On 13 August 2009, the Government of Pakistan entered into a Framework Financing Agreement with ADB to implement MFF 0031. On 22 September 2009, ADB approved financing for up to $780 million for MFF 0031, and up to $85 million for Tranche 1. Tranche 1 includes the National Compact Fluorescent Lamp (CFL) Project under Loans 2552 and 8246, and the Investment Program Management Support Project under Loan 2553. Loan 8246 was declared effective on 9 July 2010, and Loans 2552 and 2553 were declared effective on 30 August 2010.
The National CFL Project will replace about 30 million incandescent bulbs in the residential sector with efficient, high-quality CFLs. ADB approved financing of up to $40 million from its ordinary capital resources (Loan 2552), and $25 million equivalent from Agence Francaise de Developpment (AFD, Loan 8246) for the bulk procurement and public awareness campaign for door-to-door CFL delivery to registered household customers in their license areas. The Government is contributing $20 million. In August 2014, $10 million under Loan 2552 were cancelled as surplus loan proceeds.
The Investment Program Implementation and Management Support Project will help the Government manage the Investment Program, and execute projects under each tranche. It will help with policy and institutional reform, safeguard management, gender mainstreaming, financing controls, monitoring, evaluation, results reporting, and design and due diligence for future tranches. ADB approved financing of up to $20 million from ADB's Special Funds resources (Loan 2553). The Government is contributing $5 million.
|Project Rationale and Linkage to Country/Regional Strategy
The energy gap is now one of Pakistan's most serious binding constraints to growth and jobs. It results from the rapid increase in demand and high wastage of energy, and is one of the main causes of the current economic crisis. Pakistan's dependency on oil imports results from the suboptimal energy supply mix that is a consequence of poor planning. The economy is susceptible to fuel price volatility.
Pakistan uses 15% more energy than India and 25% more than the Philippines (for each dollar of gross domestic product). Energy wastage is a high cost to the economy, businesses, and consumers; its reduction requires major and immediate shifts in policies, investment, and consumption patterns.
In 2009, the power deficit reached 5,000 megawatts (MW), and natural gas supply to industries was cut during the 4 winter months. People and businesses in many parts of Pakistan are experiencing power outages and rationing lasting more than 12 hours a day. Factory closures are causing social unrest.
Energy efficiency represents the least-cost and quickest low-carbon solution to bridge the energy gap. It cuts the high dependence on oil imports and avoids investment in expensive and inefficient rental power generation based on fossil fuels. It ultimately strengthens energy security, contributes to the environment, creates jobs, and improves industrial competitiveness. Energy efficiency is now a strategic priority for the Government.
Pakistan's total energy savings potential, through the application of clean and efficient technology, is estimated at 11.16 million tons of oil equivalent (493,304 terajoules [TJ]), or 18% of primary energy use (FY 2008). This corresponds to a 51% reduction in net oil imports. In FY 2008, the oil import bill was $12 billion. Savings in electricity and gas resulting from well thought out energy efficiency investments correspond to additional generation capacity of about 6,770 MW.
Energy efficiency investments can be most effective when the policy, regulatory, and pricing regime is right. Energy tariffs have historically been low in Pakistan. As such, customers have not had much of an incentive to invest in efficient technology, nor shift consumption patterns. While electricity production costs tripled from FY 2003 to FY2007, tariffs were not adjusted to cover this increase. Since FY 2007, tariffs increased by an average of 20% and will continue doing so until reaching cost-recovery by FY 2011. As tariffs increase, so does awareness of energy efficiency and incentives to acquire new, less energy-consuming technology.