AF: Afghans to fund Uzbek power line connection to NEPS.

UNCLAS SECTION 01 OF 03 KABUL 003998

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REF: KABUL 3993

E.O. 12958 N/A
TAGS: ENRG EFIN ETRD KPWR EAID PGOV AF CH
SUBJECT: AF: Afghans to fund Uzbek power line connection to NEPS.

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Sensitive but Unclassified


1. (SBU) Summary. Afghanistan's mission to Uzbekistan to
reinvigorate negotiations for energy imports through the North East
Power System (NEPS) project appears to have produced positive
results. Delegation head Deputy Minister of Energy and Water Mir
Sediq expects to lead a follow-on mission to Tashkent in early
January 2008 to begin negotiations on pricing. The two sides came
to an agreement on financing the remaining 43 kilometers of 220 kv
power lines in Uzbekistan needed to connect the two countries'
electrical systems. They confirmed and exchanged technical
information regarding the interconnection and began initial review
of a proposed term sheet outlining terms for a power purchase
arrangement. A contract for the construction of power lines in
Uzbekistan is to be signed in January, with project completion
expected in October 2008. Should this deadline be met, 110 MW of
power could begin to flow through the NEPS system to Kabul in early

2009. End Summary.


2. (SBU) EmbOffs met with Deputy Minister of Energy and Water Mir
Sediq, on December 4 to discuss his recent trip to Uzbekistan to
negotiate for the import of Uzbek power to Afghanistan via the NEPS
system. This trip, a follow up to recent negotiations in Kabul
(Reftel),consisted of a four-man delegation including Sediq, Deputy
Minister of Finance Shahrani, the head of the Afghan Energy Company
DABM and one other technical engineer. Rather than fly to Tashkent,
the delegation drove to the Surkhan substation from which Uzbek
power will be exported. Together with the Uzbek Deputy Minister of
Energy, they confirmed that only a small transformer and minor
repairs are necessary in order to increase the total export of Uzbek
power from 40 MW (currently going to the city of Mazar-e-Sharif) to
150 MW. The additional 110 MW is expected to go directly south to
the Kabul power grid, flowing over the 250 MW capacity 220 kv
transmission line currently being built and on schedule by the
Government of India.

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Discussions in Detail
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3. (SBU) Discussions regarding financing and construction of the
necessary 43 km of 220 kv transmission line needed to link Surkhan
with the Afghan power grid proved difficult. Total project cost is
estimated at USD 21 million, with USD 15 million for the
construction of the transmission line and USD 6 million for an
additional transformer at Surkhan to step down Uzbekistan's 500 kv
power to 220 kv for transmission to Afghanistan. The Afghans
offered to foot the USD 21million bill as a "pre-payment" for their
energy imports. The Uzbeks, who are well aware of the importance of
this power import for Afghanistan, did not accept the offer.
Instead they insisted that Afghanistan pay for the project outright.
In return, although the 43 km of transmission line within
Uzbekistan will technically be "owned" by Afghanistan, Uzbekenergo,
the national electric company, will operate and maintain it. In
addition, Uzbekistan has already surveyed the route and will take
care of all "right of way" issues pertaining to the project. After
consulting with Kabul, the Afghans were able to agree to this
arrangement.


4. (SBU) According to Sediq, the terrain on which the 43 km of
transmission lines will be built is relatively flat, an initial
survey of the route had been done by the Uzbeks and winter weather
will not hamper construction. The route closely follows the road

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leading to the Uzbek-Afghan border so moving supplies to the project
site will not be problematic. An Uzbek firm is expected to begin
construction after a formal contract signing in early January 2008.
For the time being, the Uzbeks have agreed to begin the detailed
route survey and to review the term sheets proposed by the Afghans.
(Note: This is a product of USG consultants to the NEPS project. End
Note.)

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Cabinet Approval Imminent
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5. (SBU) President Karzai was briefed on the outcome of his trip on
Sunday, December 1 and agreed to support Afghan financing of the
line according to Sediq. Initial concurrence was obtained at this
week's Cabinet meeting. Sediq expects the Cabinet to approve the
following proposals at its next meeting:

-- USD 21 million from the Afghan budget for the financing of the
Uzbek transmission lines.

-- Designation of Sediq or other individual authorizing them to
sign a construction contract for the transmission line and negotiate
and agree on the term sheets, which will be the basis for signing a
power purchase agreement with the Uzbeks, on behalf of the IRoA,
preferably in January.

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Importing more than 110 MW
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6. (SBU) In his discussions, Sediq also learned that the Islamic
Development Bank has agreed to fund the USD 78 million 500 kv
transmission line within Uzbekistan from Guzar to Surkhan in
Uzbekistan. According to the Uzbeks, the project is underway and
when complete will enable them to export an additional 150 MW of
power to Afghanistan, potentially boosting the total power to Kabul
to 260 MW. No timeline for completion was given.


7. (SBU) When questioned about the per kilowatt hour price
Afghanistan expected to pay for Uzbek power, Sediq stated they
currently pay four cents US per kw hour for the 40 MW imported to
Mazar and that he expects to pay less for the additional 110 MW,
since Afghanistan will be footing the bill for the transmission
line. (Comment: Post believes this to be an unrealistic expectation,
however any price agreed upon by the two parties will be much lower
than the current per kilowatt hour price to generate power in Kabul.
End Comment.) Pricing discussions will be taken up in January when
Sediq expects to lead another Afghan delegation to Uzbekistan, this
time to Tashkent in order to sign government to government
agreements.


8. (SBU) Comment: Although this trip did not result in the signing
of a power purchase agreement (PPA) between Uzbekistan and
Afghanistan, the Afghans appear to be one step closer to realizing
the import of 110 MW of additional power from Uzbekistan by early

2009. If indeed the construction arrangement reported by Mir Sediq
comes to fruition, there remains only the negotiation of an amended
power purchase agreement. With such an agreement, the goal to
energize at least part of the NEPS project by early 2009 could be
met. Post continues to monitor developments in all aspects of the
NEPS project. We will continue to work behind the scenes with the
Afghans, pressing them to aggressively pursue a PPA with Uzbekistan

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as well as Tajikistan and Turkmenistan. End Comment.

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