FOR OFFICIAL USE ONLY Report No: 141683-AF PROJECT APPRAISAL DOCUMENT INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) ON A PROPOSED GUARANTEE IN THE AMOUNT OF UP TO US$12 MILLION Public Disclosure Authorized IN SUPPORT TO THE ISLAMIC REPUBLIC OF AFGHANISTAN ON SUPPORT FROM THE IDA18 IFC-MIGA PRIVATE SECTOR WINDOW (PSW) RISK MITIGATION FACILITY (RMF) OF UP TO US$32.5 MILLION FOR THE PROPOSED IFC INVESTMENT ON SUPPORT FROM THE IDA PSW MIGA GUARANTEE FACILITY (MGF) OF UP TO US$26.5 MILLION FOR THE PROPOSED MIGA GUARANTEES AND INTERNATIONAL FINANCE CORPORATION (IFC) ON A PROPOSED INVESTMENT CONSISTING OF Public Disclosure Authorized AN A LOAN IN THE AMOUNT OF UP TO US$ 23.8 MILLION AND CLIENT RISK MANAGEMENT SWAPS HAVING IN AGGREGATE AN EXPECTED LOAN EQUIVALENT EXPOSURE OF UP TO US$1.5 MILLION TO THE AFGHAN POWER PLANT COMPANY AND THE MULTILATERAL INVESTMENT GUARANTEE AGENCY (MIGA) ON PROPOSED GUARANTEES IN THE TOTAL AMOUNT OF UP TO US$48.7 MILLION TO GHAZANFAR NEFT & GAS DMCC OF THE UNITED ARAB EMIRATES; METKA POWER INVESTMENTS LTD. OF THE REPUBLIC OF CYPRUS; AND DEUTSCHE INVESTITIONS- UND ENTWICKLUNGSGESELLSCHAFT (DEG) OF THE FEDERAL REPUBLIC OF GERMANY Public Disclosure Authorized FOR THE MAZAR-E-SHARIF GAS-TO-POWER PROJECT September 16, 2019 Energy & Extractives (South Asia Region) / Infrastructure, PPPs, & Guarantees, World Bank Infrastructure and Natural Resources (Asia & Pacific Region), International Finance Corporation Energy and Extractive Industries Sector Team, Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. Public Disclosure Authorized The World Bank Mazar-e-Sharif Gas-to-Power Project (P157827) CURRENCY EQUIVALENTS (Exchange Rate Effective August 31, 2019) Currency Unit = US$ Afghani 77.95 = US$ 1 FISCAL YEAR January 1 - December 31 Afghan fiscal year: 22 December – 21 December Page 2 of 108 The World Bank Mazar-e-Sharif Gas-to-Power Project (P157827) International Development Association (IDA) Regional Vice President: Hartwig Schafer Country Director: Henry G. R. Kerali Senior Global/Regional Directors: Riccardo Pulliti/Guangzhe Chen Demetrios Papathanasiou / Sebnem Madan Practice Managers: (PM for Guarantee) Fanny Missfeldt-Ringius / Christina Paul / Task Team Leader(s): Teuta Kaçaniku International Financial Corporation (IFC) Regional Vice President: Nena Stoiljkovic Global Industry Directors: Morgan J. Landy/Betrand Heysch de la Borde Regional Industry Director: Isabel Chatterton Blended Finance Director: Martin C. Spicer Transaction/ Regional Industry Manager: Lubomir Varbanov Senior Country Manager/Officer: Nadeem Siddiqui/ Wagma Mohmand Global Industry Manager: Nuru Lama (Acting) Investment Leader: Kamal Dorabawila Zeeshan Ahmed Sheikh, Yuji Kano, Mirza Investment Team: Khurram Baig, Paridhi Agrawal Juan Carlos Pereira, Pranab Ghosh, Maham I. Blended Finance Team: Warraich Multilateral Investment Guarantee Agency (MIGA) Vice President and Chief Operating Officer: Subramaniam V. Iyer Director, Operations: Sarvesh Suri Associate Director & Chief Underwriter: Muhamet Bamba Fall Sector Manager: Marcus Williams Team Leader: Kyoo-Won Oh Persephone Economou, Dessislav Dobrev, Underwriting Team: Rustam Arstanov, Milton Shapiro, Miriam Ebo, Diego Soto Page 3 of 108 The World Bank Mazar-e-Sharif Gas-to-Power Project (P157827) ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AFN Afghan Afghani AGE Afghan Gas Enterprise AIIM Anticipated Impact Measurement and Monitoring APPC Afghan Power Plant Company BOC Breach of Contract CE Citizen Engagement COD Commercial Operation Date CPF Country Partnership Framework CAO Compliance Advisor Ombudsman CO2 Carbon Dioxide DABS Da Afghanistan Breshna Sherkat DEG Deutsche Investitions- Und Entwicklungsgesellschaft DFI Development Finance Institution EPC Engineering, Procurement, and Construction EIRR Economic Internal Rate of Return ESIA Environmental and Social Impact Assessment ESMP Environmental and Social Management Plan ESRS Environmental and Social Review Summary EH&S Environment, Health & Safety FIRR Financial Internal Rate of Return FCS Fragile and Conflict-Affected States FIC Foreign Investment Contribution GDP Gross Domestic Product GG Ghazanfar Group GHG Greenhouse Gas GOA Government of Afghanistan GPN General Procurement Notice GRM Grievance Redress Mechanism GSA Gas Supply Agreement GW Giga Watt GWh Giga Watt hours GRS Grievance Redress Service GBV Gender Based Violence HSE Health, Safety and Environment HSES Health, Safety, Environment and Social Page 4 of 108 The World Bank Mazar-e-Sharif Gas-to-Power Project (P157827) HR Human Resources IA Implementation Agreement IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund IPP Independent Power Producer IDC Interest During Construction IMPACT Impact Performance Assessment and Comparison Tools IPF Investment Project Financing IPG Infrastructure, PPPs & Guarantees JV Joint Venture kWh kilo Watt hours km kilo meter kV kilo Volt L/C Letter of Credit LTSA Long Term Service Agreement LEQ Loan Equivalent Exposure LEAP Leading Asia’s Private Infrastructure Fund MW Mega Watt MEW Ministry of Energy and Water MGF MIGA Guarantee Facility MIGA Multilateral Investment Guarantee Agency MoF Ministry of Finance MoMP Ministry of Mines and Petroleum M&E Monitoring and Evaluation MFD Maximizing Finance for Development MMBTU Million British Thermal Units Mcmd Million cubic meters per day MCM Million cubic meters NEPS North-East Power System NESP National Energy Supply Program NFPP Northern Fertilizer Power Plant NPV Net Present Value O&M Operations and Maintenance OFC Offshore Financial Center OP Operational Policy OHS Occupational Health and Safety PS Performance Standard PP&E Property, Plant and Equipment PDO Project Development Objective Page 5 of 108 The World Bank Mazar-e-Sharif Gas-to-Power Project (P157827) PPA Power Purchase Agreement PPP Public-Private Partnership PRI Political Risk Insurance PSW Private Sector Window PLR Performance Learning Review RAP Resettlement Action Plan RMF Risk Mitigation Facility SCD Systematic Country Diagnostic SDNRP Sustainable Development of Natural Resources Project SEP Stakeholder Engagement Plan SBLC Standby Letter of Credit SHS Solar Home System SMPL Shebherghan-Mazar Pipeline SORT Systematic Operations Risk-Taking Tool SCD Systematic Country Diagnostic ToR Terms of Reference TTL Task Team Leader USAID United States Agency for International Development UNAMA United Nations Assistance Mission in Afghanistan UAE United Arab Emirates US$ United States Dollar WTP Willingness to Pay WACC Weighted Average Cost of Capital Page 6 of 108 The World Bank Mazar-e-Sharif Gas-to-Power Project (P157827) TABLE OF CONTENTS DATASHEET ........................................................................................................................................... 9 I. STRATEGIC CONTEXT .................................................................................................... 16 A. Country Context ............................................................................................................... 16 B. Sectoral and Institutional Context ................................................................................... 17 C. Relevance to Higher Level Objectives .............................................................................. 23 II. PROJECT DEVELOPMENT OBJECTIVES ............................................................................ 24 A. PDO ................................................................................................................................... 24 B. Project Beneficiaries ......................................................................................................... 24 C. PDO-Level Results Indicators ........................................................................................... 24 III. PROJECT DESCRIPTION .................................................................................................. 25 A. Project Components ......................................................................................................... 25 B. Project Cost and Financing ............................................................................................... 27 C. WBG Instruments ............................................................................................................. 28 D. Lessons Learned and Reflected in the Project Design .................................................... 37 IV. IMPLEMENTATION ........................................................................................................ 39 A. Institutional and Implementation Arrangements ........................................................... 39 B. Results Monitoring and Evaluation ................................................................................. 39 C. Sustainability .................................................................................................................... 39 V. KEY RISKS ..................................................................................................................... 40 A. Overall Risk Rating and Explanation of Key Risks ........................................................... 40 VI. APPRAISAL SUMMARY .................................................................................................. 43 A. Economic