Islamic Republic of Afghanistan - Enhanced Integrated Framework ...

Despite progress and efforts to date, the existinggovernance arrangements and policyframework for the sector are still insufficient tosupport a market-based energy system. Someof the obstacles to making the desired transitioninclude:• Dispersed institutional support: Sevenministries include energy as part of theirportfolio.• Lack of regulatory framework: No legal orregulatory regime (though an energy law isunder preparation) is in place to guide sectoroperations. There are no legal professionalstrained in commercial energy lawor regulatory processes.• No divesting or meaningful commercializationof state energy assets: The Governmentand energy enterprise operations areoverstaffed and highly inefficient, lackingfundamental tools and capacity to supporttechnically and commercially viable operations.This includes power, natural gas,coal and liquid fuels. Some of the stateowned enterprises and budgetary units operatewith considerable government supportwith virtually no audit, fiscal or legaloversight.• A drain on budgetary resources: A sectorthat could be generating revenues for governmentwith normal rates of taxation appliedto sector activities is, under presentarrangements, a major drain on governmentresources.• Inefficient and wasteful use of electricity:Underpriced electricity is used inefficiently.Appropriate cost recovery willprovide incentives to cut down on thiswasteful use.• Limited opportunities for private participation:There are no legal impediments toprivate investment in the energy sector. Inpractice, there is a weak legal and regulatoryinfrastructure in place to support andmonitor investments. Potential investorscite unclear policies and corruption as abarrier to investment. In a well developedmarket, the majority of services now providedby the 11 SOE and three budgetaryunits that support energy operations couldbe implemented by the private sector inways that are more cost-effective and technicallyefficient. Areas where private sectorengagement has immediate potentialwith appropriate regulatory include independentpower production and oil and gasconcessions.In the Provincial Development Plan consultations,a number of issues were frequently highlightedacross a range of sectors and in a majorityof provinces, and therefore emerge as overarchingdevelopment priorities. Access to electricity,both for domestic use through the extensionof availability of electricity to more remotevillages, and for productive purposessuch as factories and businesses was mentionedin 80 percent of the PDPs.Policy framework: sector strategySubstantial new investment is required in thesector to increase domestic generating capacityand ensure adequate supplies. A central thrustin the strategy will be increased investment inenergy related infrastructure. The three keyhydro power projects (described above) willsubstantially add to generating capacity, butalso support agricultural growth and improvedmanagement of water resources. Substantialadditional private investment is also required.The Government will leverage currently availabledonor funds to ensure longer term accessto private investment and capital. Policies tosupport private investments will be established.Improved procurement, accountingfunctions, contracting and reporting at the governmentlevel will be put in place.A new market oriented paradigm will be developed,supported by significant institutionalstrengthening and capacity development. Asthe energy line ministries shift over time fromoperating as production-based entities to becomepolicy-making regulatory agencies, staffcapacity and in-house functions will be reorientedto market practices. The key programs ofthe sector are: (i) efficient operation of infrastructure;(ii) market based sector governance;(iii) rural electrification and renewable energy;(iv) expand supplies, (for additional detail referto the full sector strategy in ANDS Volume II).The Priority Polices and Projects include:• Implementation of key power infrastructureprojects: The Government will givepriority to the implementation of four majorinfrastructure projects that will substan-Economical and Social Development 79