ADB ties $400m loan to merger of two boards

Govt requires cabinet’s approval to merge AEDB and PPIB

ISLAMABAD: As Pakistan sinks deeper into the debt trap, the Asian Development Bank made the merger of the Alternative Energy Development Board (AEDB) with the Private Power Infrastructure Board (PPIB) conditional with qualifying for a $400 million loan.

It is one of nearly half a dozen conditions that the ADB has imposed for sanctioning the third tranche of funds for the Sustainable Energy Sector Reforms, said sources familiar with the development.

A $100-million loan offered by the French Development Agency (AFD) is also pegged with ADB’s $300-million energy sector loan.

The government would require the federal cabinet’s approval to merge the two bodies, the sources said. There was a possibility to get the cabinet’s approval by circulating the summary in view of the urgency, they added.



Another major condition is amending the National Electric Power Regulatory Authority (NEPRA) Act of 1997, said the sources.

The government has already approved the draft of a tripartite power purchase agreement to meet the condition for the $400-million loan.

About the ADB’s demand regarding AEDB-PPIB merger, sources said the energy board was no longer needed after provincial governments started issuing Letters of Intent (LoIs) for renewable energy projects.



The AEDB was set up in 2003 to promote the development of renewable energy in Pakistan. But the AEDB remained in the news for all the wrong reasons, including misuse of public funds.

The PPP government also attempted to merge the AEDB with the PPIB, but never implemented the plan.

The PPIB was created in 1994 as a one-window facilitator for promoting private sector’s participation in the power sector.



Pakistan is seeking $700 million for a balance of payments support over a two-month period from ADB and France to divert pressure from its external account strained by a growing trade deficit. The surge in imports complicated the government’s economic woes.

ADB borrowings are critical for the government’s plans to delay the next International Monetary Fund (IMF) programme at least till general elections, said the sources. The plan includes more borrowings from China, World Bank and commercial banks.

The federal government has already borrowed over $3 billion from foreign commercial banks to support balance of payments, including $1.3 billion from China. The central bank also borrowed $3.93 billion, mainly from commercial banks for up to three months to artificially maintain foreign exchange reserves at $16 billion level.



The $3.925 billion loan is part of the $16 billion reserves held by the SBP that are currently under pressure because of growing obligations of debt servicing and imports of heavy machinery under the China-Pakistan Economic Corridor (CPEC).

For amending the NEPRA Act, the federal government needs approval of the Council of Common Interests (CCI) – the highest constitutional body dealing with subjects falling under the joint controls of the Centre and the federating units.

The CCI is expected to meet on Tuesday (today).



The Ministry of Water and Power has already proposed these amendments in the Nepra Act. These amendments relate to giving more powers to the federal government by binding Nepra to implement instructions on policy matters.

Another key proposal is appointment of power sector experts as its members, instead of politically-favoured retired officers.

For last few years, the Ministry of Water and Power and NEPRA are in uneasy relationship, as the government blames the regulator for setting up unrealistic targets on reducing line losses and recovery of bills. The government also has issues with determination of electricity tariffs for new energy generation and transmission projects.

However, the Nepra is against such amendments in the law that compromises its autonomy.