Asian Development Bank (ADB) announced a new $300 million loan for Pakistan this Thursday. The loan is meant for the crippled energy sector of Pakistan. The money will also support our foreign currency reserves, by easing pressure on it temporarily.
The loan is part of the third sub-program of Sustainable Energy Sector Reforms Programme that started in April 2014 by the ADB. The program is divided in 5 annual sub-programs to support the government’s reform initiatives.
Multiple $1 Billion Loans to Power Sector
With the $300 million released now, ADB has provided Pakistan with a $1.1 billion loan for Pakistan’s energy sector to bring about some much needed reforms.
An additional $100 million by French Development Agency (FDA) will also be disbursed, along with the ADB’s $300 million.
Falling Recoveries, Continuing Line Losses
According to a report by the Ministry of Water and Power, the electricity bill recoveries declined from 94.6% in June 2016 to 92.2% this year.
Line losses on the other hand hardly decreased, going from 17.9% to 17.2% during the first half of fiscal year 2017. Falling electricity bill recovery and continued line losses have led to the circular debt rounding up to Rs. 402 billion.
Gujranwala Power Company’s IPO
The Ministry’s report also mentioned that the Initial Public Offering (IPO) of the Gujranwala Electric Power Company (GEPCO) will not be completed by June 30th. The government has promised IMF that it would use the money from the IPO to recover the circular debt.
The second sub program of ADB ($400 million, approved in November 2015) required that the government should reduce power sector loans, which it failed to do. ADB approved the third sub-program regardless.
The third sub-program had its own conditions which the government was expected to meet in order to approve the loan.
The Ministry’s report says that the government has met some requirements of the 2nd sub-program to date, however other policy actions would take some time.
Revised Debt Reduction Plan
The new revised circular debt reduction plan states that the government was supposed to recover its loans from GEPCO’s IPO, a process which still hasn’t been initiated.
Furthermore, Lahore and Islamabad’s power distribution companies will have their IPO’s in the next fiscal year.