Financing reforms: World Bank approves loans worth $1.125b

Major chunk earmarked for reforms in Pakistan’s energy sector.

ISLAMABAD:

The World Bank’s (WB) board of directors on Thursday approved three loans for Pakistan amounting to $1.125 billion, a major chunk of which will be earmarked for energy sector reforms.

The $600 million energy reforms loan is aimed at reducing power subsidies and line losses, and improving the accountability of the power sector. The WB wants government’s role in determining electricity prices to be minimised in favour of the power sector regulator, according to Pakistani officials.

The WB lending will augment an earlier loan of $400 million approved by the Asian Development Bank for the power sector.

The WB board, which met in Washington, also approved $400 million for macroeconomic reforms with a focus on overhauling the taxation regime. An amount of $125 million was approved for the private sector, to be financed by International Finance Corporation of the WB Group.

The package has been approved under the existing four-year Country Partnership Strategy that will end this year.

WB has admitted the performance of the programme has been moderately unsatisfactory. Most of the outcomes attached with the outgoing strategy could not be achieved and the lender said desired reforms in governance, energy, taxation and infrastructure were far less than satisfactory.

The board also approved a new five-year strategy for Pakistan, under which it will extend $11 billion loans to the country till 2019. An amount of $6 billion will be provided as concessionary lending. Tied to the ability of the government to achieve minimum creditworthiness, the WB also cleared $2 billion policy loans. The IFC is expected to offer over $3 billion loans during the strategy period.

However, all these amounts are notional and the government will have to go to the lender’s board for approval of individual projects each time, according to the WB documents.

According to the lender, Pakistan’s energy sector is highly inefficient and unsustainable. Pakistan ranks 166 of 183 economies on the ease of getting electricity, worse than the average for South Asia.

The WB strategy aims at mobilising over $10 billion to support new generation, a significant part of which it will offer to the country. The new investment will be both for public and private projects. But for complete overhaul of the energy sector, Pakistan needs at least $3 billion to $4 billion in funding annually.

The new investment is expected to increase the total generation capacity from present 21,000MW to 33,000MW. The WB says it will focus on hydropower development along the Indus River Cascade.  “The key monitorable outcome from WB activities will be to reduce load shedding from 8 hours to 5 hours per day,” the draft strategy notes.

However, the key to additional power is the WB’s plan to shift additional 500 million cubic feet of gas per day for power generation to add additional 6,000MW.

Published in The Express Tribune, May 2^nd, 2014.