ADB approves $300m for power sector reforms

Loan will provide support for the sliding forex reserves over the short term

ISLAMABAD: In the midst of fresh setback to the energy sector reforms plan, the Asian Development Bank (ADB) on Thursday approved a $300 million loan for Pakistan’s power sector, which will immediately serve the short-term purpose of supporting the sliding foreign currency reserves.

The Manila-based lending agency approved the third sub-programme of the Sustainable Energy Sector Reforms Programme that began in April 2014.



With this approval, the ADB has so far given $1.1 billion and still the country’s power sector is not on sustainable footing. The overall programme consists of five annual sub-programmes that support the government’s reform initiatives, according to the ADB.

In addition to the ADB’s $1.1 billion, the World Bank has also given $1.1 billion in two tranches. It seems the money has gone down the drain and mainly used for budget and balance of payments support.

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

The Ministry of Water and Power’s latest monitoring report on the Energy Sector Reform Programme reveals that during first half of the outgoing fiscal year 2016-17, the electricity bill recoveries again slipped to 92.2%. The ratio was 94.6% in June 2016.

However, line losses marginally fell from 17.9% to 17.2% in the first half of FY17. Still, these were significantly higher than the limits prescribed by the power sector regulator.

The lower recoveries coupled with higher-than-approved line losses have led to accumulation of Rs402 billion in circular debt.

The power ministry’s report further revealed that the Initial Public Offering (IPO) of Gujranwala Electric Power Company (Gepco) would not be possible by June 30. The government had committed to the International Monetary Fund (IMF) and other global lenders that it would use sale proceeds of the IPO to retire the circular debt.

One of the main conditions of the sub-programme-II of $400 million, approved in November 2015, was to limit the power sector arrears, which the government could not meet, but still the ADB has approved the sub-programme-III.

Borrowing from the ADB is critical for the government’s plans to delay the next IMF programme at least until general elections in 2018. The plan includes more borrowing from China, the World Bank and commercial banks.

However, in the past two weeks, the central bank’s foreign currency reserves have dropped by $1.5 billion, according to the SBP. During the week ended June 9, 2017, the SBP’s reserves decreased by $410 million to $15.296 billion.

Pakistan and the ADB are expected to sign a $300-million loan agreement on Friday (today) aimed at getting the third tranche before the end of current fiscal year to support the reserves.

The government had to meet over half a dozen conditions before sanctioning of the third tranche of funds for the Sustainable Energy Sector Reforms.

The Ministry of Water and Power has also completed most of the policy actions required in the sub programme-II while some actions that involve parliament and court cases require more time, according to the ministry’s report.

Among the key conditions were merger of the Alternative Energy Development Board (AEDB) with the Private Power and Infrastructure Board (PPIB), amendments to the Nepra Act 1997 and setting up of pension funds by all power distribution companies.

Nepra also approved the new transmission tariff guidelines under the ADB condition.

There are concerns about amendments to the Nepra Act that, according to sources, will undermine the regulator’s authority in many ways.



For the last few years, the Ministry of Water and Power and Nepra have been in an uneasy relationship as the government blames the regulator for setting unrealistic targets for reducing line losses and bill recoveries.

Privatisation plans

As per the revised circular debt reduction plan, the government was supposed to reduce the outstanding stock through the IPO of Gepco. This has not been done. The government has again said that IPOs of Lahore and Islamabad power distribution companies will be completed in the new fiscal year.

It has also insisted that the strategic sale of distribution companies beginning from Fesco in FY19 will be completed by fiscal year 2021-22.

Published in The Express Tribune, June 16^th, 2017.

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