US-led private investor Bayat is set to extend its operations into the energy sector after reaching an agreement with the government of Afghanistan.
Bayat aims for phase one of the $250m project to bring more than 200MW of gas-powered electricity to the country for domestic consumption.
With its vast natural resources untapped, Afghanistan currently imports close to 90% of its energy from neighbouring Uzbekistan, Turkmenistan and Tajikistan.
“From [an] investment point of view we welcome [investments like Bayat’s] which help stimulate economic growth and create jobs,” Ashraf Haidari, director general of policy and strategy at the ministry of foreign affairs of Afghanistan, said in an interview.
Mr Haidari said he welcomed investments in other areas such as oil and coal. “Afghanistan has natural gas, petrol and coal. Once we get adequate investment we can start exporting our natural resource and use these to electrify the country to reduce our reliance on imported energy,” he added.
Natural resources will play an important role in Afghanistan’s economic future both as a source of jobs and capital for the nation, according to Montgomery Simus, vice president of international investments at Bayat Group.
“[Gas] power will provide electricity that will give rise to crucial industrial growth in sectors such as agribusiness and mining that all require reliable supplies of cost effective power. [Similarly], mobile telephony gave rise to a number of new businesses as Afghans could communicate easily with one another” added Mr Simus.
A comprehensive electricity grid will help Afghanistan achieve a productive economy through the availability of electricity which can open a large market for electronic goods, drastically expanding consumer consumption.
Huma Yusuf, associate director at specialist risk consultancy Control Risks, believes there are attractive opportunities in Afghanistan’s power sector. “The government has been seeking investment in the sector over the past three years by prioritising public-private partnerships and establishing the Afghan Power Regulatory Authority,” he said.
New regulations have been passed in order to facilitate foreign capital flows. “The government has been improving the investment climate since 2014 by establishing a one-stop shop for investors to ease market entry [the Afghan Investment Support Agency], enacting pro-business legislation, and cracking down on corruption,” said Mr Yusuf.
Nevertheless, significant challenges – namely security concerns – are slowing Afghanistan’s recovery. “The development of power systems in Afghanistan is not easy and raises several concerns. Conflict has stagnated development and kept electrification levels very low”, said Alexandros Korkovelos, a research consultant for the World Bank.
Mr Haidari added: “Our market is emerging and non-competitive, so courageous investors have the potential to make healthy returns. News about fighting and violence may discourage investors, but [there are] great business opportunities.”