164 158 167 182 196 213 228 238 254
Other expenses 51 27 28 31 33 36 38 40 43
Change in bad debt provision 57 96 83 15 11 15 16 18 72
Depreciation expenses 83 78 149 190 196 230 266 267 268
Total other income 17 14 19 22 24 28 31 35 51
Operating Profit (112) (73) (66) 59 130 218 328 516 1438
Financing cost: Interest on loans 155 347 83 115 223 347 427 479 569
Profit before tax (33) (301) (149) (56) (94) (128) (99) 37 869
Income Tax 34 (31) - - - - - - -
Net Profit (67) (270) (149) (56) (94) (128) (99) 37 869

58. Afghanistan: The financial performance of the vertically-integrated power utility DABS
has been overall sound. DABS reported positive net income in 2011-12, reaching a net margin of
14 percent post fuel subsidies and 9 percent when excluding the subsidies in 2012. The
improvement in profitability has been largely driven by increased revenues (by 28 percent in
2012), reflecting improvement in average tariff increase. DABS has a very liquid balance sheet
and generates sufficient cash to meet its short term obligations and shows comfortable liquidity
ratio (current ratio and quick ratio). DABS was recently incorporated and inherited assets and
liabilities from its predecessor company, Da Afghanistan Breshna Moassessa. Nonetheless the
level of borrowing and the financial leverage is very low (1.2 percent of total assets) DABS had
no debt service in 2012 and repaid fully its short-term borrowing.

59. The financial performance of DABS, presented in Table 33, Table 34 and Table 35 was
projected for the period 2013-2019 assuming it implements all of the investments presented in
the Master Plan – developed by international consultants with support from ADB – under the
base case, and commissions the CASA-1000 project in 2018. Assumptions for technical and
commercial losses are similar the same as in the Master Plan. The funding for the investment is
assumed to come from on-lending of foreign grants from the GoA at its standard terms. DABS
passes on costs increases and has been able to increase the average tariff over recent years
sufficiently to cover its cost. Therefore, a slow retail tariff increase of 3 percent is assumed
through the forecast period. The sizeable investments of DABS’s program will be met by a
significant increase in long term borrowing and associated interest expenses for which DABS
generate sufficient cash throughout the forecast period. The long grace period granted by GoA
under its standard on-lending terms allows DABS to implement the investment program without
diminishing its financial sustainability until the assets are operational. The DSCR remains strong
during the forecast period. The gearing ratio increases from 0.1 to 0.8 over the forecast period
reflecting better utilization of the assets of the company. The cash position remains strong.

Table 33: Key Financial Ratios of DABS

Ratios 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f

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Profitability Ratios
Gross profit margin 68% 59% 69% 65% 62% 59% 58% 56% 56%
Net profit margin 14% 21% 11% 8% 2% -1% 0% -1% 3%
Liquidity Ratios
Current Ratio 26.7 9.8 10.5 11.2 12.7 12.1 11.5 11.9 11.1
Quick Ratio 6.2 2.7 3.8 4.4 5.8 5.1 4.4 4.8 3.9
Solvency Ratios
Debt service coverage
N/A N/A 36.9 7.6 5.9 5.6 5.1 4.9 4.1
ratio

Table 34: Balance Sheet Projections for DABS (figures in million Afghanis)
ASSETS 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f
Non-Current Assets
Property, Plant &
18,803 21,364 38,587 75,227 106,355 125,361 155,315 181,514 203,500
Equipment
Current Assets
Cash and marketable
2,458 4,410 7,094 9,322 13,633 13,526 14,020 16,682 18,781
securities
Inventory 3,133 4,613 5,308 6,061 6,751 7,602 9,105 10,082 13,703
Trade and other receivables 3,650 4,587 4,545 5,475 6,434 7,578 9,234 10,593 14,346
Other current assets 1,389 2,066 2,378 2,715 3,024 3,405 4,079 4,516 6,138
Total Current Assets 10,630 15,676 19,324 23,573 29,841 32,110 36,438 41,873 52,968

Total Assets 29,433 37,040 57,911 98,800 136,196 157,472 191,753 223,386 256,469
LIABILITIES
Non-Current Liabilities
Long-term debt 362 4,004 22,470 61,343 97,833 118,545 151,309 181,839 209,678
Other long-term liabilities 2,825 2,825 2,825 2,825 2,825 2,825 2,825 2,825 2,825
Total Long-Term
3,187 6,828 25,295 64,167 100,658 121,369 154,134 184,664 212,502
Liabilities

Current Liabilities
Short-term debt 0 0 0 0 0 0 0 0 0
Trade and other payables 217 1,258 1,448 1,653 1,841 2,073 2,483 2,750 3,737
Other short-term liabilities 181 347 399 455 507 571 684 757 1,029
Total Current Liabilities 398 1,605 1,846 2,108 2,348 2,644 3,167 3,507 4,767

Total Liabilities 3,585 8,433 27,141 66,276 103,006 124,013 157,301 188,171 217,269
EQUITY
Shareholder capital 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000
Retained Earnings 1,452 4,128 5,550 6,857 7,151 6,946 6,973 6,783 7,935
Reserves -604 -522 220 667 1,039 1,513 2,478 3,433 6,265
Total Equity 25,848 28,607 30,770 32,524 33,190 33,458 34,451 35,216 39,200
Total Equity and Liability 29,433 37,040 57,911 98,800 136,196 157,472 191,753 223,386 256,469

107
 Table 35: Income Statement Projections for DABS (figures in million Afghanis)
2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f
Total Revenues 10,177 12,878 12,761 15,372 18,063 21,277 25,926 29,743 40,279
Total Cost of Sales 6,955 7,653 8,806 10,056 11,200 12,612 15,106 16,726 22,735
Gross profit 3,222 5,225 3,955 5,316 6,864 8,665 10,820 13,017 17,544
Selling Expenses 976 1,417 1,404 1,691 1,987 2,340 2,852 3,272 4,431
General expenses 1,583 2,060 2,042 2,460 2,890 3,404 4,148 4,759 6,445
Other expenses -607 -644 -638 -769 -903 -1,064 -1,296 -1,487 -2,014
Depreciation expenses 1,121 1,081 1,243 2,232 4,365 6,161 7,268 9,001 10,522
Total other income 499 348 374 409 437 461 463 463 463
Operating Profit 1,624 3,075 1,682 1,802 949 624 1,162 1,207 3,054
Financing cost: Interest 0 -13 75 337 681 946 1,212 1,512 1,780
on loans
Profit before tax 1,624 3,088 1,607 1,465 268 -322 -49 -306 1,274
Income Tax 204 411 185 158 -25 -117 -77 -115 122
Net Profit 1,421 2,677 1,422 1,307 294 -205 27 -190 1,152

60. Pakistan: The overall financial performance of NTDC including the wholesale power
buyer, CPPA, is poor as measured by liquidity, operating performance, solvency and profitability
indicators. The profitability of NTDC is low since the bulk of the revenues come from CPPA’s
energy sales, which essentially passes through the cost and revenues of energy trade earning a
minimal or no margin on each kWh. Due to transmission tariff increase, the net income and
operating profit of the company improved in 2012 with related improvement in profitability
ratios. Similarly to other companies of the power sector, NTDC is severely affected by the
accumulation of receivables and does not generate enough cash from sales to meet its short-term
obligations. In 2012, total current assets were sufficient to cover only 85 percent of the short-
term liabilities. The cumulated losses exceed the paid-in capital of the company leading to a
gearing ratio (ratio of total liabilities to total assets) over 1 and extremely low levels of solvency
ratio. The company’s balance sheet is essentially financed through large accumulation of trade
payable which increases its solvency risk. The level of long term debts remains low (5 percent of
total liabilities) therefore the company has sufficient level of coverage of its debts service in
2012.

61. The financial performance of the company presented in Table 36, Table 37 and Table 38
was projected for the period 2013-2019 assuming it implements all of the investments presented
in the Power Expansion Plan, and commissions CASA-1000 project in 2018. 100 percent of the
funding required for this investment plan is assumed to come from on-lending of foreign loans
from GoP at its standard terms. These terms imply substantial payments of interests and foreign
exchange hedging cost to the GoP at rates significantly higher than other sources of funding used
by NTDC in the past. This assumption is therefore considered conservative. To support its
significant investment plan, NTDC is assumed to increase its transmission charge at a rapid pace.
Recent petitions filed by NTDC and subsequent tariffs authorized by NEPRA, lower than the
petitions, illustrate the ongoing preparation for the upcoming investments. The sizeable
investments will be met by a significant increase in the long term borrowing and associated
interest expenses. Despite rapid expansion of operating profit at Cumulative Average Growth
Rate (CAGR) of 71 percent over the forecast period, significant interest expenses lead to net
losses for part of the forecast period. The debt service coverage ratio falls below 1.0 for part of

108
 the forecast period before coming back above one in the last year. The gearing ratio remains high
through the forecast period, close to 1. The cash position and liquidity remains acceptable during
the forecast period.

Table 36: Key Financial Ratios of NTDC

Ratios 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Profitability Ratios
Gross profit margin 3% 2% 2% 3% 4% 5% 6% 7% 9%
Net profit margin -3% 0% 1% 0% 0% -2% -1% 0% 1%
Liquidity Ratios
Current Ratio 0.81 0.85 0.92 0.93 0.92 0.89 0.86 0.84 0.75
Quick Ratio 0.80 0.84 0.91 0.92 0.91 0.88 0.85 0.83 0.75
Solvency Ratios
Debt service coverage ratio 8.95 1.60 3.92 1.37 1.01 0.82 0.79 0.79 0.89

Table 37: Balance Sheet Projections for NTDC (in million Rs)
ASSETS 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Non-Current Assets
Property, Plant &
105,404 120,140 205,067 373,884 616,640 877,420 982,963 1,093,389 1,182,695
Equipment
Other non-current
54,323 44,107 44,111 44,111 44,111 44,111 44,111 44,111 44,111
Assets
Current Assets
Cash and marketable
13,122 25,976 76,785 103,755 130,692 154,443 171,725 186,986 104,074
securities
Inventory 7,757 6,648 9,637 10,047 10,510 11,092 11,643 12,292 12,992
Trade and other
381,044 575,905 542,608 569,577 600,790 640,292 680,418 729,008 783,813
receivables
Other current assets 140,478 131,587 145,710 152,745 160,854 171,102 181,395 193,806 207,707
Total Current Assets 542,401 740,117 774,740 836,124 902,846 976,929 1,045,181 1,122,092 1,108,586
Total Assets 702,128 904,363 1,023,917 1,254,119 1,563,596 1,898,460 2,072,255 2,259,592 2,335,392

LIABILITIES
Non-Current
Liabilities
Long-term debt 34,385 35,722 117,031 280,900 509,548 743,121 806,903 868,683 785,277
Other long-term
13,809 14,546 15,276 16,078 16,962 17,934 19,003 20,180 21,474
liabilities
Total Long-Term
48,194 50,268 132,306 296,979 526,510 761,054 825,906 888,863 806,751
Liabilities
Current Liabilities
Short-term debt 47,449 13,292 3,311 10,074 23,455 42,624 63,696 73,220 83,406
Trade and other
610,881 840,655 819,133 853,982 893,338 942,779 989,634 1,044,849 1,104,345
payables
Taxes payable 2,957 2,284 3,601 3,780 3,987 4,249 4,516 4,838 5,202
Other short-term 7,569 12,584 18,336 31,911 58,351 108,819 161,210 218,484 275,715

109
liabilities
Total Current
668,855 868,814 844,381 899,747 979,131 1,098,471 1,219,056 1,341,390 1,468,668
Liabilities
Total Liabilities 717,049 919,082 976,688 1,196,726 1,505,641 1,859,525 2,044,962 2,230,253 2,275,419

EQUITY
Shareholder capital 52,700 52,700 52,700 52,700 52,700 52,700 52,700 52,700 52,700
Retained Earnings (67,621) (67,419) (62,307) (57,952) (59,100) (79,618) (92,552) (92,114) (76,597)
Reserves 0 0 56,836 62,645 64,356 65,853 67,145 68,752 83,870
Total Equity (14,921) (14,718) 47,230 57,393 57,956 38,935 27,293 29,339 59,974
Total Equity and
702,128 904,363 1,023,917 1,254,119 1,563,596 1,898,460 2,072,255 2,259,592 2,335,392
Liability

Table 38: Income Statement Projections for NTDC

2011 2012 2013f 2014f 2015f 2016f 2017f 2018f 2019f
Total Revenues 679,222 868,459 900,235 944,980 996,766 1,062,302 1,128,876 1,209,490 1,300,417
Total Cost of Sales 659,738 850,442 879,364 916,775 959,025 1,012,101 1,062,401 1,121,676 1,185,547
Gross profit 19,484 18,017 20,871 28,205 37,741 50,202 66,474 87,814 114,870
Selling Expenses
General expenses 4,047 4,862 5,215 5,474 5,774 6,154 6,540 7,006 7,533
Provision for doubtful
26,525 7,559 1,423 1,121 818 516 213 31 0
debt
Other expenses 3,047 2,405 1,711 996 196 (679) 113 121 130
Depreciation expenses 3,639 3,717 3,004 5,127 9,347 15,416 21,936 24,574 27,335
Total other income 581 797 3 3 3 3 3 3 3
Operating Profit (17,192) 271 9,521 15,491 21,609 28,798 37,676 56,084 79,875
Financing cost: Interest
(675) (22) 2,135 9,198 22,757 49,316 50,610 55,451 57,452
on loans
Profit before tax (16,517) 293 7,387 6,293 (1,148) (20,518) (12,934) 634 22,423
Income Tax 612 90 2,275 1,938 0 0 0 195 6,906
Net Profit (17,129) 202 5,112 4,355 (1,148) (20,518) (12,934) 438 15,517

110
 Table 39: Base-Case Power System Expansion Plan for Afghanistan (in MW)
Power Expansion Plan 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
NEPS-SEPS grid
interconnection 150 150 150 150 150 150 150 150 150 300 300 300 300 300 300 300 300 300 300
Sheberghan TPP gas - - - 150 200 200 200 250 350 400 400 400 400 400 400 400 400 400 400
TKM-NEPS-UZB imports - - - - 300 300 500 500 500 500 500 500 500 500 500 500 500 500 500
TKM-NEPS-UZB
additional imports - - - - - - 500 500 500 500 500 500 500 500 500 500 500 500 500
Kunar B HPP - - - - - - - - - - 300 300 300 300 300 300 300 300 300
Kunar A HPP - - - - - - - - - - - - 789 789 789 789 789 789 789
Bamyan TPP coal - - - - - - - - - - - - 0 400 400 1200 1200 1200 1200
Gulbahar HPP - - - - - - - - - - - - - - - - - - -
Kajaki Addition HPP - - - - - - - - - - - - - - 100 100 100 100 100
Kama HPP - - - - - - - - - - - - - - - - - - -
Kilagai HPP - - - - - - - - - - - - - - - - - - -
Kukcha HPP - - - - - - - - - - - - - - - - - - -
Olambagh HPP - - - - - - - - - - - - - - - 90 90 90 90
Surobi HPP - - - - - - - - - - - - - - - - - - -
Baghdara HPP - - - - - - - - - - - - - - - - - - 210

111
 Table 40: Base-Case Power System Expansion Plan for Pakistan (in MW) 38
New Capacity 2012- 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
OCGT - 2108 1000 1614 2000 - - - - - - - - - -
CCGT - - 546 1022 4363 - 1379 - - - - 1379 - - 1379
ST400 - - 452 - - - - - - - - - - - -
ST600 - - 2835 2268 3969 3969 2268 567 2268 0 3402 0 5670 4536 5670
Nuclear - - 320 320 320 940 940 - 940 940 - - 940 940 -
Hydro - - 2136 1236 2219 5446 3061 5316 4768 5544 911 4356 - - -
Wind - - 500 700 600 - 400 400 400 400 400 400 400 400 400
Imports - - 1000 1000 - - - - - - - - - - -
Annual additions - 2,108 8,789 8,160 13,471 10,355 8,048 6,283 8,376 6,884 4,713 6,135 7,010 6,183 7,449
Cumulative additions - 2,108 10,897 19,057 32,528 42,883 50,931 57,214 65,590 72,474 77,187 83,322 90,332 96,515 103,964

38
Most optimistic scenario.

112
 Table 41: Fuel Price Forecast
Crude Nominal and
Real Price Forecast 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Forecast average
nominal spot price of
crude US$/bbl 105.0 105.7 102.0 100.7 100.1 99.6 99.1 98.7 98.3 98.0 97.6 98.2 100.9 105.3 102.7 100.7 99.2
MUV as proxy for
inflation (2013=100d) 100.0 101.0 102.4 103.8 105.3 106.9 108.5 110.2 112.0 113.8 115.6 123.2 131.2 139.9 149.0 158.8 169.2
Forecast average real
spot price of crude US$/bbl 105.0 104.7 99.6 97.0 95.1 93.2 91.3 89.5 87.8 86.1 84.4 79.7 76.9 75.3 68.9 63.4 58.6
HSFO nominal price
forecast for PAK 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Forecast average spot
price of crude US$/bbl 105.0 105.7 102.0 100.7 100.1 99.6 99.1 98.7 98.3 98.0 97.6 98.2 100.9 105.3 102.7 100.7 99.2
Average forecast spot
price of Dubai crude US$/bbl 104.0 104.7 101.0 99.7 99.1 98.7 98.2 97.8 97.4 97.1 96.7 97.2 100.0 104.2 101.7 99.7 98.3
Ratio of HSFO/Crude
price 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91
Forecast HSFO price ,
FOB Singapore US$/bbl 95.1 95.7 92.3 91.2 90.6 90.2 89.7 89.3 89.0 88.7 88.4 88.9 91.4 95.3 93.0 91.1 89.8
Forecast HSFO price,
Ex-Depot Karachi US$/bbl 99.7 100.3 96.9 95.8 95.2 94.8 94.3 93.9 93.6 93.3 93.0 93.5 96.0 99.9 97.6 95.7 94.4
Forecast HSFO
nominal price
(delivered to plant
gate in Pakistan) US$/bbl 102.2 102.8 99.4 98.3 97.7 97.3 96.8 96.4 96.1 95.8 95.5 96.0 98.5 102.4 100.1 98.2 96.9
HSFO real price
forecast for PAK 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Forecast average real
spot price of crude US$/bbl 105.0 104.7 99.6 97.0 95.1 93.2 91.3 89.5 87.8 86.1 84.4 79.7 76.9 75.3 68.9 63.4 58.6
Average forecast real
spot price of Dubai
crude US$/bbl 104.00 103.7 98.6 96.0 94.2 92.3 90.5 88.7 86.9 85.3 83.6 78.9 76.2 74.5 68.3 62.8 58.1
Ratio of HSFO/Crude
price 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91

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Forecast HSFO price ,
FOB Singapore US$/bbl 95.1 94.7 90.2 87.8 86.1 84.4 82.7 81.1 79.5 78.0 76.4 72.1 69.6 68.1 62.4 57.4 53.1
Forecast HSFO price,
Ex-Depot Karachi US$/bbl 99.7 99.3 94.8 92.4 90.7 89.0 87.3 85.7 84.1 82.6 81.0 76.7 74.2 72.7 67.0 62.0 57.7
Forecast HSFO real
price (delivered to
plant gate in Pakistan) US$/bbl 102.2 101.8 97.3 94.9 93.2 91.5 89.8 88.2 86.6 85.1 83.5 79.2 76.7 75.2 69.5 64.5 60.2
HSD nominal price
forecast for AFG 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Ratio of HSD/Crude
price 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15
Forecast Gasoil price,
FOB Arab Gulf US$/bbl 119.3 120.1 115.9 114.4 113.7 113.2 112.6 112.1 111.7 111.3 111.3 111.3 111.3 111.3 111.3 111.3 111.3
Forecast HSD price,
Ex-Depot US$/bbl 127.3 128.1 123.9 122.4 121.7 121.2 120.6 120.1 119.7 119.3 119.3 119.3 119.3 119.3 119.3 119.3 119.3
Forecast nominal
HSD price (delivered
to plant gate in
Afghanistan) US$/bbl 128.6 129.3 125.1 123.7 123.0 122.4 121.8 121.4 120.9 120.6 120.6 120.6 120.6 120.6 120.6 120.6 120.6
HSD real price
forecast for AFG 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Ratio of HSD/Crude
price 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15 1.15
Forecast Gasoil price,
FOB Arab Gulf US$/bbl 119.3 118.9 113.2 110.2 108.0 105.9 103.8 101.7 99.7 97.9 95.9 90.6 87.4 85.5 78.3 72.0 66.6
Forecast HSD price,
Ex-Depot US$/bbl 127.3 126.9 121.2 118.2 116.0 113.9 111.8 109.7 107.7 105.9 103.9 98.6 95.4 93.5 86.3 80.0 74.6
Forecast real HSD
price (delivered to
plant gate in
Afghanistan) US$/bbl 128.6 128.2 122.4 119.4 117.3 115.1 113.0 111.0 109.0 107.1 105.2 99.8 96.6 94.8 87.5 81.3 75.9
NG nominal price
forecast for PAK 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Nominal border price
of imported gas in PAK US$/mmbtu 11.60 11.67 11.30 11.17 11.11 11.06 11.01 10.97 10.93 10.90 10.86 10.92 11.19 11.63 11.37 11.17 11.02
Incremental domestic US$/mmbtu 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71

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T&D costs
Nominal gas price at
the plant gate US$/mmbtu 12.31 12.38 12.01 11.88 11.82 11.77 11.72 11.68 11.64 11.61 11.57 11.63 11.90 12.34 12.08 11.88 11.73
NG real price forecast
for PAK 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Real border price of
imported gas in PAK US$/mmbtu 11.60 11.57 11.06 10.80 10.61 10.42 10.23 10.05 9.88 9.71 9.54 9.07 8.79 8.63 7.99 7.44 6.96
Incremental domestic
T&D costs US$/mmbtu 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71
Real gas price at the
plant gate US$/mmbtu 12.31 12.28 11.77 11.51 11.32 11.13 10.94 10.76 10.59 10.42 10.25 9.78 9.50 9.34 8.70 8.15 7.67

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 Table 42: Detailed Assumptions underlying Economic and Financial Appraisal
Macroeconomic Source of Data/Information
Average 2013 KGS/US$ exchange rate 46.14 Central Bank of Kyrgyz Republic
Average 2013 TJS/US$ exchange rate 4.57 National Bank of Tajikistan
Average 2013 PKR/US$ exchange rate 90 National Bank of Pakistan
International US$ inflation 2% CASA-1000 Project Feasibility Study
Update, February 2011
General
CO2 emissions from natural gas 0.40 kg CO2/kWh CO2 Emissions From Fuel
Combustion, IEA, 2012
CO2 emissions from HSFO and Gasoil 0.69 kg CO2/kWh CO2 Emissions From Fuel
Combustion, IEA, 2012
Social cost of carbon in 2013 13 US$/tCO2 Bank assumption
Annual increase of social cost of carbon in 3.6% Bank assumption
2014-2030
Social opportunity cost of capital 10% Bank estimate
Kabul Region demand growth in 2033-2036 3.5% Bank estimate
Kabul Region demand growth in 2037-2041 3% Bank estimate
Kabul Region demand growth in 2042-2047 2% Bank estimate
PEPCO system demand growth in 2036- 4.5% Bank estimate
2040
PEPCO system demand growth in 2041- 3.5% Bank estimate
2047
Thermal efficiency of marginal fuel oil IPPs 36% Bank estimate
in Pakistan
Thermal efficiency of marginal OCGTs in 38% Bank estimate
Pakistan
Thermal efficiency of marginal diesel plant 34% Bank estimate
in Afghanistan
Project Specific
Owner’s engineer USD 12 million Bank estimate based on CASA-1000
Project Feasibility Study Update,
February 2011
Physical Contingency for Kyrgyz Republic, 10% of DS&I Bank estimate
Tajikistan and Pakistan
Physical Contingency for Afghanistan 20% of DS&I cost Bank estimate
Price Contingency 5% of DS&I cost Bank estimate
Transmission losses during evaluation period 1.5% CASA-1000 Project Feasibility Study
Update, February 2011
Incremental annual O&M costs for HVAC 2% of HVAC DS&I CASA-1000 Project Feasibility Study
cost Update, February 2011
Incremental annual O&M costs for HVDC 3.9% of HVDC DS&I CASA-1000 Project Feasibility Study
cost Update, February 2011
Energy Costs

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Variable O&M cost of HPPs 0.002 US$/kWh Bank estimate
Variable (excluding fuel) cost of fuel oil and 0.005US$/kWh NEPRA, Pakistan
gas- fired TPPs
Fuel Price
2012 average FOB Singapore price of HSFO 118.2 US$/bbl Energy Prices and Taxes, 2Q of 2013,
(380 centistoke) IEA, 2013
2012 average FOB Singapore Gasoil/HSD 128.1 US$/bbl Energy Prices and Taxes, 2Q of 2013,
price IEA, 2013
2012 average FOB price of Dubai Crude 109 US$/bbl Energy Prices and Taxes, 2Q of 2013,
IEA, 2013
HSFO and Gasoil/HSD freight cost from port 2.1 US$/bbl World Scale Tanker Nominal Freight
of Singapore to port of Karachi Database, July 2013
Port handling and on-land transport costs of 2.5 US$/bbl Pakistan Power Sector Expansion
HSFO to depots in Pakistan Plan; Bank estimate
Estimated transport cost of HSFO from fuel 2.5 US$/bbl Pakistan Power Sector Expansion
depot to power plant gate in Pakistan Plan; Bank estimate
Estimated transport cost of Gasoil/HSD from 8 US$/bbl CASA-1000 Project Feasibility Study
Arab Gulf to fuel depots in Afghanistan Update, February 2011
Estimated average transport cost of 1.25 US$/bbl Bank estimate
Gasoil/HSD from fuel depot to power plant
gate in Afghanistan
Ratio of HSFO FOB Singapore price to 0.91 Bank estimate based on data from IEA
Dubai Crude price used in the analysis Energy Prices and Taxes, 2Q of 2013
and IEA Oil Market Review 2011:
Annual Statistical Annex
Ratio of Gasoil/HSD FOB Singapore price to 1.15 Bank estimate based on data from IEA
Dubai Crude price used in the analysis Energy Prices and Taxes, 2Q of 2013
and IEA Oil Market Review 2011:
Annual Statistical Annex
Border price formula for imported natural 10% of average 10- Pakistan Power Sector Expansion
gas in Pakistan month crude price + 1.1 Plan; Bank estimate
US$
Incremental domestic T&D costs of natural 0.71 US$/mmbtu Pakistan Power Sector Expansion Plan
gas
Unit Value Index of Manufactured Exports is Commodity Price Forecast Update,
used to convert forecast nominal fuel prices World Bank, Oct. 28, 2013
into real prices
Forecast of average spot price of crude for Bank estimate
2026-2047 is assumed to change in 11-year
cycle of increase and decrease with upward
trend
Taxes
Custom duties in Kyrgyz Republic 5% Bank tax assessment
VAT in Kyrgyz Republic 12% Bank tax assessment
Income tax 10% Bank tax assessment

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Custom duties in Tajikistan 0% Tajik law exempts IFI-financed
projects from custom duties
VAT in Tajikistan 0% Tajik law exempts IFI-financed
projects from VAT. It assumed that
the proceeds of export of electricity
through CASA-1000 will not be
subjected to VAT as is currently the
case for Tajikistan’s export to
Afghanistan.
Income Tax 25% Bank tax assessment
Customs duties in Afghanistan 5% for equipment According to Afghanistan’s 2012
2.5% for electricity Tariff (Ministry of Finance)
VAT in Afghanistan 10% Bank estimate. No VAT currently
exists in Afghanistan but the
introduction of VAT is under
preparation for 2014.
Custom duties on High Speed Diesel imports 12% Afghanistan Tariff 2012, Ministry of
in Afghanistan Finance
Income Tax 25% Bank estimate
Customs duties in Pakistan 8.1% Bank estimate
General Sales Tax (or VAT) in Pakistan 17% Applicable Pakistani tax law.
0% on equipment
Custom duties on Furnace Oil imports in 0% NEPRA fuel adjustment notifications
Pakistan
Income Tax 35% NTDC
Financial Discount Rates
Project as a whole 2.1% Weighted average of the four
countries WACC
Kyrgyz Republic 2.25% Bank estimate of applicable on-
lending terms
Tajikistan 1.13% Bank estimate of applicable on-
lending terms
Afghanistan 0.98% Bank estimate of applicable on-
lending terms
Pakistan 5.33% Bank estimate of applicable on-
lending terms
Additional Assumptions used in
Transmission Tariff Calculation
Return on Capital 6% Bank estimate
Annual contribution to Community Benefit US$4 million Bank estimate
Program
USD Short term Borrowing rate 5% Bank estimate
Common Fund creation period 3 years Bank estimate
Common Fund target amount US$38 millions

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 Table 43: Flow of Economic Costs and Benefits for the Project
BASE CASE: FLOWS OF COSTS AND BENEFITS

Economic costs 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Construction and associated costs US$m 102 305 407 204 0 0 0 0 0 0 0 0 0 0 0 0
Incremental HVDC O&M and
insurance US$m 0 0 0 0 22 22 22 22 22 22 22 22 17 6 0 0
Incremental HVAC O&M and
insurance 0 0 0 0 6 6 6 6 6 6 6 6 6 6 6 6
Allowance for restoration of
unplanned outages of project
facilities US$m 0 0 0 0 6 6 6 6 6 6 6 6 5 2 0 0
Transit cost in TAJ US$m 0 0 0 0 1 1 1 1 1 1 2 1 1 0 0 0
Incremental energy costs
KRG total exports GWh 0 0 0 0 1433 1221 1397 1174 1248 1316 1600 1492 1217 0 0 0
TAJ total exports GWh 0 0 0 0 2567 2779 2603 2826 2752 2684 2400 2400 1885 1059 30 0
Combined total energy exports GWh 0 0 0 0 4000 4000 4000 4000 4000 4000 4000 3892 3102 1059 30 0
KRG exports as % of total % 0% 0% 0% 0% 36% 31% 35% 29% 31% 33% 40% 38% 39% 0% 0% 0%
TAJ exports as % of total % 0% 0% 0% 0% 64% 69% 65% 71% 69% 67% 60% 62% 61% 100% 100% 0%
Economic cost of KRG energy US$m 0 0 0 0 42 36 41 34 37 39 47 44 36 0 0 0
Economic cost of TAJ energy US$m 0 0 0 0 5 5 5 5 5 5 4 4 3 2 0 0
Total incremental economic costs US$m 102 305 407 204 83 77 82 75 77 79 87 83 68 15 6 6

Economic benefits 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
AFG share of energy GWh 0 0 0 0 946 946 946 946 946 946 946 920 733 250 7 0
AFG cost savings from energy
imports US$m 0 0 0 0 96 94 93 87 87 87 86 82 65 22 1 0
Value of GHG reduction in AFG US$m 0.0 0.0 0.0 0.0 6.3 6.5 6.7 6.7 6.9 7.1 8.2 9.0 8.3 3.3 0.1 0.0
PAK share of energy GWh 0 0 0 0 2994 2994 2994 2994 2994 2994 2994 2913 2322 793 23 0
PAK cost savings from energy
imports US$m 0 0 0 0 401 367 309 304 300 295 280 264 207 67 2 0
Value of GHG reduction in PAK US$m 0 0 0 0 29 26 20 21 21 22 26 29 26 10 0 0
Total incremental economic US$m 0 0 0 0 532 494 429 419 415 411 400 384 307 103 3 0

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benefits
Net incremental economic
benefits US$m -102 -305 -407 -204 449 417 347 343 337 332 313 301 238 88 -3 -6

NPV US$m 1,208

EIRR % 26%

Table 44: Flow of Financial Costs and Benefits for the Project
BASE CASE: FLOWS OF FINANCIAL COSTS AND
BENEFITS

Financial costs 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
Construction and associated
costs
Construction and associated costs US$m 104 311 414 207 0 0 0 0 0 0 0 0 0 0 0 0
Incremental O&M and
insurance costs
Incremental HVDC O&M and
insurance for project facilities US$m 0 0 0 0 22 22.6 23.1 23.5 24.0 24.5 26.5 28.7 31.0 33.6 36.4 39.4
Incremental HVAC O&M and
insurance for project facilities US$m 0.0 0.0 0.0 0.0 6.5 6.6 6.7 6.9 7.0 7.1 7.7 8.4 9.0 9.8 10.6 11.5
Allowance for restoration from
unplanned outages of project
facilities US$m 0.0 0.0 0.0 0.0 6.8 6.8 6.8 6.8 6.8 6.8 6.8 6.6 5.3 1.8 0.1 0.0
Incremental energy costs
KRG total exports GWh 0 0 0 0 1433 1221 1397 1174 1248 1316 1600 1492 1217 0 0 0
TAJ total exports GWh 0 0 0 0 2567 2779 2603 2826 2752 2684 2400 2400 1885 1059 30 0
Combined total energy exports GWh 0 0 0 0 4000 4000 4000 4000 4000 4000 4000 3892 3102 1059 30 0
KRG exports as % of total % 0% 0% 0% 0% 36% 31% 35% 29% 31% 33% 40% 38% 39% 0% 0% 0%
TAJ exports as % of total % 0% 0% 0% 0% 64% 69% 65% 71% 69% 67% 60% 62% 61% 100% 100% 0%
Incremental financial cost of KRG
energy US$m 0 0 0 0 3 2 3 2 3 3 4 4 3 0 0 0
Incremental financial cost of TAJ
energy US$m 0 0 0 0 5 6 5 6 6 6 6 6 5 3 0 0

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Incremental T&D costs
KRG incremental transmission
cost from generation plants to
Datka SS US$m 0.0 0.0 0.0 0.0 0.5 0.4 0.5 0.4 0.4 0.5 0.6 0.6 0.6 0.0 0.0 0.0
TAJ incremental transmission cost
from Khudjand SS to Nurek SS US$m 0.0 0.0 0.0 0.0 1.5 1.3 1.5 1.3 1.4 1.5 2.0 2.1 1.8 0.0 0.0 0.0
AFG incremental distribution cost
from Kabul SS to end-users US$m 0.0 0.0 0.0 0.0 5.1 5.2 5.3 5.4 5.5 5.7 6.1 6.4 5.6 2.1 0.1 0.0
PAK incremental transmission cost
from Peshawar SS to DISCOs US$m 0.0 0.0 0.0 0.0 7.1 7.3 7.4 7.6 7.7 7.9 8.5 9.0 7.7 2.9 0.1 0.0
Total incremental financial costs US$m 104 311 414 207 57 58 59 60 61 63 68 72 69 53 47 51

Financial benefits 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2027 2031 2035 2039 2043 2047
AFG share of energy GWh 0 0 0 0 946 946 946 946 946 946 946 920 733 250 7 0
DABS incremental revenue US$m 0 0 0 0 118 118 118 118 118 118 118 115 92 31 1 0
PAK share of energy GWh 0 0 0 0 2994 2994 2994 2994 2994 2994 2994 2913 2322 793 23 0
NTDC incremental revenue US$m 0 0 0 0 299 299 299 299 299 299 299 291 232 79 2 0
Total incremental financial
benefits US$m 0 0 0 0 418 418 418 418 418 418 418 406 324 111 3 0
Net incremental financial
benefits US$m -104 -311 -414 -207 360 359 358 357 356 355 350 335 254 57 -44 -51

NPV US$m 3,861

FIRR % 25%

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 Annex 7: Governance and Management of Export Revenues

Background

1. The CASA-1000 project would help the Government of Tajikistan to generate significant
revenues from summer electricity exports. These revenues, in turn, could help finance additional
generation capacity and/or energy efficiency programs as a means of dealing with Tajikistan’s
winter energy crises which occur with regular frequency. However, the management of export
revenues in the energy sector has been a key concern as evidenced from the present Tajikistan-
Afghanistan electricity export experience. Therefore, the design of the governance structure for
the transparent management of revenues from electricity sales is important and discussions are
now ongoing about the option of opening an Escrow Account as described below.

Objectives

2. The key objective of an Escrow Account is to ensure transparent use of export revenues
that will include the following:
a. Inflows from all electricity export sales, including from the existing bilateral
Tajikistan-Afghanistan power trade;
b. Revenues from electricity export under the CASA-1000 project (despite the fact that
exports, and hence, revenues will only take place after the completion of Project
activities);
c. Transmission and O&M recovery charges for AC facilities specifically being built for
CASA-1000;
d. Charges of Tajikistan portion for the Community Support Program implementation.

Permissible Use

3. The funds out of the “blocked” escrow account shall be used for the following purposes:
a. Payment of any Independent Power Producer (IPP) revenue related to CASA-1000
sales (Nurek HPP, etc.)
b. Activities targeted on reduction of winter deficit and agreed with the world Bank and
other IFI’s – CASA-1000 financiers;
c. Maintenance of assets specifically created/built for CASA-1000;
d. Rehabilitation of existing generating capacities;
e. Implementation of the Community Benefit Sharing Program;
f. the remaining funds may be used for other activities as agreed with the World Bank
and Islamic Development Bank and may include the following: (i) loan repayments;
(ii) interest repayment; (iii) bank’s fee; or (iv) transferred to the main bank account of
the Implementing Agency loan repayments;

Underlying principles /Monitoring of Escrow Account

4. The basic underlying principles of transparent management of export revenues are as

follows:
a. export revenues should flow to a special escrow account opened in a qualifying bank;

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 b. the use of funds accumulated in this account should be limited to the purposes
stipulated in respective agreements between the Government and implementing
agencies and acceptable to the World Bank;
c. the monthly statement showing the receipts and payments from the account should be
published on the websites of the Implementing Agency (BT), Ministry of Energy, the
banks;
d. there should be an annual audit of these statements by an independent private auditor
acceptable to the World Bank.
e. the audited statements with the opinion of the auditor should also be made public on
the websites mentioned above.

5. Implementation of these principles would significantly decrease the risk of inappropriate

use of export revenues, provided the Government of Tajikistan supports the arrangements and
adheres at all times to the provisions in the respective legal agreements.

Escrow Account Bank Selection Criteria and rationale for opening Escrow Account at the
National Bank of Tajikistan

6. The qualifying bank should fulfill certain eligibility criteria, such as the size of the bank,
capital adequacy ratio, liquidity ratio, single borrower limit, share of non-performing loans
(NPLs), compliance with the National Bank prudential norms in the past three years, clean audit
opinion by an international auditor for the past three years.

7. In Tajikistan, the banking sector remained weak, with a large overhang of NPLs, weak
capital positions, and liquidity constraints. Tajikistan’s financial sector remains shallow by
regional standards, as the banking sector remains concentrated with the four largest banks
controlling about three fourths of total assets. There are several obstacles which limit the
restoration of a stable and sound banking sector.

8. It seems unlikely that any of the large commercial banks in Tajikistan will be able to
fulfill the eligibility criteria. It is therefore suggested that an escrow account for the export
revenues from CASA-1000 be opened in the National Bank of Tajikistan (NBT), which is more
independent than the other commercial banks. The NBT is regularly audited by private
international auditors and the last annual audit opinion (for 2012) was clean. In addition, NBT’s
experience with a similar escrow account for the Pamir Energy project indicates that NBT will
have the capacity to manage the escrow account under CASA-1000.

9. The Kyrgyz experience: On May 26, 2011 the Ministry of Energy of the Kyrgyz
Republic issued an order under which the country's main generation company JSC Electric
Power Plants (EPP) was required to set up a special Escrow Account for receiving all the
revenues from export of power. The order also adopted a Regulation on the setting up, operation
and monitoring of this escrow account under which EPP was obliged to carry out a competitive
selection of an Escrow Account bank based on pre-set minimum criteria. Additionally the order
established a “Blocked Accumulated Level" of funds which EPP had to instruct the bank could
be used only for specified purposes, namely: for paying transit fees to Transmission Company;

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and for purchases of fuel supplied to Bishkek and Osh CHPs. Revenues in excess of the
“Blocked Accumulated Level” could be transferred to ordinary accounts of EPP.

10. Control over the Escrow Account is the responsibility of the Board of Directors of EPP.
The Secretary of the Board carries out a compliance monitoring of all the procedures. The
Escrow Account Bank provides monthly statements to the Ministry of Energy and to EPP. The
monthly statements include information about the total account balance, the amount of money
received and spent for that month and the names and details of the senders and receivers of this
money. The BoD has the right to order an audit of the escrow account. Publication of monthly
statements of the account on the Ministry's web-site for the past two years and going forward is a
prior action requirement under the DPO 2.

11. For CASA-1000 purposes, consideration is being given to strengthening the escrow
mechanism, by getting the Regulation approved as part of the Loan Agreement, which, once
ratified, would have the power of law. Revision of the uses of funds is also under consideration
as is a new requirement for mandatory annual audits. In CASA-1000 EPP will be the main
beneficiary as the seller of power and a party to PPAs. However, the transmission company
(NEGK), which will be the owner of the line and the main recipient of the financing, will also
benefit from transmission fees.

12. Currently, there exists a separate Escrow Account for NEGK's revenues from frequency
regulation provided to the Central Asian Power System. The existing provisions of the
Regulation governing this Account are much simpler, the only requirements are: (i) competitive
selection of the Escrow Account Bank, and (ii) quarterly reporting to the Ministry of Energy and
Regulatory department on how funds were used from this account, including provision of bank
statements. The NEGK escrow regulation will be revised in line with the criteria established for
the EPP escrow account described above. Publication of monthly statements from this account
on the Ministry's web-site is also a condition under the DPO 2.

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 Annex 8: Social Safeguards and Community Support Program

Social Safeguards

1. Involuntary Resettlement. It is anticipated that the project will finance investments such
as towers, sub-stations, and access roads, which will require the involuntary acquisition of land,
restrictions to use of land both temporarily and permanently, and loss of crops and assets. It is
not expected that the land take will be significant as the broad project area is mostly rural and
sparsely populated. Impacts on economic crops are expected due to height restrictions under the
Transmission Line. There may also be some impacts on community infrastructure.

2. Because the alignment of the Transmission Line is yet to be finalized, RPFs have been
prepared for each participating country. The RPFs describe the overall possible impacts, project
policies including its entitlement policies, resettlement planning, institutional and
implementation arrangements, including grievance redress and monitoring mechanisms.

3. The draft RPFs for all countries have been disclosed in-country and at the InfoShop and
will be the subject of consultations with relevant stakeholders in the capital cities and in the
proposed project areas prior to appraisal. Final versions of the RPF will be prepared based on the
feedback from the consultations and will be submitted to the World Bank for review and
clearance.

4. Indigenous Peoples. OP 4.10 is not triggered. A screening of the project area determined
that there are no indigenous peoples, as per OP 4.10, in the proposed project area.

5. Social analysis. An SIA was prepared in 2013, which collated information from previous
assessments (Environmental and Social Impact Assessment, 2011 and Studies on community
benefit sharing options, 2011/2012 – for Kyrgyz Republic, Tajikistan, Afghanistan and
Pakistan). The SIA, which covers all four countries, shows that the proposed project area, in all
countries, is mostly rural, has relatively low levels of economic development. The local
communities are mostly rural and highly dependent on agriculture, with only mixed access to
services due to uneven infrastructure. The SIA also showed that migration levels (mostly men
but also some women) were high in Kyrgyz Republic and Tajikistan. The impact has been a high
prevalence of female-headed households, some of which were doing well financially because of
remittances from their spouses.

6. Vulnerability. Social analyses identified the following groups that are vulnerable to
economic shocks due to limited income and difficulties accessing services: female-headed
households (where women were divorced or widowed), households with more than one family
living together and rural families not involved in agricultural production. The RPFs indicate that
additional support will be provided to vulnerable groups to mitigate any additional adverse
impacts that they may experience.

7. Gender. The SIA detailed the range of gender issues in the four countries within the
limitations of (sparse) available data, especially for the Kyrgyz Republic. In all four countries
there is a general level of traditional attitudes towards women which is manifested in a number

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of ways including: the practice of purdah in the proposed area in Pakistan, a history of wide
gender gaps in women’s access to services, economic opportunities and voice in Afghanistan,
limited access to education (including vocational training), lower economic activity, and unequal
control over and access to assets and resources such as land and credit. In Tajikistan for example,
only 1 percent of privatized land owners are women even though they are over 70 percent of the
agricultural workforce. There are however pockets of improvement: in Afghanistan, for example,
women are increasingly being included in forums to determine village development priorities.
The environment for women in the four project countries will have implications for the
implementation of the RPFs and the Community Support Programs. In the former case, for
example, the RPFs include specific measures to protect vulnerable groups (including female
headed households) from disproportionate impacts related to involuntary acquisition of land or
assets. In the latter case, particular attention will need to be paid to the inclusion of women’s
voices in consultations and project implementation. In addition, initiatives that target poverty
reduction measures through economic activity may, for example, have to pay particular attention
to providing specialized training for women, taking into account lower educational levels.

8. Consultations. The draft RPFs were subject to stakeholder consultations, including

consultations at the sub-national level (at selected proposed project sites). The RPFs were
finalized after feedback from the consultations was integrated.

Community Support Programs

9. Rationale. The areas along the transmission line corridor are among the poverty-stricken
and lagging regions of the four countries, with low household income, limited access to public
infrastructure and social services. While the primary beneficiaries of the project are outside the
immediate project area, local communities will not see any direct benefits from the project.

10. In all countries there is a general expectation and aspiration among local communities
that they will benefit from the project development. In Afghanistan and Pakistan, the current
conflict and security situation renders local community support a vital factor for the development
and future operation of this investment. Local buy-in from the communities would give added
comfort on the safety of the contractors and the infrastructure. In Tajikistan and Kyrgyz
Republic, much of the country, including communities in the proposed project area, suffers from
winter energy shortages resulting in much discontent about electricity being exported out of the
country. In this environment, if project-affected communities bear the brunt of the impacts
without seeing any benefits they could easily jeopardize the development of the project, the
safety of the infrastructure, and may cause localized instability as communities feel excluded
from the development process. Concerns regarding localized instability are pressing given high
levels of unemployment and economic stagnation. At the national level, government efforts at
addressing the winter energy shortage would strengthen stability and perceptions of inclusive
development.

11. As a result, the CASA-1000 project includes CSPs for each country as a third component
of the project. The CSPs will be designed to deliver community-level development activities (in
the form of infrastructure, services, economic activities, etc.) based on community needs and
delivered using a community driven approach. Initial surveys in representative communities (in

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Tajikistan, Kyrgyz Republic, Afghanistan and Pakistan) have highlighted the following as
community priorities: access to energy in the winter (priority in Tajikistan and Kyrgyz
Republic), access to potable water and improved rural transport infrastructure, among others.

12. Each country will prepare its CSP based on individual country needs and implementation
arrangements. Initial program concept notes have been prepared for most of the CASA-1000
countries and these will be further designed in detail. The CSP will run through the course of the
project (construction phase) and will be adjusted to fit specific country needs during the
operational phase. Currently, the design readiness of the CSP component is uneven across
countries and it is envisioned that the components will be rolled out sequentially with
Afghanistan and Pakistan being implemented first due to advanced preparation and available
funds (for the former) and the high and present security risks for both. In the Kyrgyz Republic
and Tajikistan, where the funding is limited, it is possible that commencement of the CSPs
during construction may not be completely aligned with the construction phase; however, this
should not have a significant impact on the project risks

13. Objectives and principles. The CSP aims to maximize the socioeconomic benefits of this
energy investment by assisting in the governments’ poverty alleviation efforts among
communities along the corridor of the project transmission line. This will improve the well-being
of local communities, help foster a partnership between the project agencies and local
communities, build better local ownership of this public investment and create a supportive
environment for the construction and future operation of this transmission line across the region.
The following principles will guide the program planning and implementation:

a. This program will be demand-driven with communities leading the selection and
finalization of the schemes.
b. Community participation will be socially inclusive, with women, the poor and
marginal groups contributing using culturally-appropriate processes.
c. Planning and implementation process will respect local traditions and customs.
d. Monitoring mechanisms will be designed to ensure transparency.
e. Coordination with other local development activities and plans will be required to
promote sustainability.

14. Coverage and scope. The proposed program will be limited to a project corridor as
defined for each country. The list of eligible communities will be further determined and
finalized during the design of the respective country programs. Although there are differences
across the four countries, the general preferences for development interventions include:
improved electricity access/supply quality; community infrastructure and facilities, such as water
supply systems, roads and schools; and livelihood support measures, including vocational
training and extension support services. These preferences are general and indicative.
Community-specific investment activities will be proposed and finalized through a participatory
planning process within each individual community.

15. Project costs and financing. The CSPs will be structured into two phases for financing
mobilization, i.e. the construction phase and the operational phase. The costs of the CSP during
the construction phase are estimated at US$70 million – Afghanistan (US$40 million), Pakistan

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(US$10 million), Tajikistan (US$10 million) and Kyrgyz Republic (US$10 million). These funds
will be mobilized through funding under World Bank operations and/or through other
development partners possibly in a Multi Donor Trust Fund. To date, there is a commitment for
funds for Afghanistan. There is a financing gap for Pakistan, Kyrgyz Republic, and Tajikistan
and efforts to raise money from donors are needed. A funding mechanism has already been
agreed among the four governments to support community development initiatives during the
operational phase through project revenues.

16. Planning and implementation. The community development programs will be

responding to the prioritized needs of the beneficiary communities within the corridor of impacts
in each country. A community-driven approach will be adopted, following established
institutional and operating modalities for rural development in each of the four project countries.
Current arrangements for each CSP are as follows:

17. Afghanistan: The program will be designed in close alignment spatially and time-wise
with the CASA-1000 construction phase. The project will be a multi-year project to be
implemented, subject to agreement by GoA, utilizing the existing project implementation
modalities and Facilitating Partners as well as the Monitoring and Evaluation system under the
ongoing National Solidarity Project (NSP). The NSP is the largest investment in rural
Afghanistan, operating in all 34 provinces, aiming at building, strengthening, and maintaining
elected Community Development Councils (CDCs) as effective institutions for local governance
and socio-economic development.

18. The project would target the communities (represented by their CDCs) within the
Corridor of Impact (COI) and in line with existing NSP policies, and attempt clustering of CDCs
as far as possible and relevant. Community institutions, such as CDCs, Irrigation Associations,
Youth Associations, Self-Help Groups and Agricultural Cooperatives, will be engaged for
supporting implementation and operation of the program. Where communities have proven
capacity, the program planning and implementation could be done by communities themselves
through community contracts. For complex projects which are beyond the capacity of local
communities, implementation could be done through the private sector or other suitable entities
following a competitive bidding process.

19. Pakistan: The CSP will be managed and implemented through an established setup under
development programs supported by development partners. 39 A Project Steering Committee
(PSC) and a PMU have been established at FATA and KPK provincial level. The PSC has an
overall function of policy formulation and supervision. The PMU is established within the
Directorate of Project under FATA Secretariat and Planning and Development Department of
KPK Province, with a project director and a full staff. It is responsible for project

39
FATA Rural Development Project supported by ADB
FATA Livelihoods Project supported by German Technical Cooperation
KPK Community Infrastructure Project and FATA Rural Livelihoods And Community Infrastructure Project,
KPK Southern Area Development Project by World Bank

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implementation. At the agency and district level, there is either an agency implementing unit in
FATA or an appointed district officer dedicated to support the program. Local communities play
a central role in the program scheme selection, planning and implementation. Programs use the
local indigenous structure including Jirga (council of elders), tribal elders (Mallack), and agency
development councils as facilitating partners to ensure the participation of local community
members. Locally-based organizations are engaged to facilitate the social mobilization process.
They would carry out consultations with local communities; facilitate awareness raising and
development scheme selection.

20. In addition to the above setup which also has regular monitoring and evaluation
responsibilities, additional monitoring mechanisms are also being piloted such as progress
review partners and independent third party monitoring involving local civil society
organizations, such as youth groups, and using ICT and community feedback tools

21. Kyrgyz Republic: Discussions regarding the design of the project and implementation
arrangements are ongoing. The CSP could be implemented by the Community Development and
Investment Agency (ARIS). ARIS has some 10 years of experience working on community
driven development and has local staff in the three concerned oblasts (Jalalabad, Osh, and
Batken). The CSP could be incorporated into the Village Investment Project-3 (VIP 3) currently
under preparation. The dialogue with government will include options for extending the CSP
beyond the COI.

22. Tajikistan: Discussions regarding the design of the project and implementation
arrangements are ongoing. Government has indicated an interest in strengthening winter energy
access to community facilities such as schools and clinics in addition to supporting investments
in priority sectors such as water. Implementation arrangements are also being considered—with
government considering using an NGO as an implementing partner, or alternatively centering
implementation in government. There is a strong interest in ensuring that during construction and
operations that the CSP is not confined to the communities in the COI, but benefits rural
communities in other regions in Tajikistan. As such, government sees the construction phase as a
pilot phase for testing delivery mechanisms, coordination arrangements, and implementation
arrangements to prepare for a more robust rural intervention post-construction. The CSP may be
implemented as a stand-alone operation activity with financing from donors through the
proposed Multi Donor Trust Fund.

23. Considering the need and urgency for community engagement for the construction phase
in Afghanistan and Pakistan, it is considered important that the CSPs at construction phase in
both countries should synchronize with the transmission construction schedule and start their
implementation along the transmission line civil works.

24. Consultations. Survey and consultations have been carried out amongst a representative
sample of communities through community meetings, focus group discussions and individual
interviews. The consultations discussed, assessed and summarized the community development
needs and prioritizations. During the design of the country-specific CSPs, further community-
level consultation will be undertaken.

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 Annex 9: Macroeconomic and Sectoral Context of the CASA-1000 countries

Pakistan

Energy sector context

1. The sector has a regulator and relies on a single national transmission company, NTDC, and
nine different distribution companies (DISCOs), as well as a vertically integrated utility serving
the city of Karachi (Karachi Electricity Supply Corporation, KESC) for the provision of services
to consumers. The performance and capacity of the DISCOs vary significantly. In 2012, the total
installed generation capacity was about 22,800 MW; however, a significant portion of this
capacity is not being fully utilized and the available capacity is closer to 14,000 MW. No
significant power generation capacity has been added for many years. In a country of 180 million
that is one of the most urbanized in the region, the demand for energy continues to grow.
Between 2004 and 2009, electricity consumption grew by 22 percent while the supply remained
practically stagnant. From 2010 to 2012, Pakistan made a serious effort to deal with the
electricity crises by investing in the domestic expansion of hydropower (1,410 additional MWs
from an already constructed tunnel on the existing Tarbela Dam and is proceeding with the Dasu
project which, when completed, will be 4,320 MW), improving the efficiency of the natural gas
distribution system, mapping the potential of solar and wind energy, and pursuing import
opportunities for electricity/gas from Central Asia, Iran, and India.

2. Pakistan’s energy sector is facing a serious crisis, especially in electricity. Key challenges
include large and growing shortages of energy, high costs, and inefficiencies that prevent the
sector from financing all its costs. Based on preliminary estimates, the poorly performing
electricity sector is thought to have reduced GDP growth by 2 percent per annum for the past
several years. The sector relies heavily on government support, through subsidies amounting to
about 2.75 percent of GDP in 2012/2013, and funding for almost its entire investment program.
Actions are required in three broad areas. The first is to improve sector finances by ensuring that
the full cost of electricity service is recovered from consumers. The second is to overcome the
investment deficit and to rebuild low-cost, efficient supply side capacity suited to the demand
profile. The third is to improve sector governance, managerial autonomy and accountability. The
problems and potential solutions to the recovery of the Pakistan energy sector are well
understood but until recently the political will to undertake deep structural reforms has been
wanting.

3. To support the objective of improving energy supply, the government has set out a
National Power Policy that was approved by the Council of Common Interest in July 2013.
Pakistan’s goal is to develop an efficient and consumer oriented electric power system that meets
the needs of its people and economy sustainably and affordably. The three guiding principles of
the National Power Policy are efficiency, competition and sustainability and it focuses on five
main targets set out in Table 45.

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Table 45: The Five Main Targets of the National Power Policy 2013
Target Current Situation Goal and date
Decrease gap between supply 4,500 – 5,000 MW shortfall Reduce to zero by 2017
and demand
Improve affordability by Average generation cost Reduce average generation
decreasing cost of generation US¢12/kWh cost to US¢10/kWh by 2017
Decrease aggregate technical T&D losses currently about Reduce T&D losses to about
and commercial T&D losses 23-25 percent 16 percent by 2017
Improve collection of billed Collections are currently about Increase collections to 95
electricity 85 percent of billing percent of billing
Improve governance by Slow decision making Shorter processing times (goal
decreasing decision making yet to be established)
times at Ministries, related
departments and regulators

4. The government has developed an Action Plan to implement the National Power Policy
over the next 3 to 5 years. The Action Plan ties together the policies and actions required to
implement the specific strategies of the 2013 National Power Policy. The strategies are closely
interlinked. Achieving financial sustainability requires improving cash flows both through tariffs
reflective of efficient costs, efficiency and performance of the companies through
commercialization, and reducing losses, in particular theft. Achieving cost reflective tariffs in a
sustainable manner requires reducing generation costs through efficiency improvements, increase
in gas supply, and targeting subsidies only to low-income households. Creating awareness and
consensus for the policy implementation requires increasing transparency through greater access
to information, strengthening the capacity of NEPRA and improving its accountability.

5. The Government of Pakistan has already started implementation of its 2013 National
Power Policy. The Government has already taken a number of significant initial steps including
substantive retail tariff adjustments (a 50 percent (weighted average) increase for industrial,
commercial and bulk consumers on August 5, 2013 resulting in a revenue increase of about
Rs.140 billion) and another increase on October 1, 2013 for households to phase out subsidies to
households consuming more than 200kWh per month with further increase for domestic
consumers partial settlement of circular debts (about Rs 500 billion equivalent), bringing the
DISCOs under the purview of the Companies Act. It has also signed three performance contracts
with the DISCOs.

6. The Bank is working with ADB and JICA to prepare a series of Development Policy
Credits to support the implementation of the 2013 National Power Policy, the first of which is
planned to be submitted for Board Approval in FY14. The proposed DPC is envisaging support
of three key policy area:

a. Adopting clear policies on tariffs and subsidies. This area aims to mitigate the
unsustainability of the sector – partial cost recovery by utilities. In particular it will
ensure implementation through NEPRA rules and regulations to reduce discretion and lag
in tariff approval. This will go hand in hand with reducing the subsidy burden on the
government while maintaining its social responsibility. This area further supports private

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 sector investments in two ways (i) it helps bring the sector to greater financial viability,
thus giving the investor more confidence that it will be paid and (ii) it improves the
government’s fiscal position, thus improving its credit rating and the value of a sovereign
guarantee to potential investors.

b. Improving sector performance and opening the market to private participation. This
area aims to create the conditions that will lower down the high cost of electricity
generation in the future: (i) Improving Sector Performance by managing revenues and
collections to establish creditworthiness of the sector; improving demand side efficiency
and strengthening energy conservation; managing generation cost through least cost
planning and entry of new generation follows the plan; (ii) opening the market by
increasing gas supply and opening the gas market to direct contracting sales to large
customers; commercialization and improving performance of DISCOs, NTDC and
GENCOs; corporatization and commercialization of CPPA and implementation of a
multiple buyers’ market by allowing generators to contract sales directly with large
consumers; and

c. Accountability and transparency. implementation of mechanisms to allow

information access and strengthening the transparency of NEPRA for all stakeholders.

Sector Reforms and Trading Arrangements

7. Pakistan is implementing a power sector reform program, including the rationalization of

tariffs and a predictable regulatory framework, strengthening the performance and
creditworthiness of the distribution companies, introduction of competition and promotion of
efficient low cost generation / supply mix, and attracting investment and new participants in the
sector. As part of this reform, the sector has been restructured into its different activities, with
separate distribution companies (DISCOs), generation companies (GENCOs) and national
transmission company (NTDC) responsible for high voltage transmission system, including
international interconnections.

8. Of particular importance to the proposed CASA-1000 project is the agreed roadmap for
the full independence of CPPA. The reform program will move to a multi-buyers and multi-
sellers competitive wholesale market where each DISCO purchases power to supply its
customers. In the transition to this final arrangement, a single wholesale function (CPPA) will
responsible for power purchase on behalf of all DISCOs, with a pooled price (average purchase
price) paid by each DISCO for the energy purchased to supply its load. The reform process has
the following stages until the implementation of wholesale competition:

a. Currently, the CPPA function is licensed to NTDC and operating as a department of

NTDC.

b. Before the end of 2014, the CPPA function will be eliminated from NTDC and a
separate CPPA will become operational as an independent agency to purchase power on
behalf of DISCOs and resell to DISCOs at a pooled price. The existing contracts/PPA
signed by NTDC will be novated to the independent CPPA. Through amending NTDC

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 license to cover only transmission services, NTDC will focus on expansion planning,
timely transmission investments, maintenance and reliable system operation.

c. By 2017, a market will start allowing Bulk Power Consumers to purchase power on
their own, while DISCOs will purchase and supply their non-Bulk Power Consumers.

d. When the commercial operation of the wholesale market starts, the CPPA will
become a power exchange / market operator. Each DISCO will procure power on its own,
and existing contracts signed by CPPA will be transferred to DISCOs.

9. The Bank is working in close coordination with: (i) the IMF which approved a three-year
Extended Fund Facility in September 2013 that focuses, inter alia, on issues in the energy sector
and (ii) the ADB which remains the major donor funding investments in the power sector in
Pakistan. The Bank is also coordinating assistance with other donors such as USAID, DfID,
IsDB, Agence Française de Développement and KfW/Deutsche Gesellschaft für Internationale
Zusammenarbeit.

Macroeconomic context

10. Pakistan is facing many crises at the same time: terrorism, economic and energy. In this
very difficult context, with its convincing win in the last May's election, the Pakistan of Muslim
League-Nawaz (PML-N) of Prime Minister Nawaz Sharif has a strong mandate to implement
needed reforms. This could facilitate the implementation of a comprehensive reform agenda that
can help the country avoid a balance of payment crisis and regain strong and sustained growth
rates. The citizens are now demanding more transparency and performance from the
Government.

11. The economy remains stuck in a low-investment-low growth trap. Real GDP growth at
3.6 percent in 2012/13 was modest but below the 4.4 percent reached in the previous year. The
slowdown was partly explained by a marked fall in private investment (10.3 percent of GDP),
the lowest level in two decades. Energy bottlenecks and security concerns are also major
contributors to the slump. Inflation dropped markedly to single digits (7.4 percent) due to
improved food supply, and reduced demand and inflationary expectations; yet pressures on
prices remain high, which might push inflation back again into double digits.

12. Pakistan’s very weak external position remains the most pressing short-term economic
challenge. Although the current account deficit remained small due to a marginal improvement
in export growth, deceleration in imports associated with the economic slowdown and inflows of
workers’ remittances; falling financial inflows and substantial debt amortization payments have
resulted in a marked drawdown of foreign reserves. In terms of import coverage, reserves
declined from about 2.7 months by June 2012 to 1.5 months by June 2013 (1.2 months in
September 2013).

13. Unsustainable fiscal imbalances compound the current crisis and need urgent attention.
The consolidated fiscal deficit exceeded by a sizeable margin the budgeted target, and reached 8
percent of GDP again. Significant shortfalls in revenue and a sharp overrun in energy subsidies,

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originating from country’s dependence on imported expensive fuel to produce electricity,
worsened an already large fiscal deficit. Moreover, due to restricted external financing, domestic
bank borrowing and direct financing from the SBP rose, reducing the availability of private
sector credit.

14. Recovery cannot happen without the major structural reforms, especially in tax policy
and administration and the energy sector. On the tax front, FBR, the tax collection agency,
initiated some attempts to register tax evaders, remove zero ratings for domestic sales of selected
export products, and raise excise duties on tobacco, but results were by and large unsuccessful as
the tax ratio fell to 9.6 percent of GDP. On the energy front, the government was unable of
increasing power tariffs in 2012/13 and, as a result, expenditures on the tariff differential subsidy
reached Rs349 billion— 1.5 percent of GDP. In addition, the financial losses of overall SOEs
also continued to bleed the budget.

15. Regional integration is low within South Asia and with Central Asia. Energy import from
regional energy surplus areas would not only help ease the biggest constraint on economic
growth by improving the reliability of electricity supply and likely lowering electricity prices,
but also help in increasing the regional integration and thus contributing to greater stability.

16. The Government has a sound economic plan; has completed its discussions with the IMF
for a 3-year US$6.7 billion Extended Fund Facility (EFF, approved by IMF Board on Sept. 4
2013); and has taken the initial stabilization reform actions. In the EFF, the Government has
announced a bold set of stabilization and structural reforms for the next three years that aim to
reduce the risk of a crisis in the short term and regain and sustain high and inclusive growth in
the medium term. As prior actions, the Government has agreed to focus on strengthening the
external situation and on fiscal consolidation. A well-implemented reform program will restore
framework for effective budget support from the World Bank and, possibly, other donors which
could address structural reforms in areas such as revenue mobilization, the power sector,
business climate, state-owned enterprises, trade liberalization and strengthening of the safety-net
system.

Tajikistan

Background

17. Tajikistan is a small landlocked country vulnerable to natural disasters and the
influence of external economic conditions. Located in the heart of Central Asia, it is blessed
with abundant water resources, contributing to its specialization in cotton production. Tajikistan
also has considerable hydropower potential—inexpensive electricity has led to its other
specialization: processing of aluminum. Shortly after its independence in 1991, the country
descended into a civil war that lasted until mid-1997 and brought widespread physical damage
and loss of life. It is susceptible to natural disasters and is regularly affected by floods,
landslides, earthquakes, and droughts. Only 7 percent of its total land area is arable; high
mountain ranges make communication between different parts of the country difficult, especially
in winter. These factors combine to make Tajikistan one of the world’s poorest countries, with a

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gross national income per capita of US$880 in 2012. Limited employment opportunities at home
have led 40 percent of the working age population to seek better jobs in Russia.

18. Despite these difficult initial conditions, its economy grew rapidly prior to 2009
global economic crisis. Strong economic growth, at more than 8 percent per annum during
2000-2009, was made possible by five favorable factors: the peace agreement that permitted
businesses and households to return to normal economic activity; a stabilization dividend from
the government’s success in stabilizing the economy; the growing global and regional economy
that led to increased aluminum and cotton exports as well as rising inflows of remittances;
increased development assistance, including from the international financial institutions; and
reforms that permitted businesses and households to take advantage of emerging opportunities.

Energy sector context

19. Tajikistan relies almost exclusively on hydropower (96 percent of its 4,750 MW of
installed capacity) to meet its electricity needs. The Vakhsh cascade also follows the same
pattern of summer surplus and winter shortages, except that the storage capacity of the Nurek
reservoir is smaller making the water spillages in the summer even larger. As the poorest country
in Europe and Central Asia, Tajikistan has significant development challenges and poverty
alleviation is critical. The World Bank's recent Poverty Reduction Strategy Paper (PRSP) for
2010-12 underscored the essential role of the infrastructure sector in achieving the objectives of
poverty reduction and growth. In particular, the energy sector was identified as a priority, given
its significant development impact and potential. Also, the 2001 Country Economic
Memorandum (CEM) calls for hydro resource development for growth and poverty reduction.
The power sector is managed mainly by Barki Tajik, a state-owned enterprise. Some of the key
issues facing the sector are: (i) the financial viability of Barki Tajik, which carries a sizable cash
deficit (about 2 percent of GDP for 2010); (ii) the seasonal mismatch between electricity supply
and demand, contributing to economic losses and hardship for the population, with winter power
shortages leading to 12-18 hours of load shedding during winter months outside of the capital
city of Dushanbe; (iii) the increasing liability of the payments to IPPs for electricity that cannot
be commercially utilized during the summer months in the absence of export opportunities; and
(iv) the need to advance commercialization of the power sector, including unbundling of
generation, transmission and distribution systems..

Recent economic and fiscal developments

20. After slowing down to below 4 percent, economic growth rebounded to 6.5 percent
in 2010 and further to 7.4-7.5 percent in 2011-2012. Real GDP grew by 7.4 year-on-year
during January-September 2013. Economic activity in the post-crisis period has been spurred by
the pickup in gross remittance inflows, which rebounded sharply in 2010 and continued to grow
afterwards, reaching record high level of 48 percent of GDP in 2012. Larger inflows of
remittances fueled domestic demand and strong growth in services, which accounted for more
than one-third of total growth in 2012 and the first 9 months of 2013. Other sectors (agriculture,
industry and construction) performed well too, though industrial output growth was driven
mainly by extractive industries with manufacturing sector performance being mixed. Inflation
was contained at single digit levels, declining on a year-on-year basis from 9.8 percent in

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December 2009 to 5.5 percent in September 2013. After widening to close to 5 percent of GDP
in 2011, current account deficit was reduced to 1.2 percent of GDP in 2012 and expected to
remain below 2 percent in 2013.

21. The overall fiscal stance improved notably in the post-crisis period. The overall fiscal
deficit dropped dramatically from 5.4 percent of GDP in 2009 to a surplus of 0.1 percent in 2012,
on the back of higher revenues and lower (in relation to GDP) expenditures. The fiscal
consolidation largely reflected the pattern of capital investments from the externally financed
Public Investment Program (PIP), which is being phased out gradually. Despite the sizable
improvement in the government fiscal position, fiscal buffers are yet to be restored as
government deposits in banks remain well below their pre-crisis levels. The general government
budget was concluded with a surplus of 0.9 percent of GDP during January-September 2013 but
expected to move to a deficit by the end of 2013 due to higher expenditures and moderated
revenues.

Risks and medium-term outlook

22. Notwithstanding these positive developments, the country remains vulnerable to a

number of shocks, whilst the ability to dampen the shocks is limited. High dependence on
remittances, narrow export base (cotton and aluminum account for close to 60 percent of
exports), low external and fiscal buffers (foreign currency reserves account for 1.6 months of
imports) make Tajikistan's economy highly vulnerable to external shocks. The ability to dampen
the shocks is limited by weak domestic policies, creating additional fiscal risks, stemming from
government-directed lending via commercial banks and quasi-fiscal activities of SOEs (including
energy utilities). Weak governance and financial sector accountability, and the poor business
climate hold back financial sector and government debt market development.

23. In the medium-term, growth is projected to ease down to below 6 percent per
annum due to a deceleration in Russian growth and a related moderation in the inflow of
remittances. Downside risks include even slower growth in Russia, major terms of trade shocks,
financial sector and contingent liabilities. Pace of construction and financing terms of major
energy projects create additional risks. In addition to better-than-projected growth in main
trading partners, higher remittances and terms of trade improvement, possible upsides include
growth dividends from more decisive actions on structural reforms, including those allowing
Tajikistan to reap the benefits of its recent WTO membership, will bring medium- and long-term
growth dividends, and possible gas exploration.

Afghanistan

Energy sector context

1. Although Afghanistan has recently begun rehabilitating its power sector after two decades of
conflict, it will take many years for this sector to function adequately and meet the country's
demand for electricity. In the meantime, demand is growing rapidly. The lack of access to
electricity for a significant portion of the population continues to hamper economic growth and
raises doubts about the country's future ability to provide this key infrastructure, especially

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during the impending transition from decades of conflict marked by the anticipated withdrawal
of the NATO/ISAF from the country in 2014.

2. The government's medium-term outlook for the energy sector focuses on: enhancing energy
security through the rehabilitation of clean and low-cost major hydro plants, which is currently
underway; adding local resources based on more generation capacity to meet unmet and future
demand (coal-based power plants associated with mining activities); expanding small and
medium hydro plants; and starting work on one or two large hydro plants based on the optimized
development of water resources. In addition, the government places strategic importance on
tapping into surplus power from neighboring Central Asian countries, which would also enhance
its prospects as a safe transit country and increase revenues from potential transit fees for sales to
Pakistan and other neighbors.

Macroeconomic context

24. The economy grew strongly in 2012, driven by an exceptional agriculture harvest
and rapid expansion of the services sector. Real GDP growth (excluding opium production)
was 14.4 percent in 2012, which represented a sharp uptick from 6.1 percent in 2011. The strong
performance was in large part due to an exceptional agricultural harvest supported by favorable
weather conditions. Agriculture accounts for about a quarter of GDP (excluding opium) in
Afghanistan and also has strong links to the rest of the economy. As a result, economic growth is
influenced heavily by the volatile agricultural sector. Growth in 2012 also benefited from rapid
expansion of the services sector, which accounts for about half of GDP.

25. Economic growth is projected to slow considerably to 3.1 percent in 2013 and 3.5
percent 2014 due to the increased uncertainty surrounding transition and flat growth in the
agricultural sector. Presidential elections are scheduled for April 2014 but uncertainty remains
over multiple efforts to build broad-based alliances and about whether the resulting government
will be sufficiently cohesive to make significant policy decisions. While the Afghan security
forces have demonstrated competence in responding to security incidents, uncertainty persists
about the security outlook after most international forces withdraw in 2014. In this context,
investment and economic growth have slowed down. Agricultural growth in 2013 is also
expected to be flat or slightly negative after a bumper harvest in 2012. Economic growth is
projected at 3.1 percent in 2013. Growth is projected to remain weak in 2014 before picking up
in 2015 assuming a smooth political and security transition. Investor confidence and growth in
the non-agricultural sectors should pick up modestly in the second half of 2014 as uncertainty
lessens. This, coupled with the assumption of favorable weather conditions for agriculture,
should generate growth of about 3.5 percent in 2014. Public investment expenditures on essential
infrastructure provide an important prop for economic activity during this period of heightened
uncertainty and also contribute to Afghanistan’s medium term growth prospects.

26. In the medium term, post-transition growth is projected to be about 5 percent per
year during 2015-16. This is less than the average growth of 9.4 percent per year during 2003-
12 that was fueled by the surge in international aid and security spending. The post-transition
growth outlook is contingent upon a relatively stable security environment, with agriculture and
extractive industries likely to be among the significant sectors driving growth. Agriculture

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accounts for about a quarter of GDP and is also linked closely to other parts of the economy,
such as food and beverages (which account for almost all of manufacturing), and parts of
transport and retail. Afghanistan has the potential to build on this foundation by reviving its
historical position as an important exporter of fruits, nuts, vegetables, and other higher value-
added products. This will require investments in irrigation and extension services to improve
capacity, as well as efforts to build and improve downstream agro-processing activities. On the
other hand, the extractive industries sector currently accounts for a very small share of GDP, but
has significant potential in light of Afghanistan’s deposits of copper, iron ore, and hydrocarbons.
Unlocking this potential will require progress on the legislative framework as well as securing
financing for the necessary infrastructure.

27. Tapping the potential of regional integration could also become an important
contributor to growth. Afghanistan lies at the crossroads of rapidly growing and resource rich
economies in Central, South, and West Asia. A number of regional energy transit initiatives will
require the direct participation of Afghanistan. These include the CASA-1000 project intended to
carry Central Asian power to Pakistan and the Turkmenistan-Afghanistan-Pakistan-India (TAPI)
pipeline intended to carry Central Asian gas to Pakistan and India. In addition, Afghanistan can
tap the potential of growing transit trade in the region. Taking advantage of regional integration
will require investments in infrastructure, improving customs facilities, and strengthening trade
agreements.

28. After a decade of strong fiscal performance, revenue collection has weakened in
2013, potentially delaying Afghanistan’s path toward self-reliance. Revenues amounted to
Afs 48 billion in the first six months of 2013, down 11 percent in nominal terms from Afs 54
billion in the first six months of 2012. The decline in revenue collection is due to the economic
slowdown, as well as leakages and weakness in administration, particularly in customs. The
Ministry of Finance has introduced a number of measures to stabilize revenues, including
changes in the leadership of the customs department. With the political uncertainty undermining
enforcement, revenues are expected to remain weak at about 10-10.5 percent of GDP during
2013-14.

29. Maintaining macroeconomic sustainability in Afghanistan’s highly aid dependent

environment will require improving revenue mobilization while also securing grant
assistance to meet its considerable financing needs. Afghanistan faces considerable
expenditure needs in the areas of security, infrastructure development, service delivery, and
operations and maintenance. Meeting these needs will also require significant grant assistance
for the foreseeable future. The projected total financing gap, while declining from more than 40
percent of GDP in 2012, will remain above 20 percent of GDP through 2025. In order to
preserve fiscal sustainability, in addition to securing the necessary grant financing, a concerted
effort will be required going forward to improve revenue mobilization by (i) strengthening tax
and customs administration; (ii) expediting introduction and implementation of the planned
value-added tax; and (iii) progress on the legislative and regulatory framework for the extractive
industries sector.

30. In light of high project costs for Afghanistan, it will be important for the country to
ensure that supply and transactions arrangements are favorable to them. While the project

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costs will be financed by international grant assistance, the country-specific costs should,
nevertheless be justified by the country-specific benefits. In this context, it will be important to
for the country to ensure that electricity supply arrangements, price differentials, and transit fees
are adequate to recover the cost of their investment.

31. The benefits for Afghanistan will depend in large part on adequate domestic
electricity supply arrangements. The energy deficit in Afghanistan is substantial: in addition to
lower supply for private consumption purposes, it also leads industries to operate sub-optimally
and with high input costs. Firms in manufacturing and services are either faced with lower
electricity supply which affects their overall productivity or use alternative sources of energy
which increase their input costs. The latter strongly affects the firms’ overall performance,
competitiveness and profitability. Not only will sufficient supply of electricity boost present
industries, it will also encourage further private investment in the country – as lack of access to
electricity is often cited as one of the major constraints to private investment in Afghanistan.
This can have growth spillover effects in Afghanistan in the medium term.

Kyrgyz Republic

Energy sector context

32. Kyrgyz Republic. Over 90 percent of electricity in the country is produced by the Naryn
hydroelectric cascade, which is regulated by the Toktogul reservoir with a storage capacity of 19
billion cubic meters, enabling multiyear regulation of the cascade operation. The inflows into the
cascade are highest during the summer period as a result of snow melts, leading to a surplus of
unused electricity and in some times spillage of water due to the need to maintain the
downstream flows and, at times, constrained by the reservoir's storage capacity. Historically, the
electricity exports during the summer have been made to Central Asia Power System (CAPS)
partners, primarily to Kazakhstan, based on yearly negotiations, but the price levels are low and
the amount is uncertain. Recently completed and planned investments in generation and
transmission facilities Kazakhstan (Moinak HPP, North-South, Alma, Moinak transmission
lines) are expected to substantially lower Kazakhstan’s demand for electricity import from the
Kyrgyz electricity over the longer term.

33. During the winter, when demand is high and the water inflows are not enough to meet the
peak needs for electricity and heating, there are often four-six hours of load shedding. As a short-
term measure to deal with its energy deficits in the winter, Kyrgyz Republic has been exporting
its summer surplus of electricity to neighboring countries, such as Kazakhstan, in exchange for
fuel supplies from coal and gas. The sector suffers from large losses (in excess of 30 percent of
net generation), very low electricity tariffs (less than US¢1.6/kWh), and suboptimal contractual
arrangements and payment mechanisms between the energy companies that hinder the
transparency of power and financial flows in the sector and undermine the incentives for good
performance and sound management by the sector entities. In recent years, there has been a
strategic focus on implementing critical investments to improve the viability of the power sector
and respond to the energy needs of the country in the medium to long term. The major cause for
the lack of investments has been the poor financial health of the energy sector, due mainly to the

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above-mentioned very low level of tariffs (the lowest in the Europe and Central Asia region) and
the poor operational performance of the utilities.

34. To address the sector challenges, the Government has approved an Action Plan for
Reforming the Energy Sector in 2013-14 and the Bank and other donors have structured support
around it. The Bank has sizable engagement in the energy sector of the Kyrgyz Republic through
investment lending operations, development policy operations, as well as analytical and advisory
activities, which is focused on helping the country address two fundamental and inter-linked
challenges of strengthening the sector governance and accountability and enhancing its financial
viability. The Government has committed to implement governance reforms under the
development policy operations (including establishment of a performance monitoring framework
and periodic collection and publication of key financial and operational performance indicators).
The Government is also receiving a technical assistance from the Bank for Tariff Setting
Methodology, which will help enhance the financial performance of energy companies,
including the transmission company that will be the Implementing Agency for the Kyrgyz
portion of the project, and improve transparency and accountability in the broader power sector.

Macroeconomic context

35. The economy is bouncing back after a rather tumultuous year in 2012. Gold
production (the country’s main driver of economic growth, provider of revenues, and much
needed foreign exchange), plummeted in 2012, owing to geological factors, which affected the
fiscal and current account balance as well as headline growth. A return to normal operations has
helped boost growth to nearly 9 percent y-o-y in September 2013. Non-gold sectors of the
economy are also performing well (e.g. trade and construction services) reflecting resilient
remittances as well as growing credit to the private sector. The trade balance deteriorated
significantly in the first half of 2013, driven by an increase in imports from strong domestic
demand as well as gradually recovering gold exports. The trade deficit is expected to come down
in the second half of the year as gold exports return to normal levels, which will help reduce the
current account deficit to around 10 percent of GDP. Inflation has moderated, driven by lower
international food prices. Key indicators and projections are summarized in Table 46 below.

Table 46: Key macroeconomic indicators and projections

(in percent of GDP, unless otherwise noted)
2008 2009 2010 2011 2012 2013 2014 2015
Act. Act. Act. Act. Act. Proj. Proj. Proj.
Real sector
GDP, in US$ million 5,131 4,683 4,794 6,199 6,473 7,266 8,007 8,678
GDP per capita, in US$ 972 864 875 1,120 1,158 1,287 1,405 1,507
GDP growth, in % 8.4 2.9 -0.5 6.0 -0.9 7.8 6.5 5.3
Investments 20.2 22.9 23.9 24 25.4 25.5 25.8 26.2
Fiscal accounts
Revenues and grants 29.9 32.1 30.5 31.8 34.5 32.4 30.7 30.8
Expenditures 29.3 36.1 36.6 36.3 39.8 37.6 34.8 33.9
Balance 0.6 -4.0 -6.1 -4.5 -5.3 -5.2 -4.1 -3.1
Public debt 48.5 58.1 59.7 49.4 50.0 48.0 48.3 48.1

External accounts

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 Exports of goods and services 54.0 54.5 52.7 54.7 54.7 55.7 55.2 51.9
Imports of goods and services 92.8 78.9 81.7 82.3 99.6 92.2 95.3 90.3
Current account balance -15.5 -2.5 -6.4 -6.0 -15.3 -10.4 -12.4 -10.3
External debt 73.3 89.3 92.7 76.7 81.3 74.4 72.6 71.3

Prices and exchange rates

Inflation, period average 24.5 6.8 7.8 16.6 2.8 7.0 4.5 4.5
Exchange rate, KGS/US$ 39.4 44.1 47.1 46.5 47.4 48.6
Source: Bank calculations based on data from national authorities.

36. Prospects for the medium-term remain favorable, especially if the neighboring
region continues growing. Growth is expected to moderate slightly, but still remain strong.
Remittances and exports will benefit from the slight recovery in Russia’s growth rate and the
robust expansion in Kazakhstan. At the same time, China is becoming an increasingly important
source of investment, including in transport and energy, estimated to reach around US$3 billion
over the next few years. The stronger capital inflows will keep the current account deficit
relatively high. Inflation is estimated to remain in the 5-7 percent region for the next few years.

37. Improving efficiency of government spending will be critical for growth, inclusion,
and stability. The medium-term fiscal framework envisages a reduction in the deficit from 5.4
percent of GDP in 2012 (one of the highest in ECA) to below 3 percent of GDP by 2016.
Safeguarding fiscal solvency is a task made more difficult by the 3–6 percent reduction in
revenues due to the mid-2014 closure of the Manas Transit Center. Tax policy and
administration reforms may strengthen revenues; however, most of the adjustment needs to come
from expenditures. Meanwhile, public investments need to remain high to address infrastructure
bottlenecks, and social inclusion policies need to be promoted to strengthen cohesion. These
competing priorities can be tackled through improved efficiency of public expenditure. The
World Bank’s Public Expenditure Review is providing recommendations that could generate
savings, while improving quality of public services in education, health, pensions, social
protection, and energy as well as cross-cutting themes such as the wage-bill and public
investment management and intergovernmental relations.

38. The overall macroeconomic impact of the CASA-1000 project is positive. The
concessional nature of the debt agreements for construction of CASA-1000, and guaranteed
income flows under the PPAs, would ensure cost recovery of all investments and provide export
revenues for the country over at least a 15-year period (the duration of the PPAs). This should
limit any worsening of the Kyrgyz Republic’s debt sustainability, which is currently rated as
moderately at risk of distress under the 2013 Bank-Fund Debt Sustainability Assessment.

39. While CASA-1000 may provide the Kyrgyz Republic with an expanded market for
its energy exports, the sustainability of the sector remains the main priority. The energy
sector is running a quasi-fiscal deficit equivalent to 2.4 percent of GDP, and tariffs are 35 percent
of cost recovery levels. At the same time, weak governance arrangements and inadequate pricing
policies, threaten the viability of the system; create significant contingent liabilities and
contribute to poor service quality. Governance and tariff reforms are therefore essential, and
remain the main priority to ensure the sustainability of the sector.

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40. The recently adopted 2013-2017 National Sustainable Development Strategy
provides the overarching strategic framework for developments in the Kyrgyz Republic.
The objective of the strategy is to establish a democratic state with a stable political system,
dynamic economic growth and growing incomes of Kyrgyz Republic citizens. The strategy
underscores the need for good governance and state building, recognizing the problems of
corruption and weak governance. The CPS (2014-2017) is fully aligned with the National
Sustainable Development Strategy, setting governance as the central theme. We are supporting
the government implement public finance management reforms through budget support
operations and a programmatic Public Expenditure Review. In addition, investment operations
have a strong governance aspect. The World Bank is supporting the government implement its
strategy via a number of operations including: national road rehabilitation, rural water supply and
financial sector development, and improving the business environment. Alongside these
operations, the Bank continues to work with the government on poverty monitoring and
associated social protection.

41. Governance arrangements in the Kyrgyz Republic are evolving following the
turmoil in 2010. The replacement of dismantled institutions has been slow, and the shift towards
a parliamentary democracy, understandably, is yet to be fully embedded. At the same time, there
are positive developments: there was a non-violent change of government in 2012, and according
to the 2012 OECD ACN, the legislative framework in a number of areas is sound (civil service,
access to information, asset declaration). Implementation of these laws, however, remains
fragmented.

42. An enhanced framework for management of the CASA-related proceeds can help
alleviate some of the concerns from the weak governance arrangements in the energy
sector. In late-2012, the authorities adopted a comprehensive action plan to enhance
transparency, accountability and governance in the sector. An updated plan was adopted in 2013
but progress remains uneven, which may require the proceeds from CASA-1000 to be ring-
fenced. The Kyrgyz Republic already manages an escrow account where the proceeds from
exports of electricity are deposited. This framework could be used for CASA-1000 transmission
revenues, earmarked to service the debt liabilities of the transmission company. Revenues
flowing to the generation company may need to be managed differently in case inflows are
significantly above debt servicing and liquidity needs of the company. Good international
practice suggests that such an arrangement will link fund allocations with the sector priorities
based on a comprehensive analysis of the priorities and a multi-year plan on capital and O&M
expenses. The process should ensure, among other things, that: i) all receipts are covered; ii)
comprehensive representation in the management of the entity managing the funds; iii) adequate
oversight arrangements (by the executive and the civil sector) etc. As fiduciary arrangements in
the sector improve, the export resources could be better integrated into the overall system

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 IBRD 40794

CENTRAL ASIA 70°E 72°E

42°N
SOUTH ASIA KAZAKHSTAN
POWER TRANSMISSION
PROJECT CASA-1000 KYRGYZ REP.
PROJECT OPERATIONAL FUTURE
500–1000 MW HYDROPOWER PLANT
Aydarkul TASHKENT
Lake
500 kV SUBSTATIONS
Sy Datka 500/220 kV
110kV OVERHEAD LINES rD
a N a r yn
220kV OVERHEAD LINES

ry
a
500 kV OVERHEAD LINES

MAIN RIVERS
NATIONAL CAPITALS
INTERNATIONAL Khudjand 500/220 kV
BOUNDARIES
Zerav
40°N
shan 40°N
Da
ry
a

UZBEKISTAN

Dushanbe 500kV
TA J I K I S TA N
Regar 500kV DUSHANBE
Nurek 500kV
Sangtuda 500/220kV Sangtuda 1 HPP 670 MW
38°N and Converter Station 38°N

TURKMENISTAN
Surkhan 220kV
Am
h

Pyanj
Vakhs

uD
ary
a
Termez 220kV

Hayratan 220kV

Khulm 220kV Kunduz 220 kV

A F G H A N I S TA N
GSDPM Aibek (Namangan) 220kV
Map Design Unit
36°N
This map was produced by the Map Design Unit of The World Bank. Pul-e-Khumari 220kV
The boundaries, colors, denominations and any other information
shown on this map do not imply, on the part of The World Bank
Group, any judgment on the legal status of any territory, or any
endorsement or acceptance of such boundaries.
Dowshi 220kV

KAZAKHSTAN PAKISTAN
Charikhar 220kV
UZBEKISTAN
KYRGYZ
REPUBLIC
Area of Main Map
Kabul Naghlu 100MW
TURKMENISTAN TAJIKISTAN CHINA 300MW
Sarobhi 22MW
KABUL
Jelalabad 110kV
ISLAMIC AFGHANISTAN
REP. OF
IRAN
0 50 100
Peshawar
PAKISTAN
Peshawar 1,300MW ISLAMABAD
INDIA KILOMETERS
70°E 72°E

MARCH 2014