ISLAMABAD: In a development that may affect relations with a Manila-based lending agency, Pakistan has decided to put on hold a $990-million (Rs105 billion) smart metering project that was meant to introduce advanced infrastructure in power distribution companies.
The Asian Development Bank (ADB) wanted Pakistan to implement the Advanced Metering Infrastructure (AMI) project, but the Ministry of Power and the Planning Commission remained reluctant to take this loan due to different reasons. The ADB then pegged a budget support loan with the smart metering project, leaving no option for the then Finance Minister Ishaq Dar to agree to the ADB’s terms, said sources in the finance ministry.
After about two years of hectic lobbying by the ADB, the board of the Manila-based lender approved the first tranche of $400 million in November 2015. Another two years were wasted in resolving major issues, as Islamabad remained reluctant to take this loan.
In what appears to be a major setback, the Power Division of Ministry of Energy has now canceled the bidding process that had been initiated to install about 900,000 advanced meters in the jurisdiction of Islamabad Electricity Supply Company (IESCO) in the first phase.
The country is already paying 0.25% commitment charges on the $380 million component of the first tranche of $400 million. The $380 million loan had been contracted on commercial terms.
“We have concerns on project design and have asked the ADB to address these concerns,” a spokesman of the Power Division said while confirming cancellation of the bidding process. The spokesman said that “if these concerns are not addressed, Pakistan would ask the ADB to divert these funds to other power sector projects”.
However, the government’s decision may affect ADB-Pakistan relationship.
The spokesman of the ADB said that the lender was not aware of the government’s decision to cancel the bidding process. But another official of the Power Division said that ADB’s project officer Adnan Tareen was aware of the development and knew about Pakistan’s concerns.
The sources said that poor financial conditions of Pakistan’s power distribution companies means they are not in a position to pay a compound interest rate of 17% that includes paying interest to the federal government. The loan had been taken on the balance sheets of the power distribution companies and under the current federal re-lending policy, the government charges interest rates which is about three times more than what Pakistan actually pays to the global lenders.
Subsequently, principal loans and interest rates are recovered from the consumers through tariffs determined by National Electric Power Regulatory Authority (Nepra).
From the beginning, Pakistan was not ready to contract the loan due to its differences over the use of imported technology and the plan to privatise all power distribution companies under the $6.2 billion International Monetary Fund (IMF) programme.
The Planning Commission of Pakistan also opposed the loan, stating that the project was technically unfeasible. The commission wanted the ADB to instead fund transmission expansion projects.
But in May 2015, `ADB’s visiting vice president Wencai Zhang urged Pakistani authorities to obtain the loan for the installation of smart meters. Ishaq Dar responded positively to the request and pushed through the loan processing.
The Power Division’s biggest concern was that the project design covers only one-third of the total electricity consumers and the gestation period for IESCO and Lahore Electricity Supply Company was “too long”. It would take at least four years to complete the project from the commencement of work, said the Power Division.
The overall completion period for nine power distribution companies was ten years and that too will cover only 30% of the consumers.
“We cannot afford to keep the power distribution companies bleeding for another ten years,” the spokesman said.
Half of the ADB-financed projects, valuing $3.4 billion are already either problematic or put on a ‘watch list’ due to implementation delays. The smart meters project was not among these problematic schemes.
So far, the entire amount of $400 million has remained undisbursed and not even a single contract has been awarded.
The project concept was that pre-paid electricity meters will be installed that will control the flow of electricity and ensure 100% collection of bills. The main goal of the $400 million project was installation of 2 million smart meters and communication equipment in these two power distribution companies by 2019.
Due to dilapidated conditions of the power transmission and distribution networks coupled with theft of electricity, the country has high line losses and low recovery ratios.
Published in The Express Tribune, November 29th, 2017.