Pakistan: Energy Sector Restructuring Program

Date: March 2014
Type: Evaluation Reports
Country:
Subject:
Evaluation; Energy
Series: Project Performance Evaluation Reports
Project Number: 32146-013

Description

In 1988, Pakistan’s energy sector utilities faced a financial crisis due to systemic sector problems that affected the financial performance of energy utilities and hindered the effectiveness and sustainability of the energy sector. Appropriate reforms and necessary adjustment measures, were deemed necessary by the Government of Pakistan to restore financial and operational viability in the sector and make it self-sustaining in the long term. ADB support was facilitated through the Energy Sector Restructuring Program (ESRP), which came in the form of two program loans, Loan 1807 and Loan 1808, and a Technical Assistance Loan 1809. The ESRP focused on seven key areas of reforms: (i) enhancing governance, (ii) enhancing the legal and regulatory framework and strengthening the capacity of the power sector regulator, (iii) financially restructuring and privatizing Karachi Electric Supply Corporation, (iv) restructuring the Water and Power Development Authority and privatizing corporatized entities, (v) enabling a competitive electricity market, (vi) resolving issues related to independent power producers, and (vii) enhancing reform in the natural gas and petroleum sector.

Ten years after the ESRP, however, the energy sector is again in crisis – there is insufficient capacity to meet the demand for electricity; load shedding is endemic; there are shortages of fuel for the thermal power plants; and the issues of governance, organizational and institutional weakness, efficiency, and competitiveness are once again at the forefront. The outcomes achieved by the ESRP are again at risk, and an evaluation of the ESRP is deemed useful to assess and update the program’s outcomes, and impacts and their longer term sustainability.

Overall, this evaluation assessed the ESRP less than successful. It is relevant, as the support for Pakistan at its time of greatest need was provided to maintain economic stability. The implementation of the program was also efficiently managed, and many of the covenants were met before closing. The ESRP however, is less than effective, as its overall goal to establish an efficient and competitive industry that will provide high-quality service to its customers at least cost was not achieved. Sustainability is also unlikely as some of the important reforms initiated in the energy sector did not endure.

Some important lessons include (i) privatization needs to follow unbundling so that improvements in operational efficiency can be realized (ii) reduction and careful targeting of subsidies should be included as a condition of tranche release, (iii) ADB and the borrower need to stay engaged to follow up on unfulfilled covenants, and (iv) government paying arrears of some consumers creates a moral hazard and discourages other consumers from paying bills.

Contents

  • Basic data
  • Executive summary
  • Introduction
  • Design and implementation
  • Performance assessment
  • Issues and lessons
  • Appendix