$26 million investment will help revive electricity grid on the verge of collapse
Washington D.C., October 7, 2002
— In an ambitious and innovative investment in one of the poorest regions in the world, the International Finance Corporation (IFC) – the private sector development arm of the World Bank – and the Aga Khan Fund for Economic Development (AKFED) have joined forces to develop a new electricity generation and distribution project in a remote eastern province in Tajikistan that will boost the region’s dangerously inadequate electricity supply, improve health conditions, reduce environmental degradation, and contribute toward the region’s economic recovery.
The US$26 million project, established with the support of the government of Tajikistan, will enable the creation of a new energy company to generate and supply electricity in the Gorno-Badakhshan region that spans the Pamir mountains of eastern Tajikistan. The region – poorly supplied by decaying Soviet-era hydropower plants – suffers from an electricity grid on the verge of collapse. For the past ten years, the 250,000 residents of Gorno Badakhshan – who face sub-freezing winter temperatures– have survived by using wood fuel for their heating and cooking needs, decimating the region’s tree cover and creating acutely high levels of indoor pollution.
The new company – Pamir Energy Company (PamirEnergy) – will complete a partly constructed Soviet-era hydroelectric power plant, increasing the capacity from 14 MW to 28 MW, and operate another 8 MW hydroelectric plant in the city of Khorog, the main town of the region, as well as several other smaller plants totaling 30 MW of installed capacity. Electricity capacity will also be augmented by improving transmission and distribution facilities and adding a regulating structure to a nearby lake to ensure adequate flow in the winter months when demand is highest and water flow is at its lowest due to freezing. As part of the arrangement, PamirEnergy will take over assets currently controlled by the state utility, Bark-i-Tajik, assuming responsibility for the 30,000 electricity customers and for improving and expanding the supply.
IFC will invest $8 million in the new company, of which $3.5 million will be in equity and $4.5 million in debt
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AKFED will invest $8.2 million in equity.
The World Bank’s International Development Association (IDA) is also participating through a key concessional loan of $10 million to the government of Tajikistan. The IDA loan will support the project by helping to keep tariff rates on the new electricity within the narrow limits of what people in the region can afford. IDA participation in the project’s financing reflects the importance the Tajik government attaches to new electricity supplies in Gorno Badakhshan and represents a unique example of IDA-IFC cooperation on a private sector project. In addition to the participation by the IFC, IDA, and AKFED, the government of Switzerland will provide a grant of approximately $5 million to maintain the tariff increase required in the early years in line with national tariffs and to support a minimum “Lifeline” consumption amount at a very low tariff. The Swiss government and IFC through it is technical assistance trust funds program also provided critical support to the project at its early stages with $840,000 in grants that helped pay for the various technical, financial, legal, environmental and social advisors necessary to structure and fund this investment.
Francisco Toureilles, IFC’s Director for Power Investments, said: “The financing challenges for this project were exceptional, but so are the needs. The energy shortages in Gorno Badakhshan substantially stifle economic activity. Without an adequate electricity supply, the people of this remote region of Tajikistan will remain mired in poverty. This project is an excellent example of how IFC and IDA can work together with the private sector, donors and governments in developing sustainable projects in poor and remote regions and help to reduce poverty and improve the quality of life of the population.”
Anwar Poonawala, an AKFED Director, added: “PamirEnergy is about empowerment in more ways than one. Electricity will mean light, heat and communication, and thus improved healthcare and education. Our recent experience of micro-credit and small enterprise support in Central Asia shows that increased investment amongst its resilient and educated population can quickly create economic opportunities and restore stability. AKFED sees the partnership with the IFC, IDA and Swiss Government as a model replicable in poverty-stricken areas of other countries.”
“AKFED views the IFC’s agreement to participate in the PamirEnergy Company as a very useful and encouraging initiative addressing urgent needs in this region. We see this venture as complementary to, and strongly supportive of, the Aga Khan Development Network’s already extensive economic and social development commitment to Central Asia.”
In 1994, the Aga Khan Development Network initiated a multi-phase rehabilitation program for a 28 MW plant outside Khorog, bringing into operation two 7 MW turbines planned and partly installed at the end of the Soviet period. In 1998, AKFED approached IFC about potential cooperation in expanding the electricity network. Intensive efforts by all parties concerned to reconcile the constraints imposed by the need for a commercial return to investors and the very limited ability of consumers to pay led to a public-private partnership model as the best solution.
AKFED is the economic development arm of the Aga Khan Development Network (AKDN), a group of private, non-denominational development agencies seeking to improve opportunities and living conditions in specific regions of the developing world, especially Africa and Asia. Present in Central Asia since 1995, AKFED is also involved in the microcredit and financial services sectors in Tajikistan and the Kyrgyz Republic. AKFED companies operate major electric power plants in Cote d’Ivoire, Mali and Kenya. Active in the fields of industry, financial services, tourism development and infrastructure in eighteenfifteen countries across South and Central Asia and sub-Saharan Africa, AKFED operates as a network of affiliates with more than 90 separate project companies employing over 15,000 people and controlling assets in excess of US$1.5 billion.
IFC’s mission is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses. Since its founding in 1956 through the close of the last fiscal year on June 30, 2002, IFC committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC’s committed portfolio at the end of FY02 was $15.1 billion for our own account and $6.5 billion held for participants in loan syndications.
