MANILA, PHILIPPINES - The Asian Development Bank (ADB) is providing loan assistance of up to $65 million for a new private sector hydropower project in Pakistan which will continue the country’s drive to overcome power shortages, and strengthen its energy security.
“Severe power shortages remain a major constraint on Pakistan’s economy, and scaling up the use of hydropower is essential for meeting demand and reducing the country’s reliance on costly imported fossil fuels for electricity production,” said Mohammed Azim Hashimi, Investment Specialist in ADB’s Private Sector Operations Department. “This project also supports the Government of Pakistan’s policy of tapping the private sector for power industry investment.”
The loan will go to Mira Power Ltd, a special purpose company controlled by three Republic of Korea companies which will build and operate a run-of-river hydropower generating facility on the Poonch River in Kotli district, around 160 kilometers from Islamabad.
The project will be carried out on a build-own-operate-transfer basis over 30 years, with the electricity sold to the state-owned National Transmission and Despatch Company Limited under a take-or-pay power purchase agreement. The special purpose company is majority-controlled by Korea South-East Power Co. Ltd. a subsidiary of listed Korea Electric Power Company, with other stakes held by units of the Daelim Business Conglomerate and Lotte.
The new facility will provide additional installed generating capacity of 102 megawatts, equivalent to almost 2% of the current power shortfall in the country. By substituting fossil fuel-driven electricity, it will help Pakistan avoid greenhouse gas emissions of nearly 254,000 tons of carbon dioxide equivalent a year. Hydropower is also the cheapest source of electricity on a per unit cost compared to all other alternatives.
Social and environmental concerns about the project have been addressed through a number of measures which include the construction of a weir designed to prevent flooding, and the development of a fisheries and wildlife conservation plan which will help protect endangered species. Cash compensation and livelihood support will be provided to households affected by the project.
ADB has been a pioneer in the development of private sector clean power projects in Pakistan, financing the first two hydropower and first three wind power projects in the country. Its provision of long-term debt has helped meet a gap in the market for infrastructure finance, and its presence has helped reassure and encourage private sector investor interest in the industry
Other project loan assistance will be provided by Export-Import Bank of Korea, the International Finance Corporation and its parallel co-financiers, along with equity from the special purpose company’s shareholders, for a total investment cost of over $367 million. The project will be carried out over 55 months, with expected completion in March 2019.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.