December

2017

Vulnerability

to

Corruption Assessment

Of Da Afghanistan

Breshna Sherkat (DABS)

HIGHLIGHTS EXECUTIVE SUMMARY ………………….………….…03

DABS ORGANIZATIONAL STRUCTURE ………….….10

EXTERNAL AND INTERNAL CONTROL ……………..16

POWER DISTRIBUTION ………...…………………........33 Kabul -Afghanistan

ANNEXES …………………………………………………55

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Acronyms

AFN Afghanistan Afghani (currency)

ADB Asian Development Bank

CU Correspondence Unit

CIS CustomerInformationSystem

DABS Da Afghanistan DABS Sherkat

DABM Da Afghanistan DABS Mossessa

GIRoA Government of the Islamic Republic of Afghanistan

HOO HighOfficeofOversightandAnti-Corruption

IAD Internal Audit Department

IFRS InternationalFinancialReportingStandards

kW Kilowatthour

MEC IndependentJointAnti-CorruptionMonitoringandEvaluationCommittee

MW Megawatt

MoCI Ministry of Commerce and Industry

MoF Ministry of Finance

MoEW Ministry of Energy and Water

MoLSAMD MinistryofLabor,SocialAffairs,MartyrsandDisabled

MUDA MinistryofUrbanDevelopmentAffairs

NGO Non-GovernmentOrganization

NPA NationalProcurementAuthority

PMO ProjectManagementOffice

PMU Project Management Unit

PTEC PowerTransmissionExpansionandConnectivity

SAO SupremeAuditOffice

SOP StandardOperatingProcedure

VCA VulnerabilitytoCorruptionAssessment

USAID UnitedStatesAgencyforInternationalDevelopment

USD United States dollars (currency)

Definitions

Tashkiel: Organogramoftheorganization(OrganizationalStructure)

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I. Executive SummaryDa Afghanistan Breshna Sherkat (DABS) is a government corporation established under Afghanistan’s Law ofCorporationsandLimitedLiabilities,equitysharesofwhichareownedbytheGovernmentoftheIslamicRepublicofAfghanistan (GIRoA). DABS was incorporated on May 4, 2008 and replaced Da Afghanistan Breshna Mossessa (DABM), whichwasa state-ownedenterprise (SOE).

TheJointIndependentMonitoringandEvaluationCommittee(MEC),indetail,assessedthevulnerabilitiestocorruptionacrosstheDABS.Inconductingthisassessment,theMEChasinterviewedDABS’sofficials,customers,officialsfromtheMinistryofEnergyandWater(MoEW)andNationalProcurementAuthority(NPA).Besides,weremade6fieldvisitsto Balkh, Nangarha, Kandahar, Herat, Bamyan and Parwan provinces. Most importantly, MEC conducted face to face structured interviews with 292 customers.

Accordingtotheinterviews,the64%ofthemthinkthatthepowerdistributionprocessisnottransparent,76%mentionthatthebillingprocessisnotpreciseandnotontime,81%isoftheopinionthatthetariffisnotfairand82%saythatthepowercutsbyDABSarenotplanned.ThisanalyzesprovidesstrongindicationthattheDABSshallbereformedandshall reform its processes.

MEC has analyzed vulnerabilities of the DABS across the following areas: Legal structure; Corporate governance;Organizational structure; Human resources management system; Donor fund management system; Customercomplaints mechanisms; Power distribution process; internal and external controls and; Anti-corruption policy.

Major findings

Inregardtothelegalstructurethereare2mainproblematicissues:firstly, itcontradictswiththe“EnergyServicesManagementLaw”whichstipulatesthatallthosenaturalorlegalpersonswhogenerate,importordistributepowershouldobtainlicensesforthoseservices.Inthisregard,itmustbenotedthatDABSdoesn’thaveanyofthementionedlicenses at all. Besides, the same law states that it is within the powers of the Government of the Republic of Afghanistan (GIRoA)toapprovetariffbutaccordingtothe“Powerselling”andotherservicespolicyofDABS,theBoardofDirectors(BOD)haspowertoapprovethetariff.

Intermsofcorporategovernancethereisonemajorproblem:thesameindividualsarerepresentedintheShareholder’sAssemblyofDABSandintheBODofDABSwhichisaclearConflictofInterest.AnotherimportantaspectisthatthefindingsofMECrevealthatbecauseoflackofhavinginplaceapropersystemforassetregistrationandverification,.Besides,theDABSdoesn’thavecomprehensivefixedassetregisterwhichmadepossibleforofficialsandwarlordstousurpDABS’sfixedassets.Forexample,thewarlordshaveusurped355126sqmlandand94shopsandbuildingsofDABS.

Inaddition, DABSreceivedAFN12.5billionfromdonorsanditisshowninbalancesheetintheformofassets,butthedonorsareclaimingthattheyhavecontributedaround$4billionwhichequalsAFN220billiontotheenergysectorinAfghanistan, it means billions of AFN is missing1.

InconnectionwiththecustomersitmustbementionedthatsomebusinessmenmentionedtoMECduringtheresearchperiodthattheypayupto40thousandUSDiftheywanttoreceive3-phasemeter.Besides,chargingfuelenergypriceon those customers who are using the hydropower is another problem found in this process. And in some instances thecheaperresidentialpricingisutilizedbycommercialenterprises.Also,DABSlacksarecordtoshowthenumberofreceivedcomplaintsthroughcomplaintsboxesanditdoesn’thavestatisticsonthehandledcases.Moreover,databasewhichrecordsthedetailsofthosecomplainerswhocontactedthroughtelephonenumber-hotline144containsfalseinformationandDABSclaimsthattheyhavehandledsomeofthesecomplaintswhilecustomerssayopposite.

Key Recommendations

The recommendationsofMEC canbedivided into the3 categories: a) Recommendationsof legislativenature; b)RecommendationsofInstitutionalnatureandc)Recommendationswhichareaimedatfixingtheproblemsconnectedwiththerealpractice.Thekeyrecommendationsare:

• DABS Article of Incorporation and all legal documents should be amended based on the Energy ServicesManagement Law requirements;

• Adoptandapproveofalawforgovernmentalcorporationsandlimitedliabilitycompanies;

1 Anaddendumhasbeenaddedasanattachmenttothisreport(Pages63-65)toamendandclarifythisstatement.

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• RepresentativeofshareholdersinShareholdersAssemblyandBODshouldnotbethesameindividuals;

• TheCriteriaforBODandAuditCommitteeshouldbeincludedinCorporationsandLimitedliabilityCompanieslaw;

• DABSbylawArticle16paragraph2shouldbeamendedinawaytopreventtheinterferenceofCEOininternalauditdepartment;

• Surveyshouldbeconductedtocutoffifanyhouseholdhasextrametersandpunishthoseemployeeswhoareinvolvedandhaveconnectionwithcustomers;

• DABSorganizationalstructureshouldberestructuredbasedonitsfunctionsandmandate;

• Establishmentofamonitoringbodyequippedwith therequiredknowledgeandskills, toauditallgovernmentcorporations and appraise their financial, operational and customer related issues;

• DevelopmentofacomprehensivequalificationlistforInternalAuditDepartment(IAD)positionsandevaluatethecurrentstaffbasedonthenewdevelopedlist.

• Conductingacomprehensiveriskassessmentanddevelopmentofauditplanbasedontheupdatedriskmatrix

• DABSshoulddevelopananti-corruptionpolicyandalongtermanti-corruptionstrategyandtranslatethatstrategyintoyearlyanti-corruptionplan

• DABS shall change the analogue meters to prepaid digital meters in all over the country

• DABSpreventbrokerstoprocessthemeterdistributiondocuments

• DABSshallconductanassessmentandcutoffmorethanonemeterinahouseholdandpunishthosewhoareusingpower without having meter

• DABSshalldevelopandimplementacomprehensiveplanforelectricitylossreduction

• DABS shall conduct public awareness campaigns through media on mechanism for access to complaints via calling to No.144.

Next step

Inregardtotherecommendationsitmustbementionedthatformeetingsomeoftherecommendations,it isnotenoughtohavepoliticalwillfromthesideoftheDABS:therearerecommendationswhichassumestrongcooperationfromstatebodiestoo.Therefore,therecommendationsshallbedealtbyallrelevantstakeholders.However,themaindrivingforceshallbetheDABS,astheprimaryentitywhichisprovidedwiththerecommendations.

The energy sector is of vital importance not only for the People of Afghanistan, but also both for the local businesses and investors.Thelattertwoaredrivingforcesforthedevelopmentofanyeconomy.Therefore,thepropermanagementand reform of this sector is very important for the development of Afghanistan.

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Table of Contents

Acronyms 2I. ExecutiveSummary 3I. Introduction 7a. Methodology 7III. IntroductiontoEnergyServiceManagementlaw 8IV. DABSorganizationalstructureandmandate 8a. The legal status of DABS 8b. DABSorganizationalstructure 10c. CorporationandLimitedLiabilityCompaniesLaw 12d. DABSArticlesofIncorporation 13e. The DABS Bylaws 14f. Power selling and other services policy 14g. Recruitmentofhigh-rankingofficials 15V. ExternalandInternalcontrols 16a. ExternalControl 17b. Internal control 19VI. Anti-corruptionpolicyandpractice 21 VII. Human resources management system 22a. PensionadministrationprocessofDABS 22b. DABS recruitment process 23VIII. Financialmanagement 26a. FinancingDecisions 26b. Investment Decisions 31c. Dividend Decisions 32d. Budgetingprocess 32e. Expenditures 33Asset management 34a. Oldsystem(Pooyesh) 36b. Newsystem(M-Power) 36c. Payment through mobile money 38d. Arrears and debts recovery 39X. Approvaloftariff 39XI. Access to power and power sources in Afghanistan 40a. External sources of power 41b. Access to power 41XII.Powerdistribution 43Electricityproduction 43Powersubstations 44Distributiontoconsumers 44Assigningthetechnicalteam 45Dispatchingtheteamtothefield 45Re-approachtotheHeadofcustomerservice 46Tariffdepartment 46Bankpayment 46Reapplicationtotariffdepartment 46MeterInstallation 46

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CollectingsupplementsofMeterinstallation 483- phasemeterdistributionprocess 48XIII. Electricity losses 49XIV. CustomersComplaintHandlingMechanisms 51a. Complaintboxes 51b. Mechanism for addressing the complaints through Number 144 51XV. Face-to-facestructuredinterviews 53a. Electricitydistribution 53b. Meterreadingandbilling 53c. Priceoftheelectricityortariff 53d. Powercutorloadshedding 53e. Handlingcustomers’complaints 54f. DABSemployees’behaviorwithcustomers 54Conclusioninterviews 54AnnexA:DABSBalanceSheet(March20,2015) 55AnnexB:DABSIncomeStatement(March20,2015) 57AnnexC:DABSCashflowStatement(March20,2015) 58AnnexD:DABSOwnerEquityStatement(March20,2015) 59Sources 60

Addendum to Da Afghanistan Breshna Sherkat (DABS) VCA Introcution 63Background 64TheInitialCalculation 64Off-budgetvs.On-budgetFunds 64Pledgedvs.DisbursedFunds 64Conclusion 65

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I. IntroductionDaAfghanistanBreshnaSherkat(DABS)isagovernmentcorporationestablishedunderAfghanistan’sLawofCorporationsandLimitedLiabilities.ItreplacedDABMwhichwasastateownedenterprise(SOE).Thepurposebehindconvertingthe legalstatusofDABMtoDABSwastodevelopastrong,efficientandcommerciallysustainablepowerutility.However,duetolackofcapacity,manpower,corruption,commitmentandotherfactors,thisobjectivehasnotbeenachieved.

Inordertoidentifyweaknessesandproviderecommendationstoaddressthoseweaknesses,theIndependentJoint Anti-Corruption and Evaluation Committee (MEC) decided to conduct a Vulnerability to CorruptionAssessment(VCA)andcoverallkeyfunctionsofthenewlydevelopedDABS.

This VCA covers DABS legal structure, corporate governance, external and internal control bodies, Anti-Corruption policy (existence or absence), power sources and access to power, complaint handlingmechanisms, the power distribution process, DABS failure to collect its receivables, usurpation of DABSfixedassets,financialmanagement,DABSfixedassetsmanagement,andhumanresourcemanagement.Theresearch phase of this VCA encompassedNovember 2016 to June 2017.

a. Methodology

Toidentifythekeyweaknessesofthesystem,theMECusedthefollowingVCAmethodology:

• AreviewoftheDABSlegaldocuments,analyticalreports;

• Unstructuredinterviewswith88customersinKabul;

• Unstructuredinterviewswith138DABSemployeesandofficials;

• Structuredinterviewswith292individualsinKabulandsixprovinces;

• ConductingsevenfocusgroupsindifferentprovinceswithDABSofficials,civilsocietyorganizationsand customers and;

• Field visits to Balkh, Nangarhar, Kandahar, Herat, Bamyan and Parwan provinces and interviews with DABS local officials, beneficiaries and civil society activists.

Afterthecarefulassessment,studyandanalysisofthefindings,MEChasidentifiedthemainvulnerabilitiestocorruptionanddevelopedrecommendations.ThisVCAstartedinNovember2016andendedinJune2017.

THE ASSESSMENT Geographical COVERAGE AREA

• Kabul - theCityofKabuland its twodistricts thatareusing importedelectricity,hydroelectricityandthermoelectricity.

• Herat -theCityofHeratandoneofitsdistrictsusingimportedelectricityandhydroelectricity.

• Kandahar -theCityofKandaharandoneofitsdistrictsusingimportedelectricityandhydroelectricity.

• Nangarhar -theCityofNangarharandoneofitsdistrictsthatisusinghydroelectricityandthermoelectricity.

• Bamyan -theCityofBamyanandoneofitsdistrictsthatisusingthermoelectricity,solarpowerandsmalldams.

• Balkh-theCityofMazarSharifandoneofitsdistrictsthatisusinghydroelectricity.

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III. Introduction to Energy Service Management law

The Energy Service Management Law was adopted onOct18,2016.Itisapplicabletoallprivateandpubliccompanies.Article4ofthisLawstates“The Ministry of Energy and Water is responsible for the implementation of this law across the country and can provide energy services by itself or through other government administrations, private sector (local, International or mixed).” Though there is no provision in the Law which explicitly states whether the governmental energy providers, such as DABS, are/not subject to this Law, thereareseveralarticlesintheLawwhichmandatesanyperson,includinggovernmentalentities,toobtainpermitfromandsubmittheirproposedtarifftotheEnergyServicesManagementAuthority.2Additionally,MEC reviewed theLaw’sapplicability toDABSwith theMinistryofEnergyandWater (MoEW),and theyconfirmed that the Law is applicable on theDABS aswell.3 Herewith some items have been discussed, amongwhichsomeare incontradictionwithotherapplicable legislativedocuments thatDABSutilizes intheirdailyactivities.

Energy Service Management Maw4 states, “without having a license or contract no one can take a stepto establish, construct and install the equipment, production infrastructures, transition, distribution,importandexportof theenergy”.However;according to theDABS’Articlesof Incorporation,5 DABS has the responsibility over the production, purchase, procurement and transition of energy, distribution tocustomers,andconstructionofelectricityinfrastructures,butithasnolicenseforanyoftheseactivities.ItisworthmentioningthatDABSwasestablishedanditsstatuscametoenforcementseveralyearsbeforetheLaw was approved.

Inaddition,theEnergyServicesManagementLaw6regulatesconflictofinterest:“thelegalpersonwhoisoneormoreshareholdersormemberofitsSeniorManagementGrouparefunctionalwithintheMoEW,”cannotobtain the license stated in the law, while MoEW is one of the main shareholders of DABS.

Recommendation

VulnerabilityRecommendation DABS has been established prior to Energy Services Management Law enactment, thus, the DABS legal framework has lots of contradictions with this law

DABS Articles of Incorporation and all legal documents should be harmonized with the Energy Services Management Law requirements

IV. DABS organizational structure and mandate

a. The legal status of DABS

DABS’ArticlesofIncorporation7states“DABSishavinglegalstatusestablishedandshalloperateasalegalentityinaccordancetotheCorporationsandLimitedLiabilityCompanieslaw.”DABShasfourshareholdersandeacharegovernmentministries.TheMinistryofFinancehasa45percent share,MinistryofEnergyandWater35percent,MinistryofUrbanDevelopmentAffairs10percentandtheMinistryofEconomya10percent share.8Therefore,thisentityshouldbedefinedasagovernmentalcorporation.

Corporations and Limited Liability Companies Law states “Unless its Articles of Incorporation provide

2 EnergyServiceManagementLaw,Articles7(1)and8(1)and,Official Gazette1231,October18,2016.3 PhonecallinterviewwithMoEWofficial,October18,2017.4 EnergyServiceManagementLaw,Article8(1),Official Gazette1231,October18,2016.5 DABSArticlesofIncorporation,Article2,Official Gazette945,May4,2008.6 EnergyServiceManagementLaw,Article9(4),Official Gazette1231,October18,2016.7 DABSArticlesofIncorporation,Article3,Official Gazette945,May4,2008.8 DABSArticlesofIncorporation,Article9,Official Gazette945,May4,2008.

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otherwise,everyCorporationhasperpetualdurationandhasthesamepowersasanindependentEntitywhichoperatelegallytoexecutebusinesstransactionsandotheraffairs9”,Itbasicallymeansthatallcorporationsandlimitedliabilitycompaniesareindependentandautonomousintheiroperation,andCorporationsandlimited liability companies have a shareholder Assembly who are the owner of the business, a Board of DirectorswhooverseethebusinessoperationandSeniorManagementGroupwhoarerunningthebusiness.According to theCorporationsandLimitedLiabilityCompaniesLaw, thecorporationsand limited liabilitycompanies’affairsarerelatedtothesethreebodies,howtheysettheirsalarypolicy,howtheyprocuretheirprojectsandsoon.DABSArticlesofIncorporationalsodescribethesameprinciple.10However,DABSofficialsbelievethatDABSisnotindependent,because:

DABSArticlesofIncorporation11state“TheprovisionofthisArticleofIncorporationmaybeamendedwhenproposedbytheBoardofDirectors,approvedbytheShareholderAssembly,andratifiedbytheCabinetofMinisters.”ThesecondparagraphofthisArticlestates“whentheshareoftheprivatesectorintheassetsofSherkat(company)exceeds50percent,theArticleofIncorporationmaybeamended[only]whenapprovedby Shareholders Assembly.”

TheyarguethatthisArticleshowsthatifinacorporationshareofthegovernmentreachestothelevelof50percent,thenthecompanyisnotconsideredasanindependententity,orinotherwordssupposethatifthegovernment has 49.9 percent share in DABS, it is not allowed for the government to interfere in the DABS operationlikeprocurement,HumanresourcemanagementandaccountingandfinanceSinceDABSisaStateOwnedCorporationandGovernmentowns100percentshareofthisCompanythusitisnotconsideredasanindependentcompany.FurthermorethereisacontradictionbetweenCorporationsandLimitedLiabilityCompanies Law12andDABSArticlesofIncorporation.13

Moreover,whiledescribingthoseentitieswhicharenotobligedtoenforcetheprocurementlawofAfghanistan,the Procurement Law14statesthat“thosemixedcompanies,inwhichtheshareofgovernmentislessthan25percent,arenotobligedtoenforcethis law.”Themarginof25percentileshareshowsthatwhenthegovernmenthaslessthan25percentofsharesinacompany,thenthecompanywouldbeexemptedfromfollowingtherequirementsoftheProcurementLaw,butiftheshareofgovernmentincreasesto25percentor more, then the companies would be bound to act in accordance to the orders of the Procurement Law. Therefore,DABSofficialsstronglybelievethatDABSisnotanindependentcorporationwhile itshouldbebasedonCorporationandLimitedLiabilityCompaniesLaw. Inaddition, there isacontradictionbetweentheDABSArticlesofIncorporationwhichstatesthatwhenevertheshareofprivatesectorexceedsthelevelof50percenttheShareholdersAssemblyofDABShastheauthoritytoamenditsArticlesofIncorporation,andProcurementLawofAfghanistanwhichstatesthatwheneverthegovernmenthas25percentshareinamixedcorporation,thecorporationisobligedtoenforcetheProcurementLawofAfghanistan.Itmeansiftheprivatesectorowns51percentshareinDABS,ArticlesofIncorporationconsideritasIndependententitywhileProcurementLawprescribethatitisstilldependentandtheirprocurementshouldbeconductedbasedon the Procurement Law of Afghanistan.

However,MECfindings15showthatexistenceofsuchaproceduralhierarchyfortheapprovalofDABSArticlesofIncorporationistopreventthediscretionofpowerinstateownedcorporationsanditdoesnotunderminetheindependencyofacompany.Moreover,lackofaprecisedefinitionforthetermindependenceinthelawsofAfghanistanhasexacerbatedthisproblemandpavesthewayfordifferentinterpretationofthisterm.InanutshellwecanconcludethatDABSisanindependentcorporationhoweverthetermindependentcarriesdifferentmeaningforprivateandStateOwnedCorporations.

In addition, some experts16 believe that it could be argued that a partnership, corporation or a limitedliabilitycompanyorcorporationcouldonlybe formulated,when“twoormorethantwo legalornaturalpersonscometogetherandagreeonundertakingspecificactivities,whereeachofthesidehastheirspecific

9 CorporationandLimitedLiabilityCompaniesLaw,Article19,Official Gazette913,January30,2007.10 DABSArticlesofIncorporation,Article3,Official Gazette945,May4,2008.11 DABSArticlesofIncorporation,Article55(1),Official Gazette945,May4,2008.12 CorporationandLimitedLiabilityCompaniesLaw,Article19,Official Gazette913,January30,2007.13 DABSArticlesofIncorporation,Article55(1),Official Gazette945,May4,2008.14 ProcurementLaw,Article4(paragraph5),Official Gazette1223,September17,2016.15 Interviewwithlegalexperts,October3,2017.16 Interviewwithlegalexperts,April19,2017.

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shares”17.WhereasinthecaseofDABS,thereisonlyoneshareholder-thegovernment,(artificialdistributionof shares between the government ministries which forms the government itself, could not be regarded as a companywithmultipleshareholders),hencethelegalexistenceofDABSbasedontheLawofCorporationsandLimitedLiabilityCompaniesisnotacorrectparadigm.BecausethisLawisonlyformulatedfororganizingtheactivitiesofprivatecorporationsandlimitedliabilitycompanies,whereasthestructureofDABSismoreofa‘soleproprietorship’orStateownedEnterpriseratherthanacorporation.

However,MECfindingsindicatethatexistenceofgovernmentalcorporationsandlimitedliabilitycompaniesisawell-establishedtruthinworldsandeachMinistryisanindependentlegalpersonandthepurposebehindestablishmentofgovernmentalcorporationistopreventthemonopolyincertainsectorsoftheeconomywhich has a vital role in the security and social wellbeing of a country. Thus, the GIRoA also established many governmentalcorporationsandlimitedliabilitycompanies.

Butthereisaneedforaseparatelawwhichcouldbeappliedspecificallytogovernmentalcorporationsandlimited liabilitiescompanies inordertosecureproper independenceanddefinetheroleofShareholdersAssembly,BoardofDirectors and SeniorManagementGroup in a governmental corporationand limitedliabilitycompany.Inaddition,thegovernmentalcompaniesareestablishedtocompetewithprivatesectorinsomespecificsectorsandifthesecompaniesaretobeobedientthegovernmentalbureaucracies,itwillbadlyaffect theirperformancesand theywon’tbeable tocompetewith theprivatesector.Andbesidesthat,thisnewlawshouldalsoforeseeamonitoringbodywithnecessarycapacitiestomonitorevaluateandcontrolthefinancialperformancesofgovernmentalcorporationsandlimitedliabilitiescompanies.

Recommendation

Vulnerability Recommendation Lack of a specialized law for governmental corporationsandlimitedliabilitycompaniescauses dualism in DABS operation and paves theway for different bodies to interfere in DABS’ operation

Adoption of a law for governmental corporationsand limited liability companies

b. DABS organizational structure

DABSiscomprisedofthefollowinginternalbodies:18

• Shareholders Assembly

• Board of Directors

• AuditCommittee

• Senior Management Group

Eachoftheseisdiscussedasfollows:

Shareholders Assembly

The Shareholders Assembly19isthehighestauthoritativedecisionmakingbodyinDABSandconsistsofthefourpreviouslymentionedlineministries.Theygatheronceinayearandreviewtheannualperformancereport of the Company. At this meeting they also make decisions regarding the profit, loss, challengesandotherimportantmatters.ThemostimportantresponsibilityoftheShareholdersAssemblyistoselectmembersoftheBoardofDirectorsandtheAuditCommittee.

Board of Directors

TheBoardofDirectors(BOD)isthehighestauthorityforestablishmentofoversightpoliciesovertheactivities17 18 DABSArticlesofIncorporation,Article22,OfficialGazette945,May4,2008.19 DABSArticlesofIncorporation,Article23,OfficialGazette945,May4,2008.

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of thecompany; it consistsofone individual fromeachof thefive following:MinistryofFinance (MoF);MoEW;MinistryofEconomy(MoEc);MinistryofMinistryofUrbanDevelopmentandHousing(MUDH);20 and Afghanistan Chambers of Commerce and Industries.21 The four current members of the Board of Directors arealsoShareholdersAssemblymembers,thus,theexistenceofafifth,impartialindividualisnecessary.

InaccordancewithDABS’Articlesof Incorporationwhich states, “in thedischargeof itsassignedduties,the BOD shall be responsible to the Shareholders Assembly.”22However,MEC’sfindings23 show that same individualsarerepresentingthesefourshareholdersintheShareholdersAssemblyandBOD;itmeansBODisresponsible to BOD. The existence of same individuals in both the Shareholders Assembly and BOD increases thevulnerabilityofthestructureandquestionstheaccountabilitymechanismsinDABS.

Audit Committee (Supervisory Board)

TheAudit Committee consists of threememberswho are nominated by theBoard ofDirectors and areselectedafterapprovaloftheShareholdersAssembly.ThemembersoftheAuditCommitteeserveforoneyear.24

ThoughtheDABS’ArticlesofIncorporationstatethat“themembersoftheAuditCommitteeserveforoneyearandcanbeappointedforonemoreyear,”whileMEC’sfindingsshowthatsomeoftheauditcommitteemembers have been in place forthree years.25 However, the Law on Corporations and Limited LiabilitiesCompaniesallowthemembersofAuditCommitteetoworkmaximallyforaperiodoffouryears.26

TheresponsibilityofAuditCommitteeistomonitortheperformanceoftheBoardofDirectorsandreportto the Shareholders Assembly.27 Since the Board of Directors and the Shareholders Assembly are virtually thesamepeople,thisfunctionoftheAuditCommitteeispracticallyofnouse.TheAuditCommittee’sotherresponsibility28istoactupontheprocurementcomplaintsthattheyreceive,however,MECfindings29 indicate thattheAuditCommitteehasnotrespondedtothecomplaintswhichhavebeensubmittedregardingtheprocurementprocess,andthereisnomechanismtoregistercomplaintsandensurethattheAuditCommitteewill receive the complaint.30Moreover,DABSbeneficiariesdonothaveadequateinformationregardingthisresponsibilityofAuditCommitteeandthisdutyofAuditCommitteehasnotbeencommunicatedproperly.

Senior Management Group (Executive Board)

TheSeniorManagementGroup(SMG)isresponsibleforundertakingday-to-dayactivitiesofthecompany.The SMG consists of General Director of the DABS, who chairs the Board, and the directors of the following divisions:financial;operational;andcommercial.TheSMGisappointedbytheBoardofDirectorsforaperiodof two years and their tenure could be extended.31

LackofclarificationregardingthenumberofupcomingperiodsofservicesofSMG32intheDABSArticleofIncorporationisthemainvulnerabilityinthisstructure.MECfindings33 indicate that lack of clarity regarding thenumberofperiodofserviceinDABSArticleofIncorporationincreasesthevulnerabilityofDABScorporatestructureandmotivatetheSMGtonegotiatewithBODinordertoextendtheirperiodofservicestoremainintheoffice.

Recommendations

20 DABSArticlesofIncorporation,Article31,Official Gazette945,May4,2008.21 AmendmentstoDABSArticlesofIncorporation,Article31(5),Official Gazette1265,July17,2017.22 DABSArticlesofIncorporation,Article35(1),Official Gazette945,May4,2008.23 ReviewofShareholdersAssemblyandBODmeetingminutes,2015and2016.Alsointerviewwithwhistleblower,February14,2017.24 DABSArticlesofIncorporation,Article36,Official Gazette945,May4,2008.25 Interviewwithwhistleblowers,February20,2017.26 DABSArticlesofIncorporation,Article59(1),Official Gazette945,May4,2008.27 CorporationandLimitedLiabilityCompaniesLaw,Article64(paragraph4),Official Gazette913,January30,2007.28 DABSArticlesofIncorporation,Article38,Official Gazette945,May4,2008.29 InterviewwithDABSbeneficiaries,March5-7,2017.30 InterviewwithDABSbeneficiaries,March5-7,2017.31 DABSArticlesofIncorporation,Articles42and43,Official Gazette945,May4,2008.32 DABSArticlesofIncorporation,Article43(paragraph2),Official Gazette945,May4,2008.33 ReviewofDABSArticleofIncorporationandinterviewwithwhistleblowers,February20,2017.

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Vulnerability Recommendation The same individuals are representing the shareholders in the Shareholders Assembly and BOD whichquestionedtheaccountabilitymechanismsofCorporate structure in DABS

Representative of shareholders in ShareholdersAssembly and BOD should not be the same individuals

TherearesomeindividualsinDABSAuditCommittee who are working for more than three years, however, theDABSArticleofIncorporationclearlystatesthat anindividualcan’tworkformorethantwoyearsasamemberofAuditCommitteeinDABS

The Shareholders Assembly should enforce the DABS Articles of Incorporation in relation to the AuditCommittee service period

Lackofclarificationregardingthenumberoffuture service periods of SMG paves the way for collusionbetween BOD and SMG

The number of future service periods should beclarified in DABS Article of Incorporation

c. Corporation and Limited Liability Companies Law

The Corporations and Limited Liability Companies Law,34 has been approved in order to regulate the establishment and operation of corporations and limited liability companies.

TheCorporationsandLimitedLiabilityCompaniesLawisnotcomprehensive,MECfindings35 indicates that therearemanytypesofcorporationsintheworldandeachhaveitsownprosandcons,e.g.,Ccorporationwhichisalargecorporationandhasnolimitationinfundraising,numberofshareholdersandtypesofstockspresentingtothestockexchangemarket.HoweverCCorporationshouldpaytwokindsoftax:onecorporatetaxandtheotherindividualtax.while,Scorporationsisanothertypeofcorporationwhichhasmanylimitationin fundraising, number of shareholders and the type of stock which it can sale in the stock exchange market. However,theshareholdersofScorporationshouldpayonlyonetypeoftaxthatwouldbeeithercorporateorindividualbaseontheirowndecision.Thus,todaythebusinessmanintheworldhasmanyoptions;however,theAfghanbusinessmandoesnothavesomanyoptions.TheCorporationsandLimitedLiabilityCompaniesLawonlycoverstheCcorporations’relatedaffairsandithasnodetailsregardingtheScorporations.

Moreover, lackofstockexchangemarketinthecountryisanotherchallengeforcorporationsandlimitedliability companies.36Corporationsandlimitedliabilitycompanieshavetofinancetheiroperationandthustheyshouldbeabletoselltheirstocksinthestockexchangemarket,however,MEC’sfindings37 indicates that duetolackofsecurityexchangecommissionandstockexchangemarketthecompaniescan’tselltheirstocksandhavemanylimitationsinfundraisingtofinancetheirbusinesses.

CorporationandLimitedLiabilityCompanies38LawdetailstheselectioncriteriaforBoardsofDirectors,therequiredcriteriafortheappointmentofthispositionhavebeendelegatedtoArticlesofIncorporation.WhiletheArticlesof Incorporationstates39 that the BOD members should be selected based on those criterion statedintheCorporationandLimitedLiabilityCompaniesLaw.Moreover,Corporationsandlimitedliabilitycompanies law states the responsibilities of Audit Committee, however, it has no details regarding therequirementsinregardtothemembersofAuditCommittee.TheBODissupposedtorunthebusinessonbehalfofShareholdersandAuditCommitteeistooverseetheperformanceofBOD.ThuslookingtothelistofBOD’sandAuditCommittee’sresponsibilitiesthereisaneedthattheDABS’sArticlesofIncorporationandthecorporationandlimitedliabilitycompanieslawdetailsacomprehensivelistofBODandAuditCommitteemembers requirements, otherwise, lack of such a list will provide opportunities for corrupt officials toinfluencetheselectionprocessofBODandAuditCommitteeandthiswillpavethewayformisuseofbusinessenvironmentinthecountry.However,MECfindingsindicatethattheDABS’sArticlesofIncorporationandthecorporationsandlimitedliabilitycompanieslawlacksuchascomprehensivelist.Thisultimatelywillaffectthe accountability which should be existed in the system. 34 CorporationsandLimitedLiabilityCompaniesLaw,Official Gazette913,January30,2007.35 Interview with businessmen,March 25, 2017, and visiting the following website: https://www.legalzoom.com/business/business-formation/compare.html 36 Interviewwithbusinessmen,March25,2017.37 Ibid.38 CorporationsandLimitedLiabilityCompaniesLaw,Article34,Official Gazette913,30January30,2007.39 DABSArticlesofIncorporation,Article31(paragraph4),Official Gazette945,May4,2008.

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AccordingtoCorporationsandlimitedliabilitycompanieslaw,40 member of shareholder assembly and the BoardofDirectorsmustbetwoseparatestructures,becauseCorporationsandlimitedliabilitycompanieslaw41 states,“the termof the initialdirectorofacorporationexpireat thefirst shareholders’meetingatwhichdirectorsareselected”.Andanotherinstancethelawstatesthat“MembersoftheBoardofDirectorsshallbeelectedbyshareholdersateachregular/annualshareholders’meeting,inaccordancewiththeArticleof Incorporation.”

Therefore,itcanbeconcludedthatBODandShareholdersAssemblyrequiredtobedistinctstructuresfromeachother,While,theyarenotseparatedstructureinDABS.Notseparatingthesestructuresfromeachotherisnotonlyconflictofinterest;itwillalsoaffectaccountabilitymechanismswithinthecompany.

Recommendation

Vulnerability Recommendation Corporation and limited liability companies law is not a comprehensive law and does not cover the all types of corporations

Corporation and limited liability companies law should be amended in accordance with the needs oftoday’s business environment

LackofcriterionforBODandAuditCommitteeDABS’s Articlesof Incorporationwill provideopportunities forcorruptofficialstoinfluencetheselectionprocess of these bodies

ThecriteriaforBODandAuditCommitteeofDABS shouldbeincludedinDABSArticlesofIncorporation

d. DABS Articles of Incorporation

TheDABSArticlesofIncorporationwasapprovedbyCouncilofMinistersonMarch17,2008,tomanagetheactivitiesofDAB.Someoftheprovisionswerelateramended.

Article2ofCouncilofMinistersresolutionattachedtoDABSArticlesofIncorporation42states,“TheMinistryofFinanceandtheMinistryofEnergyandWaterareobligedtoclearfinancialandaccountingaffairsofDABSMoasesa(StateOwnedEnterprise)intoninemonthsafterenactmentoftheArticleofIncorporation.”Thetwo ministries failed to accomplished this assignment,43 thus DABM assets have been transferred to DABS withoutvaluation.Moreover,evenmostoftheseassetsdonothaveprocurementorvaluationdocuments.44

Inaddition, theDABSArticlesof Incorporation45 state“TheAuditCommitteeshall investigatecomplaintsfrompersonsregardingDABSprocurementactionsandpresentthenecessaryreporttoBOD.”Howeverinpractice,“theprocurementprocessisfacedwithmanychallengessuchasviolationsinthebidding,offering,and other procurement process”46whiletheAuditCommitteedidnothing.

LackofcertaindefinitionaboutthesecretandconfidentialdocumentsinArticleofIncorporationleadstolackofcooperationandresponsivenessoftheDABSofficialsinprovinciallevel.Interviewersbelievethat since the company receives their expenditures from public funds then they have to be responsive to the public as corporation.47

TheArticlesofIncorporation48furtherstatethat“DirectorGeneralandmembersoftheSeniorManagementGroup are appointed by Board of Directors for two years. It is allowed to extend their appointment for additional tenures.”Theextensionperiodsarenotclear.Lackofdefinitionhascausedakindofcollusionbetween Board of Directors and Senior Management Group which makes it possible for the Board of Directors tokeeptheirrequiredpeopleinthesepositionsforalengthyperiodoftime.

40 CorporationsandLimitedLiabilityCompaniesLaw,Articles35and36,Official Gazette913,January30,2007.41 CorporationsandLimitedLiabilityCompaniesLaw,Article36,Official Gazette913,January30,2007.42 DABSArticlesofIncorporation,Official Gazette945,May4,2008.43 DABSauditedfinancialstatements,2010-2015.44 InterviewwithDABSofficials,January2017.45 DABSArticlesofIncorporation,Article36Official Gazette945,May4,2008.46 Interviewwithwhistleblowers,January2017. 47 InterviewwithDABSbeneficiariesinKabul,April3,2017.48 DABSArticlesofIncorporation,Article43(paragraph2),Official Gazette945,May4,2008.

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Vulnerability Recommendation Lackofcertaindefinitionaboutthesecretdocument reduced the cooperation of DABS officials to the public and media

DABS should define which information are confidentialandsecretandauthorizetheprovincial authoritiestosharethoseinformationwhicharenot confidential

e. The DABS Bylaws

“TheseBylawsareadoptedtogovernthemanagerial,financial,commercial,andoperationalactivitiesofDABS in accordance with the Law49ofCorporationsandLimitedLiabilityCompanies.”50

DABS Bylaw states: “The Internal Audit Department (IAD) will be tasked by the CEO [Director General]withconductinginternalauditcoveringbutnotlimitedto:internalcontrolsystem;controlling;financeandaccounting; riskmanagementsystems; reportingand informationsystems.The IAD isnotempowered tomakedecisionsorto implementanymeasureand its function is limitedtoanadvisoryrole.The internalauditshoulddefineprocedurestocollect,compile,andpresentsufficientdetailedinformation.ItshouldalsoevaluateDABSprocedurestoguaranteethequalityof informationdisclosed.”

The instructionoftheInternalAuditDepartmentbyCEOis incontradictionwiththeRegulationofPublicFinanceandPublicExpenseswhichstatesas following:“internalauditand inspection isan independent,objective, assuring and advisory activity which gives credibility and enhance the performance of anorganization.”51TheinstructionofIADbyCEOnotonlyquestionstheindependencyofIAD,italsoincreasesthe vulnerability of corruption.

Recommendation

Vulnerability Recommendation The instruction of IAD provide opportunities for DABSofficialstointerfereinIADinternalaffairsanddeliberatelyignoressomeoftheDABSkeyfunctions

DABS Bylaw Article 16 paragraph 2 should be amended in a way to prevent the interference ofCEO in internal audit department

f. Power selling and other services policy

PowersellingandotherservicespolicyisadoptedbyBODbasedonDABSArticleofIncorporation52 to facilitate therelationshipbetweenDABSanditscustomers.

Power selling and other services policy states53“SmallcustomersgetanapplicationformfromtheCustomerServiceDepartment, fill and return the formalongwith a copyof thepropertydeedand return it backto Customer Service Department. The head of the Customer Service Department is responsible to process thedocumentswithin24hoursaftertheapprovaloftechnicalteam.Thetechnicalteamshouldcheckthefeasibilityofconnectingthisnewcustomertothenetwork.Incaseifthetransformerisoverloaded,thentheapplicationformisstoredatthecustomerservicedepartmentwithitsrelevantdateandserialnumber.Whenevertheproblemofoverloadisresolved,priorityisgiventothependingapplications.”

Lackofaspecifictimeframeforsendingthetechnicalteamtothefieldincreasesvulnerabilitytocorruption.MECfindings54showthatthetechnicalteamsarenotgoingtofield,andpriorityisgiventothosewhopay

49 CorporationsandLimitedLiabilityCompaniesLaw,Article25,Official Gazette913,January30,2007.50 DABSBylaw,February22,2009.51 PublicFinanceandPublicExpensesRegulation,Article109,Official Gazette893,July27,2006.52 DABSArticlesofIncorporation,Article32(paragraph13and18),Official Gazette945,May4,2008.53 DABS,PowerSellingandOtherServicesPolicy,Article8,August6,2012.54 InterviewwithDABScustomers,March15,2017.

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bribes55.Moreover, meters have been distributed in areas where the transformer is already overloaded56.

Article9ofpolicyexplaintheextensionoflines,installationofmeterandmaintenanceasthefollowing:“theresponsibilityofextendingtheline,installationofmeterintheboxanditsmaintenanceuptothepointofthemeterboxistheresponsibilityofDABS,whileit’stheresponsibilityofthecustomersfromthepointofbox and the point to where the line is further extended. The distance of installing the meter boxes may not bemorethan500-600metersfromtheelectricaltowers/bridges/junctions.”

InrealityDABShasnotfulfilleditsresponsibilityofextendingthedistributionlinesfromtheelectricitytowersto the individual electricity boxes in some provinces e.g. Nangarhar and in Balkh provinces. The customers havepaidwholeexpensesofextending the lines, installationandevencreationofelectrical towerswiththeir own expenses, otherwise would be beard by DABS according to policy. Moreover, in some areas such as Parwan Province, the distance between the electricity towers and boxes has not been considered due to the interferenceoflocalinfluentialpeople.57 This distance has been increased closer to one kilometer in some areas,whichhasconsequentlyincreasedtheamountofelectricitywastageintheseareas58.

Power Selling and other services59Policystates“forcalculationtheexpensesofelectricityeachresidentialplace, each house, apartment or its separate appendix, there should be only one meter.” Whereas our assessment60showspeoplehavegottentwometersforasingleresidentialplaceinaquesttobringdowntheexpenses they will incur.

Moreover, The Power selling and other services policy61states“allmetersshouldhaveaDABSsealontheircompany cover and terminal.” Whereas in most of the areas in Kabul City, the seal is not there in the meters whichhavepavedthewayforcheatinginthemeterseitherbycustomersorbyDABSlocalemployees.

Additionally, due to requirements ofDABS, customers are changing analogue to digitalmeters. This is a processofdistributing reformed meters. In fact the payment for reformed meters should be paid by DABS or bycustomers;itisnotclearinthepowersellingandotherservicespolicy.

Vulnerability Recommendation Thetimelinefortechnicalteamtovisittheareainnot mentioninthepolicy,thus,itprovidesopportunities for technical team to ask bribe while someone need theiropinioninmeterdistributionprocess

DABSclarifythetimelinefortechnicalteamtovisit the area in the policy

Households in collusion with DABS employees install two meters in order to reduce their power consumption

Surveyshouldbeconductedtocutoffifanyoneof the household has extra meters and punish those employeeswho are involved and have connection with customers

Lack of clarification regarding the meter reform processleadtodualismoftheoperationindifferent provinces

DABS clarify the payment for meter reform process in the power selling and other services policy

g. Recruitment of high-ranking officials

Thehigh-rankingofficialswhoaremembersoftheBoardofDirectors,AuditCommitteeandtheSMGareselected and appointed by Shareholders Assembly.62

The members of the Board of Directors are appointed by the shareholders, and since the Board of Directors are also the shareholders, they appoint themselves.63TheAuditCommitteeandSMGareappointedbythe

55 InterviewwithinformantsinNangarharProvince,January8,2017.56 ObservationfromthefieldinKabulProvince,February26,2017.57 InterviewswithDABSofficials,March5-7,2017.58 FieldvisittoParwanProvince,March5-7,2017.59 DABS,PowerSellingandOtherServicesPolicy,Article27,August6,2012.60 ObservationinKabul,January23,2017.61 DABS,PowerSellingandOtherServicesPolicy,Article31(paragraph1),August6,2012.62 CorporationsandLimitedLiabilityCompaniesLaw,Article38,Official Gazette913,January30,2007.63 DABSArticlesofIncorporation,Article23,Official Gazette945,May4,2008.

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BoardofDirectors,while,AuditCommitteeisoverseeingtheperformanceofBOD.TheSMGisonlyrecruitedbasedonacompetitiveprocess.However,“thisprocesshasalsobeenpoliticizedandthereisinterferencebythe government and shareholders in the recruitment process.”64

Therefore,therecruitmentofhigh-rankingofficialsinDABSisnotoptimumandtheprocessisvulnerabletocorruption.

Overall, looking at the organizational structure of DABS, two striking points can be pointed out whichlooseness organizational structure and functional interference.

The loosenessoforganizational structure couldbe seenveryobviously.MECfindout, therearenumberof departments for performing procurement related activities. For instance, the program managementoffice(PMO)isdoingtheprocurementprocesspertainingtotheAsianDevelopmentBank,theWorldBankand USAID and uses their own procurement procedures and the department of Procurement of DABS is responsible for the internal procurements of the company.

MECalso foundthat functional interferencehasbeendetected in thisorganization; such theCommercialDirectorate issue tariffs themselves; collects the revenuesand theyhave theauthorityof changing tarifffigures.However,thisshouldbeauthorityoftheITDepartmentofDABSinprincipletopreventcorruption.65

Meanwhile,thehorizontalandlogicalhierarchyisnotregardedinthisorganizationwhichhassloweddownthedailyactivitiesandperformance.Forinstance,theITDepartmentwhichisaspecializeddepartmentisworkingunder theFinancialandAdministrationDirectoratewhichhassloweddowntheactivitiesof thisdepartment. Also, the overall system of DABS is undertaken by the IT Department and this department is not justasupportingdepartment,butinsteadplaysanimportantroletheretoo.66 Moreover, IT is the enabling toolforeverybusinessnowadaysandthetransformationandimprovementsinthecurrentsystemispossibleonlythroughtechnology.ITplaysacriticalroleinpowerutilitybusinesstoreducelosses,improverevenuesand transparent operations. Some interviewees believe that ITmust be an independent and importantprocessinanybusiness-likeFinance,Procurement&HR.However,DABSITfunctioniscurrentlyperformingasupportrole.Neithertheyhaveaclearbudgetallocationtomanagethesystemsortheyhavetherighttotakeadecisionindependentlywhichhasslowdownit’soperation.

Recommendations

Vulnerabilities Recommendations Adispersedanddistractedorganizationalstructure has resulted in the slowdown performance of the.organization

DABSorganizationalstructureshouldberestructured .basedonitsfunctionsandmandate

Thecollectionofrevenuesandtheabilitytochange the figures in the Commercial Directorate has.undermined transparency

The issuing of bills and amendment of bills shall be.assignedtotwodifferentdirectorates

The placement of the IT Department under the Financial and Administration Directorate has also negatively affected the performance of this.department

.The IT Department should promote to a Directorate

V. External and Internal controlsControl is the process through which the accuracy of the financial and accounting functions of anadministrationisexamined.67 The purpose of control is to ensure accountability in public expenditures and enhance transparency within an organization. Control has two main types: external and internal.

64 Interviewwithwhistleblowers,January14,2017.65 Interviewwithwhistleblowers,March12,2017.66 DABSorganizationalstructure,2016.67 SupremeAuditOfficeLaw,Article3,Official Gazette1101,March30,2013.

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Externalcontrolhasavitalroleinmaintainingaccountabilityandtransparencywithinanorganization.Thistypeofcontrolisperformedbythoseoutsideanorganizationandthesepartiesareusuallyindependentandcanprovideusefulfeedbackregardingthefinancialandoperationalperformancesofthatorganization.

Internalcontrolhasanequalimportanceforanorganizationanditismainlyconductedbythosedepartmentsorindividualsinsidetheorganization.Profoundknowledgeregardingtheoperationandfraudrisksexistinginanorganizationisthecomparativeadvantageofinternalcontrol.However,itisnotindependentandthereisalwaysariskofinterferenceintheirinternalaffairs.

ThefollowingsectionexaminesbothexternalandinternalcontrolinDABS.

a. External Control

The external control in DABS is performed by shareholders, Supreme Audit Office (SAO), High Office ofOversight and Anti-Corruption (HOO), donors and National Procurement Authority (NPA).The externalcontrollers are conducting their controls based on their mandates and scope of work.

Shareholders Assembly

Shareholders are the owners of DABS and they are responsible to review the annual reports of BOD and Audit committeeregardingtheactivitiesduringthepreviousfiscalyearsandapprovethefinancialstatements.68 Theshareholdershaveordinarymeetingswhichareonceayear,butthereareoccasionsforextraordinarymeetingsaswell.

Thereviewoftheshareholder’smeetingminutes69 shows that this structure has a symbolic role in DABS becausetheminutehasnodetailsregardingtheBOD,AuditCommitteeannualreportsandotherchallengeswhich exist in DABS. The whistleblower added that DABS shareholders are ministers and they are invariably busywiththeirownministries.Whiletheyarespearheadingothergovernmentinstitutionsandatthesametime,conductingannualmeetingsonlytofulfill therequirementsofDABScharter.Sotheyarenothighlyconcerned about the DABS future.

Supreme Audit Office

The SAO is the only supreme authority that audits accounting and financial activities of entities andorganizationsincludingpresidentialofficeanditsrelatedentities,nationalassembly,judiciary,enterprises,governmentalcompaniesandstatejointstockcompaniesindependently,responsiblyandimpartially,withinthe provisions of the audit law.70Auditisaprocessofregularobjectiveexaminationoftransactions,functions,financialstatements,internalauditreports,financialandaccountingprocedure,electronicinformationanddatasystemandotherfinancialdocumentsinordertoensuretheiraccuracy71. This audit is usually conducted once in a year if the president does not assign the SAO to conduct a special audit.

ThereviewofSAOreportsandinterviewwithDABSofficialsindicatesthatthisauditfocusesonlyonsomeissueswhichdon’thaveanyadverseeffectonDABS.SAOauditreportsmostlyfocusesonthecomparisonbetween plan and actual collected revenue, DABS receivables, internal audit reports and some small procurement issueswhichwon’t strengthen theaccountability in a large corporation suchasDABS. ThisauditprocesshasaspecificprocedureandtheyarenotassessingthehugesystematicissuesexistingwithinDABS. For example, the weakness of internal audit department is very obvious in DABS. However, the SAO audit report only states that the internal audit is weak not specifying the nature of those weakness and what should be done to address these weaknesses.72

The other weakness in the SAO audit process is lack of capacity of the audit team, DABS has implemented M-PowersoftwareinrevenuecollectionandassetmanagementprocessesandGreatplainprograminfinanceandprocurementprocesses;theyareusingInternationalFinancialReportingStandards(IFRS)inpreparing68 DABSArticlesofIncorporation,Article23,Official Gazette945,May4,2008.69 DABSshareholdermeetingminutes,February21,2017.70 SupremeAuditOfficeLaw,Article4,Official Gazette1101,March30,2013.71 SupremeAuditOfficeLaw,Article3,Official Gazette1101,March30,2013.72 SAOauditreports,2010-2015.

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theirfinancialstatementshowever,theSAOauditingteamisnotfamiliarwiththesesoftwareandsystemswhichincreasestheproblemsofauditingprocessandmakeitdifficultfortheauditingteamtoproperlyauditalltherelevantdepartmentsofDABS.ThisissuehasbeenraisedinsomanymeetingswithDABSofficialsandtheseofficialsaddedthatthisauditisjustawasteoftimeandtheauditteamisnotinthepositiontoaudittheDABSfinancial,ITandprocurementprocesses.Someinterviewersbelievethatthoserequirementsforrecruitmentofanauditorwhicharethatanauditorshallhaveahighereducationofatleastbachelordegree,andhe/sheshouldnotbememberofapoliticalpartyandhe/sheshallnothavebeenconvictedofcrimes,felonyandadministrativecorruption,73arenotsufficientandthroughcurrentrecruitmentprocesswecan’thire capable individuals.

While the law of Supreme Audit Office requires entities that are audited by SAO shall implement therecommendationsofit,74 the latest review of SAO audit reports indicates that DABS has not complied by the lawandenforcetherecommendations.75

High Office Oversight and Anti-Corruption

HighOfficeofOversight andAnti-Corruption (HOO) is the highest coordinating andmonitoring body ontheimplementationoftheAnti-CorruptionStrategy.ItisindependentandresponsibletothePresident.76 HOOisconductingsomeoftheirinvestigationsbasedonthecomplaintstheyreceivefromdifferentsources.Moreover,HOOisresponsibleforassetregistrationandverificationofgovernmentemployees.’

MECsentaninquirylettertoobtaintheinformationregardingtheDABS-relatedcasesbutHOOrefusedtocooperateandshareinformationregardingthosecases.Thus,itwouldbedifficulttojudgeandevaluatetheeffectivenessofthisexternalcontrolbodyofDABS.

National Procurement Authority (NPA)

TheNational Procurement Authority (NPA)was established based on Presidential Decree77 and later on reregulated by the Procurement Law78within the structureofAdministrativeOfficeof thePresidentandunderthesupervisionofNationalProcurementCommission.Thepurposebehinditsestablishmentwastoprovidebetterservicesthroughaneffective,efficientandtransparentprocurementsystem. Theentities,andnon-budgetaryunitsfundedundergovernmentbudgetarerequiredtoapplytheProcurementLawintheirprocurement processes.79Government-ledcorporationsarealsoobligedtoenforcetheProcurementLawofAfghanistan. ContractsthathaveavaluegreaterthanAFN15millionshouldbeprocuredthroughNPA.

While procurement through NPA has some advantages and it is a good control to maintain the transparency in DABS procurement system, it causes some challenges as well. Lack of capacity to procure all types of projectsisachallengethatsomeofthespecializedinstitutionslikeDABSissufferingfrom.TheproblemisthatprocurementprocessofDABSsometimestakestwotothreeyearsfortheprocurementofdigitalmeters.

Donors community

Donors are other key players of the DABS external control environment. DABS has several major donors includingUnitedStatesAgencyforInternationalDevelopment(USAID),WorldBank(WB),AsianDevelopmentBank(ADB)andeachofthesedonorshasseparatecontrolmechanismsfortheperformanceevaluationofDABS. However, donor controls are limited to expenditures of their own funds.80

External audit

DABS’sannualreportannualreportandfinancialstatements,profitsandloss,balancesheetisbeingaudited73 SupremeAuditOfficeLaw,Article6,Official Gazette1101,March30,2013.74 SupremeAuditOfficeLaw,Article15,Official Gazette1101,March30,2013.75 SAOAuditreports,2010-2015.76 HighOfficeofOversightLaw,Article4,July29,2008.77 PresidentialDecreeNo.16,October12,2014.78 ProcurementLaw,Article56,Official Gazette1233,September17,2016.79 ProcurementLaw,Article4,Official Gazette1223,September17,2016.80 InterviewwithDABSofficials,March21,2017.

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byanexternalauditoreveryyear.Theauditor’sreportwillbereviewedbyseniormanagementgroupswhowillberesponsibleforresolvinganydiscrepanciesandsystemicdeficiencies.BODshallappointanexternalauditor for three years and theexternal auditorwill be chosen fromamongqualifiedand certified localandinternationalcompanies.81 And it is the authority of BOD to approve the appointment or discharge the external auditors.82

DABShasauditeditsfinancialstatementsbyKPMGAfghanistanlimitedin2010andthentheyhaveappointedAvaisHyderLiaquatNuamanauditingcompanyin2011andthiscompanyhasbeenresponsiblefortheexternalauditofDABS.Thisauditingcompanyhasissuedqualifiedopinionin2015onDABSfinancialstatements.83

According to awhistleblower interviewedbyMEC, thefindings of these auditing companies havebeenmanipulated by the senior management group and BOD later on 84.TheproblemwithintheDABSfinancialsystemisnotastrivialasithasbeenreflectedintheauditingreports.Someinterviewersaddedthatthemaincause of this collusion between external audit companies and DABS is the authority of BOD to appoint or dischargetheexternalauditingcompaniesandithasobligedtheexternalauditingcompaniestomanipulatetheirfindingsinfavoroftheDABSofficials’bestinterest.

Conclusion

There aremanyentities involved in the external control ofDABSbut the ineffectiveness of the externalcontrol mechanisms is very obvious and it needs an urgent reform. The current external environment not onlyaffectsthetransparencyandaccountabilityinDABSoperations,italsocreatesobstaclesandpreventsDABS to achieve its strategic mission. DABS is established to supply power and does not let the private sector tomonopolizethemarket,buttheexistenceofthoseexternalbodieswillaffectanddelaytheoperationofDABS and will lower its capability to compete with the private sector in the market.

Recommendation

Vulnerability Recommendation The existence of many external bodies not only undermines the capability of DABS but also creates obstacles and prevents DABS to achieve its strategic.objectives

Establishmentofasinglemonitoringbodyequipped with the required knowledge and skills to audit all government corporations and appraise their.financial, operational and customer related issues

b. Internal control

Internalcontrolsaresomemeasures,policiesandprocedureswhichensurethattheorganizationisheadingtowardsitsstrategicobjectives.BOD,Auditcommittee,SeniorManagementteam,IADandeveneverylinemanagerisresponsibletoimplementthissystemwithinanorganizationbuttheinternalauditdepartmentremainstheonlybodythatcontrolseachhighriskareaandcontinuouslymonitorstheeffectivenessofthesecontrols in tacking fraud and corruption.85 As most of these structures and their weaknesses have been already elaborated, therefore we will focus mainly on internal audit department.

Internal Audit Department (IAD)

The IAD was established in 2011 inDABS.86ThisDepartmentisreportingdirectlytotheCEOandtheAuditCommittee. IAD ismainly responsible for themaintaining the internal controlmechanisms. The IADhasdeveloped 11 toolkits and a charter to facilitate its work and the charter has been approved by BOD of DABS. ThedutiesandresponsibilitiesofIADinclude:8781 DABSArticlesofIncorporation,article19paragraph(2and3),Official Gazette945,May4,2008.82 DABSArticlesofIncorporation,article32(paragraph5),Official Gazette945,4May4,200883 InterviewwithDABSofficials,April2,2017.84 Interviewwithwhistleblowers,March25,2017.85 DABSArticlesofIncorporation,Articles37and38,Official Gazette945,May4,2008.86 InterviewwithofficialfromDABS,April23,2017.87 SAOIADmanual,Article7.

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• Conductingregularauditandevaluation.

• Guidingandmanageactivitiesoftheinternaldepartments.

• Providingsuggestionsbasedontheauditandevaluationfindings.

• Basedontheanalysisandevaluationofauditfindings,providingcorrectiverecommendationsregarding identifiedproblems,andcontrolling its implementationprocess.

• Making legal decisions regarding preventing illegal performance of the departments andenterprises during the audit.

MEC findings88 indicate that ignorance of IAD authorities and responsibilities by CEO affected the IADperformanceofDABS. Intervieweesbelieve that IAD’s taskof reporting to theCEOhas raisedquestionsregardingtheeffectivenessofIADandhasincreasedthepossibilityofintentionalignoranceofsomehighriskareaswithin theDABSstructureandmanipulationof theirfindings.

The lack of a comprehensive list of qualifications for IAD positions is another major concern of manyinterviewees.ThecurrentIADstaffmovedfromtheMoFitseemsthatonmajorityofcasestheyarenotbeingrecruited through merit base recruitment process.89SinceDABSdoesnothaveaproperlistofqualificationsfortheIAD,educationalrequirementsaredisregardedinmanyinstances.

Lackofcapablehumanresourcein IADisalsoahugechallengeforthisdepartment. DABSisarelativelymodernorganizationcomparedtoothersinAfghanistanandmostofitsoperatingsystems,suchasfinanceandcommercialization,areheavilycomputerized.ButtheIADpersonnelarestillusingclassicalapproachestoauditthesefunctionsandtheyarenotwellequippedwithknowledgeandskillsrequired.

Conductingriskassessmentsandpreparingtheriskbased-workplan isoneofthe importantprioritiesofIAD,however, a reviewofDABS’ internal auditworkplan90 and interviews with whistleblowers indicates thatlackofsuchaplancausedIADtoperformtheirdutiesasaquickresponseunit.DABShasdraftedariskassessment matrix with the support of the donors in 2014.91 This matrix is not a comprehensive one and does not include the overall details of a risk assessment matrix and also does not cover most of the existed risks, e.g.,itdoesnotcovertheprobabilityofoccurrenceofeachrisk.RisksexistinginprocurementprocessarenotidentifiedandthishasnotbeenconsideredinpreparingtheannualauditplanofIAD.Moreover,ariskassessmentmatrixshouldbecontinuallyre-assessedanditshouldberesponsivetochange,butthematrixhas not been updated since its development.

ThelackofhumanresourcesistheotherproblemfromwhichIADsuffers..CurrentlythisDepartmenthasonly12positionsinitsorganizationalstructureandninehavebeenfilled.ForanorganizationsuchasDABS,whichhasaround9,000employeesandspendsfourtimesbudgetofatypicalministry,nineindividualsasinternalauditorsarenotsufficientandcannotmaintainaproperinternalcontrolfunctioninDABS.92

88 Interviewwithwhistleblowers,April9,2017. 89 Interviewwithwhistleblowers,April16,2017.90 DABSIADplan2015.91 DABSbusinessplan,FY2016-2020,p.80.92 DABSOrganizationalStructure,2015.

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Recommendation

Vulnerability Recommendation IgnoranceofIADauthoritiesandresponsibilitiesby CEO and sharing the IAD finding with CEO for his approvalhasaffectedtheIADperformancesofDABS andraisedquestionsregardingtheeffectivenessofIADandledtothemanipulationofIADfindings

DABSamendtheArticle16ofDABSBylawinaway to guarantee the independence of IAD and the IAD report should be shared with the CEO whenever it is.approvedbyAuditcommitteeandshareholders

LackofacomprehensivelistofqualificationsforIAD positionsandignoranceoftheexistentqualification list in the recruitment process; have led to the.recruitment of incapable individuals in IAD

DABSDevelopacomprehensivequalificationlistfor IADpositions andevaluate the current staffbased.on the new developed list

Lack of a comprehensive risk assessment matrix and risk base work plan caused that the IAD perform their dutiesasquickresponseunitandlimititsabilityto cover the overall risks exist in the DABS external and.internal environment

DABS Conduct a comprehensive risk assessment and development of audit plan based on the updated risk matrix

Lack of human resources in IAD has led to the ineffectiveness of internal audit process and deliberate ignorance of some high risk areas

DABS Review IAD structure according to the work.load and organizational structure of DABS

VI. Anti-corruption policy and practice MECfindingsindicatethatDABSdoesnothaveananti-corruptionplanorpolicy,however,therearesomesub-tierdocumentswhichcouldbeeffectiveinfightingagainstadministrativecorruption.Forinstance,theEmployeesDisciplineProcedureisdraftedinsixarticles,andwhichbringsomeclaritytotheadministrativemisconduct of the staff and has mentioned a few cases which are generally related to the day-to-dayoperationsofthecompany.93However,Article4ofthisProcedure,mentionssomeseriousviolationssuchascorruption/falsityandmalafide.

Therefore, it couldbeconcluded thataclear,organizedandspecificpolicyor strategy isnot inplace forfighting the administrative corruption. But there are some procedures which are not so clear, but theyhaveimplicitlycoveredtheadministrativecorruptioninthiscompany.TheseincludetheArticle38ofDABSArticlesofIncorporation,Article4ofStaffDisciplineProcedure,theconsumercarehotlinenumber144andcomplaints box in this company.

Recommendations

Vulnerability Recommendation DABS does not have a policy, plan or strategy to tackle corruption in the company

DABSshoulddevelopananti-corruptionpolicyanda longtermanti-corruptionstrategyandtranslatethatstrategyintoyearlyanti-corruptionplan

93 DABSEmployeeDisciplinePolicy,Article4.

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Though DABS has its own Audit Committee and InternalAuditDepartment,but there isnospecific unit in DABSwhich is assigned to fight corruption

Whenever a policy and strategy has been developed, DABS assigned a specific unit to oversee the implementation process of the strategy

VII. Human resources management system

DABSisoperationalin31provinces,butisnotactiveinNuristan,PaktikaandPanjshir.These31provinceshavebeenadjusted inninezonesconsideredassecondaryunitwhichareKabul,Parwan,Kunduz,Balkh,Herat,Kandahar,Nangarhar,GhazniandPaktiamanagedbythecentralofficelocated inKabul.

Unfortunately,therearenoprecisestatisticswhichshowtheexactnumberofDABSemployees.However,thedocumentsof2011/2012receivedbyMECconfirmthenumberofemployeesisinexcessof7,358.Theseemployeesarespreadoverfourdepartments;Finance/Administrative,Operational,CommerceandProjectManagementOfficeworkingunderCEO.94

However,thefindings95ofMECindicatesthatduetolackofacomprehensivepre-assessmentoforganizationalstructureatthetimeoforganizationalinceptioncausestheworkimbalancebetweendifferentdepartments.Some departments are created for a certain purpose, however, due to lack of human resources the department failedtoachieveitsobjective,e.g.,ProgramManagementOffice(PMO)wasestablishedtomanagedonor-funded projects, but it is currently dealing only with ADB projects.

Moreover,adispersedorganizationalstructureistheotherproblemintheDABSstructure,andthefindingsofMECshowthatthesamefunctionisexecutedbytwoormoredepartmentswhichaffecttheaccountabilityof the system. For example, ADB procurement is executed by PMO, USAID and World Bank have its own differentsectionsforprocurement,while,DABSinternalprocurementisperformedbyDABSProcurementdepartment.Inaddition,thereisnosingleunitresponsiblefortheimplementationofdonor-fundedprojects.

a. Pension administration process of DABS

DABSfollowsitsownPensionPolicy,whichhas10Articles,developedbasedonthePensionRegulationforthepublicserviceemployees.Afterrecruitinganemployee,theGeneralRecordsUnitofHumanResourcesDepartmentcompilesandkeepstheemployeefilesandthisunitchecksthefilesannually.Thoseemployeeswhocomplete40yearsofserviceorturn65yearsold,thosewhoarewillinglydemandretirementpriortothecompletionofthelatterrequirementsorthosewhoareeithersickordodisappeararecandidatesforretirement96.Atpresent,1,16997employeeshaveretiredfromDABS,withmostofthemcompleting40yearsofemploymentorwere65yearsofage.

AccordingtoDABS’sPensionPolicy,fourpercentofemployee’ssalaryaswellasfourpercentofcompany’sbudgetwillbeallocatedeverymonthtoabankaccountwhichisthefuturesourceofretireepayments.98 The CorrespondenceUnit(CU)inDABSisresponsibletoannuallyreviewallemployees’filesandidentifythosewhohaveeithercompleted65yearsageorhavecompleted40yearsofemployment.TheCUwillthenasktherespectivedirectoratetoofficiallyintroducesuchemployeestotheCUforfurtherpensionprocessing.However,thisprocessisstillnotelectronicandalltheworkisdonemanuallywhichmakesitdifficulttotrackemployeesthroughthesystemtodeterminewhoqualifiesforapension.Forthisreason,therearecurrentlyemployeeswhoareovertheageof65orhavemorethan40yearsofservice;99however,theyarestillnotintroducedtoCU.Thus,thereisademonstratedneedforacomputerizedtrackingsystemintheCUwhichcan reduce these oversights.

Theexistenceofghostretirees,whodonotexistbutarereceivingpensions,isoneofthebiggestproblemsin thepensionprocess. Existenceof such imaginary retirees inDABS requires awidespreadassessment;

94 www.dabs.af 95 ReviewoforganizationalstructureandinterviewswithDABSemployees,March15,2017.96 Thefamilyofthepersonwhodisappearedcanclaimhis/herretirementandpension.97 Reviewofdocuments,March2017.98 DABSPensionPolicy,Article3(paragraph2),June12,2012.99 FieldvisittoBalkh,Nangarhar,KandaharandHeratProvinces.

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however, thefindings100 ofMEC show that there is aweak controlmechanism in theCU to assurenon-existenceof imaginary retirees in thedepartments.

DABSintroduceditsretiredemployeestotheGeneralDirectorateofPensionintheMoLSAMD.Thefindings101 of MEC indicate that there is no mechanism of information exchange between DABS Human ResourceDepartment and theGeneral Directorate of Pension; thismakes it easier for theGeneral Directorate ofPensiontoforgeandincorporateimaginaryretireesintheprocess.Therefore,itisnecessaryforpensionunittohaveclosecoordinationandcooperationwithotherofficestoprevententranceofimaginaryretireesinthe process.

Moreover, the DABS Pension Policy states102 “the employees of DABM that as per the enforced laws, a percentage has been deducted from their salary before they are absorbed to DABS and this percentage hasbeen transferred to thepension treasuryaccountofMinistryof LaborandSocialAffairs, their rightsshallremaininpensiontreasuryaccountofthisMinistryandpaidtothemthroughthisaccountaftertheycomplete service term as per provisions of enforced laws of the country.”

WhenDABM(SOE)changeditslegalstatusintoDABS(Corporation)in2008,thesalariesofemployeeswerearoundAFN3,000andtheremunerationsofemployeesincreasedfollowingtheimplementationofpayandgrade system. However the employees of DABS were deprived of this increment. On the other hand, DABS pension policy states103“thoseemployeesofDABSservedfor lessthantenyears,shallnotbeentitledtopermanent pension rights and the relevancy with them will abruptly be withdrawn.” Thus, the employees ofDABMCompanywhojoinedDABSCorporationandtheirtermofserviceislessthantenyears,ontheoneside,therelevancywiththemiswithdrawnandontheother,theirsalaryfor2008shallbetoolittleandbasedon the Labor Law,104shallbeentitledforthewageoflastpost,rankorgrade.Thus,theemployeesofDABSCompany lose out with the current pension system of DABS.

b. DABS recruitment process

All employees of DABS are recruited based on the DABS Recruitment Procedure.105 The following diagram identifiesthestepsinthetherecruitmentprocess.

Chart 1: DABS recruitment process106

InternaljobannouncementsinDABSisoneofthevulnerabilitiestocorruptionbecausevacancieswillremainopenforDABS’semployeeswhiletheexternalcandidatesmaynothavechancetoapply.Therecruitmentprocedures states that107“HumanResourcesDepartmentpubliclyannouncesvacancies;however,consideringofficedecision,HRcaninternallyannouncethevacancies.”Internalannouncementofvacanciesiscontrarytomerit-basedappointmentanditprovidesopportunitiesforDABSofficialstorecruittheirownfriendsorrelatives.

Furthermore, in the internal announcement part of the recruitment procedure, the phrase expert individuals isclearlymentioned.Thismeansthatnotallvacanciesshallbeannouncedinternally,onlythosevacancieswhichneedexpertindividuals.While,thefindings108ofMECindicatethatDABSofficialshaveusedthisArticleoninternalannouncementtoonlyrecruitspecificindividualsfromcertainfamiliesorgroups.100 InterviewwithDABSemployees,March16,2017.101 InterviewwithDABSemployees,March22,2017.102 DABSPensionPolicy,Article10,June12,2012.103 DABSPensionPolicy,Article7(paragraphs2and3),June12,2012.104 LaborLaw,Article138(paragraph3),Official Gazette914,February4,2007.105 DABSRecruitmentProcedure106 DABSRecruitmentProcedure107 DABSRecruitmentProcedure,Article10(paragraph2).108 Interviewwithwhistleblower,April30,2017

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Besides the internal announcement, someof theother steps, suchas shortlisting thecandidates, is alsovulnerabletocorruption.Theexistenceofinterferenceinshortlistingthecandidateshasbeenconfirmedbyintervieweeswhosay“theyshortlistedthecandidateswhowerenoteligibleorqualifiedforthepositions,andmostofthepressureforshortlistingthecandidateswerefromofficialsofministrieswhichareshareholdersofDABS,officialsinCouncilofMinisters,MembersofParliamentandothers.”109BasedonCorporationandLimitedLiabilitiesCompaniesLawaswellasDABArticleofIncorporation,DABSisindependentinitsoperation.However,MECfindingsindicatethatthisindependenceisignoredbyshareholdersandtheyinterfereevenintherecruitmentprocessofjuniorstaff,whichquestionedthetransparencyofDABSrecruitmentprocess,e.g.,MoFintroducedacandidateforassistantofengineeringin2015aftertherecruitmentprocessforthepositionhadended.110

Moreover, the findings111 ofMEC show thatwritten test is also vulnerable to corruption and examinersdistributeexamquestionsinadvancetotheirselectedcandidates.Forinstance,thequestionsforthevacancyin laboratory department in Kabul DABS was distributed to HR selected candidate as a result of which, he was selectedfortheposition.112

Inaddition,anotherproblemintheHRDepartmentislackofimmunityandmanipulationofdocumentsinRecordUnit.Thefindings113ofMECindicatethattherehavebeenalotofcasesofdocumentmanipulationinthelasttwoyears,asaresultofemployees’personalfilesshallbekeptincenter.AccordingtofindingoftheMEC,eventhefilesinthecenterarenotsafe.In2012,anemployeewithadiplomawasrecruitedforapositionrequiringbachelordegree,whileheacquiredhisbachelordegreeonlyin2015.However,hecouldrecordhisdegreeinhispersonalfileinHR.

Moreover,lackofclarificationregardingthosewhoareworkingasactinginapositionisanotherprobleminDABSrecruitmentprocedure.Thefindings114 of MEC indicate that some of the individuals are not eligible foraposition;however,theyoccupiedthosepositionsformorethanfiveyearsandworkingasacting.Someinterviewers added that these individuals have close relationship with DABS high-ranking officials whoprovidesupportandkeeptheseindividualsfortheirownbenefits.

Inaddition,keepingvacantpositionsandnotannouncingthem, isoneoftheothervulnerability inDABSrecruitmentprocess.Thefindings115 of MEC indicates that some of the vacancies in PMO have been kept for years;116 and human resource department was unable to force the relevant department in order to announce thesepositions.

Lackof specificcriteria for somepositions inDABSandnot following theexistedcriteria for someotherpositionisyetanotherprobleminDABSrecruitmentprocess.Thefindings117 of MEC indicate that due to high levelofcorruptionintherecruitmentprocess,someindividualsarerecruitedinkeypositionswhichrequireelectronic engineering background which they lack.

Moreover,theexistenceofnepotismisanothervulnerabilitytocorruptioninDABSrecruitmentprocess.Thefindings118ofMECindicatesthatduetotheexistenceofnepotism,onefamilymembersarerecruitedinsomeinstances,e.g.,recruitingfamilymembersinPMOandtheBalkhDABS–byBalkhDABS’spreviousDirector.Inaddition,intheFinanceUnit,corruptindividualsmisusedtheweaknessintherecruitmentprocessandrecruited individuals from a similar group. lack of a responsible authority to track complaints of unsuccessful candidatesinrecruitmentprocessesisavulnerabilitytocorruption.ThefindingsofMECshowthatalthoughDABS claims that the Legal Advisor is responsible to track the complaints,119 there is no mechanism which can addressandrecordinformationoncomplaintsandwhethertheyarehandled.Thisproblemismorevisiblein109 InterviewwithDABSemployee,February2017. 110 Interviewwithsuccessfulcandidateinoneofthe6regions,May14,2017.111 Interviewwithwhistleblowers,March28and29,2017.112 Interviewwithoneofcandidates,January22,2017.113 Interviewwithwhistleblowersinoneofthe6provinces,May7,2017.114 Fieldobservation,February15,2017.115 Interviewwithwhistleblowersandfieldobservation,February12,2017.116 InterviewwithwhistleblowersindicatingthatinsomedepartmentsvacancieshavebeenkeptopensincethetimeofDABSinception.117 FieldObservationinKandahar,May14,2017118 Interviewwithwhistleblowers,March1,2017.119 DABSArticlesofIncorporation,Article38,Official Gazette945,May4,2008.

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provinces where the Legal Advisor is not included in the Tashkiel. Lack of a responsible authority has paved thewayforDABSprovincialdepartmentstouseanyexcuseagainsttheiropponentsonfiring,shiftingandpunishing them.

Performance Evaluation

Basedontheemployees’performanceappraisalprocedure,“theperformanceofemployeesshallbeappraisedannually.”120MECfindingsindicatethat121theperformanceappraisalisconducted;however,insomeoccasionithasbeenconductedbasedontherelationships,122additionally,mostofemployeescomplainedthatforsteppromotion, theannual performanceevaluationhasbeendisregarded. Someemployees complained thatsteppromotionisbasedonindividual’srelationshipwithhighofficialsbutnotbasedonannualperformanceevaluations.

Moreover,thefindingsofMECindicatethattheHRDepartmentdoesnothaveacapacitybuildingplanforitsstaffandthatstaffarerandomlyselectedinordertoattendaspecifictrainings.Theprovincialemployeesaddedthatperformanceappraisalsareconductedannually,while,thereisnoneedassessmentforspecifictrainingsandemployeesareselectedfromKabulandprovincialhumanresourcesofficerswerenotinvolved.SomebelievethatDABSshouldconductaneedassessmentpriortothearrangementoftrainingandthestaffselectionprocessshouldbetransparent,sinceitisnotcurrently.

Recommendations

Vulnerabilities Recommendations in DABS does Internal announcement of vacancies not provide equal opportunities for all, it refrains external candidates to apply for the vacancies. This.opensway for recruitment based on nepotism

DABSannouncevacanciespubliclyandprovideequal opportunityforalljob-seekersandpreventofficials to misuse the internal announcement

Recruitment criteria are too general and vague. This causesdifferentexpertise tobe recruited ina.particular field

DABS prepare a procedure that contains clear definition of criterion for every grade. Besides, criterion in a grade shall be considered based on its.responsibilities

The HR files for individual employees are not adequately secured.Anumberofdocumentshave.been embedded in the employees’ personal files

DABS create a policy to keep employees’ HR files secure, and punish those employees who forge the documents

There is no relationship between DABS HR Department and General Directorate of Pensionafter the retirees’ have been introduced to GDP

GDP cross check DABS employees who receive pension payment with DABS HR Department annually

DABS HR Department does not have a capacity building plan for its staff and staff are randomly.selected in order to attend a specific training

HR Department conduct training need assessment and establish a capacity building plan based on need assessment and share the plan with all DABS related offices

Lack of a responsible authority to track complaints of unsuccessful candidates in recruitment processes provide opportunity for corrupt officials to recruit theirownrelatives

DABS establish a board with the authority to track the complaints of unsuccessful candidate in recruitmentprocess

Some of the DABS-related offices keep the vacant position and not referring these vacant positions to HR Department to take action and recruit new employees

HR Department conduct an assessment and identifyandannounceallvacantpositions inDABS organizational structure

120 EmployeePerformanceAppraisalProcedure,Article1(paragraph2).121 InterviewswithDABSemployeesinsixprovinces.122 VCATeamobservationandinterviewwithDABSemployeesinNangarhar,January2017.

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Lackofclarificationregardingthosewhoareworking asactinginapositionresultsinthatsomeindividuals continuetheirworkformorethanfiveyearsasacting and it provides opportunity for corrupt officials to keeptheirrelativeinkeypositions

DABS clarifies and define acting and the length of time that anacting canwork in aposition

Identifying and introducing DABS employees to pensionprocessisstillnotelectronicandthework is donemanually whichmakes it difficult to track employees through the system to determine who qualifiesforapensionandprovideopportunitiesfor some employees for some individuals to stay longeras an employee in DABS

DABS introduce a software to the pension administration process which can easily identify those who are eligible to be introduced to pension

Lack of a comprehensive pre-assessment of organizationalstructureatthetimeoforganizational inception causes the work imbalance between different departments. Some departments are created for a certain purpose, however, due to lack of human resources the department failed to achieve itsobjectivewhichcausesthedispersalofthesame activity between different departments

DABSreviewitsorganizationalstructureandbringall those departments which are performing the same duty under one umbrella

VIII. Financial managementFinancialmanagementisallaboutplanning,organizing,directingandcontrollingfinancialactivitiessuchasprocurementandutilizationoffundsofanenterprise.123Thepurposeoffinancialmanagementistoensureregularandadequatesupplyoffunds,adequatereturntotheshareholders,optimumfundutilization,andsafetyoninvestmentandplanasoundcapitalstructure.Thefinancialmanagementincludes:

• Financingdecisions:howtheacompanyfinancesitsoperation,thecompaniesarefinancingtheiroperationeitherfrominternalsourceslikeretainedprofit,sellingfixedassets,collectingdebtsorfrom external sources like loans from banks, selling of shares, hire purchase (installment plan), and trade credit or government grant

• Investmentdecisions:thecommitmentoffundstoforfuturereturn

• Dividenddecisions:howthecompanydealswithitsnetprofit

ThissectionoftheVCAexaminesallthreeofthesedecisionsinDABSandidentifiesthegapswhichexist.

a. Financing Decisions

Likemostothercorporations,DABShastwosourcesoffundraising:internalandexternalsources,dividedinto sub-categories.

Internal sources of fund raising

Inthismethodfinancingisobtainedfromwithinthebusinessorcompany.Forexample,thebusinessmaynotdistributenetprofitorsellsomeassets.DABShavethefollowingsinternalsourcesoffinance:

Owner equity

AccordingtoDABSArticlesofIncorporation“TheInitial(paidup)capitalofDABSshallbeAFN25,000,000,000anditsultimatecapitalshallbeAFN100,000,000,000anditistobepaidbyitsshareholders.124 The par value 123 http://managementstudyguide.com/financial-management.htm 124 DABSArticlesofIncorporation,Article9,Official Gazette945,May4,2008.

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of each share is AFN 100.”,125whichmeansthatDABShasissued250,000,000sharesininitialstageandithastheauthoritytoissue750,000,000moreshares.

The review of legal documents126 shows that one of the main reasons that the legal status of DABS changed fromstateownedenterprisetocorporationwastopavethewayforprivatesectortoinvestinDABS,howeverDABSwasnotabletoattracttheprivatesectortoinvestinthisnewlydevelopedcorporation.MEC’sfinding127 showsthatalackofaccountabilityandtransparency,andpublicreportingofDABSarethekeyreasonsthatprevent private sector does not invest in DABS.

TheMoFandMoWEwereassignedtoclarifythefinancialandaccountsaffairsofDABMintheninemonthsprior to its conversion into DABS.128MECfindings129 and interviews with whistleblowers indicates that MoF andMoEWwerefailedtoachievethisobjectiveandalltheDABMassets,debts,etc.,wereinsteadsubmittedtoDABSwithoutanyclarificationthatwhethertheseassetsreallyexist.Itisoneofthereasonswhichaffectedthe accountability of DABS to the public and private sector.

Moreover,thesharedistributionbetweenthosefourministrieswasnotrealistic.Someoftheinterviewersbelieve that involvement of some of the shareholders in DABS shareholder assembly was symbolic and in realitytheyarenotinvolvedindecision-makingprocess.

DABShasassignedanindependentcompanytoidentifyandcompletethevaluationprocessofitsassetsandthiscompanyhaspreparedthedraftreportandpresentedittoDABS.However,MECfindings130 show that thisassetsvaluationreporthasincorrectinformationregardingtheexistenceandvaluationofsomeassets,e.g.,E&YreportedthatDABShas3,000assetsitemsinNangarharprovinces,butwheneverDABSreassesseditsassetsinNangarharprovincestheyidentified33,000assetsitemsinthisprovince.131

Sales of fully depreciated assets

Salesoffullydepreciatedassetsareotherinternalsourcesoffinancing.Wheneveranassetisfullydepreciated,a technical committee is assigned toevaluate theassetsand report to theDABS’assetsCentralRegistryDepartment.DABSisusingstraight-linedepreciationforthispurpose.Whenanassetistobedepreciatedin sixmonths the relevantdepartment should inform theFixedAssetRegistrationDepartmentand thentheCFOproposedthetechnicalcommittee.TheCEOapprovesthiscommitteewhowilldecidewhethertheassets can be repaired or it should be sold.132

TherelevantdepartmentsarerequiredtoinformtheDABSFixedAssetRegistrationDepartmentwhenevertheassetistobedepreciatedinsixmonthsbutDABScentralofficedoesnotshareanyinformationregardingtheusefullife,residualvalueoraccumulateddepreciationofanassetwiththelocalresponsibleauthorities.133 MECfindings134showthatduetolackofinformationregardingtheusefullifeanddepreciationofanasset,thelocalauthoritiescannotdecidewhetheranassetisfullydepreciated.Thisprovidestheopportunitiesforcorruptofficialstosellthoseassetswhiletheyarenotfullydepreciated.

Moreover,the involvementofatechnicalcommittee inthecorruptpractices isanotherconcernofmanyinterviewers.MECfindingsshow135that insomeinstancesthetechnicalcommitteewas involved inthosewrongdoingsandtheyhaveprovidedfalseinformationregardingtheusefulnessofanasset.Thisresultsinthe asset being sold in the market and DABS incurring serious losses.

WhileDABSdoesnothaveenoughinformationregardingthespecificationoflotsofitsassets,MECfindings136 show that DABS does not have a comprehensive fixed asset registerwhich can contain all the relevant125 DABSArticlesofIncorporation,Article10,Official Gazette945,May4,2008.126 DABSArticlesofIncorporation,Article55(paragraph2),Official Gazette945,May4,2008.127 Interviewwithbusinessmen,February25,2017.128 ResolutionofCouncilofMinisters,Number50,Article2,March17,2008.129 FinancialstatementsofDABS,2010.130 TripstoNangarharandBalkhProvinces.131 Interview,September26,2017.132 DABSAssetManagementPolicy,Article7.133 InterviewwithDABSlocalauthoritiesindifferentprovinces.134 Fieldvisits.135 FieldvisitsandinterviewwithDABSlocalofficials.136 Observationandinterviewwithwhistleblowers,May15,2017.

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informationregardinganasset.Lackofsucharegisterwillpavethewayforemployeestomisusetheassetsandprovidethefalseinformationtothecentralhub.

Retain earnings

Retained earnings or profit is another internal source of financingfor DABS. Profit is defined as the netoperatingsurplus,which isallDABSrevenueminusexpensesbeforegovernmentandexternaldonations.Thenetprofitcanbetransferred intoreservesfundsand/ordistributedtotheshareholders intheformof dividends.137Tenpercentofnetprofitshallbesetasidetoconstitutethecapitalreservefundsuntilsuchfundsreachonethirdofthesharecapital.Eachtimethereservefundsdroptolessthanonethirdofthesharecapital,theyshallbereplenisheduptothislevelbydiverting10percentofthenetprofits.138 Some 30 percentofnetprofitsshallbetransferredtoanimprovementfund,forrehabilitation,construction,repairandexpansionofDABSoperations.TheBODwillhavefulloversightofthisfundandun-programedfundsinthisaccountandthatitshallnotexceedmorethanfivepercentoftheoverallDABSbudgetatanytime.139 TheBODwilldecideontheallocationofnetprofitremainingafterallocationtothecompanyreservefundsuponrecommendationsoftheseniormanagementgroup.RetainedearningsaretheportionofprofitnotdistributedtotheownerofthebusinessandsinceDABSdidnotdistributeadividend,allitsprofitisretainedin the business.

ThefollowingtableindicatesDABSnetprofits/lossesfrom2010to2015:

Year Net Profit (Loss) in AFN2010 (532,121,296)2011 421,445,3022012 921,139,9792013 1,146,641,9622014 1,453,182,7312015 131,065,579

According to an interviewee 140theDABSlostalmostAFN4billionin2016;howeverthefinancialstatementof2016hasnotbeenauditedbyexternalauditcompany.

AtimeseriesgraphforDABSnetprofitisbelow:

Chart 2: DABS net profit (2010-2015)141

ThegraphindicatesthatthenetprofitofDABSisfluctuating.Usuallythisnotapositiveindicatorforabusinessandprovidesindicationsforineffectivemanagementofthebusiness,lackofapropermarketingplanandineffectiverevenuecollectionprocess.

Moreover,thehighfluctuationdiscouragestheprivatesectorandotherinvestorstoputtheirmoneyinthisbusiness.

MECfindings142indicatethatinvestmentinsuchavolatilebusinessismoreriskyandincreasesthechancesofbankruptcyanditisanurgentneedthatDABSshouldstabilizetheiroperationandeffectivelymanagethisbusiness.

137 DABSBylaw,Article11(1),February22,2009.138 Ibid.139 Ibid.140 InterviewwithDABSofficials,October23,2017.141 DABSfinancialstatements,2010-2015.142 Interviewwithbusinessman,May3,2017.

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Recommendation

Vulnerability RecommendationLack of accountability and public reporting causedprivate sector to lose their courage to invest in DABS.

DABSshouldpublishitsfinancialreport,excepttheconfidential information, in local languages andprovideenoughinformationregardingthefinancialperformance of DABS to the public.

Lackofa comprehensivefixedasset registerpavesthe way for opportunists to misuse DABS assets

DABSshouldverifytheErnstandYoung(E&Y)reportand if it contains fake information the report ofmentioned Company should be rejected and thecompany should be obliged to re conduct the asset valuation process.

DABSmainofficedoesnotsharetheassetsrelevantinformation with the regional hubs, while, askingthem to inform them whenever the asset is to be depreciated insixmonths.This lackof informationin secondary and tertiary units pave the way fortechnical team to take unfavorable decisions regarding fully depreciated or other assets.

DABS main office shares the assets relevantinformationwith the secondary and tertiary units,and establishes a mechanism which ensures transparency in the fully depreciated assets selling process.

External sources of finance

In this typeoffinancing,money isobtained fromoutsideof thebusinesssuchasagovernmentgrantorsubsidy, grants provided by donors, loans and aid provided by public. DABS has the following external sources offinance:

Government grant

DABShasreceivedgovernmentsubsidyanditwasanexternalsourceoffinanceinthepast,however,thissourceoffinancingwascompletelywithdrawninOctober2015.Thiscontributionwasintheformoffuelsubsidy andgovernmenthasprovided fuel forKandahardiesel generators. The reviewofDABSfinancialstatements143 indicatesthat theamountof thissubsidywasAFN892,852,197.

Donor funds

Donor grants are themajor sourcesof external financing. Thepurposeof providing funds toDABS is todevelopastrong,well-managedandcommerciallysoundutilityinorderensuresustainabledevelopmentofpower sector in Afghanistan.144 DABS has many donors including USAID, ADB and World Bank.

Donorshavecontributedthroughoff-oron-budgetassistanceprograms.Off-budgetarethosefundswhicharenotincludedinDABSannualbudgetandisnotmanagedbyDABS.On-budgetfundsincludeassistancewhichisalignedwithDABS’annualplananditisincludedintheannualbudgetdocumentofDABS.

Off-budget assistance ismanageddirectlyby thedonors andDABSdoesnothavedetails of this typeofassistance.MECfindings145 show that many projects have been implemented directly by the donors. For example, solar plant in Bamyan Province and diesel generator project in Kandahar Province.

DABSmanageson-budgetprojectsandhasestablishedadirectorateinordertomanagetheseprojects.The143 DABSfinancialstatement2015.144 DABSbusinessplan,FY2016-2020,p.7.145 InterviewwithDABSofficialsfromdifferentdepartments,January17-18,2017.

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PMOismainlyresponsibletooverseetheperformanceofimplementingpartners,facilitatecommunicationandcoordinationwithdonors,andensurethatthepaymentsareinlinewiththecontractdeliverables.DABShasreceivedAFN12,507,944,761indonorassistancesinceitsinception.146

DABS is developing the concept note and proposals of development project and these proposals are shared with the donors either by senior management group or PMO.147ThePMOisresponsibleforcommunicationwith donors and revision of concept notes and proposalswhen changes are required.DABS is receivingthe donors fund either directly from the donors or through Afghanistan Infrastructure Fund, Afghanistan ReconstructionTrustFundandPowerTransmissionExpansionandConnectivity(PTEC)project.

WhileDABSstatesthatitreceivedAFN12.5billionanditisshownonthebalancesheet,148the other sources showthatfrom2002to2017,thedonorshavecontributedaround4billionUSDtotheenergysectorinAfghanistan149. Converting thisamount intoAFN, itequals toAFN220billion150 and it should have been transferredtoDABSasanasset.HoweverDABSreceivedonlyAFN12.5billion.ItmeansthatbillionsofAFNare missing151.

LackoftechnicalcapacityandmanpowerarethemainproblemsofPMO.TheMECfindings152 indicate that PMOwasestablishedtomanagetheon-budgetfundrelatedtoalldonorswhilePMOisonlymanagingADBrelatedprojectnow.TheprojectsrelatedtoUSAIDandWorldbankaremanagedbydifferentdepartments.Thispropagationofworkcreatedlotsofproblemindonorfundmanagement.

Weakmonitoringproceduresaretheothermainproblems.MECfindings153 indicate that in many instances the reportedprogressof theprojects implementation isnot in linewith theactualworkprogress.154 For example,DABSmainofficeisclaimingthattheyhaveimplemented80percentofM-PowerapplicationbutMECfindings155showthattherealprogressonthefielddoesnotsupportthatclaim.

Public aid and other income

This is the responsibility of DABS to extend the transmission line and install the meter box to the customers while the customers are responsible to buy the meters and transmission line from meter box to their houses.156

However,MECfindings157showthatDABSdidn’tprovidethoseequipmentmentionedinArticle9ofpowerselling policy such as transmission line, transformers and meter boxes. Some of the interviewers told the assessment team that whenever a customer applies for the meter box or transmission line the DABS local office ismakingexcusesandneverdistribute the transmission lineorothernecessaryequipment to thecustomers.Thusthecustomersareobligedtobuythatequipmentbythemselves.Wheneverthecustomersbuythatequipmentandinstallitinthepowersystem,itbecomestheDABSassetsandcustomersarenotallowed to claim on their own assets.158

Other income includes sales of meter box, sales of meter locks, sales of meters, sales of cable, sales of form, non-operating rental income, penalties on late fee, connection and disconnection charges, income fromlaboratory, liquidateddamages recovered fromsupplier and contractor, andmeter rent. Thus,public aidandotherincomearetheothersourceofexternalfinanceandDABSgainedAFN1,091,659,919fromthesesourcessinceitsinception.

MECfindings159 indicate that DABS does not have a proper asset management system for their own assets, 146 DABSfinancialstatements,2015.147 InterviewwithDABSofficials,February14,2017.148 DABSbalancesheet2015.149 https://www.sigar.mil/pdf/quarterlyreports/2014-07-30qr-section3-economic.pdfp.173,andhttps://www.adb.org/sites/default/files/pub/2014/AFG.pdf and https://www.afghanistan-analysts.org/power-to-the-people-how-to-extend-afghans-access-to-electricity/?format=pdf 150 Averageexchangeratefrom2002upto2017isconsidered1USD=55AFN.151 Anaddendumhasbeenaddedasanattachmenttothisreport(Pages63-65)toamendandclarifythisstatement.152 InterviewwithDABSofficials,April30,2017.153 ProvincialvisitstoKandaharandNangarharProvinces. 154 Fieldvisits,May16,2017.155 Ibid.156 DABS,PowerSellingandOtherServicesPolicy,Article9,August6,2012.157 InterviewwithbeneficiariesinNangarhar,BalkhandHeratProvinces.158 DABS,PowerSellingandOtherServicesPolicy,Article20,August6,2012.159 Interviewwithbeneficiariesindifferentprovinces.

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thus,usurpationofpublicassetswithoutaproperassetmanagementsystemandassetregisterwillpavetheway for misuse of the public fund.

Loans

Loans are theother sourceof external financing forDABS. Securing loans locally or fromabroadby theagreement of BOD160 is oneof thedutiesof seniormanagementgroup. Toenhance theeffectivenessofoperationand increase thenetprofit, it is important forabusiness tomaintainabalancebetweendebtandowner equity.DABShasAFN6,357,177,794 in long and short termobligations.161 This includes AFN 4,390,236,366 as long term liability received fromADB.

Thedebttoequityratio162is0.2or20percentwhichisapositivebusinessindicator(seeChart3).However,itshowsthelimitationofexternalfinancingresourcesforabusiness.

Chart 3: DABS financial sources163

Recommendation

Vulnerability Recommendation

Lack of capacity and manpower in PMO resulted in the mismanagement and disparity of work.

DABS review PMO structure and establish a new organogram for PMO which has enough manpower and capacity to manage the overall donor related projects.

Awarding many projects to one company is describing a kind of collusion between implementer and PMO.

Audit Committee ensures the transparency ofprocurement process in PMO and make sure that it has been conducted based on the procurement Law of Afghanistan

b. Investment Decisions

Effectiveuseofcapitalisveryimportantforabusinessanditcanaddtothevalueofabusinessconsiderablyin the long run. The base of investment depends on many factors such as rate of return, payback period and risk involved in an investment. DABS may invest and enter into any type of private enterprises, when approved by BOD, in accordance with the law.164

Generallythe investmentdecisionhastwotypes: investment insomeone’sownbusinessand investmentoutsidethebusiness.Investmentinownbusinesscanbefurtherdividedtoinvestmentinfixedassetsandinvestment in current assets.

Fixedassets like land,building,machinery,andplant contribute in theproductionprocessofabusiness.However,priortoinvestmentinfixedassetsproperevaluationofthatassetshouldbeconductedtoproveitsimportanceandefficiencyforabusiness.Similarly,currentassetslikeinventories,debtors,cashandbankbalancearealsoimportantforabusinesstorunitsoperationanditisreallysignificanttoproperlyusethistype of fund as well.

DABShasinvestedAFN26,023,404,908infixedassets,AFN18,250,290,485incurrentassetsanditstotalvalueisAFN44,273,695,393.165 While DABS does not have the external investment, all its capital is invested

160 DABSArticlesofIncorporation,Article45(paragraph11),Official Gazette945,May4,2008.161 DABSfinancialstatements,2015.162 DABSfinancialstatements,2015.163 Ibid.164 DABSArticlesofIncorporation,Article16Official Gazette945,May4,2008.165 DABSfinancialstatement,2015.

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ininternaloperations.

c. Dividend Decisions

Dividendsareaportionofprofitaftertaxwhichisdistributedtotheownerofthebusinessanditisexpressedasapercentageoffacevalueofshares.TheBODmaydeclareapaydividendonsharesofthecorporation’scapitalstock,subjecttothecorporation’sArticlesofIncorporationandlimitationsintheCorporationsandLimited Liability Companies Law.166Thereisnodistributionofdividendsonlywhenthefollowingoccurs:167

• Thecorporationwouldnotbeabletopayitsobligationsordebtastheybecomedue

• Thecorporation’stotalassetswouldbelessthanthesumofitsliabilities

• Thecorporation’sreservedcapitalwouldbelessthanfivepercentofallshares

Moreover,inadditiontoabove,DABSwillpaynodividendstotheshareholdersaslongasitcontinuestoreceivegovernmentsubsidiesandexternaldonorsupportoruntiloperationarewhollyself-financed,afterwhich the BOD will then decide on the dividend policy.168

Based on these legal provisions,169 DABS is not obliged to distribute dividend to its shareholders, thus, DABS never distributed dividend to its shareholders. Some experts believe170 maintaining balance between retained earnings and dividend is the duty of BOD and they should decide what is best for the company, however, each company should have a dividend policy which clearly describes when they will distribute dividend and when theywillretaintheprofits.

d. Budgeting process

Theseniormanagementgroup isrequiredtoprepareanannualoperatingbudgetbythefirstdayofJedi(December 22), which should include operating costs, capital costs, sales revenue, debt servicing, assetdepreciationandcashreservesbasedonthepriorfiscalyear’sexpenditures,andshallsubmitthebudgettoBOD for approval.171DABSwillabidebyafiscalyearthatcommencesthefirstdayofHamaltothelastofdayof the Hoot of the same year (March 21 to March 20 of the following year).172

Thebudgetingprocess isperformedbytheDABSPlanningandControlDepartmentandthisDepartmentreceived input from Kabul and the provinces. This Department then compiles the collected data and presents ittotheBudgetingCommitteecomprisedofChiefExecutiveOfficer,ChiefFinancialOfficer,ChiefCommercialOfficer and Chief Operational Officer. The budgeting Committee analyzing this budget considering theexpectedrevenue,operatingandnon-operatingcosts,etc.,andthensubmitstheproposedbudgettoBODfor approval.173Afterthebudgetisapproved,itisthenallocatedtoeachunitonmonthlybasisandtheunitsprepareastatementofactualexpendituresandthisissubmittedittothePlanningandControlDepartmentof DABS, and it is compared the actual expenses with the budget and prepare a variance analysis report and present it to senior management group in each six months.

DABSannualbudgetismainlyfinancedeitherbyinternalincomeordonorfunds,theinternalincomemostlyfinancetheoperatingbudget,while,donorfundsfinancethedevelopmentbudget.

DABSdoesnothaveastandardoperatingprocedureorpolicyregardinghowtopreparethebudget.MECfindingsshows174thattheprovincialhubknowshowtoprepareabudget,however,theydon’thaveapolicytofollowanditwillleadtoadifferentapproachinrelationtobudgetingprocessindifferentprovinces.

166 CorporationsandLimitedLiabilityCompaniesLaw,Article91,Official Gazette913,January30,2007.167 CorporationsandLimitedLiabilityCompaniesLaw,Article92,Official Gazette913,January30,2007.168 DABSBylaw,Article12,February22,2009.169 CorporationsandLimitedLiabilityCompaniesLaw,Article92,Official Gazette913,January30,2007,andDABS,DABSBylaw,Article12,February 22, 2009.170 InterviewwithACCIofficials,February13,2017.171 DABSArticlesofIncorporation,Article47,Official Gazette945,May4,2008,andDABS,DABSBylaw,Article10,February22,2009.172 DABSBylaw,Article9,February22,2009.173 InterviewwithDABSofficials,March6,2017.174 InterviewwithDABSprovincialofficialsindifferentprovinces.

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The Planning and Control Department does not consider the input they receive from the provinces, while it isclaimedthattheannualbudgetispreparedbasedontheinputreceivedfromtheprovinces.MECfindingsshows175 the input received from the provinces are not aligned with their annual budget for example the KandaharProvincerequestedbudgetfortheyear2016wasfivefoldshigherthantheapprovedbudgetandHeratProvincerequestedbudgetwasAFN600millionwhileapprovedbudgetwasonlyAFN90million.

Moreover, the allocatedbudget to different provinces is not balancedwith the size of theprovince andnumberofthecustomers,MECfindings176 indicates that the budget is not balanced with the number of the customersandsizeoftheprovinceforexampleKunduzprovincehasonly60000customerswhileitsbudgetisAFN275millionfor2016,meanwhile,Heratprovincehas245000customer,whileitsallocatedbudgetisAFN 90 million.

WhileDABSdevelopedastrategicplanandthisstrategicplancoverstheDABSoveralloperationfrom2016to2020,butinpracticethisplandoesnottakeintoconsiderationinbudgetingprocess,MECfindingsshows177 thatthestrategicplanisnottakeintoconsiderationinbudgetingprocessandthereasonisthatthisbusinessplan ispreparedonly to fulfill therequirementofDABSArticleof Incorporationanddoesnot reflect theactualperformanceswhichcanbeusedinbudgetingprocess.

ThelengthofbudgetingprocessintheotherconcernofmanyDABSprovincialemployees,basedonMECfinding178fourmonthson,thebudgetoftheyear2017wasnotapproved.Thepostponementofbudgetingprocessleadstotheweakperformanceofunitsandnon-implementationoftheannualplan.

Recommendation

Vulnerability RecommendationLack of standard operating procedure or policyincreasesthechancesofsubjectivityandignoringofstandard process.

DABSshalldevelopastandardoperatingprocedureorpolicyforbudgetingprocesswhichcancovertheoverall process.

DABS planning and control department does not consider the input of provinces in the budgetingprocess which prompts the provinces to show their budgetthreeorfourtimesmorethanactualbudget.

Planning and control department of DABS consider the input from the provinces and ensure that the proposedbudgetoftheprovincesreflectthereality.

Lack of balance in budget allocation process canleadtomisuseofbudgetandfakereportingoftheexpenses.

DABS should allocate the budget base on the number ofcustomersandsizeofthenetwork.

e. Expenditures

Wheneverthebudgetisapproved,itiscommunicatedtotheprovincesandthefirstmonthrequirementissent to the provinces based on approved budget. The provinces then send their actual expenditure at the end of every month and planning and control department compare the actual expenditure with the approved budget and prepare a variance analysis report and present it to the senior management group. DABS has an approvedprocedureforcashdisbursalprocess.ThisprocedureisapprovedbyBODandeachDABSofficialhashisownauthoritytoapproveaspecificamountofcash.

WhileDABShas anapprovedprocedure for cashdisbursal,MECfindings179 indicates that this procedure isnotfollowedinsomeprovincesandauthoritiesarenotdelegatedtothelowerlevelstaff,eveninsome175 Ibid.176 Ibid. 177 InterviewwithDABSofficials,March6,2017.178 FieldvisitstoKandahar,Herat,NangarharProvinces.179 InterviewwithDABSprovincialofficialsindifferentprovinces.

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provincesallfinancialauthoritiesareheld intheregionalheadoffice.

Recommendation

Vulnerability RecommendationFinancialauthoritiesarenotdelegatedtolowerlevelstaffwhichleadstocentralizationofpowerandcanpavethewayformisuseoffinancialassets.

Financial power should be delegated to those mentioned in the cash disbursal procedure.

Asset management

Afteracompanyfinancesitsassetsandfindsthesourcesoffundraising,itisreallyimportanttoensuretheeffectiveuseoftheseassets.Itisaprocessorevenanobjectivethatcanbeachievedonlywhenthereisaproperandcomprehensivesysteminplaceforassetmanagement.DABShastwokindsofassets:currentandfixed.HoweverinthispartofthereportwewillonlyfocusonfixedassetsmanagementsysteminDABS.

Fixedassetsarethosetangibleassetswhichcanbeusedforalongerperiodoftimeinthebusinessoperationanditisdepreciatedasthetimeproceeds.180ThemaintypesoffixedassetsinDABSaretheland,powerplant,machinery,transformers,generatingequipmentandaccessories,andequipmentandnetworkaccessories.DABSisapplyingstraightlinedepreciationmethodtocalculatedepreciationexpenseforitsfixedassets.

MostofDABSfixedassetsweretransferredfromDABMandtherewasaneedtovaluatethesefixedassets,thePresidentalsogavethatassignmenttoMoFandMoEWtovaluateandtransferredthosefixedassetsDABS.MECfindings181showsthatthecommitteewhichwasassignedtoaccomplishthistaskfailedtoachieveitsobjectiveandDABMfixedassetsweretransferredtoDABSwithoutanyvaluationandverification.Therefore,the external auditor issued disclaimer opinion182severaltimes183 and put pressure on DABS to evaluate its fixedassetsonanindependentcompanybaseonIFRS.

Finally,DABSappointedaninternationalcompanytoevaluateitsfixedassetsandliabilities.However,thisvaluationprocessalsohadlotsofdeficienciesandactuallythereweremanydifferencesbetweenthelistoffixedassetsintheprovincesandthelistwhichwaspreparedbythecompany.184

Additionally,DABSdoesnothavetherequireddetailsregardingeachasset.Ourfindings185indicate that DABS doesnothavetherelevantinformationofeachassetlikeresidualvalue,usefullife,etc.,andthereasonisthatmostofthesefixedassetswerepurchasedduringZaherShahRegime(1933-1973)andmostofthesepowerplantdoesnothavetherequireddocuments.ThiscreateslotsofproblemforDABeventariffcalculationalsoneedsdepreciationexpenseswhichisnotavailableduetoabovementionedreasons.

Further to the above, DABS has developed the asset management policy but it has not been fully implemented. MECfindings186showthatinsomeinstancesassettagging,maintainingassetregisterandphysicalverificationofassetswerenotgivenenoughconsideration.

Fixedassetsare recordedmanuallyand inaMicrosoftExcelprogramwhichpaves theway formisuseoftheseassetsandDABSdoesnothaveacomputerizedassetsmanagementsystem.187MECfindingsindicatethatDABSdoesnothaveacomputerizedassetsmanagementsystemandtheresponsibleauthoritiesarestillusingtheclassicalmanualsystemtoupdatethefixedassetregister.Thereviewofdocuments188 show thatmillionsofdollarshavebeenspenttoestablishthefixedassetcomputerizedsystembutduetocreatingobstaclesbythelocalofficialstheprojecthasnotbeenimplementedsuccessfully189,andDABSlocalofficials190 180 DABSAssetManagementPolicy,Article1.181 InterviewwithDABSandMoEWofficials.182 Atypeofauditopinion183 DABSfinancialstatements2010-2015.184 ComparingthecompanylistwithNangarharandKandaharProvinceslistoffixedassets.185 InterviewwithDABSofficials,May4,2017.186 VisittoKandaharProvinceMay12-18,2017.187 188 M-Powerprojectcontract 189 FieldvisittoKandahar190 InterviewwithM-Powerprojectemployees,April19,2017.

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whoareinvolvedinthemisuseofthesefixedassetcreatedobstaclesintheprojectimplementationphase.

Moreover,DABSdoesnothaveenoughsupporteddocumentstoproveitsownershiponsomeofthefixedassets.MECfindings191 show that355,126 squaremetersof land,94 shopsandabuildingofDABShavebeenusurpedbyawarlord.DABSofficialsclaimedthattheyhavereferredallthoseusurpationcasestothespecialcourtestablishedinMoJbutnoneofthepropertieshavebeenreturnedtoDABSandtheprocessofusurpation continues.

Recommendation

Vulnerability RecommendationDABS has an asset management policy but it is not fully implemented and some of DABS assets in provinces don’t have the required details like tagnumberanditprovideopportunitiesforemployeesto misuse these properties.

DABS enforce the asset management policy in all over the country and consistently monitor its implementation

Fixed assets are recorded manually and through Microsoft Excel program which paves the way formisuse of these assets and DABS does not have a computerized assets management system.

DABSshouldfullyimplementtheM-Powersoftwarefor its asset management system and integrate M-Power with Great Plain program.

CorruptofficialscreatebarrierinordertopreventtheimplementationofM-Powersoftwarespecially theasset management modules and the purpose behind this agenda is to carry on their illegal interference in the asset management process.

DABS ensure the smooth implementation ofM-Power software and identify those who arecreating barrier and introduce them to the lawenforcement agencies.

IX. Billing and MeteringDABS has several revenue sources but the sale of electricity is the key source of income in this company. In ordertodevelopDABSintoaself-relyingcompany,itisreallyimportanttoeffectivelymanagethebillingandmeter reading process.

WhenDABSassumedtheresponsibilityaselectricityutilityin2009,meterreadingandbillingprocesseswerecarriedoutmanuallyandtheelectricitylossinthecapitalwasmorethan50percent.192 GIRoA was thereby losingahugeamountofitsrevenueeveryyear.Thus,theGIRoAwiththesupportofinternationalcommunitycomeupwithcommercializationprogramofDABSandtheobjectiveofcommercializationprogramwastotransformDABSintofinanciallysustainablenationalelectricalutilitywitheffectivecommercialandtechnicalmanagement.193Thecommercializationprogramachieveditsobjectivestoanextent;however,thisprogramfacedwithsomechallengesandisstillstrugglingtoachieveitsstrategicmission.

Duringthiscommercializationreforms,DABShasimplementedseveralsoftwareapplicationslikePooyeshandM-Power.InitiallyDABShasimplementedPooyeshapplication,whichisanofflinebillingapplicationwhichwaspronetomisuse.Thus,DABSofficialsdecidedtobuynewonlinesoftwareandthenDABSimplementedM-PowerinfivemajorcitiesincludingKabul,while,Pooyeshapplicationisstillusedinbillingprocessinrestof the country.194

Thus,billingprocessisusuallydonebytwosystems:

191 InterviewwithDABSemployees,May1,2017.192 DABSbusinessplan,FY2016-2020,p.18.193 DABSbusinessplan,FY2016-2020,p.20.194 InterviewwithofficialsofDABS,April11,2017.

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a. Old system (Pooyesh)

The electrician reads meters and records the consumed electricity in a notebook and then these electricians enter the data to meter reading sheet and submit the meter reading sheet to the data entry clerk. The data entry clerk is responsible for entering these collected data into the system. Whenever the data is recorded in the system, then system generate bills for each customers. The local electricians are responsible for the distributionofthesebillstothecustomers.195 While the customers receive their bills they have to pay their billsinthebanks.Thebankclerkrecordedthetransactioninexcelsheetandbranchmanagerapproveallthosetransactionattheendofeachday.196

TheofflinesystemofrevenuecollectionhaspavethewayformisuseofDABSrevenuesandcausedthatachunkofrevenueiscollectedthroughcorruptDABSofficialsandbankemployees,MECfindings197 indicates thatinsomeinstancestheDABSofficialsincollusionwithbankemployeescreatedfakebankingaccountswhichwerenotrelatedtoDABSandthentheyhavecollectedthecustomers’billsinthosefakeaccounts.While,onlinesystemreplacedtheofflinesysteminfivemajorprovincesbutstilltheremainingprovincesareusingtheofflinesystemwhichpavesthewayformisuseofrevenues.

Manual data recording is the other challenge in this system.198Andincreasesthechancesoffalsereporting.MEC findings199 shows that chances of false reporting ismuch higher in offline systemwhich harm thecustomers and cause that the customers should pay more than what should be paid.

b. New system (M-Power)

Theelectriciansreadthemeterandenterthedatabothintothemeterregisterandinthemobileapplicationandthensyncedthemobileapplicationwiththedatabase(M-Powerapplication).Thesystemgeneratesthebills to each customer and then the local electricians distribute the bills. The customers can pay their bills eitherbypayingtheirbillsinthebanksorthroughM-PaysaorM-Hawala.

Eachbranchofthebankhasaspecifictellerwhoinitiallyprocessesthebillsandrecordsthetransactions.Theneachtransactionisfinalizedbybranchmanagerwhoacceptsthetransaction.Thedailytransactionsarenot finalized, unless theyhave the approval of thebranchmanager and at the endof the eachdaybranchmanagersarecontrollingalltransactionsandcomparingitwiththecollectedbillstoensuretheyarecompletedandnooneismissing.WhilethebankclerkisprocessingthetransactionstheDABSofficialscanobserve the update in the system and they connected with the bank through WAN system. Moreover the DABSofficialsarereceivinginformationonweeklyandmonthlybasis.200

Thebillsareprintedcentrally;however,itwasassumedthatbytheintroductionofspotbillingsystem,thebillswillbeprintedonthespotandcustomerwillpaytheirbillsthroughmobileapplicationwhichwillreducetheprocesscostsandwillshortenthepaymentduration,but,duetolackofprinterswhichshouldbeconnectedwith mobiles, it has not been happen up to now.

Lack ofmanpower is amajor challenge of this process,MECfindings201 shows that one meter reader is assignedtoread400metersperdaywhichisnotrealisticandledtothefalsereportingofdata.Interviewwithbeneficiaries’202showthatmostoftheelectriciansarenotvisitingtheareaandinsteadtheyareestimatingthedatawhichoverestimatestheamountofconsumedelectricityformostofcustomers.Thebillingcycleisonceineverytwomonthsforthesubscribersof1-phasemeter,whileforthecustomersof3-phasemeterisonce per month.

Distribution of bills to the customers is another problematic issue in this process which increases the

195 InterviewwithDABSofficials,April29,2017.196 InterviewwithBakhtarBankrepresentatives,April30,2017.197 FieldvisittoHeratProvince,May21-25,2017.198 Interviewwithmeterreaders,May22,2017.199 Interviewwithcustomers,May24,2017.200 InterviewwithDABSofficialsandAZIZIBankstaff.201 InterviewwithmeterreadersinHeratProvince,May23,2017.202 InterviewwithcustomersinHeratProvince,May25,2017.

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vulnerability of the process; themeter readers are responsible for bills distribution, while, DABS didn’tdevelopamechanismforbillsdistribution.MECfindings203 shows that whenever the bills are lost in the bills distributionprocess,thecustomershavetopayinordertoregaintheirbills,however,powersellingpolicyclearly indicate that if a customers lost the bills, he should visit the customer service and the customer servicehavetore-printthebillandsubmitittothecustomer.204

Lowqualityofmobiles205purchasedfordatacollectionprocess is theotherproblemthattheelectriciansare encounter with, the electricians have to work more than eight hours in a day in order to cover their catchmentarea,while,themobilescan’tkeepitschargeformorethanthreehours;thisproblemledtothefalsereportingandnotvisitingthearea.

Recommendation

Vulnerability RecommendationLack of printers and other necessary equipmentrelated to the spot billing process caused that the bills are not printed on the spot to the customers andleadtowasteofresourcesandtime,inadditionto that, lack of application for the bills paymentprocess elongate the process of bills payments and confronted the DABS with the shortage of money.

Spotbillingprocessshouldbeequippedwillallthenecessary equipment in all over the country andDABS should encourage customers to pay their bills through mobile application which will reduce thepayment period.

Bills distribution through current practice causesthat some bills are being lost in the way and the customers are obliged to pay bribe in order to receive their bills.

To distribute bills on the spot DABS should implement the spot billing system in all over the country.

Someofmeterreadersarenotvisitingtheareasandestimatingthefigureswhichincreasethecustomers’bills in last bills payment period.

DABS should establish a mechanism to ensure that meter readers are visiting the area and notestimating the figures by themselves.

Lack of manpower is a major challenge in the process and it leads to false reporting andnot visiting thearea.

Review the current organizational structure ofcentral and regional Hub and proportionate thestructure with the work load.

M-Powersystemisactiveonlyinfiveprovincesandtherestarestillprocessingtheirbillingdocumentsthrough Pooyesh system which leads to false reporting.

DABS should replace the Pooyesh system and extend M-PowersystemtoalloverAfghanistan.

c. Payment through mobile money

Electricity customers in Kabul can pay their bills through depositing in banks or through their mobiles.However, in provinces, customers can pay their bills only through banks. Payment through mobile is a good practicebecauseitreducesthechanceofcorruptionintheprocessinadditiontopreventingwasteoftime.BillpaymentthroughmobilemoneywasinitiatedinKabulduringJune2013,withestimationtobeextended203 InterviewwithcustomersinBalkhProvince,May9,2017.204 DABSPowerSellingandOtherServicesPolicy,Article41(paragraph3),August6,2012.205 InterviewwithelectriciansinKandaharProvince,May15,2017.

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toBalkh,Nengarhar,HeratandKundozProvinces.Duetotechnicalproblem,thisprogramisnotextendedbeyondKabulbecauseitisdirectlycorrelatedwithimplementationofM-Powerapplication.Theapplicationisimplementedinfiveprovincesbutitlooksthatthetelecommunicationcompaniesarenotwellpreparedtolaunch this program in these provinces.206

BesidetheotherbenefitscustomerscanreceivetheirbillsthroughmobileSMS.Thisinturnwillreducethecomplaintsofthecustomersregardingnotreceivingthebillsontime.Italsowillsimplifythebureaucracywhichisthemainsourceofcorruptioninrevenuecollectionprocess.

Forcollectingthepayments,theDABShasalreadysignedcontractwithEtisalat(M-Hawala)andROSHAN(M-Paisa) Telecommunication Companieswhile contractwith AfghanWireless Communication Company(My-money) isstill inprogress.

Wheneverthecustomerswanttopaytheirbillsthroughmobile,theyfirstshouldregistertheirSIMcardwiththerelevantcommunicationcompanyandbuyelectricmoneywhichisdifferentfromTop-Upthentheycanpaytheirbills throughmobile.Thetimeseriesdataofbillscollectedthroughmobileshows incrementasfollow:

Chart 4: Amount paid through Mobile payment system (2013-2016)207

However, compare to the total amount collected through differentmeans, the amountwhich has beencollectedthroughmobileisverylowandthereasonisthatlargenumberofconsumersinKabulstilldonotbelieve on the payment through mobile system and they might assume using payment through mobile will endupwasteoftheirmoney.However,DABSofficialsclaimthattheprobabilityformoneywaste/lossinthisprocessiszeroassertingthatfromtheearlystartpointofthisprogramtillnow.Theyhavenotreceivedasinglecomplainregardingmoneylossinthissystem.Butimportantpointis;theserviceisnotcommunicatedproperlywithcustomers,thepublicawarenessdepartmentdesignedsomeverbalandwrittenmessagesbutthesemessagesdidn’taddressthemainproblemwhichislackoftrustandbelievethatconsumerswilllosetheir money.

ItisworthmentioningthatthebillpaymentcostAFN15inbothwaysthroughmobilesandbanks.

206 InterviewwithDABSofficials,April19,2017.207 InterviewwithDABSofficials

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Recommendations

Vulnerabilities RecommendationsPayment through mobile is not communicated properly and led to lack of trust on this system

Payment through mobile should be communicated with electricity consumers and DABS should try to build the trust of consumer on the system.

Payment through mobile program is limited to only Kabul and this program is not existed in the provinces

DABS should extend payment through mobile money program to all hubs/regions and provinces as soon as possible.

d. Arrears and debts recovery

One of the biggest challenges that DABS faces is that the consumers do not pay for their electricity bills on time.

DABS has a total of AFN 7,727,364,263 debts from consumers in 2016 including AFN 3,135,279,456 toresidentialconsumers,AFN2,013,405,496tocommercialconsumers,AFN2,231,053,636tothegovernmententitiesandAFN347,625,667toMasjids(Mosques)andholyplaces.208

Thebiggestchallengeforresidentialandcommercialelectricitycategoriesisexistenceofpowerfulpeoplewhodonotpaytheelectricitybillsandalsoresistagainstactionsregardingdisconnectingtheirelectricity.209

ThebiggestproblemofgovernmentofficesandholyplacesbelongedtoMinistryofHajjandReligiousAffairsareallocatedinsufficientbudgetbyMinistryofFinance.Solimitedbudgetcausedinabilityofgovernmentdepartments to do not pay their electricity bills.

Moreover, DABS does not have the ability to collect the electricity bills from powerful individual and government institutions,thecollectionofbillsremainabigchallengeforDABSandtheyarenotbeenabletoimplementParagraph4ofArticle34ofPowerSalesPolicywhichclearlystatesthatifanyonedidn’tpayhis/herbillswithinfourmonths,DABSshouldcuttheirelectricitycable.DABSofficialsaddedthattheyhaveaskedthelawenforcemententitiesincludingMoItosupportDABSinelectricityBillscollectionprocess,however,theseentitiesdidnotcooperateyet.210

DelayinelectricityinvoicepaymentsisagainsttheParagraph4ofArticle34oftheElectricityPowerSalesPolicy and Other Services, which DABS is unable to implement.

AbovepiechartshowsthatDABS’sdebtpercentage.

Recommendation

Vulnerability Recommendation Lack of coordination of law enforcers in collecting DABS’sreceivableshascausedfailuretoreceivethe.funds on time

GovernmentCasesDirectorateofMOJidentifiesand refers those customers to AGO who are reluctant to .pay the debt of DABS

X. Approval of tariffThemainsourceofrevenueforapowerutilityissellingthepoweronitscustomersanditisimportantforapowerutilitytosetapricewhichguaranteesitsfutureoperationandatthesametimethecustomersareable to pay that price.208 DABSaccountreceivablesdetailedlist,2016.209 InterviewswithDABSofficials.210 InterviewwithDABSofficials,March29,2017.

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SettingpowerpriceorapprovaloftariffhasbeenregulatedbytheGIRoA,andalawhasbeenadoptedforthispurpose. The Energy Service Management Law211statesthat”presentingthepowerutilitytarifftotheGIRoAisoneoftheresponsibilitiesofenergymanagementserviceauthorityafterithasbeenreviewedbyMoEW.”ItmeansthepowerutilitiesarenotauthorizedtosettheelectricitypricebythemselvesandinsteadthesepowerutilityshouldpreparethetariffandthenshouldsendittotheEnergymanagementServiceauthoritytopresentittotheGIRoAforthefinalapproval.

While, DABS Power Selling and Other Services Policy states that212 “the design of annual tariffmust beconductedbytheDepartmentofCommerceduringwhichwillbeconsideredtheindicators(priceofimporting,production,wastesofenergy,expensesanddepreciationoftheequipmentandbenefits)andafterwhichitwillbesubmittedtotheBOD.Thetariffformeasuringthepriceofenergy is implementedafterapprovalbytheBOD.”Thus,itistheauthorityofBODtoapprovethetariffnottheGIRoA,whichisacontradictionbetween Energy Service Management Law and the DABS Power Selling and Other Services Policy.

On the other hand, the power selling and other service policy is not taking into consideration in someprovinces.MECfindings213indicates that there is a specific calculationof costs for fuel energy inBamyanProvinceanditsprofitmarginisalsocalculatedbasedonthesameformula(priceofimporting,production,wastes of energy, expenses and depreciation of the equipment and benefits). Meanwhile, there is nocalculationforthetariffofsolarenergyinthoseprovincesandbecauseofthattherearenoprofitmarginsandnodocumentsavailableinthisregard.Thereasonfornon-existenceofdocumentationandcalculationforsolarenergyistheinterferenceofprovincialcouncilandgovernor’soffice.MECfinding214show that the same case exists in Kandahar Province as well.

Recommendations

Vulnerability Recommendation There is a contradiction between DABS power selling and other services policy and Energy servicemanagement law

DABS power selling policy article 4 should be amended based on the energy service management law

DABS power selling and other service policy is not implemented in some provinces and power price is set based on some other factors

The article 4 of power selling policy should be enforced in all over the country without any kind of discrimination

XI. Access to power and power sources in AfghanistanTherearetwotypesofelectricityresources,domestically-producedandimported.Ofthesetwosources,thedomestically-producedsourceprovides23percentofthecountry’soverallsupply,while,importedelectricityaccountsfor77percentofthesupply.215However,only30percentofthecountry’spopulationhasaccesstoelectricity.216 There is fragility inherent in depending on this level of imports since the neighboring countries areexportingtheirsurpluselectricitytoAfghanistanandshouldtheirinternaldemandforelectricityincrease,thentheirexportingofelectricitytoAfghanistanwoulddecrease.

Domestic sources of power

Thedomesticsourcesofproductionarefuel,solar,waterandwind.217 218

211 EnergyServiceManagementLaw,Article7(1),Official Gazette1231,October18,2016.212 DABS,PowerSellingandOtherServicesPolicy,Article4,August6,2012213 ReviewofTariffCalculationdocuments.214 Reviewofdocumentsandinterviewwithwhistleblowers,January4,2017.215 DABSBusinessPlan,FY2016-2020,p.22.216 DABSBusinessPlan,FY2016-2020,p.21.217 Althoughthewindresourcesareacheapalternativeinsomepartsofthecountry,duetolowcapacityandlowerlevelsofproductionitisnot included in thisVCA.218 EnergySectorStrategy(2008-2013),p.12.

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Hydroelectric Power

Hydroelectricpower,theproductionofelectricalpowerthroughtheuseofthegravitationalforceoffallingorflowingwater,accountsfor51.2percentofthetotalenergysupplyinthecountry.219 Hydroelectric power is mostly used in 11 provinces of Afghanistan (Kabul, Nangarhar, Herat, Helmand, Baghlan, Maidan Wardak, Parwan, Badakhshan, Kunar, Takhar and Kandahar). The statistics, therefore, show that one third of theprovinceshasbenefitedfromuseofwatergeneratedelectricity.220

Thereare24hydroelectricdamsinAfghanistan.Ofthese,16areactive,threedamsareunderrepairandfiveothersare inactive.Sincewater issuppliedgenerallythroughheavyrainsandmeltingsnow,anadequatelong-termwatersupplyisthebiggestconcernforthefutureofhydroelectricity.Anotherconcernisthatwithcontinuoususageandpoormaintenanceefforts,thesedamsnolongeroperateattheirmaximumcapacity.221

Fuel electricity resources

Dieslandotherfuelaccountsforatotalof48.5percentofthesupplyofourcountry’selectricity.TheprovincesofKandahar,Zabul,Kabul,Helmand,Ghazni,Paktiya,Khost,Logar,Badakhshan,Herat,Farah,Ghor,Badghis,Uruzgan,BamyanandDaikundiareusingthistypeofenergy.

WhilethethreeprovincesofPaktiya,LogarandBamyanhaveaccesstosolarenergyinadditiontofuelenergyfor electricity supply.222

Solar energy sources

Thesolarenergyisaccountsforonly0.26percentoftheaggregateelectricitysupplyofthecountry,whichisusedinPaktiya,Logar,TakharandBamyanprovinces.223

a. External sources of power

Afghanistan’ssupplyofimportedelectricityisfromTajikistan,Uzbekistan,Turkmenistan,andIran.Uzbekistanprovides33percentoftheelectricitywithacostofUSD0.085centsperkilowatt-hour(kW)andcoverstheprovinces of Samangan, Parwan and Kabul. The electricity imported from Tajikistan accounts for 32.3 of the supplywithapricebetweenUSD0.030-0.038perkWandcoverstheprovincesofKunduz,Baghlan,Mazar,SamanganandKabul.Turkmenistan’ssupplyaccountsfor14.3percentofimportswithapriceofUSD0.02centsperkWwhichcoversJowzan,Faryab,Sar-e-Pul,andHeratProvinces.Iransupplies20.5percent,withapriceofUSD0.06centsperkWandcoversHeratandNimrozProvinces.

b. Access to power

Accesstoelectricityhasdirectrelationshipwitheconomicgrowth,improvementofsocialhealthconditions,and access to various public services throughout the country and worldwide. Access to electricity in Afghanistanisata lowerlevel,covering30percentofpopulation224. Seventeen provinces have no proper connectivitytoelectricitynetworks.Theseprovincesdependonthermalpowerwithannualpercapitapowerconsumptionof180kW.ThesameconsumptionrateinPakistanis447,inIran2,752andinIndia760kW.225

AftertheestablishmentoftheprovisionalgovernmentofAfghanistan,thecountryhascontinuouslytriedtoimproveaccesstoelectricity.Significantamountsofassistancehavebeeninvestedinthisfield,buttheimprovementisnotconsiderableandthegovernmenthasusedtemporarysolutionsforsolvingelectricityproblems.Themapbelowshowsaccesstoelectricityindifferentpartsofthecountry.

219 DABSBusinessPlan,FY2016-2020,p,31.220 DABSBusinessPlan,FY2016-2020,p.30.221 InterviewwithDABSofficials,April5,2017.222 DABSBusinessPlan,FY2016-2020,p.31.223 DABSBusinessPlan.FY2016-2020,pp.31and32.224 EnergySectorStrategicPlanofAfghanistan2008-2032225 https://www.indexmundi.com/facts/indicators/EG.USE.ELEC.KH.PC/map/asia

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Consideringeconomicconditionsinthecountry,mostpeopledonothavetheabilitytopaytheelectricitybillasthecostperkWelectricityinsomeprovincessuchasUruzgan,ZabulandGhorProvincesexceedsAFN50.226

In most of provinces due to high cost or unavailability of electricity in a sustainable manner, people use other non-standard sources for instance,wood, coal, etc., tomeet their daily needs.Using such non-standardalternativesdamagetheforests,increasesairpollutionandenhancestheextentofdeathandreductioninaverage length of life.227

In someprovinces likeBamyanwhereelectricity connectionsareavailable, the residencehaveaccess toelectricity just for threehours in a day and this accessibility reaches to zero in somedistrictswhich arelocated far from provincial capital. As per DABS claim, 30 percent of Afghans had access to electricity in 2015.228 In this case, if we consider the access to power index229 especially the ability of consumers to pay electricity invoices and access to sustainable electricity, the percentage is lower then what the DABS claims.

Access to permanent and sustainable electricity is important for economic growth and investment in a country. Businessmen complain from the lack of electricity in industrial parks, which are located in Kabul, but they have access to electricity just eight hours daily. Even when they have access to electricity as per their experience,theyfacecontinuouselectricityshortagesandfluctuationswhichhavecauseddamagetotheirexpensive machinery.

Theotherproblemisthepriceofelectricity,whichcurrentlycostAFN6.75perkW.However,theelectricityconsumptioncostislowerinneighboringcountries,e.g.,inIranperkWelectricityconsumptionratereachesequivalent to oneAfghani, and in Pakistan it reaches to AFN 3 per kW.230 This difference causes Afghanbusinessmen to compete with foreign products in the market and the reason they are no longer interested to investinthiscountryandmovetheircapitaloutofAfghanistan.Toinvestigatetheissue,MECconsideredthe

226 DABSbusinessplan,FY2016-2020,p.4.227 InterviewwithDABSofficials,December27,2016.228 DABSBusinessPlan,FY2016-2020andfieldvisittoBamyanProvince.229 http://www.worldbank.org/en/country/afghanistan/overview 230 Interviewwithbusinessmen,December28,2016.

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opinionsofbusinessmenwhohavelefttheirbusinessesforthisreason.Someofthebusinessmenmentionedthat they do not have the ability to compete with foreign goods in the market as the raw material is expensive in domestic market. Furthermore; the electricity consumption cost is unaffordable. Therefore, they aresuspendingtheirbusinesses,asbecauseitdoesnotmakesenseforthemtocontinue.231

Recommendation

Vulnerability Recommendation

Lacking of a certain source for electricity has caused lotoffluctuations in industrialparks,whichresults .damagestothemachineriesoftheartisans

DABS connect the industrial park to a power sourcewhich has constant voltage

XII. Power distributionInitiallythepowerisgeneratedinpowerplantandthesepowerplantsareconnectedtotransformerwhichincreases the voltage of generated power, then it is transferred to the substation through transmissionline.Thesubstationsareresponsibleforbringingdownthevoltage.Fromthesubstations,theelectricityistransferredtojunctions,electricitytowersandthemeterboxesandisfinallysuppliedtoindividualcustomers.Noweverystepisevaluatedasfollowing:

Electricity production

Asitwasmentionedbefore,thatelectricitycouldbeproducedfromdifferentsources.Oneof the sources is water electricity which being used as a resource over the years. The lack of water,sustainedwars,productionforlongyears,and lack of a proper maintenance plan has resulted that turbines are not able to operate in theirmaximumcapacitywhichissignificantinsome cases. For instance, in electricity dam of Darunta,themaximumproductioncapacityis12MW while currently the capacity has decreased to eight MW due to lack of proper maintenance. Fuel power plants; are also facing with thesame challenges as poor maintenance. Those problems have been resulted in

immature depreciation of electrical equipment. As a result of, those equipment which have beenbought with high prices, are currently inactive. For instance, the generators which are bought forprovidingelectricity inKandaharProvinceare inactiveand thedepreciationperiod isalreadycompleted.

Afterproductionofelectricityinturbines,itisdividedinto69,115,230and750kWvoltagesbytransformerstogivethemtheabilitytobetransferredthroughhigh-voltagetransformationsystemandisheadedtowardselectricityproductionsubstations.Tokeepthewastageatanormallevelandtoensureefficientelectricitytransfer,itisrequiredtoconsidernecessarystandardsforelectricitytransfer,butthesestandardshavenotbeenfollowedintheelectricitytransformationprocessandhascausedsignificantwasteofelectricityandlowvoltage.Forexample,thevoltageofelectricitytransformationsystemandthedistancesbetweensourceoftheelectricityandtheconsumersisoneofthestandards.Thisisnotconsideredinthetransformationalsystemofimportedelectricitysuchas220kWwiretransferringtheelectricityfromUzbekistantoKabul.Thistransmissionlinehasthecapacitytotransferwithin450kmdistanceandifthedistanceincreases,thewiresineffectivelytransmit.Inaddition,distanceinelectricitytransferwithintheinternalnetworksisnotconsideredaswell.Disregardofthesestandardscauseelectricitywastageandvoltagereductionintransmissionsystem.231 Interviewwithbusinessmen.

Lightsindicatethatthebatteriesdonothavebatteryacid.(Photo(fromBamyansolarsystemApril17

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Additionally,the110kWlinetransferringenergyfromKajakitoKandaharhasthesimilarproblem.Becauseofthisdisconnection,theareasfacingdeficitorsurplusofelectricitycannotcooperatewithoneanother.

Besides,selectionofrightandnaturaldisaster(e.g.earthquake)safedirectionsisalsoimportantinelectricitytransfer.Unfortunately,directionsofthetransmissionlinearealsonotselectedproperlyatsomeareasandincreases vulnerability against the natural disasters. For example, transfer of electricity pillars from Tangi TashqurghantoKabulisoftenvulnerableagainstthenaturaldisasters.Thisisoneoftheexamplesforpayingnoattentiontothestandardsforelectricitytransfer.

Power substations

Oncetheelectricityenterstopowersubstations,itissenttothedistributionnetworkusingspecialtransformerswith the capacity to reduce the voltage.

Distribution to consumers

Power is traveling fromsubstations to junctions fromwhere it isdistributedtoconsumers.DABShas1.2millionconsumersin31provincesofAfghanistanincluding92percentresidentialconsumers,6.5percentcommercial consumers and 1.5 percent public organizations, NGOs, industrial centers, and holy places.

Corruption occurs when the cheaper residential pricing is utilized by commercial enterprises.The invoice cost for users of internally produced hydro-electric in Kabul and provincesare as follows: “Per kW price for industries is AFN 6.75, for commercial it is AFN 10,for public organizations AFN 12 and for residential customers it starts from AFN 2.25.” Commercial enterprises are not allowed to utilize energy in exchange to residential pricing,they must pay commercial price. To avoid this rule and to utilize energy in exchange ofresidential pricing, enterprises often pay bribe to local DABS officials, e.g., in NangarharProvince commercial customers obtained residential tariff by giving bribes to DABS’ officials.”

Charging fuel energy price on those customers who are using the hydropower is another problem existed in someprovinces,MECfindingsshowsthatcustomersinNangarharprovincewerecharged35AFNperkilowattelectricityinsteadof2.5AFN.InanattempttofindtherealcausebehindthisissueMECmetwithseveralcustomersandthesecustomersbelievedthatthereiscollusionbetweenDABSlocalofficialsandfuelpowerprivateprovider.Theinvoicepricesdifferindifferentprovincesbasedontypeofelectricityanditsusage.

The main point is how customers receive electricity meter and the process that they should go through. Here, we discuss the meter distribution process:

Application

In this step, a customer comes to the customer service center and submits the necessary documents (house ownershipdocumentandacopyofNational ID)toanofficial.Theofficialfillsaformusingthecustomerrelatedinformationandtheputsaserialnumber.

MECfindingsshowthatduetohighdemandandlimitedsupplyofelectricity,thisstepishighlyvulnerabletocorruption,e.g.thoseresidentialtownsthatarepermittedusingelectricityinBalkhProvinceandshouldbegiven600electricitymeters;receiveonlyfivemetersinaday;thatmeansifacustomerappliesforgettingametertoday, he/she will receive the meter four months later. Therefore, the customers are encouraged to pay bribeoruserelationshipstospeeduptheprocess.Humanresourceisthemainlimitationinthisprovince.Thecustomerservicecenterofthisprovincehas135,948permanentcustomersandrapidlyincreasing,butthere is only one customer service center with limited number of employees in this province.

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This problem is not only limited to one province, MEC findings indicatethat it is spread out throughout the country, e.g., Nengarhar Province

alsosufferfromthesimilarproblem.Customerdensityandlimitedhumanresourcepavestheopportunitytothecustomerservicestaffstoaskmoneyagainstformdistributionsfromthecustomersanddelayelectricitydistributionprocess.

While,themeterdistributionprocessinKandaharisthemostdifficultone.Ifacustomerwantstotakeameter, he/she should take order from provincial leaders, provincial councils, and provincial security forces or fromhigh rankedofficials of Kandahar Province. Kandahar has only 15-20MWelectricity however, theydistributedmetersrequires135MWelectricity.SomeoftheapplicationsformetersarewaitingsincetwoyearsbecauseKandahar receivesonly15to20MWpowerbut thedemandforpower isupto136MW.

MEC’sfindings show, toavoid rushof customers, someofprovincial offices hang announcements in their officessaying:“thosewhowanttogetametershallfirstgototheprovince’s leader department, provincial councils orprovincial security forces and take their order.” The reason for hanging such announcements is because there are not enoughfacilitiesformeterdistributions.However,customersrelated to specificgroupsoralliances cangetnewmeterswithoutreferringtothementionedprovincialofficials.Thebelow image is a sample of such announcements.

Moreover, MEC findings show that lack of customers’awareness aboutmeter distribution process increases thevulnerabilityofthisprocess.Accordingtothefindings,public

awarenessaboutDABS’sservicesdeliveryespeciallyaboutmeterdistributionprocessisverylowamongthepublic. Thecustomerservicecentersalsodonothavethetypeofadvertisementsthatcanhelpcustomersknowmoreaboutmeterdistributionprocessandhowtoprocess therelevantdocuments.

Assigning the technical team

Wheneverthecustomerisentitledtoreceiveameterbasedontherequireddocuments,atechnicalteam(includingDABSlocalemployee,customerserviceemployeeandregionalstaff)aredispatchedtotheareato check the load of transformer, transmission system and to ensure that enough space is available in meter box, the team observe the area and provide their report to the customer service department.

This step is also vulnerable to corruption, and the reason is that most of the transformers andnetworks are overloaded; and the customer service department also knows that, however,they send the technical team to the field in order to provide opportunities for taking bribe.

Dispatching the team to the field

After submission of the assignment to the team, they go to the localitywith the customers to conducta technical evaluation. This phase is also vulnerable to corruption. According to DABS sales andother services policy, there is no time limit for technical team to express their opinion, MEC findingsindicatesthatsometimesthedelegateavoidtovisittheareaformonths,however,iftheyreceivebribethentheyimmediatelygotothefieldandgivepositiveopinion.

Re-approach to the Head of customer service

After confirmation of the technical team, the customers refer their application formto the head of customer service department and the head of customer service department decides based on the opinion of the technical team. However, the findings of MEC indicates that the meters have been also distributed to those customers who were not eligible based ontheopinionofthetechnicalteamandthereasonsbehindthisillegaldistributionwaspoliticalpressure,

Picture from Kandahar regional office May, 2017

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personalrelationshipandpayingbribe.

Tariff department

Whenevertheheadofcustomers’servicesdepartmentapprovedtheapplication,thecustomer isguidedtotariffdepartmentforopeninganewaccountandreceivingthetariffstobepaid.Duringtheassessmentnegligence was observed in the performances of the DABS employees. Long lines of customers and rush against the tariff issuing boothwere seen and the reasons of this rushwas absence of the employeessuch as in Nangarhar province, where customers awaited several hours, but DABS employees were absent.

Document Control

After the issuance of tariff, the customers have to pay the price of the meter and customersservices fee, however prior to the payment the control department should carefully review all these documents that whether they are completed or not. MEC findings show that although the documentswere incomplete and there were lots of deficiencies in those documents, they were processes.

Bank payment

Once the documents are checked, the customers pay the tariff in the bank.

MECfindingsshowthatduetolackofcustomers’awarenessandpunishmentofcorruptlocalemployees,theDABSlocalemployeesreceiveservicefeesfromcustomersinadditiontothemonthlysalarytheygetfromDABS,thus,the service fee go to the pockets of local employees instead of DABS bank accounts.

Moreover, in some other provinces like Balkh and Nangarhar, customers were even obliged to pay for buying otherequipmentsuchas transformers, transmission lineaswell,while it is theresponsibilityofDABStopurchase.

Inaddition,sometimescustomersarerequiredtopayaspecificamounte.g.inBalkh,duringtheleadershipof the previous head of the DABS, USD 100 was paid by each customer who wanted to take a meter.

Reapplication to tariff department

After payment to the bank, the customers brings the receipt for service fee to the tariff departmentand the receipt for meter cost to asset department and receives both meter and the supplements.

Meter Installation

Here, the head of customer service and member of meter supplement control division sign and dispatch one oftheemployeestoinstallthemeterinthecustomer’splace.Installationisdoneinpresenceoftheregionalelectricitystation’srepresentative.

The above-mentioned step is vulnerable to corruption either. The findings of MEC indicate that local employees of DABS continue making unreasonable excuses in an attemptto justify their argument as regards to lack of any space in the box for an additional meter.Therefor they ask customers to buy another box. Nevertheless, an additional meter iseasily installed and placed in the same box after the employees of DABS secure bribe.Itisworthmentionedthatinmostcasesthecustomershavetobuythemeterboxbythemselvesandduetolackofbudgettheregionalhubcan’tcooperatewithcustomers,but,wheneverthecustomerbuythemeterbox or any kind of other asset and connects it to the network, it become DABS assets.

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In addition, DABS is charging customers AFN 300 once in a year for installing their metersin DABS meter box even those individuals who actually bought the meter box: so everyyear, regardless of whether the consumer installed already the box or no, s/he needs to pay AFN 300 as a fee for renting the box. Moreover, MEC met with several individuals who were charged twice, once by the individual who bought the meter box (which was later transferred to theDABS’sassets)andthenbyDABSregionaloffice.

AnotherproblemislowqualityofpurchasedmetersbyDABSandthoseavailableinthemarket.ThepurchasingprocessofnewmetersbytheDABSProcurementDepartmentisdelayedduetoavarietyissues,resultingincustomerspurchasinglow-qualitymetersfrommarket.

The DABS Power Selling and Other Services Policy

statesthatifthereisanyproblemincustomers’billorthemeterisnotworkingthecustomershavetoinform DABS and DABS laboratory will check the meter that whether it is properly working. It is worth mentionthatlaboratorytechniciansshouldcheckthemetersinitshighestcapacity,however,thefindingsofMECindicatesthatlaboratorytechniciansarenottestingthemetersproperlyinsomeprovincesandthey are just deceiving customers and provide false reports to the customers and there is no other body orprivatesectortocheckthequalityofmeters.Inaddition,theDABSlabdepartmentinsomeprovincessuchasNangarhar,KandaharandHeratlacknecessaryequipmentandtechniciansareusingveryprimaryresourcesandclassicwaystocheckmetersandsometimesitresultsinthattechniciansprovidefalsereportstocustomersduetolackofequipment.

Moreover, if a customer does not check his meter regularly and does not inform DABS immediately, then he hastopaythehighestbilloflastsixmonths.Thevulnerabilityisthatthemeterswithhighqualityarenotavailableinthemarketanditismostlikelythatthesemeterswillstopworkinganytime,ontheotherhand,customersareusuallyhavenoaccesstometerboxandDABSdoesnothaveamechanismtoidentifytheexacttimewheneverthemeteractuallystoppedworkingandDABSlocalemployeesmakedecisionbasedonthecustomers’pastsixmonthsrecord,thismeansthecustomers’couldbefinedevenifhismeterhasbeendamagedatthesameday. Inaddition,MECobservedsomemeterswhichhadthreeorfourtimeshigherspeedthananormalmeter,itmeansifacustomerconsumesakilowattpower,thatmeterwillshowthatthecustomer spent four kWpower. Inanutshell, customersarenot satisfiedwith the services thatDABS isproviding to the customers.

Lack of locks in some meters also provides the opportunityforcorruption.Unavailabilityofmeterlocks paves the ways for customers to disconnect the wire from their meter and directly connect them to each other. This provides the opportunity for consumers to use the electricity without being countedinthemeter.Inreality, it isawell-knownfact that majority of those customers with regularly highelectrify consumption ratealways try tofindways through which they can steal electricity. DABS hasbeenforcedseveraltimestochangethemeterlocks.Firsttime,DABSusedthemeterlockmadeofplum-bum. Then, to prevent theft, plastic madelocks were used, but the customers could manipulate the plastic locks even used in digitalmeters.CurrentlyDABSaimstoreplacetheplastic

meter locks with those made of aluminum, which has aspecificserialnumbersinordertopreventtheft.232

Thedatashowsthatmorethan70percent233 of meters are analogue in the capital. These meters do not work when there is low voltage of electricity. Moreover, if two neighbors connect two hot lines with one another,

232 InterviewwithBalkhofficeemployees,May7,2017.233 InterviewwithDABSOfficials,April29,2017.

A meter box in Bamyan doesn’t have lock and meter lock. (January 2017) Kabul

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oneofthemeterswillrunpositivelybuttheotheronewillrunnegatively.234 Therefore, there is a huge chance ofmanipulatingtheanaloguemeters.

Moreover, two typesofmetershavebeendistributed in thecountry:First,postpaidandsecondprepaidmeters.Postpaidmetersaredistributedinmostoftheprovincesandcustomerspaytheirbillsaftertheyhaveconsumed the energy. While, prepaid meters are distributed only in Bamyan province, where the customers areobligedtomaketheirpaymentforelectricityconsumptioninadvance.This isabetterwaytocontrolcredit sales for DABS235 and DABS should distribute prepaid meters in all over the country in order to control its receivables.

Collecting supplements of Meter installation

Once the customer receives the meter, a regional electricity employee and an installation official andcustomerhimselfsignoffinthesupplementofthemeter(sampledocument).Thecustomersubmitsthedocumentstotherelevantdepartment.Supplementscollectionsofficialsubmitsthesupplementtometerreadingdepartmenttoassignaresponsiblepersontoreadthemeter,calculatetheconsumptionrateandprintthefirstinvoice.Inanonlinesystem,themeter’slockserialnumberisrecordedinthesystem,thebillisgeneratedautomaticallybi-monthlyandsenttothecustomer.However,intheoldoff-linesystem,thepersonreadingthemetershouldgotothefield,registerthenewlyinstalledmeterandgetdatafromthemeterandthen print an invoice for the customers.236

Thefindings237ofMECindicatethatsomeofthemetersareinstalledyearsbefore,butarenotstillregisteredwithmeter readingdepartmentand thecustomerhasnot receivedanyelectricity consumptionbill, e.g.inKabulprovince thereare tensof thousandsof customers’whodonot receiveelectricity consumptioninvoice. 238

Inaddition,usingpowerwithoutameterisanotherproblemthatDABSissufferingfrom,thefindingsofMECindicatesthatsomeofthehighrankingofficialssuchastheheadofKandaharprovincialcouncil,markets,e.g.,PopalandAl-JadidmarketsinKandahar239 and some of the DABS local employees even in Kabul are using electricity without installing meters which results in the loss of huge amount of revenue of DABS.

Moreover,distributionofmorethanonemetertoonehouseholdduringDABMistheotherchallengewhichexistinmeterdistributionprocess,thefindingsofMECshowsthatinsomeoftheprovincesmorethanonemeter is distributed to one household240 and whenever these customers consume huge amount of power then they simply disconnect this meter and threw it away, which is also a huge loss for DABS revenue.

Formoreclarificationoftheprocesspleaseseeelectricitydistributionprocessdiagram:

3- phase meter distribution process

Theprocessofoneandthreephasemeter(morethan100ampereconsumption-forindustryuse)distributionismoreor lessthesame,however,thefindingsofMECindicatesthatthethree-phasemeterdistributionprocessishighlyvulnerabletocorruption.

The findings241 ofMEC show that due to the existence of illegal broker in this process the corruption iswidespreadinthethree-phasemeterdistributionprocessandsomeoftheinterviewersclaimedthattheyhave paid up to USD 40 000 in this process. They added that there is collusion between DABS employees and brokersandifabusinessmanwantstoprocesshisdocumentsbyhimself,theDABSemployeesarecreatingbarriersandforcehimtorentabrokerinordertoobtainathree-phasemeter.242

234 InterviewwithDABSofficials,May13,2017.235 InterviewwiththeemployeeofBamyanDABS,January9,2017.236 DABSMeterDistributionProcedure.237 InterviewwithDABSemployees,May3,2017.238 InterviewwithoneProjectManagerofadonor-fundedproject,June7,2017.239 ObservationoftheVCAteaminKandaharProvince,May14,2017.240 HeratProvincialvisit,May22,2017.241 Interviewwithbusinessmen,March19,2017.242 Ibid.

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Formoreinformationpleaserefertothefollowingdiagram:

Recommendation

Vulnerabilities RecommendationsIgnorance of standard distance in transmission system has increased the power loss

DABS strictly follows the standards and prevent the influentialfigurestointerfereintheprocess

Lackofawarenessregardingthemeterdistributionprocesshaspavethewayforcorruption

DABShangthemeterdistributionprocedureineachcustomers service department and use all available resources to increase public awareness regarding themeterdistributionprocess

Non-existenceofnecessarystandardsforprioritizingoneareaoveranotherforpowerdistributioncausedpolitical crisis and allow the DABS officials to takepersonal decisions

DABS establish specific standards for givingpreference to one area over another

Existence of analogue meters in most of the areas paves the way for customers to manipulate the data

DABS change the analogue meters to prepaid digital meters in all over the country

Lackofstandardizedmechanismstotrackthetimea meter gets damaged caused that customers are overcharged by DABS

DABS purchase and equip laborites with optical/sthat can sync information from meters to thecomputersandrecordtheexacttimethedamagehitthe meter

Illegal brokerage in DABS caused widespread corruption in the meter distribution process

DABS prevent brokers to process the meter distribution documents

Using power without having the meter and

distribution of more than one meter to onehousehold during DABM has increased the revenue loss in DABS

DABSconductanassessmentandcutoffmorethanone meter in a household and punish those who are using power without having meter

There are tens of thousands of meters only in Kabul province which is not registered to the billing network and DABS incurred serious losses due to these meters

DABS conducts an assessment and connects all those households to the network who are not connected andfinethosewhoareinvolvedinthisissue

Postpaid meters has increased the DABS receivables gradually and the customers are not paying their billsontime

DABS gradually change all postpaid meters to prepaid meters in all over the country

Lack of human resources in customer service departments and the number of departments itself pave the way for DABS employees to delay the process and get bribe

DABS allocate enough human resources to each customers service department and increase the number of these department as well

XIII. Electricity lossesElectricitylossisthedifferencebetweenthegeneratedorimportedelectricitywithsoldelectricity.Thereareusually two kinds of electricity losses, technical and commercial.

Technicallossesarisefromimpropermaintenanceoftheequipment,substations,long-standingtransformers,overloadingnetworksandthedistancebetweensourceoftheproductionandconsumers.243

Commercial losses arise from theft of electricity, low quality meters, improper reading of the meters,problemsinbillingprocessandproblemsinrevenuecollectionprocess.Thenormalratefortechnicalandcommercial losses is four to 12 percent in developed countries. Obviously, this rate increases in developing

243 InterviewwithDABSemployees,April16,2017.

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andunderdevelopedcountries.ElectricitynetworkofAfghanistanisdividedintoninedifferentzonesandthelossesratediffersforeachprovince.Theaveragelossatdifferentprovincesreachesto38percent.Chart8belowshowselectricitylossindifferentprovinces.244

However,totalcommercialandtechnicallossesinPakistanare17percent,245 while in Iran it is 14 percent,246 which showsahugedifference.The reasons for thehighpercentage loss inAfghanistanaredepreciatedturbines,not considering the standards in transmission system,electricity thefts,usinganaloguemeters,electricityusewithoutinstallationmeter,lackofABCcoverofwiresandcorruptioninthebillingandmeterreading processes.247

Moreover, donors have contributed to reduce the electricity loss percentage and to some extent, such as in Kabul,thesecontributionswereeffective.However,MECfindings248 indicate that in some other provinces thesereformshavebeenchallengedbyDABSlocalofficials,andbecauseofthelackofcontributionsbytheselocalofficials,thedonorswerenotabletosignificantlyreducetheelectricitylosspercentage.Thefindings249 of MEC indicates that the donors purchased bulk meters to install at the major load centers and measure the electricitylosslevels,whileDABSlocalofficialswerenotinterestedtoinstallthem.

Inaddition,thegovernment’soppositions(TalibanandDAESH)insomeprovincessuchasHelmand,HeratandKunduzcollectrevenueofDABS.ThefindingsofMECindicatethatonlyinHelmandProvincethegovernmentoppositionssell25MWofelectricity.250

ThePowerLossReductionDepartmentofDABSisresponsiblefordealingwiththehighlevelofelectricitylossinthecountry.MECfindings251showthatthisDepartmentdoesnothavethenecessaryequipment,suchasthedevicesusedformetertesting.Thusthemetersaretestedmanually,bycheckingcovers,meterlocks,etc.

Recommendation

Vulnerabilities RecommendationsDepreciated turbines, not considering the standards in transmission system, electricity thefts, usinganalogue meters, high dispatching, electricity use without meter installation, lack of ABC cover ofwiresandcorruptioninthebillingandmeterreadingprocesses are the main causes of high electricity losses in the country

DABS develop and implement a comprehensive plan forelectricitylossreduction

Due the existence of corrupt officials in DABS,the donor-funded project has faced with manychallengesandthoseofficialspreventprojecttobesuccessfully implemented

DABSidentifyandintroducetotheAGO,accordingto the Law, those officials who prevent theimplementation of donor-funded projects

Lack of equipment in power loss reductiondepartment results in the low performance of this team

DABS equipped power loss reduction departmentwith meter testing devices and other necessaryequipment.

XIV. Customers Complaint Handling MechanismsThere are two mechanisms for receiving complaints from the public through comments deposited in complaint boxes and calling number 144.

244 DABSBusinessPlan,FY2016-2020,p.39.245 https://data.worldbank.org/indicator/EG.ELC.LOSS.ZS 246 https://www.indexmundi.com/facts/iran/electric-power-transmission-and-distribution-losses 247 InterviewwithDABSofficials,April30,2017.248 KandaharProvincialvisit,May12-16,2017.249 ObservationinKandahar,May14,2017.250 InterviewwithDABSofficials,May15,2017251 ObservationinKabul,April22,2017.

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a. Complaint boxes

Complaintboxeshavebeenplacedat15sitesthroughouttheCityofKabul.Theboxesareopenedandthecomplaints are reviewed. However the customers believe252 that their complaints are not reviewed regularly incertaintimeperiods.Complaintboxesarealsoplacedwiththeinitiativesofprovincialoffices.253

Thefindings254 of MEC indicate that DABS does not keep a record of those complaints received through complaint boxes, thus MEC was not able to collect the number of complaints received through complaint boxes and how DABS handled these complaints.

b. Mechanism for addressing the complaints through Number 144

Whena customerdials number144, thephoneoperator records theproblemandexact locationof thecustomer.WhenDABSreceivesacomplaint,theCustomers’ComplaintDepartmentanalyzesitandassignstherelevantdepartmentatthat locationtoaddressthecomplaint.

When the problem is resolved, the local employees will be contacted again to make sure the problem is resolved.

Thefindings255ofMECshowthatduring2016,3,374 complaintswereregisteredandbasedontheCustomers’ComplaintDepartment,allof themwereaddressed.Chart9 shows the typesandpercentageof specificproblems.

Theanalysisofthesecomplaints indicatesthatcustomersarenotreceivingtheirbillsontime.This isthemajorcomplaint,sincebillscouldnotbepaidontimeandthencustomerswouldreceiveapenaltyforlatepayment.Furthermorethisshowsthatthebillingsystemisnotproficientortimely.

Electricity theftaccounts for threepercentof thecomplaints.The resultsofMEC’s structured interviewswithcustomers(reportedattheendofthisVCA)alsohighlightselectricitytheft..Intervieweessometimesmentionthatofficialsarewritingestimatedbills,thisnotonlyaffectstransparencybut italsorevealsthemismanagement and inaccuracy in the amount payable among the check and control departments.

Furthermore,complaintsshallberegisteredthroughConsumers InformationSystem(CIS).However,MECcontacted156customerswhohadsubmittedcomplaint,usingsystematicrandomsamplingapproachandfoundthat95percentmentionedthattheircomplaintswerenot addressed. It isworthmentioningthattheCustomer Information System (CIS) is activeonly in fiveprovinces. It functions in away that after acall/complaintisreceived;itwillautomaticallyberegisteredinthesystem.Thenallfurtherstepsregardingaddressingtheissueincludingconfirmingwhethertheissuehasbeenresolvedornotwillbeenteredinthesystem. In other 29 provinces which are not linked to the System, customer complaints are addressed via emailorphonecall,butthereisdifficultinginthesetwooptions.ThustheCISsystemisnotcomprehensivesinceitfunctionsonlyinfiveprovinces.CISsystemhasitsownchallengessinceitcanonlyrespondtoeightcalls at once whereas number of complaints exceeds this. 256 Furthermore,CISsystemhasanofficebasedinKabulwhichhas15employeesworkinginthreeshiftsfrom7:00a.m.to12:00a.m.Asaresult,itcanbesaidthatthecomplaintssystem–withorwithoutCIS–cannotberesponsiveenoughtowardspeople’sneeds.

Inaddition,MECfacedaproblemduringitsevaluationshowingtherelationbetweenbudgetsandcomplaints.As an example, local people in Nangarhar complained to Nangarhar Breshna that their electric transformer wasdamaged.Officials inNangarharBreshnaassigneddelegates to investigate the issue, andafter theirassessment the delegates recommended purchasing a new transformer. Since the cost for purchasing the transformer was not within the authority of Nangarhar Breshna, they transferred this issue to Kabul. Unfortunately cost of transformer was beyond Kabul’s authority to procure, then according to the law,Breshna’smainoffice inKabul referred theprocurement toNational ProcurementAuthority.WhenMEC252 Interviewwithcustomers,May3,2017.253 InterviewwithDABSofficials,April17,2017.254 InterviewwithDABSemployees,April24,2017.255 DABSCustomerComplaintDatabase,April2017.256 MajorityoftheintervieweesinKabul,NangarharandPanjshirmentionedtheyfrequentlycalled144,butmostofthetimethelinewasbusy.

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visited Nangarhar257,NangarharBreshnastillcouldnotpurchasethetransformerandthat localpeopleofthat area had been deprived of electricity for six months. Inaddition,regionalmechanismsforaddressingcomplaintshavebeenestablishedinsomeprovincesandaccordingtosomeintervieweesthesearemoreeffectivecomparedtothecentralmechanisms.Forinstance,thosewhocomplainaboutDABSservices inBalkhareable tocall twodifferentnumbers tosubmit theircomplaints.MECaskedBalkhBreshnaofficialstoprovideinformationaboutthecomplaintregistrationsystemofthementionednumbers,hopingtogetincontactwithcustomersandaskthemaboutresponsivenessof numbers in addressing their complaints. Unfortunately, there is not a mechanism for registering the complaintssothereisnoinformationavailabletodeterminewhetherthecustomercomplaintsareaddressed.In Balkh Province, there were customer complaint boxes. However, these boxes have never been opened by officialsandthustherearenoinformationonnumberandnatureofcomplaintsinthem,andclearlythesecomplaints have not been addressed.

BesidesDABS,HighOfficeofOversightandAnti-Corruption(HOO)alsohasallocatedsomecomplaintboxesinKabulandprovinces.SomecustomersbelievethattheboxesallocatedbyHOOarenoteffectiveenoughbecausenotonlycomplainsintheseboxeswillnotbeaddressedbutalsotheinformationaboutcomplainsare being shared with DABS. An example is Kandahar where the key to open HOO complaint boxes was given to someone working for Kandahar Breshna. If customers want to drop their complaints into the boxes, not only their complaints will not be heard but their complaints will cause further tensions.

Moreover, the Energy Services Management Law258states“accesstothecomplaintsofcustomersandlicenseholdersandalsoconflictresolution.“betweenlicenseholderandthecustomersisoneofthedutiesofenergyservicesmanagingdirectorateofMoEW.However,stillthismechanismhasnotstartedtoworkofficially.259

There are discrepancies in addressing similar complaints in Kabul and other provinces. For instance, in Kabul untilcustomersdonotpaytheirbills,theycannotcomplainaboutanydamagesoccurredtotheirmeters,however, in Balkh it is vice versa.

MEC’sfindingsfromKandaharBreshnashowthatlackofpublicawarenessamongcustomersaboutmeteringprocessisalsoavulnerabilitytocorruption.AccordingtoMEC’sfindings,publicawarenessaboutDABSservicedelivery specifically about complaintmechanisms andmetering is very low among locals. The customerservicecentersalsodonothaveanytypeofadvertisementstohelpcustomersaboutmeteringprocesswhichcan address their complaints.

Recommendations

Vulnerabilities RecommendationsOnly five provinces are connected to complaintscalling system/number 144.Other province to have no access to complaints.

The coverage area of 144 consumer service hotline should be extended to other provinces

Mostofthepeopledonothaverequiredinformationabout the 144 calling system, so this will cause thatsomecomplaintswillnotbesubmittedto therelevant authority.

Conducting public awareness campaigns throughthe media on mechanism for access to complaints via calling to No. 144.

Miscommunicationofthefieldstaffwillcausethatwronginformationaboutaccesstocomplaintsmayenter to the system. So that the complaints are not addressed.

Afterreceivingthe informationfromfieldstaff,theCustomer Services Department should call customers to make sure their complaints are addressed.

257 InterviewwithDABSofficialinNangarhar.258 EnergyServiceManagementLaw,Article7(paragraph6),Official Gazette1231,October18,2016.259 InterviewwithDABSemployees,May5,2017.

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XV. Face-to-face structured interviewsDABS isa serviceproviderorganizationandcustomers’ satisfactionhasavital role inall serviceprovidercompanies.Tomeasurethecustomers’satisfactionlevelMECconductedface-to-facestructuredinterviewswith 292 customers in the six provinces of Balkh, Nangarhar, Parwan, Kandahar, Herat and Bamyan. These face-to-facestructuredinterviewscoveredresidential,governmentandcommercialscustomers,andallwereaskedthesamequestionsanddatawerecollectedregardingthefollowingssixservicesprovidedbyDABS:

1. Electricitydistribution

2. Meter reading and billing

3. Price of the electricity

4. Power cut or load shedding

5. Handlingcustomers’complaints

6. DABSemployees’behaviortowardsitscustomers’

MECusedthethree-pointscalemethodinordertocapturetherespondents’viewpoints,andbelowisthesummaryofthefindings.

a. Electricity distribution

Tocapturethecustomers’viewpointregardingthepowerdistributionprocess,whetherpowerisdistributedthrough a transparentprocessor not,MEC’s interviews results show64percent customers felt that thepowerdistributionprocessisnottransparent,while13percentagreedwiththestatementthatthepowerisdistributed through a transparent process and 23 percent were undecided.

b. Meter reading and billing

Meterreadingandthebillingprocesswasalsopartoftheinterviewssurvey.Foron-timeandcorrectmeterreading,andprecisebillingprocess,76percentofthecustomersdisagreedwiththestatement,whileninepercentagreedand15percentwereundecided.

c. Price of the electricity or tariff

Moreover,MECinterviewedcustomerstocapturetheiropinionsregardingthefairnessofpowertariff.MECasked the respondents thatwhether the tariff is fair ordo they think that theprice is setbasedon theapproved policy.

Thedataanalysisindicatesthatonly11percentcustomers’agreedwiththestatement,while81percentofthecustomers’disagreedwiththecurrenttariffand8percentremainedundecided.

d. Power cut or load shedding

MECinterviewedcustomersregardingtheexistenceofaplaninrelationtopowercutorwhetherthispowercuthasbeenequallyapplied toall customers. 82percentbelieved that there isnoplan forpowercutsandDABScancutthepoweranytimetheywish,moreoverthepowercutsarenotappliedtoallcustomersequally.Someoftheintervieweesaddedthattheyknewofpowerfulindividualsintheirneighborhoodwhoarenotexperiencingpowercutsinweeksandmonths.WhileninepercentremainedimpartialandonlyninepercentbelievedthatDABShasaplanforpowercutanditisequallyappliedtoallcustomers.BasedonDABSpower selling and other services policy,260DABSshouldprepareapowercutplanandinformcustomers’priortoitsimplementation.

260 DABSPowerSellingandOtherServicesPolicy,Article34.

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e. Handling customers’ complaints

MECinterviewed292individualsregardingthecustomers’awarenessaboutthecomplaintsmechanismsandwhetherDABSisseriousabouthandlingthesecomplaints.92percentofthecustomers’disagreedwiththestatementthatthecustomershaveenoughinformationregardingthecomplaintsmechanismsandDABSisserious inhandlingthecustomers’complaints.Twopercentremainedimpartial,whilesixpercentbelievethatcustomers’haveenoughinformationregardingDABScustomers’complaintsmechanismsandDABSisserious about handling the complaints.

f. DABS employees’ behavior with customers

MECaskedcustomersaboutDABSstaffbehavior.Unliketheothertopicsintheseinterviews,theresponsesaremorepromisingwith48percentofthecustomersagreeingthatDABS’staffbehaviorisgood,while30percent did not agree with the statement.

Conclusion interviews

MEC’ssinterviewsfindsthataround70percentofthecustomers’aredissatisfiedwithDABSservices.Theresultsoftheseinterviewsindicatethatmostofthecustomers’areunhappyaboutthecomplaintsmechanismsof DABS, they argue that DABS employees are neither responding in most cases nor taking their complaints seriouslyandfinallytheyareobligedtopaythebribetosolvetheirproblems.

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Annex A: DABS Balance Sheet (March20, 2015)

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Annex B: DABS Income Statement (March 20, 2015)

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Annex C: DABS Cash flow Statement (March20, 2015)

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Annex D: DABS Owner Equity Statement (March20, 2015)

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SourcesDOCUMENT REVIEW

Energy Service Management Law, Official Gazette1231,October18,2016.

CorporationandlimitedLiabilityCompaniesLaw,Official Gazette913,January30,2007.

Procurement Law, Official Gazette1223,September17,2016.

DABSArticlesofIncorporation,Official Gazette945,May4,2008.

DABS Bylaw, February 22, 2009.

PublicFinanceandPublicExpensesRegulation,Official Gazette893,July27,2006.

PowerSellingandOtherServicesPolicy,Article8,August6,2012.

SupremeAuditOfficelaw,Official Gazette 1101, March 30, 2013.

HighOfficeofOversightLaw,Official Gazette, July 29, 2008.

PresidentialDecreeNo.16,October12,2014.

SAO IAD Manual

DABSInternalAuditDepartmentPlan,2015.

DABS Pension Policy, June 12, 2012.

Labor Law, Official Gazette914,February4,2007.

State Owned Enterprise Law,

DABS Recruitment Procedure

DABS Employee Performance Appraisal Procedure

ResolutionofCouncilofMinisters,Number50,March17,2008.

DABSAnnualFinancialStatements,2010-2015.

DABS Asset Management Policy

DABSAccountReceivablesdetailedlist,2016.

DABSBusinessPlan,FY2016-2020.

EnergySectorStrategy,2008-2013.

https://data.worldbank.org/indicator/EG.ELC.LOSS.ZS

https://www.afghanistan-analysts.org/power-to-the-people-how-to-extend-afghans-access-to-electricity/?format=pdf

https://www.sigar.mil/pdf/quarterlyreports/2014-07-30qr-section3-economic.pdfp.173andhttps://www.adb.org/sites/default/files/pub/2014/AFG.pdf

DABSMeterDistributionProcedure

DABSCustomerComplaintDatabase,April2017.

USAID DABS Assessment Report, 2013.

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Power to the People: How to Extend Afghan’s Access to Electricity, Afghan Analyst Network published report, 2015.

PROVINCIAL VISITS

Balkh, Bamyan, Herat, Kandahar, Nangarhar, Parwan

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Addendum to Da Afghanistan Breshna Sherkat (DABS) VCA

Issued on 17 March 2018

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1. Introduction

MECisissuingthisaddendumtoitsReportontheVulnerabilitytoCorruptionAssessment(VCA)ontheDaAfghanistan Breshna Sherkat (DABS), released on December 9th2017,toclarifyandsupplementoneofthestatementsintheDABSVCA.Specifically,thisaddendumisintendedtoamendandclarifythefollowingDABSVCAstatementanditsfootnotes:

“WhileDABS states that it receivedAFN12.5billionand it is shownon thebalance sheet, the other sourcesshowthatfrom2002to2017,thedonorshavecontributedaround4billionUSDtotheenergysectorinAfghanistan.ConvertingthisamountintoAFN,itequalstoAFN220billion and it should have beentransferredtoDABSasanasset.HoweverDABSreceivedonlyAFN12.5billion.ItmeansthatbillionsofAFNaremissing[147(1), 148(2), 149(3)].”[Page30ofDABSVCAreport]

MEC acknowledges that the statement is ambiguous, and that the sources cited in the footnotes do not provideample clarificationand support. Asa result, the statement isopen todifferent interpretations.

MEC retracts the original statement with footnotes and replaces it with the following statement with accompanying footnotes:

The original calculation made in the DABS VCA subtracted donor-funded DABS assets as reflected in the DABS balance sheet from total donor funds as reflected in certain public reports. The original calculation did not account for two key factors: i) that the nominal provision of international funds can be either pledged or disbursed4; and ii) donor agencies disburse funds through the different modalities of off- and on-budget channels, each with markedly different implications for financial record-keeping.

Further, there are other crucial unknowns that make it difficult to estimate accurately the amount of donor funding and assistance for the energy sector in general and those provided to DABS in particular. First, on the donor side, the unknown is the amount of disbursed off-budget-funded technical assistance and hard assets. Second, on the DABS side of the ledger, the unknown is the extent to which DABS assets have been funded by off-budget funding as opposed to the known quantity of on-budget funding.

Third, the financial value-add of off-budget-funded assets would only be reflected in the financial records of DABS insofar as they relate to hard assets. Technical assistance would only be indirectly reflected. That is to say, as part of other assets. Fourth, certain funds for the electricity sector may be disbursed through an inter-agency mechanism, such as from USAID to ADB. If such disbursement occurred during this period, it would need to be accounted for to prevent double-counting.

Finally, to accurately ascertain the value of donor assistance in the final years of the existence of Da Afghanistan Breshna Mossesa (DABM) (2002-2009), and later transferred to DABS, researchers would need access to the findings of the Transition Committee tasked then with valuating DABM assets upon its liquidation.

In light of the above consideration, an international standard audit of both donor and DABS financial statements would be required to confidently ascertain the concrete value of donor funding accrued to DABS in the period 2002-2017. 1 DABSbalancesheet20152 QuarterlyReporttotheUnitedStatesCongress.SIGAR.Accessedat:https://www.sigar.mil/pdf/quarterlyreports/2014-07-30qr.pdf 3 PowertothePeople:HowtoExtendAfghansAccesstoElectricity.ADB.Accessedat:https://www.adb.org/sites/default/files/pub/2014/AFG.pdfandhttps://www.afghanistan-analysts.org/power-to-the-people-how-to-extend-afghans-access-to-electricity/?format=pd4 TheUSD4billionfigurecitedintheDABSVCAisthesumoffundsappropriatedfordisbursementbyUSagenciesandfundsdisbursedbytheAsianDevelopmentBankandWorldBank intheenergysectorbothon-andoff-budget.Assuch, it reflectsatotalamountofbothnominallypledgedandactually

disbursed funds to the energy sector, a recipient far broader than just the agency of DABS.

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2. BackgroundForfurtherreference,belowisamoredetailedexplanationoftheinformationanddatathatisavailableoninternationalassistanceexpendituresintheelectricenergysectorinAfghanistan.Asnoconsolidateddatarepository on donor funding to DABS appears to exist,5MECobtainedtheinformationthroughthereviewofseveralfinancialstatements,discussionswithofficialsfromDABSandtheSpecialInvestigatorGeneralforAfghanistanReconstruction(SIGAR).

TheUSD4billioncitedbyMECintheVCAofDABSwasoriginallycalculatedasthesumofallinternationalassistancetotheelectricenergysectorofAfghanistanaccordingtoinformationreviewedbyMECatthetimeofresearchfromlimitedpublicreports. These included: i)SIGAR,whichprovideddetailsonspendingbyUnitedStatesAgencyforInternationalDevelopment(USAID)andDepartmentofDefense(DoD);ii)theAsianDevelopmentBank(ADB),and;iii)theWorldBank.FundingfromtheseUSagencies,ADBandWBaccountsfortheprimaryinternationalassistancestreamstoDABS.

1.1. The Initial Calculation

TheoriginalwordingoftheDABSVCAstatementonpage30andthecalculationonwhichitreliesincorrectlysuggeststhattheentireamountofUSD4billionwasdisbursedason-budgetassistance,thatistosay,directlytoDABS.Further,itsuggeststhatentireamountreflectsdisbursedfundsasopposedtoacompositeofbothappropriated and disbursed funds.

Inadditiontothetwoabovequalifications,afullclarificationwouldrequirefactoringinthetransferofassetstoDABSfromitsgovernment-ownedantecedent,DABMwhenitwasliquidated,andDABScreatedinitssteadin2009.Atthetime,theAfghangovernmentsetupaTransitionCommitteetovaluetheassetsofDABMandfacilitatetheir transfer toDABS. Inaddition,an independentErnst&Youngconsultantwasbrought in toverify and complete the work of the former.6

1.2. Off-budget vs. On-budget Funds

Internationalassistancecanbedisbursedthroughoff-andon-budgetfunding,twomarkedlydifferentchannels.Since 2002, donor agencies have contributed assistance to the Afghan electrical energy sector through both off-oron-budgetmodalities. On-budgetfundsaredisbursedtoDABSbywayofthenationalbudgetandincludedinitsannualbudgetdocumentswhereasoff-budgetfundsareexecuteddirectlybydonorsthroughtenderingtoprivatecontractors,thuseffectivelybypassingthenationalbudgetofAfghanistan.

Arrivingatamorepreciseandevidence-basedfigureforinternationalassistancetoDABSintheperiodofresearch,2002-2017,requiresaclarificationoftheoff-on-budgetratiooffundsfromtheUSD4billion.

1.3. Pledged vs. Disbursed Funds

FurtheraddingtothecomplexityoftheoriginalcalculationinMEC’sVCAofDABSisthatitdidnotdistinguishbetweenappropriated(authorized)anddisbursed(spent)funds.ThetotalfigurereportedintheJuly2014SIGARreportcitedintheVCAreflectedmoniesauthorizedbytheUnitedStatesCongresstobedisbursedforcertainexpendituresunderanenvisagedsetofconditions.7 For instance, the total amount of USAID funds disbursed through the Economic Support Funds (ESF) as of January 20188 is lower than the appropriated figurereferencedinSIGARJuly2014QuarterlyReport.9

5 Record-keepingwithin DABS of donor assistance is fragmented. Data repositories exist across different organizational levels, including at ProjectManagementOffice (PMO) thatexclusivelyholds informationonADB funding; theCommercialDirectoratemanagingUSAID funding;withaProjectManagermanaging World Bank funding. In principle, the Financial Directorate could consolidate all data. 6 MECinterviewswithseniorDABSofficialfromitsFinancialandAdministrativeDepartmenton24February2018.7 WrittencommunicationwithSIGARofficial8 ReconstructionUpdate.SIGAR.Accessedat:https://www.sigar.mil/pdf/quarterlyreports/2018-01-30qr-section3-funding.pdf9 QuarterlyReporttotheUnitedStatesCongress.SIGAR.Accessedat:https://www.sigar.mil/pdf/quarterlyreports/2014-07-30qr.pdf

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Further,certainoff-budgetUSfundingfortheelectricalenergysectorhasalsobeenexpendedontechnicalassistance.ThevalueofsuchfundswouldonlybereflectedindirectlyintheDABSbalancesheet,forinstancethroughincreasedrevenuesflowingintoaccountsreceivable,cash,orindirectinvestmentsintofixedassets.Assuch,thebalancesheetsofDABSdonotreflectallinternationalassistanceexpendedintheenergysectorintheperiod2002-2014.

Insummary,theoriginalcalculationsintheDABSVCAdidnotaccountforthesetwofactors:i)thenominalprovision of funds can be either just pledged or actually disbursed; and ii) donor agencies can disburseassistance through thedifferentmodalitiesofoff-andon-budgetchannels,eachwithmarkedlydifferentimplications for financial record-keeping.

1. Conclusion

InordertoconfidentlyestablishanaccuratefigureforthetotalvalueofdonorfundingtoaccruetoDABSintheyears2002-2017itwouldbenecessarytoperformaninternationalstandardaudit.Thiswouldhelpascertaintheaggregatevalueofoff-budget-fundedtechnicalassistanceandhardassetsforboththeperiodprecedingtheexistenceofDABS,whenitwasthegovernment-ownedentityDaAfghanistanBreshnaMossesa(DABM)aswellasthe5-yearperiodof2009-2014.

Further such an audit would help establish the full amount of disbursed off-budget funding and theextenttowhichDABS-assetsreflectthisfactor.Thefinancialvalue-addofoff-budget-fundedassetsisnotreflected ineitherfixed (Property,PlantandEquipmentandCapitalWork inProgress)or current (Storesand Spares)10assets,butratherindirectlyinincreasedrevenuesflowingintoaccountsreceivable,cash,orindirectinvestmentsintofixedassets.Anauditwouldalsohelpevaluatehowdevelopmentofnewpoliciesand bylaws, system development, capacity building, and other technical assistance has increased the value of DABS assets.

Furthermore, in order to accurately ascertain the value accumulated from donor assistance in the finalyearsofDABM’sexistence (2002-2009)and later transferred toDABS, researcherswouldneedaccess tothe findings of the Transition Committee tasked then with valuating DABM assets upon its liquidation.AccordingtocurrentseniorfinancialofficialsinDABS,theworkoftheTransitionCommitteewasmarkedbydiscontinuitiesresulting in its failuretotransferaccountingbooks.11

Finally,inter-agencydisbursementoffundsneedtobeaccountedforinordertopreventdouble-counting.Forinstance,thereisahighlikelihoodthataggregatefiguresforbothappropriatedanddisbursed,off-aswellason-budgetfundingwouldincludedouble-counting.

To sum up, we are looking at two crucial unknowns. First, on the donor side, the unknown is the amount ofdisbursedoff-budget-fundedtechnicalassistanceandhardassets.OntheDABSsideoftheequation,theunknown is the extent towhichDABS assets havebeen fundedbyoff-budget funding. As stated above,ascertainingtheconcretevaluesoftheseunknownswouldrequireanauditofbothdonorandDABSfinancialstatements.

10 DABSFinancialStatements201511 InterviewswithseniorDABSofficialfromitsFinancialandAdministrativeDepartmenton24February2018

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