ADB to okay $200m loan for power distribution project in Pakistan

ISLAMABAD: The Asian Development Bank (ADB) is expected to approve a $200 million loan this year for Pakistan’s Power Distribution Strengthening Project, which aims to modernize electricity distribution infrastructure in four key regions.

The proposed project targets Hyderabad, Sukkur, Multan, and Lahore Electric Supply Companies, focusing on upgrading outdated systems, reducing technical losses, and improving revenue collection.

This initiative includes climate-resilient measures, enhancing institutional governance, and supporting Pakistan’s goal of reducing its circular debt. The project is expected to significantly improve power supply reliability and benefit underserved communities.

With aging equipment responsible for Pakistan’s high technical and commercial losses, the project will focus on upgrading transformers, power lines, and other infrastructure. It includes installing climate-resilient technologies, vital for maintaining stability during extreme weather events. By targeting inefficiencies in billing and revenue collection, the project aims to improve the financial viability of the power sector and reduce Pakistan’s circular debt, which remains a major fiscal challenge.

Pakistan’s energy sector faces a long-standing issue of circular debt, resulting from inefficiencies in cost recovery and poor revenue collection. This debt continues to impact the country’s fiscal health.

A key aspect of the ADB’s project is enhancing the financial performance of the distribution companies by upgrading billing systems and implementing institutional reforms. By addressing these deep-rooted challenges, the project is expected to reduce Pakistan’s debt burden, promoting long-term sustainability in the energy sector.

DISCOs face significant challenges, including high losses, which averaged 16.5 percent in fiscal year 2022-2023. Tariff collection also remains low, with an average of 93.4 percent, though it varies significantly by region.

For instance, Sukkur Electric Power Company (Sepco) reported a collection rate of 68.2 percent, while Hyderabad Electric Supply Company (Hesco) recorded 75.9 percent. Aging infrastructure and administrative inefficiencies further hinder their performance.