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New Infrastructure Business Model: the Case of the Pamir Power Project, Tajikistan

New Infrastructure Business Model: the Case of the Pamir Power Project, Tajikistan. (draft). New Infrastructure Business Model: the Case of the Pamir Power Project, Tajikistan. Poverty Focused Diagnostics Innovative Financing Arrangement

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New Infrastructure Business Model: the Case of the Pamir Power Project, Tajikistan

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  1. New Infrastructure Business Model:the Case of the Pamir Power Project, Tajikistan (draft)

  2. New Infrastructure Business Model: the Case of the Pamir Power Project, Tajikistan • Poverty Focused Diagnostics • Innovative Financing Arrangement • Blending of Concessional with non-Concessional Financing • Joint World Bank Group Project (IDA/IFC) • Use of Donors’ Trust Funds • Involves Subsidies for Usage Charges to Households • Ensures Cost Recovery – But at a Reasonable Pace Poverty/MDG Focus: Example of how to serve hard to reach communities.

  3. Pamir Power Project: Background • Poorest among ex-Soviet republics • GDP per capita US$17 • Gorno-Badakshan - poorest region • Average monthly incomes US$27/household • Thinly populated – 250,000 total • Very cold winters – temperatures of –300C • Electricity System • Access to electricity 100% - Soviet legacy • System effectively isolated from rest of country • Has only 20 MW of capacity – all hydro • Most (98%) consumers are residential • Unreliable supply – deforestation, awful social situation • Schools don’t run, no health care; indoor air pollution

  4. Pamir Power Project: Objectives and Components • The objective of the project is to improve the reliability and enhance the quality of supply of electricity in the GBAO region through private sector involvement in an environmentally and socially sustainable way. • The proposed Project involves: • taking over and operation of all existing electricity generation, transmission and distribution assets in GBAO under a 25-year concession agreement; • expansion of Pamir I Hydropower Plant from 14 MW to 28 MW; • completion of a regulating structure at the upstream Yashikul lake to ensure adequate inflow in winter and • rehabilitation of other assets (e.g. Khorog HPP, transmission and distribution lines and substations).

  5. Involves subsidies for usage charges to households • Leverages both public and private funding for service delivery • Ensures cost recovery – but at a reasonable pace Pamir Power Project: Structure • Ensures sharp poverty focus through diagnostics

  6. Pamir Power Project: Key Financing Mechanisms • Diagnostic work targeting service delivery to the poorest • Leverages both public and private funding for service delivery • IDA – concessional funding, US$10 ml. • IFC – debt and equity financing, US$7.6 ml • Swiss Government – Trust Fund Agreement, US$5 ml. • Involving subsidies for usage charges to households • Social obligations met through the use of spread between the IDA interest rate to the Government, and the rate at which funds are lent on to the project company. • Ensures cost recovery – but at a reasonable pace • Levelized tariff target • Current tariffs at 0.4 US cents/kWh (yes, 0.4) • To go to a levelized 2.1 US cents at once is impossible • Need to allow for gradual tariff increases – allowed a 10-year timeframe to reach commercial levels.

  7. Pamir Power Project: Key Features Poverty Focused Diagnostics Subsidies Gradual tariff leveling • Despite its high risk, the project is a model of collaboration between private and public partners, between IFC and IDA and between the World Bank Group and donors. • Innovative solution providing affordable energy to low-income region while ensuring a commercial return to private investors. • Zero cost to Government to meet its social protection obligations.

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