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 * 4 min read


WORLD BANK CANCELS USD 500 MILLION LOAN TO PAKISTAN

The Washington-based lender has also announced that it will not provide any new
budget support loans during the current fiscal year, which could affect the
government's expectation of receiving USD 2 billion in fresh loans. A key reason
for this decision is that Pakistan has largely exhausted its loan quota as
reported by Express Tribune.
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 * ANI

 * Updated On Dec 16, 2024 at 09:31 AM IST


Islamabad: The World Bank has cancelled a budget support loan of over USD 500
million to Pakistan after Islamabad failed to meet key conditions on time,
including the revision of power purchase agreements under the China-Pakistan
Economic Corridor (CPEC), as reported by The Express Tribune.

The Washington-based lender has also announced that it will not provide any new
budget support loans during the current fiscal year, which could affect the
government's expectation of receiving USD 2 billion in fresh loans. A key reason
for this decision is that Pakistan has largely exhausted its loan quota as
reported by Express Tribune.


Advt


Government sources revealed that the World Bank had cancelled the USD 500 to 600
million loans under the Affordable and Clean Energy program (PACE-II).
Initially, the bank had agreed to provide 500 million, later increasing the
amount to 600 million to help bridge Pakistan's external financing gap, The
Express Tribune reported.

The PACE program was approved by the World Bank in June 2021, with the first
tranche of USD 400 million already released. However, the second tranche was
contingent on several conditions, including negotiations with all Independent
Power Producers (IPPs), notably the Chinese power plants established under CPEC.



According to the Express Tribune report Pakistauthorities said that no progress
was made in renegotiating agreements with CPEC-related power plants. China has
repeatedly rejected reopening these deals, including restructuring the energy
debt, which totals around USD 16 billion, the sources added.

In its efforts to lower electricity prices, the government is renegotiating
energy agreements with power plants established under the 1994 and 2002
policies. The Chinese-owned power plants, along with government-run plants
primarily four LNG-fired and two nuclear plants are part of the 2015 energy
policy.


Advt


The government has renegotiated around 22 energy contracts so far, but there
have been no significant reductions in electricity prices.

The current price remains around Pakistani Rupees (PKR) 65 to PKR 70 per unit,
including taxes and surcharges. The government has been hesitant to remove the
PKR 16 per unit cross-subsidy imposed on higher consumption users, which helps
lower the cost for those using less than 200 units monthly. If this
cross-subsidy were abolished, it could significantly ease the financial burden
on residential and commercial electricity consumers as reported by Express
Tribune.

A spokesperson for the World Bank confirmed that "slower-than-expected progress
led to a shift in strategy in our support for reform" in Pakistan's energy
sector.

When asked whether the PACE-II loan was cancelled, the spokesperson explained
that the World Bank has been backing power sector reforms through the Programme
for Affordable and Clean Energy (PACE) development policy operation. PACE-I was
approved by the board in June 2021, with PACE-II expected in fiscal year 2022.
However, due to slower progress, the World Bank adjusted its lending strategy.

The report further stated that the spokesperson stated that the World Bank has
continued its support by directly financing low-cost hydropower projects,
including an additional USD 1 billion for the Dasu Hydropower project.

Furthermore, the Bank has remained engaged with all relevant parties to
accelerate the implementation of the Electricity Distribution Efficiency
Improvement Project, which focuses on enhancing efficiency in the distribution
sector. The World Bank has also provided technical assistance to encourage
private sector participation in DISCOs (power distribution companies).

When asked whether the World Bank would offer any new budget support loans to
Pakistan, the spokesperson replied, "No budget support is planned for the
current fiscal year, which ends in June 2025."

For the current fiscal year, the government has allocated USD 2 billion in loans
from the World Bank. However, by the end of the July-October period, the World
Bank has disbursed only USD 349 million, which accounts for 18 per cent of the
planned amount for the year.

As part of the PACE-II program, Pakistan was expected to address inefficiencies
within power distribution companies and curb the growth of circular debt.
Unfortunately, the government has not been able to meet either of these goals.

Under PACE-I, the government had approved a roadmap to encourage private sector
involvement in the distribution sector, but this was never implemented. The
successful execution of this roadmap was crucial for assessing the progress of
the power sector reform program, but it was not carried out.

The National Electric Power Regulatory Authority (NEPRA) reported this week that
inefficiencies within power distribution companies resulted in losses of PKR 660
billion in the last fiscal year. Additionally, the circular debt rose to PKR
2.393 trillion during the same period, significantly exceeding the targets set
in agreements with the International Monetary Fund (IMF) and the World Bank.

To conceal its inefficiency, the Power Division has not been consistently
updating the monthly circular debt report on its website, which goes against the
commitments outlined in the Circular Debt Management Plan framework. For this
fiscal year, the IMF identified a USD 2.5 billion external financing gap that
must be filled with new loans.


 * ANI

   
 * Published On Dec 16, 2024 at 09:30 AM IST
   


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 * World Bank loan cancellation
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