47015-002: Sustainable Energy Sector Reform Program - Subprogram 2 | Asian Development Bank

Pakistan: Sustainable Energy Sector Reform Program - Subprogram 2

Sovereign (Public) Project | 47015-002 Status: Closed

The Asian Development Bank is working with Pakistan to stabilize and restructure the power sector. The program supports policy reforms to address sector inefficiencies, including high tariffs and subsidies, large system losses, and barriers to private sector investment. Subprogram 2 supports measures to reform energy planning and to establish an independent central power purchase agency.

Project Details

Project Officer
Mtchedlishvili, Levan G. Central and West Asia Department Request for information
Country
  • Pakistan
Modality
  • Loan
Sector
  • Energy
 
Project Name Sustainable Energy Sector Reform Program - Subprogram 2
Project Number 47015-002
Country Pakistan
Project Status Closed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 3321-PAK: Sustainable Energy Sector Reform Program - Subprogram 2
Ordinary capital resources US$ 100.00 million
Loan 3322-PAK: Sustainable Energy Sector Reform Program - Subprogram 2
concessional ordinary capital resources lending / Asian Development Fund US$ 300.00 million
Loan: Sustainable Energy Sector Reform Program - Subprogram 2
World Bank US$ 500.00 million
Loan: Sustainable Energy Sector Reform Program - Subprogram 2
Japan International Cooperation Agency US$ 41.32 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Knowledge solutions
Partnerships
Private sector development
Sector / Subsector

Energy / Energy sector development and institutional reform

Gender Equity and Mainstreaming No gender elements
Description The Program will help the Government with the short-term stabilization measures and start the long-term restructuring for a sustainable power sector. The impact of the overall program will be a sustainable energy sector that supports economic growth. The outcome will be a reliable and sustainable energy system.
Project Rationale and Linkage to Country/Regional Strategy

The programmatic approach and subprogram 1 were approved on 24 April 2014 in support of the 2013 National Power Policy of the Government of Pakistan, which seeks to build an affordable, reliable, sustainable, and secure energy sector to support the country's economic growth. The programmatic approach, fully coordinated with the International Monetary Fund (IMF) under its extended fund facility, takes a chronological approach of over 5 years to provide dynamic, long-term support to multidimensional reforms, with an annual subprogram that matches the budget cycle. Subprogram 1, cofinanced by the World Bank and the Japan International Cooperation Agency (JICA), established a solid foundation for implementation of reforms in subsequent subprograms. Subprogram 2 will support the second year of the programmatic approach. The eighth review of IMF was completed in September 2015.

In 2014, Pakistan's economy grew by 4.1%, above the forecasted global growth of 3.6%. The gap between electricity demand and supply is expected to remain about 5,500 megawatts, or 20% of peak demand, until 2018. The average duration of load shedding in 2014 was around 8 10 hours a day in most areas, and up to 18 20 hours in rural areas. The chronic energy shortage decreases business confidence and negatively affects manufacturing, trade, and consequently household income. Textile exports, which account for more than 50% of goods export receipts, have only increased marginally since 2010. The steady deterioration of power availability has also hurt business confidence. Private investment has decreased by 7.5% since 2008. Although power sector subsidies have decreased from 1.8% (FY2013) to 0.8% (FY2015) of gross domestic product, they are still a significant contributor to the government's weak fiscal position.

Pakistan initiated a comprehensive energy sector reform program in the early 1990s, but the results have been mixed and expected efficiencies have not been fully achieved. The past reforms led to the unbundling of the Water and Power Development Authority into 15 corporatized entities: nine regional power distribution companies (DISCOs), four thermal power generation companies (GENCOs), the National Transmission and Despatch Company (NTDC), and the Water and Power Development Authority. The Central Power Purchasing Agency (CPPA), a unit within NTDC, was licensed to act as a single buyer and seller of electricity. All entities are still fully owned by the government except for the Karachi Electric Supply Company, which was privatized in 2005. Independent power producers (IPPs)generate 56% of the country's power. The National Electric Power Regulatory Authority (NEPRA), established in 1997, determines tariffs, issues licenses, and regulates the sector. About two-thirds of the population had access to grid electricity in 2014, and electricity consumption has remained constrained at about 80 terawatt hours per year since 2009 despite the growth in demand

The subprogram 2 was prepared in coordination with the IMF, World Bank, JICA, and other development partners in order to increase the overall economic impact. Pakistan's macroeconomic indicators are improving and all IMF quantitative performance criteria were met by the end of 2014. Inflation eased in July 2015 to a 1.3% annual rate. Financial sector indicators remain sound and foreign exchange reserves reached $13.5 billion by the end of June 2015. The Fiscal Responsibility and Debt Limitation Act 2005 required the government to reduce the ratio of public debt to gross domestic product to 60% by June 2013 & maintain it below 60% from then on. The ratio was 63% for FY2014, down from 63.6% in FY2013, mainly because of a lower fiscal deficit and appreciation of the Pakistan rupee against the US dollar. Although challenges remain, the IMF believes that as structural reforms take hold, bottlenecks will ease, growth will accelerate, and vulnerabilities will recede.

Impact Economic growth through sustainable energy sector (National Power Policy, 2013)
Project Outcome
Description of Outcome Reliability, sustainability, and affordability of the energy system improved
Progress Toward Outcome Ongoing. Subprogram 2 released on 30 November 2015.
Implementation Progress
Description of Project Outputs

Tariffs and subsidies managed

a. Clear policies on tariffs and subsidies that are targeted at low-income customers

b. Policy implementation through NEPRA rules and guidelines ensured

c. Discretionary policy decisions and lag in tariff approval and implementation reduced

Sector performance and market access for private sector participation improved.

a. Losses reduced and collection rate of DISCOs improved

b. Demand-side efficiency improved and energy conservation strengthened

c. Generation costs managed through least-cost planning, and following of the plan for new power generation plants ensured

d. Gas supply increased and gas market opened to direct contracting between producers and large-volume gas consumers

e Performance of public sector power companies commercialized and improved

f. Commercial operations of the CPPA institutionalized

Accountability and transparency in the power sector achieved

Status of Implementation Progress (Outputs, Activities, and Issues) Ongoing. Policy matrix for Subprogram 3 being updated.
Geographical Location Nation-wide
Safeguard Categories
Environment C
Involuntary Resettlement C
Indigenous Peoples C
Summary of Environmental and Social Aspects
Environmental Aspects An environmental assessment for the entire program found that the policy action requiring the government to prepare a least-cost generation and transmission plan may have future impacts on the environment if not appropriately managed. The covenants in the loan agreement include carrying out a strategic environmental assessment and making sure that any identified long-term environmental impact is managed in accordance with the Safeguard Policy Statement.
Involuntary Resettlement No involuntary resettlement.
Indigenous Peoples No impacts on indigenous peoples.
Stakeholder Communication, Participation, and Consultation
During Project Design Consultations has been held with government, non-government organizations, commercial organizations, and the donor community.
During Project Implementation Consultations will be continued with non-government organizations, commercial organizations, and the donor community during implementation.
Responsible ADB Officer Mtchedlishvili, Levan G.
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Energy Division, CWRD
Executing Agencies
Ministry of Finance
[email protected]_CC.SDNPK.UNDP.ORG
Economic Affairs Div.
Rm. 308 Block "C" Secretariat Bldg
Islamabad, Pakistan
Timetable
Concept Clearance -
Fact Finding 02 Feb 2015 to 13 Feb 2015
MRM 18 May 2015
Approval 20 Nov 2015
Last Review Mission -
Last PDS Update 29 Mar 2016

Loan 3321-PAK

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
20 Nov 2015 26 Nov 2015 27 Nov 2015 30 Jun 2016 - 30 Jun 2016
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 100.00 Cumulative Contract Awards
ADB 100.00 20 Nov 2015 100.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 20 Nov 2015 100.00 0.00 100%

Loan 3322-PAK

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
20 Nov 2015 26 Nov 2015 27 Nov 2015 30 Jun 2016 - 30 Jun 2016
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 800.00 Cumulative Contract Awards
ADB 300.00 20 Nov 2015 293.99 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 500.00 20 Nov 2015 293.99 0.00 100%

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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