Home > Afghanistan, Americas, Asia-Pacific, Central Asia, Economics, Editorial, USA > USAID funds an expensive power plant that may never be used in Afghanistan

USAID funds an expensive power plant that may never be used in Afghanistan

President Karzai energizes a substation to begin the transfer of electricity from Uzbekistan to Afghanistan. (Source: USAID)

A USAID funded, foreign constructed power plant in Afghanistan has become a money sink and may never be used by the local government due to its extravagant maintenance costs.

The diesel-powered plant is nearly complete, yet its future is uncertain, and events so far have been stitched with controversy. Pratap Chatterjee, in an IPS article, writes that, “three independent investigations into U.S.-financed reconstruction of the Afghan electricity sector, as well as IPS interviews with Afghan government officials and contractors, suggest that the power plant – which will cost taxpayers almost three times as much as comparable projects – may never be used.”

First the U.S. planners chose to ignore other ongoing reconstruction projects that were cheaper and more likely to succeed, or to pay attention to alternative recommendations from Afghan government officials.

Second, the planners picked expensive technologies that the city of Kabul could not afford to maintain or utilise.

The project was launched in 2007, as a joint venture between two US contractors, Louis Berger and Black & Veatch. In an earlier post, I had mentioned a previously bungled construction contract by Louis Berger.  They had received a contract to build 1,000 schools, each costing US$274,000.  The schools were built according to designs suitable for the US, not Afghanistan. They did not consider local climate, nor local cost considerations. The Afghan government not only has to worry about maintaining these expensive schools, they might not even be usable. In January 2009, Ann Jones, who for years worked in Afghanistan as an aid worker, said that Louis Berger, “already way behind schedule in 2005, had finished only a small fraction of them when roofs began to collapse under the snows of winter.”

The 105 megawatt power plant under construction is estimated to cost over US$300 million, the latest price tag being given after several cost hikes in the project’s life span.

Chatterjee writes that “the power plant is expected to be completed this spring. But the electricity is no longer urgent. One year ago, a 300-megawatt power line to Kabul from Uzbekistan was completed, with funding from the World Bank, German and Indian governments. The construction cost was just 35 million dollars and the operation costs are expected to be just over six cents a kilowatt hour compared to the 22 cents a kilowatt hour that it will cost to run the diesel plant.”

The contract was awarded by USAID under a cost-plus deal. Cost-plus contracts guarantee a set profit above the cost of projects. This has become a preferred form of contract for Western firms taking on US government contracts in Afghanistan and Iraq. The argument in favour of them is that, given the poor security conditions of these countries, and the uncertain costs of construction in a war zone, private firms want a guarantee of profits before they begin work. The problem here is that, in this schema, there is no incentive for contractors to limit costs, and they could very well gain by pushing them up and generating more work for themselves knowing full well that they will get their share of profits no matter what.

Chatterjee’s report revealed the following:

“This situation illustrates the twin policy evils of the cost-plus contracts,” says R. Scott Greathead, a New York lawyer who advised Symbion on the project. “First, they impose no cost or penalty on the cost-plus contractor for its incompetence, inefficiency or failure to perform, and second, they punish two victims, the fixed-price subcontractor, who incurs costs that may never be fully reimbursed, and the U.S. government, which pays in the end for everything.”

Construction of the power plant has been slowed by disagreements.

On May 19, 2009, Symbion [a subcontractor] stopped work – because Black & Veatch had failed to pay them for four months. A USAID Inspector General audit published in November 2009 found that Black & Veatch “had charged USAID for subcontractor costs that the contractor had not paid the subcontractor.”

The power plant, near Kabul, is said to cost nearly three times more than similar projects.

Afghanistan’s 2008 annual government revenue was estimated to be about US$685 million according to the minister of finance, Anwar-ul-Haq Ahadi, during an interview with foreign press.

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