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Mazar Gas-Fired Power Project: Sector Overview

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Mazar Gas-Fired Power Project: Sector Overview Mazar Gas-Fired Power Project (FAST AFG 52306) SECTOR OVERVIEW A. Background 1. Afghanistan is landlocked and has an area of 652,000 square kilometers. The country faces many economic and political challenges as it deals with spreading insurgency, declining economic growth, and continuing poverty. Afghanistan is rich in natural resources, including fossil fuels, but its considerable reserves of oil, gas, coal, lithium, and uranium are largely undeveloped because of the ongoing conflict and lack of infrastructure. Afghanistan generates approximately 15%–20% of its electricity domestically, and for the balance relies on electricity imported from neighboring countries (e.g., Uzbekistan, Tajikistan, and Turkmenistan). The fiscal burden of the electricity importation is significant;1 in 2018 it cost the country $264 million.2 B. Gas Subsector Overview 2. The United States Geological Survey and the Afghanistan Ministry of Mines and Petroleum (MOMP) have assessed the undiscovered conventional technically recoverable natural gas resources in northern Afghanistan to be 444 billion cubic meters (m3). In addition to the already identified reserves of 75 billion m3, these gas reserves are equivalent to 77 years of peak demand, solely based on proven reserves.3 3. Afghanistan’s gas reserves are concentrated in the northern part of the country in Jowzjan province. With assistance from the Soviet Union, exploitation of Afghanistan's natural gas reserves began in 1967 at the Khowaja Gogerdaq field, 15 kilometers (km) east of Sheberghan in Jowzjan province. This field is important to the energy infrastructure of Afghanistan. Natural gas will be supplied to the project from gas fields in the Sheberghan region. In 2013, the Asian Development Bank (ADB) provided a grant to rehabilitate the wells in the Sheberghan region, including the Yatimtaq gas wells, that enabled extraction of domestic gas for future gas-fired power plants.4 The gas fields in Sheberghan have the potential to provide 500,000 m3/per day (m3/d).5 The gas produced from the Sheberghan gas field is sour and contains high levels of sulfur and so needs to be processed through an amine plant. A new amine plant funded by the Government of the United States in 2014, with capacity of 1 million m3/d, is operating at 20% capacity and requires optimization.6 MOMP is currently undertaking calibration work which is expected to be completed by the second quarter of 2020. The opinion of the lenders’ technical advisor is that with the rehabilitation of wells and optimization of the amine plant, the current gas production from the existing gas wells can meet the requirement of the Mazar Gas-Fired Power Project of approximately 300,000 m3/d. 4. In 2013, ADB provided technical assistance for the development of the Afghanistan Gas Development Master Plan, which identified the power subsector as the only large-scale consumer that could anchor gas subsector development. 7 The Mazar Gas-Fired Power Project will 1 Da Afghanistan Breshna Sherkat (DABS). 2018. DABS CEO Presentation for Donors. Paper prepared for a meeting between DABS and donors. Afghanistan. 20 December. 2 DABS. DABS report. 31 December 2018. Unpublished. 3 Asian Development Bank (ADB). 2015. Report and Recommendation of the President to the Board of Directors: Proposed Multitranche Financing Facility to the Islamic Republic of Afghanistan for the Energy Supply Improvement Investment Program. Sector Assessment (Summary): Energy. Manila. 4 ADB. 2007. Preparing the Natural Gas Development Project. Consultant’s report. Manila (TA 37085-AFG). 5 MOMP recently awarded a contract for drilling two wells in Yatimtaq, which are expected to be ready for production (200 m3/d) by the first quarter of 2020. 6 World Bank. 2019. Appraisal document for Mazar-i-Sharif Gas-to-Power Project. 16 September. 7 ADB. 2017. Technical Assistance Completion Report: Gas Development Master Plan in Afghanistan. Manila. 2 constitute a proof of concept both for gas development and for the expansion of gas-based power generation capable of displacing electricity imports. 5. Gas infrastructure. The existing gas pipeline system in Afghanistan was built between 1967 and 2001 primarily to export gas from the Sheberghan gas fields to the Soviet Union. After cessation of operations by the Soviets, the system infrastructure was enhanced with transmission and distribution assets. Gas from the field installations at Khwaja Gogerdaq, Jarquduk, and Yatimtaq in the Sheberghan region is supplied into the system. Gas gathered in manifold stations is sent through first-stage separators and then sent to the processing units at Khwaja Gogerdaq and Jarquduk (footnote 7). In the Sheberghan region, the natural gas is currently transported through an 89-km pipeline, built in 1974, supplying gas to the Northern Fertilizer Power Plant and other customers. However, the existing pipeline is unable to support the gas pressure required for a gas-fired power plant. Construction of a new 94.5-km pipeline from Sheberghan to Mazar-i- Sharif is ongoing; 45.0 km of pipeline has already been completed by Afghan Gas Enterprise (AGE). The new pipeline is funded by MOMP and is expected to be complete by the end of 2020. The World Bank is providing a supervisory contract to oversee the work. 6. Afghan Gas Enterprise. All forms of natural resources in Afghanistan, including natural gas, are the exclusive property of the Government of Afghanistan. To exercise its control on gas, AGE was established under the auspices of MOMP as the sole entity responsible for Afghanistan’s gas resources. MOMP is the key counterparty for gas supply while AGE is the concerned entity for gas operations. AGE was established in 1967 to implement and oversee natural gas operations and is responsible for enhancing extraction and transmission capacities and selling spare parts and machinery. The current production capacity of AGE is more than 1.6 million m3/d. AGE has an undiversified revenue base as it relies on one major customer - the Northern Fertilizer Power Plant, an enterprise with a history of payment default. Moreover, AGE does not have access to finance and almost all the proceeds from business activities are remitted to the Ministry of Finance. 7. Legal and regulatory challenges. Afghanistan faced considerable challenges after establishment of a new government in 2001. There were no laws and regulations for the oil and gas subsector and illegal extraction of oil from the Amu Darya block and gas from Sheberghan fields continued until 2005. Afghanistan’s first hydrocarbon law was adopted in 2009, under which two exploration and production-sharing contracts were awarded. The hydrocarbon law was further amended in September 2018 to further reform the subsector. The new hydrocarbon law mandated the establishment of an independent oil and gas authority, which commenced officially in March 2019. The authority was tasked with promoting private investments and regulating upstream, mid- stream, and downstream activities. 8. Tariff. There is no legal framework for the regulation of gas pricing, and the absence of a well-defined methodology is an obstacle to the development of the subsector. Several methodologies were developed, but none were adopted because of lack of consensus in the government. Pricing for existing customers (of AGE) is currently set by the AGE board of directors without taking into consideration the cost of exploration, production, and transportation. Similarly, reference to market value or to the operational cost is typically not taken into consideration. To develop the gas subsector, Afghanistan needs to develop and propagate its approach to gas pricing. 3 C. Power Subsector Overview 9. Primary authority and responsibility for the electricity subsector in Afghanistan resides with the Ministry of Energy and Water (MEW). In May 2008, the Government of Afghanistan corporatized MEW’s National Electricity Service Department (Da Afghanistan Breshna Mossasa) and it became an independent state-owned utility, Da Afghanistan Breshna Sherkat (DABS). DABS is a vertically integrated utility responsible for electricity operations in the entire country. The power system of Afghanistan is divided into generation, transmission, and distribution functions, all of which are operated by DABS. 10. Electricity generation. As of 31 December 2018, Afghanistan had 568 megawatts (MW) of installed generation capacity, comprising 300 MW (53%) from hydro power, 200 MW (35%) from diesel and heavy fuel oil-fired thermal plants, 65 MW (11%) from small diesel generators, and 3 MW (1%) from solar generators (footnote 1). Most of the electricity is produced by the small number of hydro power plants located across the country. Thermal power plants are mostly used as backup power in Kabul, and small generators are used in provinces that lack a connection to the main grid. All power plants are operated and maintained by DABS. 11. Transmission. DABS is responsible for central dispatch, control, reliability, and security of the system and uninterrupted electric power imports from neighboring countries. As of 31 December 2018, DABS operated 3,293 km of 220, 132, 110, and 35 kilovolt (kV) lines and 59 substations. The transmission system in Afghanistan is divided into four major groups connecting different supply sources to the grid: (i) the North East Power System, which consists of multiple small islands and connects 17 load centers including Kabul, Mazar-i-Sharif, and Jalalabad with Tajikistan and Uzbekistan; (ii) the South East Power System, consisting of Kandahar and linking with the hydro power project at Kajaki; (iii) the Herat System, linking with Iran and Turkmenistan; and (iv) the Turkmenistan system, linking Herat Faryab, JawzJan, Sar-e-Pul, and Andkhoy districts. The North East Power System receives power from Uzbekistan and Tajikistan as well as several domestic generation plants, and as a result the system operates in asynchronous mode. 12. Distribution and retail sale. Since 2008 DABS has also been responsible for electric power distribution. DABS currently operates 220, 132, and 110 kV high-voltage lines and lower voltage lines (0.4–20.0 kV) across the country.
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