ISLAMABAD - The Asian Development Bank (ADB) has approved a $400 million loan to support the government’s ongoing reforms to tackle the country’s chronic energy crisis, which has crippled industries and caused social unrest.
“The loan is part of an assistance programme which will underwrite reforms needed to make the energy sector affordable, reliable, sustainable and secure,” said Klaus Gerhaeusser. “This in turn will accelerate industrial activity needed to boost economic growth and help create jobs, which are key to reducing poverty levels.” Pakistan’s economy has been devastated by chronic power shortages, which are estimated to have slowed GDP growth by at least 2 percentage points a year. Private investment has been sharply reduced and power sector subsidies have caused high fiscal deficits and elevated public debt. The government is implementing the National Power Policy that was approved in July 2013 to resolve these problems. Building on the firm commitment of the government to reforms exemplified in this policy, Asian Development Bank (ADB), Japan and the World Bank (WB) have worked with the government to develop a five-year plan and set milestones to implement the policy.
Asian Development Bank(ADB) is the lead development organization in Pakistan’s energy sector supporting energy efficiency, transmission, distribution, cross-border natural gas pipelines, power generation, and renewable energy projects.
The sustainable energy sector reform programme will support the overhaul of existing tariffs and subsidies as the government moves to eliminate subsidies by 2016, except for low income customers. It will also back reforms to reduce power losses and encourage more sector involvement from the private sector and improving transparency and accountability.
The full programme is expected to total $1.2 billion, with future amounts subject to further discussions between Asian Development Bank and the government.
For the first sub-programme, co-financing from Japan of JPY5 billion ($49 million) and the World Bank of $600 million is expected. The full programme is due for completion by June 2018.
Meanwhile, the Government of Japan has expressed its intention to provide a concessional loan approximately $52 million to Pakistan for supporting Pakistan’s energy sector reforms.
Hiroshi Inomata, Ambassador of Japan conveyed this message during his recent call on Senator Ishaq Dar, Minister of Finance, Revenue, Economic Affairs, Statistics and Privatisation of Pakistan. This loan is planned to be co-financed by the Asian Development Bank and the World Bank. The Government of Japan and the Government of Pakistan will work together to prepare for signing a bilateral agreement on Japan’s loan at an early stage. “Japan recognises that the energy sector reforms are a matter of critical urgency in Pakistan,” stated Hiroshi Inomata. “We are pleased to work with the Government of Pakistan to tackle the power crisis in cooperation with other development partners.” The Asian Development Bank, the World Bank and Japan have worked with the Government of Pakistan to develop a reform programme and set agreed policy targets to (i) manage tariff and subsidy, (ii) improve sector performance and open the market to private participation, and (iii) improve accountability and transparency in the energy sector. This loan is provided to facilitate the Government of Pakistan to achieve these targets. It is expected that pursuing this programme will not only promote the energy sector reforms but also improve the government’s fiscal situation and stimulate economic activities.
Japan has been extending active support to the energy sector of Pakistan over the last three decades. For example, Japan financed thermal power stations in Bin Qasim and Jamshoro, and the Ghazi Barotha Hydropower Project. Japan has also supported the National Transmission and Dispatch Company to expand its grid systems by building 12 new grid stations, networking 1,487km-long transmission lines and upgrading training facilities. In power distribution, Japan has contributed a lion’s share in electrification of over 6,000 villages. Japan intends to continue to provide necessary assistance in the energy sector at appropriate junctures, while closely monitoring the progress of the reforms by the Government of Pakistan and coordinating with other development partners.