self-reliance accelerators package: implementing the ...€¦ · afghanistan is rated at high risk...

Islamic Republic of Afghanistan Ministry of Finance

د افغانستان اسالمی جمهوریت

وزارت مالیید جمهوری اسـالمی افغانستان

مالیهوزارت

Self-reliance Accelerators Package: implementing the Afghanistan National Peace

and Development Framework.

Introduction: The Government of Afghanistan is planning to introduce an accelerators

package to address the challenges of increasing poverty and respond to adverse economic

shocks i.e. drought by creating employment opportunities through designing and

implementing labor intensive programs in different sectors of the economy in order to

distribute economic gains amongst the population particularly the bottom poor. While at the

same time aiming to realize fiscal self-dependency and to spur economic growth across the

country.

The Government therefore would like to identify and prioritize development projects as a

mean to reach its aims in addition to the current development budget, the package will either

aim to increase allocations to the existing programs to expand their scope or allocate funds

to other new viable programs through which the aforementioned objectives are realized. To

this end, certain criteria are developed that will be used as a standard for projects identification,

prioritization, and more importantly for projects selection. In specific, projects will be selected

having one or more of the characteristics below.

Project selection criteria:

1. Projects are commercially and economically feasible;

2. Labor intensive to create employment opportunities and to reduce poverty;

3. Improve domestic production to substitute for imports;

4. Accelerate domestic revenue generations or having the characteristic to generate

revenues itself to realize fiscal sustainability and self-reliance agenda;

5. Improve public service delivery, government processes, and reduce corruption;

6. Most part of the projects and the bulk of investment take place in the next five years;

7. Contain regional integration components;

8. Enable private sector investments;

9. Alignment with the ANPDF, the NPPs, and the recently developed economic growth

strategy.

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All projects that are selected for this purpose shall have complete feasibility studies or shall

have the studies within the next six months.

The projects will be identified and prioritized in the following sectors/areas in consultation

with the line ministries and agencies:

Physical Infrastructure Agriculture & Rural

Development Service delivery Revenue Management

1. Road tolls and

Railways;

2. Affordable Housings

construction;

3. Hydropower dams,

Solar Projects,

energy transmission

line;

4. IT and fiber optics;

5. Government

buildings for basic

service delivery.

1. Irrigation

channels and

expansion;

2. Extension

programs to

consider saffron,

pine nuts, and

pistachio farms.

Specialized

Hospitals based on

international

standards to

minimize capital

flights in the

sector.

1. Toll plaza

establishments in

major highways;

2. Real time data

Management;

3. Scanners in

Customs houses;

4. Border

Management.

Financing the package:

The projects are selected based on commercial and economic viabilities to aim expediting

realization of government self-reliance agenda, deliver efficient public services, and distribute

economic gains amongst the wide majority of the population. The financing options will

mainly be through borrowing either on concessional or non-concessional basis but these

options will further emerge specifically when consultation with the donors, development funds,

and the financial institution starts. In addition, private sector capital and mobilization of PPP

financing will be considered for certain projects that are fit for those arrangements.

Current borrowing policy settings:

Under the IMF Extended Credit Facility (ECF) for Afghanistan, the Government of Afghanistan

can only borrow concessional loans for specific development projects subject to approval of

the IMF. The IMF approves the loans based on feasibility studies of the project conducted by

a third party i.e. the World Bank, ADB, or the Islamic Development Bank (IDB). Where

concessionality of the loans is defined under the IMF Program as a grant element of 60 percent

or higher (i.e. the present value of the loan is less than 40 percent of the nominal value of the

loan).

In general, the IMF and the World Bank strongly discourage non-concessional borrowing for

a country like Afghanistan, which faces high risk of debt distress and weak debt management

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capacity. A non-concessional loan therefore triggers the following implications, which need to

be carefully managed in case we were to borrow a non-concessional loan.

1. Non-Compliance with IMF Program: the IMF Extended Credit Facility Program

includes a performance criteria of zero-limit on non-concessional borrowing. This is

consistent with the IMF Debt Limit Policy, under which countries facing high risk of debt

distress and with weak debt management capacity have a zero limit for non-

concessional debt. Breaching the IMF Performance Criteria on borrowing could off-

track or even stop the Extended Credit Facility Program;

2. Implications under the World Bank Non-concessional Borrowing Policy

(NCBP): http://ida.worldbank.org/financing/non-concessional-borrowing-0; this policy

aims to manage risks of over-borrowing among IDA-only countries (including

Afghanistan). The policy effectively aligns the World Bank position on non-concessional

borrowing with the IMF program. Therefore, any non-concessional borrowing that was

inconsistent with the IMF Debt Limits Policy (and as reflected in Extended Credit Facility

performance criteria) would trigger the World Bank’s Non-Concessional Borrowing

Policy. According to which non-concessional borrowing could lead to a hardening of

IDA term (e.g. a change from grants to credits), a reduction in IDA allocations, or a

combination of both. Such hardening of terms or reduction in allocations have been

applied in several countries, including Ethiopia, Ghana, and Chad.

3. Implications for other donors. Non-concessional borrowing that was inconsistent

with IMF program requirements (and, therefore, would trigger the World Bank Non-

Concessional Borrowing Policy) would be likely to have implications for broader donor

confidence in fiscal management, potentially impacting overall allocations or the

provision of on-budget aid. Other donors may view their grants as being used to

subsidize the loans, and therefore may tighten the terms of their support.

4. Overall debt sustainability considerations and debt management

capacity. Afghanistan is rated at high risk of debt distress under the World Bank/IMF

Debt Sustainability Framework, and new borrowing on non-concessional terms would

lead to increased debt sustainability risks. While current debt levels are low, the existing

Debt Sustainability Analysis shows that Afghanistan would face challenges in servicing

external debt under even a gradual hardening of terms for international assistance

(from grants to concessional loans). Further, Afghanistan’s debt management capacity

is assessed as weak under the IMF’s Debt Limits Policy and the World Bank’s Non-

Concessional Borrowing Policy. Overall, Afghanistan faces significant risks in any

movement towards a non-concessional borrowing.

http://ida.worldbank.org/financing/non-concessional-borrowing-0

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However, the IMF and the World Bank both have the capacity under their policies to allow

non-concessional borrowing on a case-by-case basis and in exceptional circumstances, based

on:

a. The economic impact of the project, for borrowing is intended;

b. Adequacy of debt management systems;

c. Implications for overall debt sustainability and risks; and

d. Availability of financing from alternative sources.

Keeping these in mind, this package intends to strategize financing some of the most

commercially and economically feasible projects in sectors of agriculture, housings, and

electricity transmission and distribution facilities. The package, therefore, focuses on the two

main areas of physical infrastructure, and agricultural and rural development.

Fiscal Accelerators’ Package Summary

This package reflects the planned investment in sectors of agriculture and irrigation, urban

development and housing, and in electricity transmission and distribution. This whole package

will require an investment of $ 8,704.5 million. Around 66% of the investment is devoted to

agriculture and irrigation, 15% to the power infrastructure, and 19% to urban housing.

Of the total investment amount, the government will invest $ 5,850.6 million, which makes

67% of the total investment package. The private sector contributes 33% of the total

investment.

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Almost 80% of the government investment takes place in the initial 5 years. The table below

provides the distribution of the government investment over the 9 years of the package period:

The successful implementation of the package will create 1.48 million full-time equivalent jobs.

The cost per job is lowest for the agriculture and irrigation component followed by the urban

housing component. The overall package cost per job is $ 5,868.

The government revenue generated by the whole investment package is projected, on average,

to be $ 948.9 million per year during the first 10 years. While after 10 years, the revenue

generated by package could reach, on average, to $ 1,881.4 million per year until 2050.

The package is projected to cumulatively generate $ 10.8 billion in government revenue by

2030. This revenue could reach $ 48.9 billion until 2050. The main sources of the revenue are

receipts and corporate taxes, export duties, profits and rents from the properties. The table

below provides the year-wise revenue until 2030.

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The analysis of the impact of the revenues, that are generated by the projects, on fiscal

sustainability can be considered in terms of two scenarios. Under continued conflict scenario,

the expenditure composition will not change much from the current levels. The

implementation of the investment package will help government achieve self-sufficiency

target for operating expenditures by 2026.

Under peace scenario, where peace with the Taliban leads to substantial improvement in

security, the expenditure composition will change significantly as more funds can be diverted

to the development expenditures. The implementation of the package will help in achieving

self-sufficiency for the operating expenditures by 2022. Moreover, by 2030, more than half of

the development expenditures could also be financed with domestic resources.

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1. Expanding Agriculture Sector:

Agriculture is one of the main growth sectors, recently approved as part of the Afghanistan

Growth Strategy in Geneva Conference. Agriculture and agribusiness present substantial

opportunities for growth, job creation, and niche exports. In the Growth Strategy, the

Government has set itself to achieve the following objectives:

Land under cultivation will be increased by an average 150,000 ha per year, and reach

3.5 million ha by 2030, allowing an additional 1 million tons of wheat production;

Agro-processing value added will increase by around $ 330 million through the

establishment of agri-business parks;

Agricultural exports will increase by 5 percent per annum through improvements to

export procedures and certification. The number of farmer learning centers will

increase to 400. Agricultural growth will be driven by grains and horticulture, including

grapes, almonds, pomegranates, and pine nuts.

The sector has the following economic potential

Jobs: 2.5 percent faster employment growth by 2024. Development of

agriculture will disproportionately benefit women, who account for the majority

of the agricultural workforce.

Exports: 1.7 percent higher export growth by 2024 through agro-processing

Growth: Full implementation of agriculture potential could drive growth of 7.5

percent by 2024 – 2.6 percentage points over baseline.

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To realize the objectives of the growth strategy, a total of six highly feasible irrigation

expansion and rehabilitation projects and three horticulture development projects are

selected to be part of the fiscal accelerators’ package.

MAIL Investment Package and its associated economic returns

The Ministry of Agriculture, Irrigation and Livestock (MAIL) is working on the development and

modernization of agriculture, livestock and horticulture. The ministry launches programs in

the fields of agriculture, livestock and horticulture to support farmers, manage natural

resources, and strengthen the agricultural economy. In pursuit of this objective, it aims to

invest $3,455.2 million for a 9-year period from 2020 to 2028 involving 6 projects in irrigation

and 3 projects in horticulture. This will be complemented by a further investment of $2,295.6

million for farms development and improvements by the farmers/entrepreneurs.

Irrigation projects include Musa Qala Dam Canal, Zamin Dawor Canal, Salma Downstream

Rehabilitation (including canals and watershed), Andkhoy Irrigation Project, Khush Tepa

Irrigation Canal, and Shah-wa-Arus Irrigation Project. The horticulture projects include Injel

Pistachio & Cumin Farms, Development of Ferula (Assafoetida), Licorice, and Cumin value

chains, and National Horticulture Development Program which includes Apple, Pomegranate,

Almond, Walnuts, Citrus, Peach and other sub-sectors. The table below list these projects with

their associated government investment amounts, their relative share, land area coverage, and

duration:

Each of these projects are briefly described as under:

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1.11 Irrigation Projects

Project 1: Musa Qala Dam Irrigation Project Musa Qala Dam is an irrigation project of the MAIL, which will cover 17,000 hectares of land.

The implementation period of the project is 4 years excluding one year of the feasibility study.

The development & construction work of the project will start in 2020, which is expected to

be completed by the end of 2023. The investment required for the project is $ 254.5 million,

which is distributed as $ 50 million in the first year, $ 55 million in second and third year each

and $ 94.6 million in fourth year. In addition, farmers will make an investment of $ 34 million

on the farm-level.

Investment Return: The project will create 17,000 full time jobs (1 job per hectares of new

irrigated land). It is assumed that the land will be allocated for the production of pomegranates

and grapes equally. Assuming better connectivity and storage facilities, 60% of the production

will be exported and 40 percent will be used for the domestic market needs.

Assumptions

Project Start Year 2020

Project End Year 2023

Project Development Period (yrs) 4

Discount Rate 5%

Depreciation Period (yrs) 50

Appraisal Period (yrs) 30

Dam O&M and Supervision Cost % of CAPEX

5%

Farms O & M Cost % of Revenue 30%

Land Development Cost per Hectare - $ (Farmers Investment)

2,000

Musa Qala Dam Cost (Million $) 254.6

Land Irrigation - Ha 17,000

Upon successful implementation, the project will generate NPV of $ 1,328 million over the

appraisal period. The IRR of the mentioned investment is 21.2%. The payback period of the

investment is 9 years.

Economic Viability Indicators

Net Present Value (NPV) - Million $ 1,327.8

Internal Rate of Return (IRR) 21.20%

Payback Period (Years) 9

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Project 2: Zamin Dawar Irrigation Project It is expected that the project development work will initiate in 2020 and reach the final stage

in 2023. The investment required for the project is $ 110.5 million, distributed in the first and

second years each at $ 20 million, in the third year at 50 million and in the fourth year at $ 20.5

million. In addition, $ 18 million will be invested on the farm-level by the farmers. It is assumed

that the project will irrigate 9,000 hectares of new land, which will be used for the production

of pomegranates and grapes. The project will create 9,000 full – time new jobs.

Assumptions




Discount Rate 5%



Project O&M and Supervision Cost % of CAPEX 5%



2,000

Project Cost (Million $) 110.5

Land Irrigation – Ha 9,000

Upon successful implementation, the project will generate NPV of $ 752 million over the




Net Present Value (NPV) - Million $ 752



Project 3: Salma Downstream Rehabilitation (canals and watershed)

The project's development work is expected to begin in 2020 and will be completed by the

end of 2024. The project is expected to add 45,000 hectares to the irrigated land, with 9000

hectares each year. The required investment for the project is $ 78.76 million and a further

$ 90 million will be spent by the farmers on the farms development. The land will be used to

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produce vegetables, fruits, pulses, saffron, and pistachios. The project's revenue generation is

likely to begin in 2021. The contribution in government revenue will be $ 20.5 million in 2021,

while by 2026 this amount will reach to $ 178.0 million. The project is expected to create 45,000

full-time new jobs.

Assumptions




Discount Rate 5%



Project O&M and Supervision Cost % of CAPEX

5%



2,000



After successful implementation, the project will generate NPV of $ 7,277.5 million over the







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Project 4: Andkhoy Irrigation Project

The project's feasibility study is expected to be carried out by the end of 2019. The project's

development and construction work will start in 2021 and is expected to be completed by

2027. The project's predictable investment amount is $ 548 million, from which 189,994

hectares of agricultural land will be developed. Farmers and entrepreneurs will spend

additional $ 380 million on the farm level. The land is presumed to be used for the cultivation

of grapes, of which 90% will be exported and 10% used for the domestic market. The project

will create 189,994 full time jobs.

Assumptions




Discount Rate 5%



Project O&M and Supervision Cost % of CAPEX 5%



2,000

Project Cost (Million $) 548


When successfully implemented, the project will generate NPV of $ 6,729.8 million over the

appraisal period. The IRR of the mentioned investment is 53.5% and the payback period is 5

years.





Project 5: Khush Tepa Irrigation Canal

The project's feasibility study has already begun. The project's development work is expected

to start in 2021 and completed by the end of 2028. The estimated investment required for the

project is $ 1503 million. Farmers and entrepreneurs will make additional investment of $ 1000

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million on the farm level. The project will probably irrigate 500,000 hectares of new agricultural

land, which will be used to produce cotton, grapes, melons, soybeans, almonds and pistachios.

The project's revenue generation is expected to begin in 2024. The project's contribution to

government revenue will be $ 62.5 million by 2024, while it will reach $ 688.9 million by 2030.

It is expected that the project will create 500,000 new jobs.

Assumptions




Discount Rate 5%




2%



2,000

Project Cost (Million $) 1,503.6


Upon successful implementation, the project will generate NPV of $ 33,447.8 million over the

appraisal period. The IRR of the mentioned investment is 53.5% and its payback period is 7

years.





Project 6: Shah-wa-Arus Irrigation Project

The project's development and construction work will start in 2021 and is expected to be

completed by 2023. The project's estimated investment amount is $ 12.9 million, from which

3,585 hectares of agricultural land will be developed. A further investment of $ 3.6 million will

be on the farm-level by the farmers. The land should be used to grow grains and grapes. The

project creates 3,585 full - time jobs.

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Assumptions




Discount Rate 5%




5%



1,000



When successfully implemented, the project will generate NPV of $ 316.2 million over the


years.


Net Present Value (NPV) - Million $ 316.2



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1.12 Horticulture Projects

Project 1: Injel Pistachio and Cumin Farms The project will cover 30,000 ha of land under Pistachio and Cumin in the Injel district. It is

expected that the implementation work of the project will start in 2020, and completed by 2024.

The estimated total investment for the project is $ 57.8 million or $ 11.6 million annually for five

years. Farmers or community will make additional investment of $ 100 million as well. The

project will create 30,000 full-time jobs.

Assumptions



Project Development Period 5



Discount Rate 5%

Project Supervision Cost as % of Last Project Year CAPEX (after farms establishment)

2%



Land under Cultivation - Ha 30,000








Project 2: Ferula (Assafoetida), Licorice, and Cumin Farms

The development work of the project is expected to start in 2020 and completed in five years.

The project will develop 280,000 ha of land, which will be used for the medicinal plants i.e.

Hing (Ferula), Shereen Boya (Licorice) and Cumin. The predictable government investment cost

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for the project is $ 39 million and a further $ 20 million will be contributed by the farmers. It

is estimated that the project will create 280,000 full time jobs.

Assumptions





Discount Rate 5%


2%




When successfully implemented, the project will generate NPV of $ 9,422.2 million over the







Project 3: National Horticulture Development Program

The estimated investment cost of the project is $ 1.5 billion, where the government will

contribute $ 850 million. The project implementation period is 5 years, which is likely to initiate

in 2020 and end in 2024. It is assumed that the project will develop 163,300 hectares of land for

high-value fruit trees, i.e. walnuts, almonds, citrus trees and others. It is assumed that 90% of

the production will be exported and 10% will be used to meet the needs of the domestic market.

It is expected that the project will create 217,733 full time new jobs.

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Assumptions






Discount Rate 5%


2%





years.





1.2 Consolidated Analysis

The whole investment package amounts to $ 5,750.8 million. Of this amount, 60.1% is

undertaken by the government and the rest is borne by the farmers or entrepreneurs who

mainly invest on the farm-level.

Almost 66% of the total investment takes place in the initial 5 years. The table below provides

the distribution of the total investment over the 9 years of the project period:

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Upon successful completion, these projects have the potential of irrigating 1,237,879 hectares

of agricultural land. The investment cost per hectare is projected at $ 4,646. As shown below

68% of the target land coverage will be achieved by the end of 2024.

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The government revenue generated by the MAIL package is projected, on average, to be $ 864

million per year during the first 10 years. While after 10 years, the revenue generated by

package could reach, on average, to $ 1,732 million per year until 2050.

Up to 2030, the package has the potential to cumulatively generate over $ 9.8 billion as

revenue for the government. By 2050, the cumulative revenue could reach $ 45.0 billion. The

main sources of revenue are receipts taxes, income taxes, profit-sharing arrangements and

export duties. The table below displays the project-wise and year-wise revenue until 2030.

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The investments that needs to be undertaken by the government are financed with loans. The

moratorium period is generally assumed to be 5 years. The loan will be repaid within 10 years

after the moratorium period. Only for Ferula, Licorice, and Cumin Farms, the moratorium

period is assumed to be 2 years and loan is repaid within three years after the moratorium

period.

The economic appraisal is conducted mostly using the useful economic life of the individual

projects as the appraisal time horizon. Upon successful implementation of these projects, the

average annual income earned by the community during the next ten years is $ 2,619 million.

After which it will reach $ 4,607 million per annum until 2050.

The economic analysis was conducted using real discount rate of 5%. Upon successful

implementation, the whole package will generate Net Present Value (NPV) of $ 90,415 million

over the respective appraisal periods of the assets. The package Internal Rate of Return (IRR)

is 46.5% and its Payback period is around 7 years. Thus, the package as whole therefore

represents a viable investment for the Ministry of Agriculture. The economic viability indicators

for individual projects are given in the table below:

The package will contribute, on average, 2.65 % to the GDP growth each year during the next

five years and in terms of employment, the investment package will create 1,292,312 full-time

equivalent jobs.

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2. Improving electricity transmission and distributions channels

Da Afghanistan Breshna Sherkat (DABS) is established to supply and expand electric energy

to all areas of the country. In support of this objective, it aims to invest $ 1,289.5 million over

a five-year period from 2020 to 2024 covering 27 provinces. This investment covers three types

of the DABS projects, namely transmission lines, substations, and network distribution.

There will be 32 transmission lines sub-projects, 21 of which will start in 2020, while five will

start in 2021 and the rest in 2022. These projects will be implemented in 24 provinces of the

country. The total length of the transmission lines is estimated at 3,484.4 Kms. The TAP

transmission line from Torghondi to Spin Boldak with 800 Kms is the longest sub-project to

be implemented in the provinces of Herat, Nimroz, Helmand, and Kandahar between 2020

and 2024 with an estimated cost of $ 240 million.

It is also planned to implement 34 Substation (SS) sub-projects in 25 provinces. Twenty - two

of them will begin in 2020, with six SS projects beginning in 2021 and 2022 each. The most

expensive sub-project with a capacity of 2*160 MVA is Kandahar East SS (TAP Project) with

required investment of $ 30 million. All the SS sub-projects are carried out by DABS / MEW

with the exception of Darul Aman SS (for ministries complex), which will be implemented by

MUDL / MEW in 2020 - 2022.

The total number of Network Distributions sub-projects reach 68 and most of these are

planned for 2020. The projects will be implemented in 27 provinces, Baghlan province is at the

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top of the list, where nine projects will be implemented, Jawzjan has the second position in

the list by receiving 7 projects. Among these sub-projects the largest is the Barik Ab

Distribution Network in Kabul, by having 20 MW capacity with an estimated cost of $ 7 million.

Unlike network distribution projects, transmission lines and substations do not generate

revenues directly. Hence, all of these three projects are considered as a single projects package

for the financial analysis purpose.

The table below provides the overall investment amount and relative share of each project in

the whole investment package:

This investment is front-loaded with 76% taking place during the initial 3 years. The table

below provides the distribution of the investment over the five years of the project period:

Upon completion, these projects have the potential of adding 485.5 Megawatt (MW) per

hour electricity to the national grid. The investment cost per MW is estimated at $ 2.66

million. As shown below almost 59% of the electricity will be added by the end of 2022.

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These projects will be fully financed with loans. Loan will be obtained according to the required

investment in each year so as to reduce the payment burden. Loan duration is 10 years and

the borrowing rate is assumed at 5% per annum. The moratorium period is five years during

which principal will not be paid and the interest will be accumulated. After five years, DABS

will start paying both principal and loan interest, depending on when the loan is borrowed,

for the next 10 consecutive years.

The total revenue to government generated by the DABS package is projected, on average, to

be $ 16.2 million per year during the first 10 years. While after 10 years, the revenue generated

by package could reach, on average, to $42.6 million per year until 2045.

Up to 2030, the DABS package have the potential to cumulatively generate over $ 175 million

as revenue for the government. By 2045, the cumulative revenue could reach almost $ 843

million. The main sources of revenue are receipts taxes, corporate taxes, and DABS profits. The

graph below illustrates the year-wise revenue until 2030.

The feasibility cost per MW is $ 6000. Land acquisition and resettlement cost is assumed at 3%

of the capital expenditure (CAPEX). Moreover, contingency of 3% of CAPEX is also assumed

and will be used to mitigate potential risks and to ensure smooth implementation of the

projects.

System losses are projected at 15% and the system’s annual rate of degradation is 0.37%.

Considering both these factors, the projects will, on average, provide 2,336,686 MWh energy

annually. The import cost for each MWh is projected at $ 50 and the average selling price for

each MWh is $ 120. The operation and maintenance (O&M) costs are estimated to be 1.5% of

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the system cost and will escalate by 0.1% each year. The annual depreciation rate is 3.2% and

the assets residual value after 25 years is only 20% of the initial investment amount.

The economic life of the assets is estimated to be 25 years. The financial appraisal was

conducted using real discount rate of 5%. Upon successful implementation, the projects will

generate financial Net Present Value (NPV) of $ 203.2 million over the appraisal period. The

financial IRR of the investment is 6.4%. The package as whole therefore represents a viable

investment for the DABS. The average debt service coverage ratio is projected to be 0.73. This

ratio is low and the company may have to use funds from the overall projects portfolio to

service the debt.

The economic benefits of the package could be much higher than the financial benefits that

are shown above. This is because the consumer willingness to pay for energy is much higher

than the price charged by the DABS. In the absence of grid electricity, the consumers are

forced to use costly fuel generators to satisfy their energy demands.

In terms of employment, the investment package will create 11,265 full-time equivalent jobs.

Of these 3,399 are direct jobs and 5,438 are indirect jobs. Indirect jobs will be created in the

supply and distribution chains. Moreover, 2,428 induced jobs will also result from the spending

effects created by the direct and indirect employments.

This investment package will add, on average, 0.9% to GDP each year during the next five

years. As result of the successful implementation of projects, 109,641 new connections will be

added to national grid and 598,500 people will benefit from electrification. New connections

include 85,500 residential, 23,940 commercial, and 211 industrial customers.

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3. Building affordable housings, and developing commercial and industrial

properties

The Ministry of Urban Development and Land (MUDL) is tasked with establishing cities with

requisite facilities based on policy of equal and sustainable development. In support of this

objective, the MUDL aims to invest $ 1,664.2 million over a period of five years. The investment

will be used to undertake 17 projects in major provinces to develop residential, commercial,

and industrial properties to satisfy the demands of urban residents. The investment package

covers two types of projects, namely Projects with Rental Return and Projects with Sales Return.

The former are business centers and will be leased to the potential entrepreneurs while the

later include residential, commercial, and industrial properties that are sold to prospective

investors.

3.11 Projects with Rental Return

Project 1: Mukhabirat Business Center Mukhabirat Business Center is a project of the MUDL with rental return, which will cover 13,000

SQMs land. The cost of land is assumed to be $19.5 million. The development period of the project

is 2 years (2020 to 2021) and the economic life cycle of the project is assumed to be 30 years. Upon

completion, this project will provide 67,600 SQMs rentable area. The construction investment

required for the project is $65.5 million, which is distributed as $33.7 million in the first year and

$31.8 million in the second year.

Investment Return: The project will create 1,310 direct jobs and 6,552 indirect jobs. The project

aims to construct a business center which will be leased to the potential entrepreneurs. It will

generate $1,305 million rental revenue, with the occupancy rate of 40% (first year) to 85% (after

4th year), over the project life cycle.

Assumptions

Appraisal Start Year 2020-21

Appraisal End Year 2051


Discount Rate/Interest Rate 5%


Cycle Depreciation Cost (Million $) 52.4

Cycle O&M Cost (Million $) 15

Construction Cost (Million $) 65.5

Land Cost (Million $) 19.5

Land Required (SQM) 13,000

Rentable Area (SQM) 67,600

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Upon successful implementation, the project will generate Financial NPV of $ 497 million over the appraisal period. The Financial IRR of the mentioned investment is 56.3%. The payback period of the investment is 4 years.

Financial Viability Indicators

Net Present Value (NPV) - Million $ 497



Project 2: Qazi Plaza Business Center Qazi Plaza Business Center is a project of the MUDL with rental return, which will cover 7,000 SQMs

land. The cost of land is assumed to be $7 million. The development period of the project is 2

years (2020 to 2021) and the economic life cycle of the project is assumed to be 30 years. Upon




Investment Return: The project will create 706 direct jobs and 3,528 indirect jobs. The project


generate over $700 million rental revenue, with the occupancy rate of 30% (first year) to 85% (after

4th year), over the project life cycle.

Assumptions







Cycle O&M Cost (Million $) 6.9





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Upon successful implementation, the project will generate Financial NPV of $ 268.9 million over the

appraisal period. The Financial IRR of the mentioned investment is 67.2% and the payback period is

4 years.





Project 3: Darul Aman Business Center Darul Aman Business Center is a project of the MUDL with rental return, which will cover 45,000

SQMs land. The cost of land is assumed to be $9 million. The development period of the project

is assumed to be 2 years (2020 to 2021) and the economic life cycle of the project is 30 years. Upon





aims to construct a business center which will be leased to the potential entrepreneurs and it will

generate over $749.8 million rental revenue, with the occupancy rate of 30% (first year) to 85%

(after 4th year), over the project life cycle.

Assumptions












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appraisal period. The Financial IRR of the mentioned investment is 15.6% and its payback period is

5 years.





Project 4: Jalalabad Business Center Jalalabad Business Center is a project of the MUDL with rental return, which will cover 7,600 SQMs

land. The cost of land is assumed to be $7.6 million. The development period of the project is

assumed to be 2 years (2020 to 2021) and the economic life cycle of the project is 30 years. Upon





aims to construct a business center which will be leased to the potential entrepreneurs and it will



Assumptions













appraisal period. The Financial IRR of the mentioned investment is 10.8% and the payback period of

the investment is 9 years.





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Project 5: Mazar Business Center Mazar Business Center is a project of the MUDL with rental return, which will cover 7,400 SQMs

land. The cost of land is assumed to be $7.4 million. The development period of the project is 2









Assumptions













appraisal period. The Financial IRR of the mentioned investment is 10.8%. The payback period of the






Project 6: Herat Business Center Herat Business Center is a project of the MUDL with rental return, which will cover 5,000 SQMs

land. The cost of land is assumed to be $5 million. The development period of the project is 2



required for the project is $8.4 million, which is distributed as $4.3 million in the first year and $4.08

million in the second year.

30

Investment Return: The project will create 168 direct jobs and 840 indirect jobs. The project aims

to construct a business center which will be leased to the potential entrepreneurs. It will generate

over $83.3 million rental revenue, with the occupancy rate of 30% (first year) to 85% (after 4th year),

over the project life cycle.

Assumptions














10 years.





Project 7: Khost Business Center Khost Business Center is a project of the MUDL with rental return, which will cover 10,000 SQMs

land. The cost of land is assumed to be $15 million. The development period of the project is

assumed to be 2 years (2020 to 2021) and the economic life cycle of the project is 30 years. Upon








31

Assumptions









Land Cost (Million $) 15





7 years.





3.12 Projects with Sales Return

Project 1: Banayee Residential and Commercial City Banayee Residential and Commercial City is a project of the MUDL with sales return, which will

cover 100,000 SQMs land. The cost of land is assumed to be $5.4 million. The implementation

period of the project is 5 years (2020 to 2024). Upon completion, this project will provide 108,000

SQMs saleable area. The construction investment required for the project is $31 million, which is

distributed as $6.9 million in the first year, and $6 million per year for the remaining period.


includes residential and commercial properties which will be sold to prospective investors and it

will generate $48.6 million sales revenue over the project life cycle.

32

Upon successful implementation, the project will generate Financial NPV of $6.1 million over the


3 years.





Project 2: Diplomatic Area Township Kabul Diplomatic Area Township Kabul is a project of the MUDL with sales return, which will cover

640,000 SQMs land. The cost of land is assumed to be $24.5 million. The implementation period

of the project is 5 years (2020 to 2024). Upon completion, this project will provide 490,680 SQMs

saleable area. The construction investment required for the project is $126 million, which is

distributed as $28 million in the first year, and $24.5 million per year for the remaining period.


includes residential and commercial properties which will be sold to prospective investors and it

will generate $196.2 million sales revenue over the project life cycle.

Assumptions

Appraisal Start Year 2020




Construction Cost (Million $) 31



Area for Sale (SQM) 108,000

Assumptions









33



3 years.





Project 3: Herat Residential Area Herat Residential Area is a project of the MUDL with sales return, which will cover 400,000 SQMs

land. The cost of land is assumed to be $5.2 million. The implementation period of the project is

5 years (2020 to 2024). Upon completion, this project will provide 132,300 SQMs saleable area. The

construction investment required for the project is $35.4 million, which is distributed as $7.9 million

in the first year, and $6.9 million per year for the remaining period.


includes residential properties which will be sold to prospective investors and it will generate $52.9

million sales revenue over the project life cycle.

Upon successful implementation, the project will generate Financial NPV of $5.7 million over the appraisal period. The Financial IRR of the mentioned investment is 55.6% and the payback period of the investment is 3 years.





Assumptions









34

Project 4: Khost, Balkh, Kabul, Herat and Kandahar Industrial Parks The industrial parks are part of the projects of the MUDL with sales return, which will be constructed

in Khost, Balkh, Kabul, Herat, and Kandahar provinces that will cover 2,000,000 SQMs lands in each

province. The cost of land in each province is assumed to be $2 million. The implementation period

of the project is 3 years (2020 to 2022). Upon completion, these projects will provide 7,705,875

SQMs saleable area. The construction investment required for the project is $315 million, which is

distributed as $111 million in the first year, and $102 million in the second and third years.


includes industrial properties which will be sold to prospective entrepreneurs and it will generate

$315.9 million sales revenue over the project life cycle.

Upon successful implementation, the project will generate Financial NPV of $ -75.9 million over the

appraisal period. The Financial IRR of the mentioned investment is -23.9%.


Net Present Value (NPV) - Million $ (75.9)

Internal Rate of Return (IRR) -23.9%

Payback Period (Years) NA

Despite having negative Financial NPV, the government should still proceed with this project due

to its economic and industrial benefits to the country.

Project 5: Khost Residential Takhtabeg Area Khost Residential Takhtabeg Area is a project of the MUDL with sales return, which will cover

200,000 SQMs land. The cost of land is assumed to be $4.5 million. The implementation period of

the project is 5 years (2020 to 2024). Upon completion, this project will provide 112,800 SQMs

saleable area. The construction investment required for the project is $30.2 million, which is

distributed as $6.7 million in the first year, and $5.9 million per year for the remaining period.




Assumptions






Land Cost (Million $) 10

Land Required (SQM) 2,000,000

Area for Sale (SQM) 7,705,875

35


appraisal period. The Financial IRR of the mentioned investment is 55.6% and the payback period of

the investment is 3 years.





Project 6: Kamaz Residential Area

Kamaz Residential Area is a project of the MUDL with sales return, which will cover 633,679 SQMs



construction investment required for the project is $184.4 million, which is distributed as $41

million in the first year, and $35.8 million per year for the remaining period.


includes residential properties which will be sold to prospective investors and it will generate


Assumptions









Assumptions









36



2 years.





Project 7: Laghman Residential Area

Laghman Residential Area is a project of the MUDL with sales return, which will cover 66,000 SQMs


assumed to be 5 years (2020 to 2024). Upon completion, this project will provide 62,860 SQMs

saleable area. The construction investment required for the project is $16.1 million, which is

distributed as $3.6 million in the first year, and $3.1 million per year for the remaining period.






2 years.





Assumptions





Construction cost (Million $) 16.1




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Project 8: Qasaba Residential Area

Qasaba Residential Area is a project of the MUDL with sales return, which will cover 672,000 SQMs



construction investment required for the project is $43.3 million, which is distributed as $9.6 million

in the first year, and $8.4 million per year for the remaining period.





appraisal period. The Financial IRR of the mentioned investment is 43.5 % and the payback period

of the investment is 3 years.





Project 9: Nangarhar Residential Area

Nangarhar Residential Area is a project of the MUDL with sales return, which will cover 776,000

SQMs land. The cost of land is assumed to be $3.1 million. The implementation period of the

project is 5 years (2020 to 2024). Upon completion, this project will provide 465,600 SQMs saleable

area. The construction investment required for the project is $182.7 million, which is distributed as

$40.6 million in the first year, and $35.5 million per year for the remaining period.


includes residential properties which will be sold to prospective investors and it will generate


Assumptions





Cycle Construction cost (Million $) 43.3

Cycle Land Cost (Million $) 8.4



38


appraisal period. The Financial IRR of the mentioned investment is 5.8%.




Payback Period (Years) NA

Project 10: Kandahar Residential Area

Kandahar Residential Area is a project of the MUDL with sales return, which will cover 2,000,000

SQMs land. The cost of land is assumed to be $7.9 million. The implementation period of the

project is 5 years (2020 to 2024). Upon completion, this project will provide 108,000 SQMs saleable

area. The construction investment required for the project is $308.2 million, which is distributed as

$68.5 million in the first year, and $59.9 million per year for the remaining period.


includes residential properties which will be sold to prospective investors and it will generate $480


Assumptions









Assumptions







Land Required (SQM) 2,000,000

Area for Sale (SQM) 1,200,000

39


appraisal period. The Financial IRR of the mentioned investment is 542.8% and the payback period

of the investment is 2 years.





3.2 Consolidated Analysis

The table below provides the overall investment amount allocated to both the rental and non-

rental projects along with their relative shares in the whole investment package:

This investment is front-loaded with 60% happening during the initial two years. The table

below provides the distribution of the investment over the five years of the projects period:

These projects will be financed using combination of debt, equity and investors prepayments.

The land cost will be borne by the MUDL and this is included as equity. The land cost amounts

to USD 165.1 million and will cover 9.9% of the projects fixed cost. MUDL will borrow $ 940.8

million to finance the projects during the initial three years. Of this amount $ 226.8 million will

be used for rental projects and $ 714.0 million will be utilized for non-rental projects. The

borrowing rate is assumed at 5% and the loan moratorium period is two years. Loan for rental

projects will be repaid in ten years while that for non-rental projects will be repaid in three

years. The remaining investment will be sourced from investors as prepayments. Almost

$ 186.1 million will come as prepayments annually during the last three years of the project.

40

The revenue to government generated by the MUDL package is projected, on average, to be

$ 69 million per year during the first 10 years. While after 10 years, the revenue generated by

package could reach, on average, to $ 117 million per year until 2050.

Up to 2030, these projects have the potential to cumulatively generate over $ 750 million as

revenue for the government. By 2050, the cumulative revenue could reach $ 3,137 million. The

main sources of revenue are receipt taxes, rents and profits from the sale of properties. The

graph below illustrates the year-wise revenue until 2030.

41

Upon completion, these projects will provide

299,000 square-meters (SQMs) rentable area

and 11,230,284 SQMs area that will be put

up for sale.

The economic life of the rental assets is

estimated to be 30 years. The non-rental

assets will be sold over a period of five years.

The investment cost for rental projects is $994

per square meter while for non-rental projects

it is $ 122 for each square meter.

The depreciation rate for rental assets is 2.7%

per annum. A specific amount is allocated

each year for the regular maintenance and

supervision of the individual rental projects.

After the moratorium period is over, MUDL

will start repaying its loan in annual equal

installments.

The financial appraisal for the projects was conducted using real discount rate of 5%. Upon

successful implementation, the projects will generate Financial NPV of $ 1,309 million over the

appraisal period. The Financial IRR of the mentioned investment is 54%. The payback period

of the whole investment package is 3 years. Thus, the package as whole therefore represents

a viable investment for the MUDL. The financial viability indicators for individual projects are

given in the table below:

The investment package will add, on average, 1% to GDP each year during the next five years.

In terms of employment, the investment package will create 179,895 full-time equivalent jobs.

Of these 29,982 are direct jobs and 149,913 are indirect jobs. Indirect jobs will be created in

the supply and distribution chains.

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