PPIAF Assistance in Afghanistan

August 2012 PPIAF Assistance in Afghanistan Emerging from a decade of war, massive support from various development partners has been pouring in over the last few years to help rebuild Afghanistan. PPIAF s presence in fragile states demonstrates that even amidst challenging circumstances, there is room to explore the role of the private sector in reconstruction and subsequently in improving the delivery of basic infrastructure services. The result is most notable in the telecommunications sector where regulatory and policy reforms led to a competitive market, which brought drastic improvements to Afghanistan s economy and the everyday life of its citizens. In other sectors where PPIAF has been involved, the results have been less forthcoming, indicating the need for continued support in building consensus to strengthen commitment to reforms, and in improving the capacity needed to further structure projects where the private sector can lend a hand in rebuilding Afghanistan. Technical Assistance for Afghanistan s Telecommunications Sector After the war in 2002, Afghanistan s telecommunications system was small, fragmented, and dilapidated. The five major cities had a mere 57,000 lines. The capital city, Kabul, had fixed analogue, fixed digital, and wireless digital networks operated by the Ministry of Communications but none were connected to each other. Even the Government had difficulties in communicating: poor communication links with the provinces meant that central ministries had to transmit most information via paper or in face-to-face meetings. Recognizing that telecommunications would be critical to rebuild the country, the Government made developing the sector a high priority. It took early steps to promote private sector participation, focusing on getting the policy and regulatory framework right. In 2003 PPIAF supported the development of a regulatory framework that consisted of refining the telecommunications and ICT policies and drafting the Law on Telecommunications. PPIAF also funded trainings and seminars to help build the capacity of the interim regulator the Telecommunications Regulatory Board (TRB) on telecommunication laws, licensing and tariff regulation, and the stakeholder consultation process. Analysis was also done on a framework for the organizing and proper functioning of the TRB. Subsequently, the TRB undertook several important initiatives, including awarding licenses to new mobile and local fixed service providers through a competitive process, facilitating interconnection agreements between service providers, and establishing a national numbering plan. It also established regulatory procedures and processes, including stakeholder consultation on all important regulatory decisions. In 2005, a telecommunications law was passed which, among other things, established an independent regulatory authority Afghanistan Telecom Regulatory Authority (ATRA). ATRA was created out of the merger of the TRB and the State Radio Inspection Department under the Ministry of Communications, and assumed responsibility for all regulatory functions in the telecommunications network. These reforms resulted in increased competition in the sector. There are now five licensed cellular network operators at national level and 23 Internet service provider licensees bringing around US$1 billion in private investments in the sector since 2006. As a result, consumer choices have widened and tariffs have fallen by 95% since 2002. Around 80% of the population now has access to telecommunication services. The sector now employs more than 20,000 people. To highlight how these regulatory changes have facilitated the rapid rollout of telecommunications services in such a short period of time, PPIAF provided another grant in 2006 to produce a short documentary video capturing the early phases of development and showcasing the impact of improved telecommunications services on everyday life, business and commerce, social development, and finally government services itself. The video was disseminated to the Government of Afghanistan, key donors working in the telecommunications sector, and other regions through donor partners. It is available on the PPIAF website (http://www.ppiaf.org/ppiaf/page/videos). PPIAF s grant complemented other donor support in the sector from 2002 to 2005: the World Bank s Afghanistan Reconstruction Trust Fund and Emergency Communications Development Project; the 1

International Telecommunication Union; and the Asian Development Bank. PPIAF assistance was also complemented by the U.S. Agency for International Development, which financed the establishment of District Communication Networks and Village Communication Networks and provided technical assistance in the form of advisors to the Ministry of Communications, Afghan Telecom, and the ATRA. Results of PPIAF s Activities in Afghanistan s Telecommunications Sector Policies prepared or legal or regulatory changes recommended Review of the telecommunications policy and draft Telecommunications Law, 2003 Analyses/assessments prepared Framework for organizing and proper functioning of the interim regulatory body, 2003 Knowledge products produced or disseminated Training and seminar on telecommunication laws, licensing and tariff regulation, and stakeholder consultation process, 2003 2004 Short documentary video showcasing the impact of improved telecom services in Afghanistan, 2006 Policies adopted, legislation passed/amended, or regulation issued/revised Outcomes Telecommunications Services Regulation Act passed in 2005 Institutions created or strengthened Technical capacity enhanced The passage of the Telecommunications Law in 2005 eventually created an independent regulator, Afghanistan Telecom Regulatory Authority (ATRA) by merging the TRB and the State Radio Inspection Department, 2005 Telecommunications Regulatory Board (TRB) s capacity on licensing and facilitating interconnection agreements enhanced; establishment of regulatory procedures and processes, including stakeholder consultation. Impacts Additional private investment in the sector Increased number of people with infrastructure services Increased employment opportunities Private investment in the sector has amounted to US$1 billion from 2006 2009 Coverage increased to as much as 50% around 80% of the country s population now has access to telecommunications services The telecommunications sector directly or indirectly employs as many as 20,000 people 2

Improved level of services Reduction of tariffs of 95% since 2002 Technical Assistance for Afghanistan s Water Sector Urbanization has put tremendous challenges on delivering urban water supply and sanitation services. This prompted the Ministry of Urban Development and Housing (MUDH) of the Government of Afghanistan to start planning the development a Medium-Term Urban Water Supply and Sanitation Program for 2006 2010. As part of its preparation, the MUDH considered different options for the management of the water supply and sanitation operations in Kabul City Afghanistan s capital and largest city and in the provincial towns served by piped networks. The MUDH extensively consulted key stakeholders and identified a public-private partnership (PPP) through a management contract as an option to public management with extensive donor assistance. A PPIAF grant in 2004 helped the Government assess the suitability of management contracts to manage Afghanistan s water and sanitation services. A workshop was undertaken in November of that year in Delhi, India to build consensus among the stakeholders on the most appropriate management model. At the workshop, stakeholders agreed management contracts could be undertaken but indicated that a legal framework that follows a set of principles should first be in place. The principles include: i) separation of policy, regulation and supervision, and management functions of the government, ii) continued public ownership of assets, iii) acceptance of the principle of full cost recovery in operations and maintenance and, iv) participation of the private sector initially through a management contract but with a broader amendment of the legal framework. An Issues & Options Note laid down these key reform elements and looked at a potential legal framework. The note was used to develop the Afghanistan Urban Water Supply Policy and Afghanistan Urban Water and Sewerage Sector Institutional Development Plan, which was approved by the Government in October 2005. To implement the reforms outlined in the Institutional Development Plan, a Presidential decree was signed in January 2006 that established a Working Group to lead and provide all coordination support during implementation. One of the first mandates of the Working Group was to decentralize urban water supply and sanitation local government units. Particularly, the Working Group was tasked to initiate the corporatization of the Central Authority for Water Supply and Sewerage (CAWSS) and establish the Afghanistan Urban Water Supply and Sewerage Company (AUWSSC) under the Commercial Law of Afghanistan. Urban water supply and sewerage services were at the time provided by the CAWSS. The governance of CAWSS was unclear since both the MUDH and the Ministry of Finance had oversight on the agency. Like most government-owned utilities, CAWSS had difficulty in attaining financial autonomy, and struggled with bureaucracy and attracting or retaining qualified staff. In 2006 a follow-up PPIAF activity provided the Working Group with legal advice and assisted in drafting the statutes for corporatization and all supporting inventories/analysis required to operationalize AUWSSC. The Articles of Incorporation of the new AUWSSC were approved by the Cabinet on July 9, 2007 and gazetted by the Ministry of Justice on July 11, 2007. The CAWSS was effectively dissolved in 2009. AUWSSC was established in May 2009 as a holding company for local utilities called Strategic Business Units that are to be run based on commercial principles. AUWSSC has a management team now in place and six Strategic Business Units. Various donors are currently supporting the new entity in building its capacity to undertake its role and manage business processes. The World Bank is also developing a new water supply project for Kabul as well as a pilot scheme for expanding water supply services by small private operators. 3

Results of PPIAF s Activities in Afghanistan s Water Sector Analyses/assessments prepared Issues and Options Note on the reform path for urban water and sanitation sector, 2005 Plans/strategies prepared Corporatization plan including organization, governance, and management structure and human resource strategy of the Afghanistan Urban Water Supply and Sewerage Company, 2005 Workshop on Urban Water Supply and Sanitation Sector Strategy and Action Plan held in Delhi, November 6 8, 2004 Outcomes Policies adopted, legislation passed/amended, or regulation issued/revised Plans/strategies adopted or implemented The Issues and Options Note was used to develop the Afghanistan Urban Water Supply Policy, which was approved in October 2005 The Issues and Options Note was used to develop Afghanistan s Urban Water and Sewerage Sector Institutional Development Plan, approved in October 2005 Institutions created or strengthened Consensus achieved The Afghanistan Urban Water Supply and Sewerage Company (AUWSSC) was established in May 2009 as a holding company for local utilities called Strategic Business Units Stakeholders agreed management contracts can be undertaken but that a legal framework should first be in place, November 6 8, 2004 Technical Assistance for Afghanistan s Solid Waste Management Sector Solid waste management is a growing concern to many of Kabul s residents, and to effectively address this, the Municipality required significant investment and institutional changes. To this end, Kabul Municipality intended to complement municipal operational capacity in urban sanitation by facilitating private sector participation. In 2007 PPIAF assisted the Municipality of Kabul to develop a strategy for outsourcing portions of services in the solid waste management sector. A report covering a review of a legal/regulatory framework for facilitating PPPs in solid waste management, market assessment, and advice on designing PPP arrangements was provided to the Municipality of Kabul in 2007. Capacity building workshops were also undertaken in February 2007 and June 2008 to create awareness on the experience and issues in managing solid waste management services, the role of the private sector, and building consensus around a PPP strategy for Kabul. Three draft contracts were developed as a part of this activity: i) a build-operate-transfer contract for a new sanitary landfill and composting plant; ii) a services contract for secondary collection; and iii) a community contract for primary collection. Consensus was achieved to undertake a pilot project with 4

private sector participation. However, these potential transactions have not gone through due to a lack of commitment from the Kabul Municipality to complete some basic steps on project preparation. Results of PPIAF s Activities in Afghanistan s Solid Waste Management Sector Plans/strategies prepared Project cycle-related assistance Transaction support Strategy for outsourcing portions of services in the solid waste management, 2007 Three draft contracts were developed in 2008: i) build-operatetransfer contract for new sanitary landfill and composting plant; ii) service contract for secondary collection; and iii) community contract for primary collection Capacity building and stakeholder consultation workshops undertaken in February 2007 and June 2008 to create awareness on the experience and issues in managing solid waste management services, the role of the private sector, and building consensus around a PPP strategy for Kabul Technical Assistance for Afghanistan s Institutional Environment In May 2011 the Government of Afghanistan requested PPIAF assistance to carry out a comprehensive diagnostic of the PPP environment in Afghanistan, including policy, regulatory, legal, institutional, and capacity constraints to private sector participation. The diagnostic report highlighted the following constraints: There is no clear policy to consider PPP as a service delivery option (PPPs are viewed on an ad hoc fashion as a means to supplement constrained public sector resources) Institutional capacity within government agencies to systematically and successfully identify, analyze, structure, tender, evaluate, contract, and regulate PPPs is severely constrained Project management capacity in government officials to undertake the process of PPP project preparation, development, and management is not well developed There is lack of expertise in the form of experienced and qualified specialists to conduct prefeasibility studies and prepare PPP transactions There is also a shortage of project finance/ppp structuring skills in the local financial and advisory/consulting industry In Afghanistan s capital markets there is lack of long-term financing, which is needed for the sustainable financing of local infrastructure investments; there is also a lack of a sufficiently large universe of qualified investors and private operators to provide the necessary resources, capacity, and expertise to develop infrastructure series in Afghanistan given the volatility and security situation in the country The report also identified a forward strategy to develop a PPP agenda in Afghanistan. It begins with the basic building blocks for PPPs i.e., a clear policy statement on PPPs, creation of an implementation capability, together with a clear commitment to transparency. The next steps are to identify a pipeline of 5

transactions, which in the first instance meet the following criteria: i) fundamental economic viability, ii) ability to harness capacity to provide the necessary capital and management expertise, iii) manageable fiscal, risk management, and regulatory requirements, and iv) clear acceptance by the people that the proposed PPP is good. PPIAF assistance also included the organization of a dissemination workshop on PPPs on February 26, 2012 with 46 participants, where the draft report was presented. Plans/strategies prepared Public-Private Partnerships Diagnostic Report, February 2012 Workshop on Public-Private Partnerships, Kabul, Afghanistan, February 26, 2012 Looking Ahead: PPIAF Support to Afghanistan Post-conflict countries present a challenging environment for PPPs to thrive, as security and stability are constraints to private sector investment. However, as the experience in Afghanistan s telecommunications sector shows, the private sector has not limited itself from participating even in these countries if the right policies and frameworks are in place. Firm government commitment to reforms of course is always crucial, and this has been one of the main reasons for the success in the telecommunications sector. Factors that are equally important in creating the environment for the private sector to engage are: improving government capacity and building a pipeline of projects areas with which PPIAF can help Afghanistan. 6