Finance Minister Ishaq Dar witnessing the EAD-ADB agreenment signing ceremony. PHOTO: INP
Pakistan and the Asian Development Bank (ADB) on Thursday signed two loan agreements amounting to $800 million to address energy sector bottlenecks besides inking a memorandum of understanding (MoU) to set up the much-needed Pakistan Disaster Management Fund.
The loan agreements will facilitate an immediate disbursement of $400 million in budgetary support while the disbursement of the remaining amount is linked with progress on installation of smart electricity meters in Islamabad and Lahore.
The ADB board of directors last week approved a $1.4 billion loan for Pakistan. The $400 million budgetary support, however, has been diverted from $110 million grants for two hydropower projects in Gilgit-Baltistan.
Finance ministry officials said that after initially agreeing to fund these hydropower projects, ADB later backtracked, saying India may object to the financing due to the disputed status of the territory.
ADB has cut funding to hydropower projects at a time when these schemes are facing funding constraints and the area is witnessing power shortages. India has set up many small hydropower projects in Kargil and Ladakh region, creating uneasiness on Pakistan’s controlled G-B region.
ADB’s latest stance is contrary to the earlier policy, as it has funded over half a dozen projects in Azad Jammu and Kashmir, which is also a disputed territory.
Under a verbal arrangement, which is not binding, the finance ministry has promised that it will provide funds to these two projects from its own resources. The ministry supported the ADB’s move to divert project loans for budgetary support.
Tariq Bajwa, secretary at the Economic Affairs Division, and Werner E Liepach, ADB country director for Pakistan, signed the agreements. Finance Minister Ishaq Dar witnessed the signing ceremony.
Out of $990 million total loan approved last week for power distribution companies, ADB signed the agreement for the first tranche under Multi-tranche Second Power Distribution Enhancement Investment Programme. This will allow Pakistan to introduce for the first time, an Advanced Metering Infrastructure (AMI) system for power distribution companies across the country to improve load management and strengthen the financial viability of the sector by reducing electricity losses and increasing revenue collection, said ADB.
However, the Planning Commission has expressed reservations over the proposed technology of the advanced meters and the project has not yet been cleared by the Executive Committee of National Economic Council.
“The state-of-the-art new metering system will minimize losses and allow effective load management and transparency, thus ensuring a robust and sustainable power supply needed to lift growth and job creation,” said Werner Liepach.
ADB said that the distribution enhancement programme will be rolled out in phases, by covering two to three distribution companies under each tranche.
Both the sides also signed a letter of exchange for the establishment of Pakistan National Disaster Management Fund. The fund is aimed at creating a structure to support disaster risk reduction efforts, enhanced fiscal resilience in case of disasters, and provide for priority relief, recovery, rehabilitation and reconstruction needs.
The fund had been announced in January this year but could not be made effective due to lack of finances and bureaucratic delays.
ADB said that Pakistan was vulnerable to natural hazards including droughts, earthquakes, floods and cyclones. More than 30 million people were affected by the three major floods events in 2010, 2011 and 2014 that resulted in damage and losses amounting to $14.1 billion.
The fund will institute a new and robust approach in mobilizing financial resources to respond to the residual impacts of natural disasters. It will serve as an effective government-owned mechanism to support disaster risk financing and financing that can enhance Pakistan’s resilience to future disaster events, said Liepach.
The fund will allow rapid deployment of assistance on a needs basis to implement the under-resourced National Disaster Management Plan (NDMP), and will present a common window to pool various contributions from a diverse base of contributors.
Published in The Express Tribune, November 27th, 2015.
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