ADB supports climate-smart growth in energy sector

KARACHI: Asian Development Bank (ADB) is conducting a study to take guidance for future course of investments in Pakistan’s energy sector that accounts for the biggest share in the bank’s energy portfolio, but is still mired in financial problems.

“ADB (will) continue to support climate-smart growth and increase energy access in Pakistan,” the bank’s statement said on Tuesday, referring to an ongoing study by ADB’s Independent Evaluation Department (IED). “While the IED study is still underway, we look forward to its recommendations on how ADB can best work with Pakistan on holistic energy solutions that address generation, transmission, and distribution, as well as governance.”

The statement said the IED’s decision to study Pakistan’s energy sector demonstrates the importance of power sector investments that encourage growth and help the country meet its commitments to the Paris climate agreement.

Pakistan’s energy portfolio is ADB’s largest energy portfolio for any country, with board approvals of more than $7 billion since 2005.

The department’s evaluation paper said the power sector’s inability to recover its full costs over long time-periods have created a circular debt situation wherein the sector’s financial problems have spilled over to other sectors in the supply chain, including fuel and equipment suppliers.

“Limited action in addressing the underlying causes of the circular debt has kept investments at less than desired levels until 2017. Generation has remained below load requirements, and losses in the transmission and distribution systems have remained high,” the sector assistance program evaluation for the Pakistan power sector added. The evaluation approach is expected to be finalised by later this year.

The evaluation paper, citing data of National Electric Power Regulatory Authority, said the government had cleared some of the circular debt by injecting $3.8 billion as equity of distribution companies (Discos) in 2013, “reducing substantially the arrears”.

Discos’ receivables, however, have kept increasing since then and reached Rs638 billion as of June 2016 ($6 billion). The IED’s paper said new power generation has started being commissioned in 2017 and is expected to reach 10 gigawatts of added capacity by 2019.

“However, the associated investments in manufacturing industries will also increase the load rapidly, reducing the generation surplus,” it added. “Further, it is not clear whether the current grid system would be able to manage the increased generation/load capacity effectively, with limited substations and transmission lines capacity.”

The bank’s statement said ADB remains committed to working with the government and its development partners, including through China-Pakistan Economic Corridor (CPEC) projects, to promote climate-smart growth and increase energy access.

“These efforts can help solve Pakistan’s energy crisis, shift the country towards a cleaner energy mix and low carbon growth, reduce its reliance on imported oil, and introduce new technologies and efficiencies that meet ADB’s stringent social and environmental safeguards,” it added.

The IED’s paper said the CPEC initiative has attracted $33 billion in investments through 2022, primarily for electricity generation and transmission with 80 percent of private investments.

ADB’s statement said the bank aims to introduce technologies that are more efficient and produce fewer CO2 emissions than conventional coal plants.

“ADB will continue to work with Pakistan to improve the governance of the energy sector, increase energy supply, and increasingly introduce renewable energy power generation to the country,” it added.

The study said governance challenges have constrained public and private investment in needed public infrastructure.