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ISLAMABAD: The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has rated “Pakistan: Sustainable Energy Sector Reform Program (Subpro-grams 1, 2, and 3),” of around $2.4 billion less than effective, less than efficient and less than successful as it was not able to effectively address the underlying liquidity issues in the power subsector, which was key to its intended outcome.

The IED in its report noted that Subprogram 1 was approved and disbursed as a single-tranche loan, with SDR257,443,000 ($400 million equivalent) from ADB’s special fund resources, $600 million from the World Bank, and $49 million equivalent from JICA.

Under subprogram 2, ADB provided two loans: one in the amount of SDR213,543,000 ($300 million equivalent) from its special fund resources, and another in the amount of $100 million from its ordinary capital resources.

The World Bank provided $500 million while JICA’s contribution was $49 million. For subprogram 3, the initial loan of $150 million from ADB’s ordinary capital resources was increased to $300 million to cover additional reform accomplishments beyond the original scope of indicative actions planned at the approval of subprogram 2. A collaborative co-financing of €100 million was provided by AgenceFrançaise de Développement for subprogram 3. All loan proceeds were for general budget support based on the government’s financing needs.

ADB approves $554m financing package

The program’s expected impact was economic growth through the sustainable energy sector. The intended outcome was improved reliability, sustainability, and affordability of the energy system.

The program had three targeted outputs: managed tariffs and subsidies, improved sector performance and market access for private participation, and accountability and transparency in the power subsector achieved. The outputs corresponded to the three reform areas defined by the program. For each subprogram, all prior actions listed in the policy matrix were completed before the approval of the subprogram by the ADB Board.

The programmatic approach and subprogram 1 were approved, and the loan agreement was signed and became effective in April 2014. Subprogram 2 was approved in November 2015, and subprogram 3 in June 2017. Their loan agreements were signed, and each became effective a few days later. All subprograms were closed as scheduled without extensions.

The project program completion report (PCR) rated the program effective based on the outcome indicators. First, the total gas supply was 4.1 billion standard cubic feet per day (scfd) in June 2017 and 4.4 billion scfd in June 2018. While the target of 5.0 billion scfd was not fully met, the numbers showed a substantial increase in supply owing to the liquefied natural gas imports enabled during the program.

Second, in the total foreign direct investment in the fiscal year 2018, the power sector accounted for over 40percent, largely driven by the China–Pakistan Economic Corridor. However, the indicator was about the increase in the share of private investment in total investments in the power sector, from 19percent in the fiscal year 2012 to 23percent by the fiscal year 2018.

The PCR considered this target achieved, although this could not be fully substantiated by the share of power sector (40percent) in total foreign direct investment. Third, the power system losses were reduced from the baseline of 21.86percent in the fiscal year 2013 to 17.93percent in fiscal year 2017, just marginally missing the target of 17.86percent. Fourth, regarding the unaccounted for gas, the percentage was reported to have reduced from the baseline of 11percent in the fiscal year 2013 to 8.2percent in the fiscal year 2018, slightly missing the target of eight percent. Fifth, the indicator for power subsidy set the target of reducing its share in GDP from the baseline of 1.8percent in the fiscal year 2013 to 0.3percent–0.4percent by June 2016. While this was achieved during the fiscal year 2016–fiscal year 2018, the share started to increase after the fiscal year 2018.

The PCR rated the program less than likely sustainable due to the post-program increase in circular debt stock; thus jeopardizing the sustainability of the sector.

The PCR rated the program successful. This validation assesses the program relevant based on its alignment with the government’s and ADB’s strategies and policies, design appropriateness, and timely and appropriate updating of the original indicative triggers in response to the dynamic needs emerging from program implementation. The program was less than effective as it was not able to effectively address the underlying liquidity issues in the power subsector, which was key to its intended outcome.

The program was less than efficient for its less-than-satisfactory process efficiency, and less than likely sustainable for the relatively weak continuity and persistence of the policy supported and institutional actions taken under the program. Overall, this validation assesses the program less than successful.

Copyright Business Recorder, 2022

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