EN THIS ACTION IS FUNDED BY THE EUROPEAN UNION ANNEX III of the Commission Implementing Decision on the financing of the annual action programme in favour of the Asia region for 2020 part 3 Action Document for the Electrification of Badakhshan province ANNUAL PROGRAMME/MEASURE This document constitutes the annual work programme in the sense of Article 110(2) of the Financial Regulation1 and action programme in the sense of Articles 2 and 3 of Regulation N° 236/20142. 1. Title/basic act/ Electrification of Badakhshan Province CRIS number CRIS number: 2020/042-271 financed under the Development Cooperation Instrument 2. Zone benefiting Badakhshan Province, Afghanistan from the The action shall be carried out at the following location: Shuhada and action/location Ishkashim Districts (Badakhshan Province/Afghanistan) 3. Programming Multi-annual Regional Indicative Programme for Asia 2014-20203 document which has been amended following the mid-term review4 4. Sustainable Primary SDG goals: Development SDG 7 – Affordable and clean energy Goals (SDGs) SDG 8 – Decent work and economic growth Secondary SDG goals: SDG 1 – No poverty SDG 5 – Gender equality SDG 13 – Climate action SDG 16 – Peace, justice and strong institutions 5. Sector of Priority Sector 1: Regional DEV. Assistance: YES5 intervention/ Sustainable Development 1 Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012, OJ L 193, 30.7.2018, p. 1–222. 2 Regulation (EU) No 236/2014 of the European Parliament and of the Council of 11 March 2014 laying down common rules and procedures for the implementation of the Union's instruments for financing external action, OJ L 77, 15.3.2014, p. 95– 108. 3 C (2014)6112 of 03.09.2014 4 C (2018) 4741 of 20.7.2018, “Addendum No 1 to the Multiannual Indicative Programme for Asia for the period 2014- 2020”. 5 Official Development Assistance is administered with the promotion of the economic development and welfare of developing countries as its main objective. [1] thematic area 6. Amounts Total estimated cost: EUR 16 500 000 concerned Total amount of EU budget contribution EUR 16 500 000. 7. Aid Project Modality modality(ies) and implementation Direct Management through Grants modality(ies) 8 a) DAC code(s) 25010 - Business policy and administration 23230 – Energy generation, renewable sources – multiple technologies 23630 - Electric power transmission and distribution b) Main Delivery 21000 – International NGO Channel 9. Markers General policy objective Not Significant Principal (from CRIS DAC targeted objective objective form) Participation development/good X ☐ ☐ governance Aid to environment ☐ X Gender equality and Women’s ☐ X and Girl’s Empowerment Trade Development ☐ X ☐ Reproductive, Maternal, New X ☐ ☐ born and child health Disaster Risk Reduction X ☐ ☐ Inclusion of persons with X ☐ ☐ disabilities Nutrition X ☐ ☐ RIO Convention markers Not Significant Principal targeted objective objective Biological diversity X ☐ ☐ Combat desertification X ☐ ☐ Climate change mitigation ☐ ☐ X Climate change adaptation ☐ X ☐ 10. Internal Policy objectives Not Significant Principal markers targeted objective objective Digitalisation X Migration X 11. Global Public This action contributes to the GPGC Flagship 3. SWITCH TO GREEN Goods and – Supporting private sector-led inclusive green growth Challenges (GPGC) thematic flagships [2] SUMMARY The Action aims to stimulate economic and social development in the Badakhshan Province in Northern Afghanistan. This will be achieved through (i) Reliable and affordable access to clean energy is provided in the districts of Shuhada and Ishkashim, Viloyati Mukhtori Kuhistoni Badakhshon (VMKB, Tajikistan) to Shuhada, Badakhshan (Afghanistan); (ii) Improved access to new opportunities for services, government and commercial enterprises; and, (iii) Strengthened regional integration and connectivity through cross-border electrification. The Action contributes to one of the first public private partnerships in a development- relevant sector, between Badakhshon Energy Company (100% owned by Aga Khan Fund for Economic Development) and the Government of Afghanistan on basis of a 30-year Concession Agreement. Availability of electricity remains very low in the target area with over 90% of the population living without access to electricity. The Action will meet the needs of the communities, including the productive sectors, within the targets districts of Shuhada and Ishkashim in Afghanistan, which will, as a result of the interventions, be fully electrified for the first time in their history. The EU contribution will be allocated as a grant under Afghanistan’s investment earmarking within the Asia Regional Indicative Programme for 2014-2020. There is no blending with non-grant funds because the financial return of the project is in its first phase not sufficient to attract any additional loan or equity investors beyond the project implementing partner Aga Khan Foundation (AKF) (United Kingdom) and Aga Khan Fund for Economic Development (AKFED). Although the financial return is low, economic and social returns are high, contributing to poverty reduction. In line with EU’s strategy to ensure synergies between our support to Central Asia and Afghanistan, the project will link up with the EU-supported construction of the Sebzor 11MW hydropower plant in Tajikistan’s VMKB region which borders Northern Afghanistan. Through linking efforts on both sides, this new Action will enhance the role that the EU can play as a development actor in Afghanistan through sustainable energy promotion. The action will contribute to progress on a number of Sustainable Development Goals as identified above and consequent fulfilment of economic and social rights, and gender equality, in line with Afghanistan’s international human rights commitments. This action will be implemented in a COVID-19 context and adapted as necessary for a successful completion. [3] 1 CONTEXT ANALYSIS 1.1 Context Description Affected by decades of conflict, Afghanistan remains a fragile state, ranking 170 out of 188 in the United Nations’ Human Development Index, and continues to face important development challenges. This includes low access to energy and increasing vulnerability to the impacts of climate change on natural resources. In the Province of Badakhshan, Northern Afghanistan, 80% of the population live below the poverty line within remote and isolated (both geographically and economically) mountainous conditions. While hydro energy generation capacity has reached 44MW in the Tajikistan side (Viloyati Mukhtori Kuhistoni Badakhshon, VMKB), on the other side of the Panj River, in Afghanistan (Badakhshan), a mere 1MW is available to serve a population five times larger. Shuhada and Ishkashim are amongst the energy deficient districts of Afghanistan's Badakhshan Province, with low productivity and limited economic opportunities. More than 35% of the population is unemployed which makes these areas susceptible to high levels of migration, within and outside the country, and particularly affects the youth and their receptiveness to recruitment by insurgent groups and engagement in illicit trade. Decades of violence, common discriminatory practices, and cultural barriers, including restrictions on mobility, have denied women job opportunities and left them severely underrepresented in all sectors of society (27% of working-age women economically active, compared with 81% of men). This is particularly visible in the energy sector in which very few women are formally employed. At the household level, women and girls are disproportionally affected by lack of energy as they are traditionally responsible of providing energy for their families. Women and girls bear the burden of energy shortages through daily collection of firewood and dried dung in harsh terrains, leading to increased deforestation, particularly of valuable and old fruit trees (nuts, mulberries, etc.). Pamir Energy already provides, through cross-border infrastructures, clean and reliable power supply to 5% of population of the Badakhshan Province but over 90% of the region is still left without access to electricity. The public sector alone cannot meet these needs and expanding the engagement of the private sector has been recognized by the federal government as critical to respond to the severe shortage of energy in Badakhshan. To this end, the Aga Khan Fund for Economic Development (AKFED) through the newly created Badakhshon Energy Company (BE) and the Government of Afghanistan have signed a 30-year Concession Agreement on 22 July 2019 agreeing to implement a Public Private Partnership (PPP). All energy infrastructure installed by BE will be exclusively operated and maintained by BE, the subsidiary of AKFED, and will become concession assets owned by the government after the end of the concession period. The Concession Agreement has three objectives: i) development of generation capacity through construction of assets in Afghanistan; ii) building out the transmission line segments to produce a ‘united regional grid’ (connected to the already- existing grid in Eastern Tajikistan; iii) electrification of all of the Badakhshan Province (over 1.5