ADB Buys Stake in LPG Firm to Boost Access to Safe, Reliable Energy in Afghanistan | Asian Development Bank

ADB Buys Stake in LPG Firm to Boost Access to Safe, Reliable Energy in Afghanistan

News Release | 29 March 2010

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is investing up to $8 million for a 25% stake in Sungas LLC, a recently established liquefied petroleum gas (LPG) distributor in Afghanistan, to help it expand a nationwide storage and distribution network.

ADB's Board of Directors approved the purchase of the preferred shares in the Delaware, US-registered company.

Around 70% of Afghanistan's energy needs are met using firewood, animal dung and vegetation brush. Access to safer, cleaner and more reliable forms of energy such as LPG is essential to allow the Afghan economy to flourish and improve the daily lives of Afghanistan's 28.4 million people.

"Women and children have to spend hours of their day collecting firewood for heat and cooking. Smoke and fumes from that firewood leave cities like Kabul choking, especially in winter," said Thomas Minnich, Investment Specialist in ADB's Private Sector Operations Department. "Greater use of liquefied petroleum gas will free women to work more productively and children to go to school, reduce harmful fumes in the air and provide a steady fuel supply that will allow businesses to thrive."

Sungas aims to invest $58.2 million to build LPG distribution centers initially in the major Afghan cities of Kabul and Herat, followed by another three in Mazar-e-Sharif, Khandahar, and Pul-e-Qumri. It will also purchase additional LPG cylinders for distribution to consumers.

The company expects the network will have the capacity to distribute 190,000 tons of LPG per year, allowing 230,000 households to switch from using solid fuels to LPG by 2019. National demand for LPG was only 250,000 tons in 2008 - accounting for 14.4% of fuel used by households - but is forecast to rise to 1.4 million tons by 2019.

Sungas will import its LPG from neighboring Turkmenistan and Uzbekistan and distribute it by truck to cylinder refilling stations, where it can be sold to consumers through Sungas' distribution and retail sales channels. The absence of a nationwide pipeline network and the expense of building such a network mean that LPG distribution by road is the most cost effective and least demanding infrastructure option for Afghanistan. The country has very low electricity generation and potential oil and gas reserves in the north have remained unexplored because of decades of conflict.

"Modern energy is a prerequisite for development. We hope ADB's example will encourage other private sector players to invest in Afghanistan's energy sector," said Michael Barrow, Director in ADB's Private Sector Operations Department.

Since 2002, when it resumed operations in Afghanistan, ADB has committed close to $700 million in public sector funding to the local energy sector; comprising $105 million in Asian Development Fund loans and around $595 million in grants.