ADB Loan to Boost Infrastructure Development in Pakistan

News Release | 19 August 2005

MANILA, PHILIPPINES - ADB has approved a US$25 million loan to help the Government of Pakistan prepare and implement an infrastructure development program that will support the country's economic growth and reduce poverty.

The project will prepare an investment program, for the short, medium, and long-term, that will help the Government develop its infrastructure sectors in an integrated manner. It will prepare infrastructure projects that will expand the country's economic foundation by providing electricity, transportation, and water resources.

The project will help create an environment for infrastructure investments to attract public and private participation, as well as bilateral and multilateral agencies. Also, it will boost the capacity of institutions in the power, transport, and water resource sectors to plan, develop, and implement infrastructure projects.

"The timely development and implementation of infrastructure investment projects are indispensable to economic progress," says Rune Stroem, an ADB Principal Energy Specialist.

"Infrastructure institutions also need sufficient capacity to carry out needs analysis, project development and preparation, and preconstruction activities on time and efficiently for external and/or private financing."

The Government is pursuing an integrated approach to infrastructure development through broad-based development of a number of sectors while increasing infrastructure services countrywide. About 54% of the Government's planned development expenditures are allocated to infrastructure development.

The Government has set ambitious targets for economic growth and poverty reduction, which will require massive infrastructure development. Public funds, however, would only be able to meet about $1.5 billion of the $2.5 billion-$3 billion annual infrastructure investments required.

The balance would have to be funded by the private sector, multilateral financial institutions, and bilateral agencies.

"The pivotal step from the strategy to the implementation of infrastructure projects is the creation of an environment conducive to private investment," says Mr. Stroem.

"The Government is adopting investor-friendly policies, but operational, legal, and procedural constraints still have to be identified and removed where the project and TA would be helpful."

In the power sector, the project will prepare subprojects to address shortcomings in power generation, expand transmission and distribution systems, build the capacity of the National Transmission and Despatch Company, and boost eight new distribution companies.

In the transport sector, the subprojects to be prepared cover road and railway project preparatory facilities, a model concession agreement for a public-private partnership pilot project in national highways and motorways, and capacity building for Government agencies in the sector.

In the water sector, the project will primarily build capacity for water resource planning, development, and management. It will also help provincial agencies prepare proposals for small subprojects, such as small storage structures, irrigation systems, and groundwater management.

A $150,000 technical assistance grant accompanies the loan to identify constraints on investment and implement solutions to remove them.

"Ultimately, the consumers will benefit from the project since they will enjoy more infrastructure facilities, which will spur economic activity," says Mr. Stroem.

ADB's loan, which covers about 75% of the total estimated project cost of $33.67 million, comes from its concessional Asian Development Fund. The loan carries a 32-year term, including a grace period of 8 years, with interest set at 1% per annum during the grace period and 1.5% per annum thereafter.

The Government will contribute $8.33 million equivalent toward the project cost. The Planning and Development Division of the Government is the executing agency for the project, which is due for completion around September 2009.