$900m ADB loan stuck in red tape

Just 1.1% of the amount for two coal-fired power plants released in four years

ISLAMABAD: Much of the $900 million loan, approved by the Asian Development Bank (ADB) for Pakistan almost four years ago despite opposition from the US, is yet to be disbursed because of the bureaucratic red tape and cumbersome procedure adopted by both the lender agency and the borrower.

Less than $10 million or just 1.1% has so far been disbursed by ADB which had approved the loan in December 2013 for the construction of a 660MW coal-fired power plant at Jamshoro and switching an existing fuel oil-based 660MW power plant to supercritical coal technology.



“Due to almost negligible financial and physical progress on the scheme, it is highly unlikely that the 1,320MW projects will be operational by April 2019,” said sources in the Power Division.

They said the target to improve the energy mix by reducing the share of furnace oil-based generation would also be missed.

The total cost of the project is $1.5 billion. In addition to the $900 million ADB loan, Pakistan had also secured $220 million from the Islamic Development Bank.

However, till June this year, the ADB has disbursed less than $10 million or just 1.1% of the total loan. The loan signing ceremony was held at the Prime Minister’s Office in February 2014 with a fanfare.

Of the total $900 million, the country had obtained $870 million at a higher interest rate and $30 million on concessional one.

Since November 2014, the country has been paying 0.15% of the total amount in commitment charges on undisbursed amount.

Jamshoro power plants are an important part of the government’s plan to increase the share of coal-based power generation to 24% of the total fuel mix by 2019. This will be achieved by reducing the share of oil-based power generation from 34% to 14%.

“Any significant disbursement against the Jamshoro power project will be possible only if the project contracts are awarded,” said the sources in the ADB.



Both the Power Division and the ADB have wasted significant time in finalising the bid documents which, according to the sources, was one of the main reasons behind the negligible progress made so far on the project.

Almost negligible progress on financial and civil work means that the government would miss its April 2019 deadline to complete the project.

The project was originally conceived by the Pakistan Peoples Party government and a loan agreement was signed during the first year of the PML-N government.

Despite opposition by the US, the ADB approved the $900 million loan to convert Jamshoro into coal-fired power project.

During a meeting of the ADB’s board of directors, the US had cast its vote against Pakistan. However, Canada, Germany, Australia, New Zealand and Japan cast their votes in favour of Pakistan.



The Obama administration was opposing new coal-fired power plants because of environment-related concerns.

For the sake of obtaining the loan, Pakistan had also lifted a ban on import of coal-fired power plants. Former prime minister Raja Pervez Ashraf had placed the ban on imported coal-powered plants in a bid to encourage consumption of Thar coal in such projects.

The Jamshoro power plant will use 80% imported sub-bituminous coal and 20% locally-produced lignite coal.

At the time of the approval, the ADB had claimed that the coal-fired power plant would generate electricity at a lower cost, saving about $535 million per year on fuel imports compared to oil-fired power plants.

During the recently-concluded review of the ADB-funded projects in Pakistan, it was revealed that by July this year, the ADB was still in the process of technically evaluating the bids submitted for the installation of 600MW supercritical coal-fired power units. The ADB has put the Jamshoro project on its watch list.

The ADB issued the bidding documents for soil bioremediation work in March 2017. There are also issues with the construction of coal receiving and transporting infrastructure because both the parties are still in the process of finalising those arrangements.