The Asian Development Bank (ADB) approved a $300m financing to the Government of Pakistan to support the country’s energy sector.
The policy-based loan will help Pakistan to address energy infrastructure policy constraints, financial sustainability, and governance in the energy sector.
ADB Central and West Asia director general Werner Liepach said: “The cash shortfall across the power supply chain in Pakistan, also known as circular debt, has shot up to more than $10bn and is a longstanding chronic issue ailing the country’s power sector.
“A comprehensive and realistic Circular Debt Reduction Plan, assisted by ADB in close coordination with other development partners, is the cornerstone of this subprogramme.
“The plan aims to drastically cut the new flows of circular debt and provides policy directions on addressing accumulated circular debt.”
ADB said that the financing will support the country’s first of three subprograms totalling $1bn under the Energy Sector Reforms and Financial Sustainability Programme.
By addressing the fundamental cause of circular debt, the programme aims to improve inadequate tariff and subsidy systems. It also seeks to boost energy accounting while reducing generation costs.
First sub-programme backed by $80m financing from Export-Import Bank of Korea
ADB said that the first sub-programme will receive $80m in co-financing from its development partner the Export-Import Bank of Korea.
Pakistan has been making significant efforts to enhance its electricity generation capacity and stabilise its power supply.
However, the country still has to deal with certain inefficiencies, which are expected to have cost Pakistan’s economy up to $18bn in 2015.
Last year, ADB and the Government of Pakistan signed loan and grant agreements worth $284m to upgrade the country’s power transmission network.
The agreement is the third tranche of a multi-tranche financing facility (MFF) under the ADB-supported Second Power Transmission Investment Program. The MMF aims to develop a stronger, smarter, greener and more climate resilient power transmission system in the country.
