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World Bank Approves $1.125 bn Loan for Pakistan

Posted by on Friday, May 2, 2014, 11:37
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The Board of Directors of World Bank approved on Thursday three loans for Pakistan totaling $1.125 billion including $600 million for energy sector reforms.

World Bank

World Bank

The energy sector loan is aimed at reducing power subsidies and line losses and improving the accountability of the power sector.

The WB also desired that the government role in determining the electricity prices be minimised and it surrenders its right in favour of the power sector regulator, according to the Pakistani officials.

The WB lending will augment an earlier loan of $400 million approved by the Asian Development Bank for the power sector.

The Board that met in Washington also approved $400 million for macroeconomic reforms with a focus on overhauling the taxation regime. An amount of $125 million was approved for the private sector, to be financed by International Finance Corporation of the WB Group.

The package has been approved under the existing four-year Country Partnership Strategy that will end this year –the performance of the programme that the WB itself admitted was moderately unsatisfactory.

Most of the outcomes attached with the outgoing strategy could not be achieved and the WB said that the desired reforms in governance, energy, taxation and infrastructure were far less than satisfactory.

The Board also approved a new five-year strategy for Pakistan under which it will extend $11 billion loans till 2019. An amount of $6 billion will be concessionary lending. Tied to the ability of the government to achieve minimum credit worthiness, the WB also cleared $2 billion policy loans. The IFC is expected to offer over $3 billion loans during the strategy period.

However, all these amounts are notional and the government will have to go to the WB board for approval of individual projects each time, according to the WB documents.

According to the WB, Pakistan’s energy sector is highly inefficient and unsustainable. Pakistan ranks 166 of 183 economies on the ease of getting electricity, worse than the average for South Asia.

The WB strategy aims at mobilizing over $10 billion to support new generation, a significant part of this amount will be offered by the WB. The new investment will be both public and private projects. But for complete overhaul of the energy sector, Pakistan needs at least $3 billion to $4 billion in funding annually.

The new investment is expected to increase the total generation capacity from present 21,000MW to 33,000MW. The WB says it will focus on hydropower development along the Indus River Cascade.  “The key monitorable outcome from WB activities will be to reduce load shedding from 8 hours to 5 hours per day,” the draft strategy notes.

However, the key to additional power is the WB’s plan to shift additional 500 million cubic feet of gas per day for power generation to add additional 6,000MW.

As part of the strategy to reform SOEs, “the IFC will support the privatisation transactions in the financial and infrastructure sectors through strategic investments.”

The policy matrix – a carrying set of milestones that the WB will target – also states that the IFC will make ‘direct investments’ and mobilise investors for the divestment of large bank shares.

The WBG will push its agenda to get at least five state-owned entities restructured or privatised, at least three of which will be in the power sector.

It will also push for improving trade across borders and has set a goal for the development and approval of a ‘non-discriminatory policy on international trade’. The policy will be solely aimed at India, the only country that Pakistan recognises and does not freely trade with.

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