Progress Update and Planning for Next Steps

Dushanbe May 20, 2013

Central Asia is endowed with vast energy potential…

Kazakhstan Reserves: Oil Natural Gas Coal Hydro Power 30 billion bbl 85 TCF 31.3 billion tons 20,000 MW Uzbekistan Reserves: Oil Natural Gas Coal Hydro Power 594 million bbl 66 TCF 3.3 billion tons 1,700 MW Kyrgyzstan Reserves: Oil Natural Gas Coal Hydro Power 0.04 billion bbl 0.2 TCF 0.9 billion tons 26,000 MW Turkmenistan Reserves: Oil Natural Gas Coal Hydro Power 600 million bbl 280 TCF Modest Modest Tajikistan Reserves: Oil Natural Gas Coal Hydro Power 0.01 billion bbl 0.2 TCF 3.6 billion tons 40,000 MW

…whereas Afghanistan and Pakistan face severe electricity shortages and rapidly increasing demand

Country Afghanistan Pakistan Population Million Per Capita Electricity Current US$ Consumption (kWh/year) Installed Capacity (GW) Access Rate (MW) 29 310 31 0.5

13% - 166 1000 413 19.8

84% 5,022 Power network in Kabul, Afghanistan Kabulkarzaiblogspot photo Electricity riots in Rawalpindi, Pakistan Guardian photo

The proposed CASA-1000 transmission facilities would:

maximize the use of 1,300 MW renewable summer electricity surplus from existing plants in Central Asia (Kyrgyz Republic & Tajikistan) and provide electricity to consumers in electricity deficient South Asia (Afghanistan & Pakistan) 4

Even without new power generation, Kyrgyz Republic and Tajikistan have sufficient electricity surplus during summers to warrant CASA-1000

Power domestic consumption and summer surplus (est. 2016 based on feasibility report) Tajikistan* Kyrgyz Republic 3,750 GWh 2,150 GWh 18,815 GWh Summer surplus Domestic consumption 14,585 GWh *Tajikistan spills water from its dams without generating electricity during the summer

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The CASA-1000 project includes:

      500 kV line Datka-Khudjand (477 km), with Tajik network transferring Kyrgyz exports to Sangtuda.

Tajikistan Grid Strengthening.

1300 MW AC-DC Convertor Station at Sangtuda.

750 km HVDC line Sangtuda-Kabul Peshawar.

300 MW Convertor Station at Kabul (with both import & export capability).

1300 MW DC-AC Convertor Station at Peshawar.

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CASA-1000 benefits all four countries:

• Ensures a steady source of revenue from surplus hydropower exports for Tajikistan and Kyrgyz Republic, the weakest economies in Central Asia • Uses excess summer electricity that is currently being spilled • Alleviates electricity shortages in Pakistan during the peak summer season • Replaces fuel-based power generation in Afghanistan and Pakistan with clean hydropower • Establishes Afghanistan as a viable transit country, enhancing growth prospects  Requires no new power generation investments 7

Project cost estimates per the feasibility study

Kyrgyz Republic Tajikistan Afghanistan Pakistan Total US$ 200 million US$ 250 million US$ 300 million US$ 200 million US$ 950 million • • US$1 billion investment in countries with constrained borrowing capacity US State Department, AusAid, DFID, ADB, Islamic Development Bank, USAID, IFC and World Bank among the donors supporting pre-preparation activities 8

• • • • • • •

Project Status

Preparation work is proceeding with Joint Working Group (JWG) through monthly VCs and face-to-face meetings.

IGC Secretariat strengthened

– Executive Director (ED) appointed; USAID funding additional Advisor to the ED; Secretariat accounts audited.

Project commercial structure finalized

– two options were reviewed (with and without setting up a separate project company.) The option of “Contractual JV” (without an SPV for CASA) is preferred by JWG; IGC resolution has been developed and endorsed by two countries (Afghanistan and Tajikistan).

Project commercial contract framework

and

Model PPA

developed and is under review/discussion by the countries.

IFC Agreement to support procurement of constructor/operator

signed by all. The Joint Working Group is working closely with the IFC to prepare bidding documents for procuring engineer/procure/construct/operate services for the project. CASA-1000 included in the

CAREC Energy Work Plan

(2013-15).

Communications

established online ( www.casa-1000.org

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The CASA IGC and JWG

Intergovernment Council IGC Secretariat Afghanistan IGC member Kyrgyz IGC member Pakistan IGC member Tajikistan IGC member Joint Working Group Afghanistan WG Kyrgyz WG Pakistan WG Tajikistan WG 10

Project Structure

• •

Two Main Options for Project Structure

– Option A: Contractual Joint Venture – Option B: Corporate Joint Venture

Countries preferred the Option A

Government of Kyrgyzstan (GOK) Government of Tajikistan (GOT ) IGC Government of Afghanistan (GOA) Government of Pakistan (GOP) H G A H G A IFIs and Donors H G A H G A Project Agreements National Electric Grid JSC OJSHC Barki Tojik DABS Power Purchase Agreements incorporating the STCs Central Power Purchase Agency

Standard Transmission Terms & Conditions ( Commercial Rules and Technical Rules) (STCs)

Construction Agreements EPC Contractor Consortium Agreement ?

Figure 1: Option A- The Contractual Joint Venture O&M Agreement re DC Line DC Facilities O&M Contractor

Project past milestones

MOU and Inter Governmental Agreement (IGA) for CASA signed by all four countries Feasibility Study Update Completed First Inter Governmental Council (IGC) meeting after feasibility update in Bishkek Joint Working Groups (WG) established Second IGC meeting in Dubai agrees on project implementation mobilizing finances Most of supporting studies completed; Commercial framework and model agreements drafted 13

Key challenges for Project preparation

• •

Country capacity and commitment to work on commercial deal

– Maintain continued commitment and build capacity (country advisors) to sustain the overall momentum of the Project.

– One country’s slowness affects the entire process.

– Support in bidding process (bidding advisors - IFC) – Perception from outside (links to Rogun/Kambarata, security in Afghanistan, etc.)

Financing gap – a critical issue

– A key assumption for the preferred structure is that the project will be fully financed by IFIs (no private investments).

– Two committed financiers (WB and IsDB); Gulf Coordination Group (aka “Arab Funds”) interested in financing via IsDB; the Russian offer remains on the table but its terms/conditions are not clear. – Donor’s conference and visits to capitals planned for 2013.

– A narrow window – late 2013 – for approvals and much yet to do 14

Proposed plan and actions

IFC Agreement is signed by all countries IFC to secure funding (from Donors) for services / commence work Complete selection of Country Advisors Finalize commercial framework Model PPA; Master Agreement and IGC resolution on key principles Adopting the IGC resolution Lending PCN review meeting Commercial negotiations completed Bank Board Date Visit major donor capitals First Donor Conference Filling the financing gap 15

Project building blocks

A. Countries ownership and readiness

• Dedicated Working Group headed by Deputy Minister level meets every month; • Ministerial Inter Governmental Council (IGC) undertakes high level decisions; • Full-time IGC Secretariat ED and international advisors in place

B. Project structuring and legal framework

• Project Structure is agreed; • Commercial framework designed; • The Model Power Purchase Agreement (PPA) drafted;

C. Project financing

• World Bank with IDB and Gulf Coordination Group (GCG) indicated their willingness to finance.

• Other potential co financiers include KfW of Germany, Asian Development Bank, JICA of Japan, DFID of UK, and Russia

D. Preparatory studies and assessments

• Project Feasibility Study completed • Environment and Social Assessment and Avian Risk management study for the project completed • Community Benefit sharing studies ongoing • Security Risk Assessment and Mitigation Plan completed • Development of open access rules ongoing 16

www.casa-1000.org

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