MANILA, PHILIPPINES - The Asian Development Bank (ADB) is extending $780 million to Pakistan through a multitranche financing facility for priority energy efficiency projects that will secure the country's growing energy needs and reduce its reliance on costly, polluting fossil fuels.
The $1.18 billion Energy Efficiency Investment Program underpins Pakistan's first-ever initiative to make both the pursuit of energy security and low-carbon growth a single strategic priority. The 10-year program puts energy efficiency and the adoption of clean technologies at the heart of government planning and public investments.
"The mainstreaming of energy efficiency into policy and planning marks a radical change for Pakistan and creates a major opportunity for new clean energy investments," said Bayanjargal Byambasaikhan, Energy Specialist with ADB's Central and West Asia Department.
Pakistan currently suffers from a huge gap in energy supply and demand, resulting in regular, lengthy power outages, which are a key factor behind its present economic difficulties. The power deficit stems from growing consumer demand, combined with a lack of new investment, large-scale system losses and inability to attract the private sector. The government has responded with interim measures such as rental power generation, but this is a short term measure that falls well short of the country's needs.
"Energy efficiency saves money, and is the quickest and most climate-friendly way of bridging the energy gap and securing energy supplies," said Mr. Byambasaikhan.
The Multitranche Financing Facility will finance short to medium-term energy efficiency projects, including the replacement of incandescent light bulbs with more efficient and cost-effective compact fluorescent lamps. The facility, which will release funds in tranches, will provide a portion of the government's 10-year energy efficiency investment plan, estimated at $3.8 billion.
Targeted energy savings under the program will reduce the country's energy intensity, while cutting greenhouse gas emissions by an estimated 30%. The overall gains in annual savings by fiscal year 2019 are expected to be around $4 billion. Major social benefits, such as increased household incomes, jobs, and reduced poverty levels, will flow.
The program will help the government reduce public expenditures and subsidies, easing the debt problem in the power sector which has weighed on attempts at improvements in the past. It also removes financial barriers to investment in clean energy technology, opening the way for increased private sector involvement with ADB, and other development partners, helping to leverage commercial financing support. Projects in the program are expected to be eligible for earning carbon revenues under the Clean Development Mechanism of the Kyoto Protocol.
Through the facility, ADB will extend $760 million in loans from its ordinary capital resources in tranches. It will provide a further $20 million from its concessional Asian Development Fund. Cofinancing equivalent to EUR150 million will be provided by Agence Française de Développement, with the government financing $200 million equivalent.
ADB is the government's lead partner in the energy sector, providing around one-third of total assistance, and it will work closely with other development partners to support the 10-year program, which will be coordinated by the Planning Commission of Pakistan.