PPIAF

ISLAMABAD, PAKISTAN – Seeking to bolster regional cooperation in energy markets, the governments of Afghanistan, the Kyrgyz Republic, Pakistan and Tajikistan met this August to agree to a Central Asia South Asia Regional Electricity Market (CASAREM).

The Inter-governmental agreement (IGA) signed at the meeting sets up the legal framework for CASAREM, as well as the CASA-1000 transmission project, the key link to enable greater electricity trade between the two regions. By affirming the countries’ commitment to fostering regional cooperation in the electricity trade, the agreement lays the foundation for much larger investments in generation in Central Asia. It also paves the way for the discussion and negotiation of the commercial agreements, such as power purchase and transmission service agreements.

The CASAREM framework promises to bring a significant economic and development impact to participating countries. South Asia suffers significant electricity shortages in the face of rapidly increasing demand, and Afghanistan and Pakistan are increasingly looking for ways to meet some of this need through imports. In contrast, neighboring Central Asia’s countries have electricity surpluses, and are actively looking for export markets. CASAREM helps countries in both regions take advantage of these existing complementarities in the electricity market. 

The CASA-1000 Project
CASA-1000, a 750-km transmission link from Tajikistan and the Kyrgyz Republic to Pakistan and Afghanistan, will facilitate export of 1300 MWs electricity by 2012.

PPIAF has supported the project at multiple stages, assisting the Multi Country Working Group (MCWG) and Inter Governmental Council (IGC) to assess financial feasibility, legal structure and institutional framework for project implementation. PPIAF support helped analyze risk and evaluate different options for public-private partnership. This support complemented extensive support provided by the World Bank and Asian Development Bank for legal, technical, economic and commercial aspects of the project.

Private sector participation in financing, construction and operation of CASA-1000 is the preferred option by the partnering countries. The International Finance Corporation, through funding from its InfraVentures facility, has helped develop a financial model for the CASA-1000 project and delivered the draft commercial agreements. The agreements – including the concession agreement, power purchase agreement, and transmission service agreement – were presented to and discussed between the various countries during the Islamabad meeting. 

Looking Forward
In the near term, the unfolding financial crisis is likely to complicate efforts to secure financing and get new PPP projects off the ground. This project is in the early stages of upstream preparation and structuring of the transaction. Projects such as these can require significant time for analysis and preparatory work: By laying the groundwork for the project now, governments and private partners will be prepared to move forward with the transaction when the financial climate improves.

By December 2008, the four countries will confirm their willingness to go forward with the project. It is generally recognized that despite the increase in commodity prices, the project remains economical, since the costs of power generation in Afghanistan and Pakistan have also increased.