ISLAMABAD: The Asian Development Bank (ADB) approved on Thursday an upfront $400 million loan as part of its five-year $1.2 billion programme for energy sector reforms.
However, the remaining amount has been linked with the government’s ability to withdraw power subsidies and ensure accountability in the power sector.
It was the first programme loan that the Manila-based lending agency has approved in the last six years and the first tranche that is cleared after a gap of four years.
The ADB is expected to disburse the entire amount next week, following a signing ceremony between both sides, scheduled for Monday.
The approval comes at a time when the government is planning to introduce a new schedule of lengthy load shedding, as it struggles to meet the soaring demand with increasing temperature in the country.
In September the ADB had approved a $2.1 billion Accelerating Economic Transformation Programme. However, the programme was suspended after disbursing two tranches - the last one came in 2010 due to the previous government’s inability to meet conditions attached with the loan package.
The loan is approved to support the government of Pakistan's ongoing reforms to tackle the country’s chronic energy crisis which has crippled industries and caused social unrest, according to a handout issued by the ADB.
The handout also added that the full programme is expected to total $1.2 billion, “with future amounts subject to further discussions between the ADB and the government”.
Branded as Sustainable Energy Sector Reforms Programme, the loan will support the overhaul of existing tariffs and subsidies as the government moves to eliminate subsidies by 2016, except for low income customers.
It will also back reforms to reduce power losses and encourage more sector involvement from the private sector, as well as improving transparency and accountability.
To supplement the ADB’s first tranche, Japan will provide $49 million while the World Bank is also expected to give $600 million for the energy sector.