Govt fails to utilise ADB’s $2.5b investment in power sector

Despite urgency 14 projects facing delays; ADB terms sector portfolio ‘most challenging’

ISLAMABAD:

Despite an urgency to improve electricity generation and transmission networks, Pakistan remains unable to timely utilise $2.5 billion Asian Development Bank investment in the sector and over a dozen projects including Jamshoro power plant are facing delays.

A recently completed review of the ADB-funded projects in Pakistan revealed that all the 14 projects in the energy sector are facing delays of one year to four years, revealed documents of the Manila-based lending agency.

The ADB has an active energy sector portfolio of $2.5 billion that comprises four multi-tranche financing facilities for strengthening electricity generation, transmission and distribution networks including $900 million loan for coal-fired Jamshoro Power plant. The incumbent government loan had contracted the $900 million loan to add another 600MW capacity of the Jamshoro power plant.

Read: ADB announces new $1.2 bn annual package for Pakistan

The implementation of Jamshoro Power Project has been delayed, as the concerned authorities could not finalise the bid documents till due dates. The loan had been approved in late 2013, which became effective in November last year. So far, only $4 million have been disbursed by the ADB against the total loan amount of $900 million.

The energy sector is the single largest sector in terms of ADB investment, comprising half of the total ADB portfolio. The energy lending is likely to grow further due to deteriorating generation, transmission and distribution networks in the country.

Pakistan’s transmission network has outlived its life, creating problems in wheeling the electricity besides causing technical losses. Similarly, the distribution companies’ network also requires up-gradation and expansion.

Overall, against $2.5 billion project loans, the actual disbarments remained in the range of 20% to 24% due to delay in award of contracts, procurement issues and delay in authorisation. The country is paying millions of dollars in commitment charges to the ADB on undisbursed amount.

The energy sector loans had been extended to strengthen Pakistan’s energy supply chain. The ADB’s findings suggested that work on various projects has been hampered due to the lack of ownership, delay in decision-making, frequent staff changes and multi-tier structure at National Transmission and Dispatch Company (NTDC). The ADB noted that there was also ambiguity in roles and delegation of authority and highest decision-making authorities also delayed many critical decisions.

During the previous review, which held last year, the government had assured that it would improve readiness of the project and minimise delays in start-ups after approval of the loans aimed at ensuring timely completion of the projects. However, no notable progress was reported during the recent review meetings.

The ADB terms the energy sector portfolio most “challenging”. For instance, a ten-year $800 million Mutli-tranche Financing Facility (MFF) for transmission sector is expiring December next year. However, out of active projects of $666 million, so far only $346 million worth contracts have been awarded. The disbursements remained at only $178.3 million or slightly over one-fourth of total cost of these projects.

“The NTDC needs a much improved and consistent performance to be able to disburse complete MFF amount within MFF closure period by December 2016”, according to the ADB documents.

Similarly, the ADB also approved another $810 million MFF for power distribution projects, which is expiring in December 2017. So far, out of active project portfolio of $594 million, only $312 million worth contracts were awarded. Again, the actual disbursements remained at $142.3 million or less than one-fourth of the contract price.

Read: ADB paints gloomy picture over deficit, growth targets

The second and third tranches of Power Distribution Enhancement Investment Programme are identified among five potential problematic projects due to delay in procurements. Faisalabad Electricity Supply Company, Lahore Electricity Supply Company and Hyderabad Electricity Supply Company could not timely complete the procurements.

The ADB also approved $510 million Renewable Energy Development programme, which is also facing delays.

The details revealed that Pakistan takes on average almost 15 months to award a contract after approval of the loan. The ADB said that the performance of contractors and executing agencies was very weak in contract management, resulting into extension in completion of sub-projects.

Published in The Express Tribune, October 4^th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.