Pakistan Hopes for $1 Billion Loan from Asian Development Bank

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Researched by Industrial Info Resources (Sugar Land, Texas)--The government of Pakistan has approached the Asian Development Bank (ADB) (Manila, Philippines) and the World Bank (Washington, D.C.) for a loan to help Pakistan Electric Power Company (Private) Limited (PEPCO) (Lahore, Pakistan) repay the remainder of a circular debt of more than $1.2 billion. ADB has indicated that it is considering the possibility of increasing the bank's credit line to Pakistan from $500 million to $1 billion. If the loan application is approved, the government of Pakistan intends to use part of the amount to pay back the complete circular debt. The existing government has raised about $1.14 billion through terms finance certificates.

In January 2009, Pakistan's President Asif Ali Zardari directed his economic team to repay the circular debt in the energy sector within a period of six months. Pakistan intends to erase the entire debt by June 30, 2009, and Pakistan's Ministry of Water and Power is negotiating the terms of the loan very earnestly with ADB. The World Bank has expressed its inability to extend a loan for the purpose.

The country's Finance Ministry is not in favor of seeking a loan from either ADB or the World Bank but would rather raise the necessary funds by hedging the assets of the organizations involved with the banks. The Finance Ministry wanted to make use of the concept of real estate investment trusts, however this is a lengthy process that would require at least 18-24 months to come into effect. The government intends to resolve the issue in the next couple of months.

Pakistan's National Electric Power Regulatory Authority (Islamabad) has raised the electricity tariff in the country. The tariff was initially increased 18% in November 2008 and is expected to be raised a further 4% before June 30, 2009. The ministry has initiated several techniques to enhance the financial health of eight power distribution companies that will ultimately enable PEPCO take care of the circular debt. The power distribution companies are the electric supply companies of Faisalabad, Gujranwala, Hyderabad, Islamabad, Lahore, Multan, Peshawar and Quetta. Varying hikes in tariff have been suggested for each company.

Pakistan plans to add 25,456 megawatts (MW) of power generation capacity by 2016 and increase the country's overall capacity to 43,252 MW. The private sector currently contributes about 30% of the total power generation capacity. Pakistan currently has 16 independent power producers (IPPs) in service. The IPP projects have so far been implemented on a build-own-operate policy. There are 48 IPP projects that are currently being developed or are in the planning stage. Upon completion in 2016, they will contribute a total of 12,461 MW of power. The IPP projects are being developed in the states of Sindh, Punjab, the North West Frontier Province and Baluchistan.

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