Power injection: ADB approves $1.4 billion combined loan for Pakistan

Money will be used to install smart meters, privatise Discos, scale back subsidies

ISLAMABAD:

The Asian Development Bank on Friday approved a combined loan assistance of $1.4 billion for Pakistan to install smart electricity meters in an effort to prevent pilferage and theft and facilitate the privatisation of power distribution companies (Discos) as well as scale back power subsidies.

The board of directors of the Manila-based lending agency approved a multi-tranche facility of $990 million for installation of smart electricity meters and central billing systems, according to an announcement by the ADB. It approved another $400 million in budgetary support in return for commitments to cut electricity subsidies, fast track privatisation and running the power sector on a more commercial basis.

Out of $1.4 billion loans, an amount of $400 million will be disbursed immediately in cash while the remaining amount will be released as the government makes progress in installation of smart electricity meters.

With the approval of two fresh loan programmes, ADB lending for Pakistan’s power sector will increase to about $4 billion.

The bank said that the $990 million multi-tranche Second Power Distribution Enhancement Investment Programme will be used for introducing an Advanced Electricity Metering Infrastructure (AMI) system for power distribution companies across the country. It said that the new system will help reduce line losses, improve revenue collection and load management, and strengthen the financial viability of the sector.

However, the Planning Commission has expressed reservations over the proposed smart meter technology and is seeking certification that the system will work in Pakistan. Because of these reasons, the Executive Committee of National Economic Council could not approve the first two smart meter projects that the authorities plan to implement in Lahore and Islamabad areas.

ADB has an active loan portfolio of $5.5 billion in the public sector, which will now significantly increase after approval of two fresh programmes. On average, Pakistan takes about seven and a half months to make a loan effective, which is a significant period, showing delays in regulatory approvals.

ADB is already implementing three multi-financing facilities in power generation, renewable energy and the power distribution networks.

Nearly 20% of generated electricity is lost due to high technical and commercial losses and measures like the installation of the AMI system are necessary to counter this, said Adnan Tareen, senior energy specialist of the ADB. He said these two programmes will collectively help create a more efficient, transparent, modern and sustainable energy sector.

Pakistan is struggling with an ongoing power crisis, which is shaving off roughly 2% national output each year. ADB said that the power distribution companies were facing financial problems with customer tariffs being lower than the cost of service, and high system losses resulting in delayed payment to generating companies. Despite making Rs480 billion payments in June 2013, the circular debt has again increased to Rs661 billion.

Budgetary support

The ADB also approved $400 million in budgetary support under sustainable energy sector reforms programme. The lender’s approval came on the heels of $500 million loan that the World Bank gave last week for the energy sector reforms.

The ADB has diverted over $110 million project funds towards the budgetary support that it had earlier earmarked for two hydro sector projects in Gilgit-Baltistan. The funds remained unutilised for many years.

The ADB said that the budgetary support will help policy measures to address extensive debts in the electricity sector, as well as further market reforms to improve the efficiency of public sector power companies and to encourage competition through more private sector participation.

The specific outputs attached with $400 million loan are managing tariffs and subsidies by implementing clear policies on tariffs and subsidies that are targeted at low-income customers, ensuring policy implementation and limiting discretionary policy decisions in tariff approval and implementation.

Published in The Express Tribune, November 21^st, 2015.