ADB to stop $500m energy loan

Islamabad: The Asian Development Bank’s (ADB) top man in Islamabad on Tuesday linked a $500 million loan for power sector with meeting a set of conditions to ensure administrative autonomy and financial viability of the energy sector.

“Budgetary support for power sector will be disbursed not on the basis of promises but on the basis of actual actions that Pakistan will have to take in the next six weeks,” said Werner Liepach, the ADB’s country director for Pakistan.

The Ministry of Finance is also said to have assured the IMF that it will change heads of power distribution companies after retirement of Chief Justice of Pakistan Iftikhar Muhammad Chaudhry.

The government is hoping to receive $500 million from the ADB and another $500 million from the World Bank by March 2014 aimed at boosting its foreign currency reserves. These are programme loans that are disbursed in a single tranche.

The exact size of the budgetary support for the power sector has not yet been finalised, but the ADB has earmarked $400 million in its business plan. Nothing could be said about the timing for approval, he said.

Spelling out some of the conditions, Liepach said Pakistan would have to undertake reforms to change the fuel mix, appoint board of directors of power companies, give autonomy to the boards in running the companies, implement privatisation programme and improve recovery of electricity bills.

He stressed that reforms were also needed to ensure financial stability of the energy sector as circular debt was piling up again. “We can make the sector financially viable by reducing the generation cost and improving recoveries.”

He said due to Supreme Court’s intervention a couple of measures had come to a halt. “I cannot comment how the SC will behave but if one assumes the SC will be less interventionist, reforms will move forward.”

He described the new economic team as reliable and committed but said “we will see in three to four months what actually it can deliver.”

To a question, Liepach pointed out that the $6 billion additional funding that Pakistan was seeking over and above the $6.7 billion IMF loan would come from multilateral and bilateral donors. The ADB’s share will be $1 to $1.5 billion, which depends on implementation of reforms.

“The ADB has scaled up assistance in quite a big way and approved $1.5 billion new loans since the new government came to power,” he added. The figure will cross $2 billion by the end of the current financial year.

The bank has approved $900 million for Jamshoro power project, $167.2 million for Power Distribution Enhancement Investment Programme and $430 million for BISP. But all these are project loans.

This year, $460 million has been disbursed. The ADB is also in the process of finalising a new three-year country partnership strategy for 2014-16 under which $3.2 billion will be offered to Pakistan. One-third of this will come in shape of budgetary support.

The ADB supported the construction of Diamer Bhasha Dam but the main issue was arranging billions of dollars of funds, Liepach said, adding the bank was conducting project studies which would be completed in one-and-a-half years. Original studies were outdated and needed to be updated, he remarked.