Energy Sector Reforms and Financial Sustainability Program (RRP PAK 53165) DEVELOPMENT COORDINATION A. Major Development Partners: Strategic Foci and Key Activities 1. The Integrated Energy Sector Recovery Report1 finalized in October 2010 by the task force of Friends of Democratic Pakistan acted as a guide to direct the investments of international financing institutions to priority subsectors and projects so that an integrated recovery of the energy sector could take place in the shortest possible time.2 The development partners engaged with the Government of Pakistan in the energy sector are the Asian Development Bank (ADB), Agence Française de Développement (AFD), the European Union, European Investment Bank, Islamic Development Bank, Japan International Cooperation Agency (JICA), KfW, the United States Agency for International Development (USAID), and the World Bank, with Asian Infrastructure and Investment Bank and the Export-Import Bank of Korea as the new entrants in the sector. 2. As Pakistan’s largest financier3 among development partners in the energy sector, ADB provides financing assistance to ensure energy security for the country and to support the government in transforming the development and operation of the country’s energy sector following market-based principles. ADB provides broad support to the power subsector— including power generation, transmission, and distribution. ADB financing to the energy sector in 2019 is $2.2 billion, which is 40% of the active portfolio of ADB financing to Pakistan. ADB has also supported policy and governance through three subprograms of the Sustainable Energy Sector Reform Program (2014–2017) aligned with the International Monetary Fund (IMF) with cofinancing from the World Bank, JICA, and AFD. 3. The World Bank provides funding for the improvement of energy distribution and transmission capacity, hydro power and renewable generation, energy efficiency, intra- and interregional power trade, and water resource management. In 2017, the IMF concluded a support program under the Extended Fund Facility for a $6.6 billion loan to stabilize the economy and boost growth, including energy sector reforms, and approved another $6.0 billion loan in July 2019 to support the government’s economic reform program.4 The transmission network system enhancement is supported by AFD, JICA, KfW, and USAID. Besides the transmission segment, KfW and AFD focus on renewable energy and energy efficiency as well as investing in small to medium-scale hydro power plants, power substations, and off-grid solutions. USAID’s ongoing support to the sector is limited compared with the assistance provided since 2008, and mainly emphasizes development of efficient systems in all subsectors of the energy sector. The Islamic Development Bank is supporting energy generation projects and providing a facility to the government to purchase petroleum products. 1 Friends of Democratic Pakistan–Energy Sector Task Force. 2010. Integrated Energy Sector Recovery Report and Plan. Islamabad. 2 Friends of Democratic Pakistan has 26 members. In addition to Pakistan, these are ADB, Australia, Canada, the People’s Republic of China, Denmark, Egypt, France, Germany, Iran, the Islamic Development Bank, the European Union, Italy, Japan, the Republic of Korea, Netherlands, Norway, Saudi Arabia, Spain, Sweden, Turkey, United Arab Emirates, United Kingdom, United Nations, United States, and the World Bank. 3 Since 2005, ADB has provided almost $8 billion to finance sovereign loan commitments, nonsovereign operations, and technical assistance projects in the country. 4 The reform program aims to (i) reduce public debt and build resilience, (ii) expand social spending, (iii) introduce a flexible market-determined exchange rate as a buffer against external shocks, (iv) eliminate quasi-fiscal losses and encourage investments in the power subsector, and (v) increase governance and promote an investment-friendly environment through structural reforms. 2 Major Development Partners Development Amount Partner Project Name Duration ($ million) ADB MFF Power Transmission Enhancement Investment Program 2008–2017 $810.00 Public Sector MFF Second Power Transmission Enhancement Investment 2017–2026 $625.00 Program (Tranches 1–3) Access to Clean Energy Investment Program 2017–2021 $325.00 Jamshoro Power Generation Project 2015–2024 $747.00 Sustainable Energy Reform Program 3 Subprograms 2014–2017 $1,200.00 MFF Power Distribution Enhancement Investment Program 2009–2018 $810.00 MFF Second Power Distribution Enhancement Investment Program 2015–2024 $400.00 Tranche 1 ADB New Bong Escape Hydropower 2005 –2013 $37.30 Private Sector Zorlu Enerji Power Project 2010 –2013 $36.80 Uch II Power Expansion Project 2010 –2014 $100.00 Star (Patrind) Hydropower Project 2011 –2017 $97.00 Foundation Wind Energy Projects 2011 –2014 $66.71 Gulpur Hydropower Project 2015 –2019 $65.00 Engro Fast-Track Liquefied Natural Gas Regasification Project 2014 –2015 $30.00 AFD Jaggran II Hydropower Project 2013–2019 €68.00 Harpo Hydropower Project 2013 –2019 €50.00 Rehabilitation of Warsak Dam (€40.00 by KfW and €50.00 by EIB) 2015–2022 €130.00 Capacity Building and Community Development 2015 –2022 €4.50 Mangla Hydropower Training Institute 2013 –2022 €3.50 Rehabilitation of Mangla Dam 2017 –2022 €90.00 EU/EIB Keyal Khwar Hydropower Project 2014 –2020 €99.50 Germany Ghazi Road Gas-Insulated Substation, Punjab 2008 –2019 €11.30 (through KfW Glacier Monitoring Network for KPK and Gilgit-Baltistan 2016 –2021 €6.00 and GIZ) Hydropower and Renewable Energy-1 Project 2012–2019 €10.00 128-MW Keyal Khwar Hydropower Project 2018 –2018 $135.00 Hydropower Development Programme Gilgit–Baltistan and KPK 2011 –2017 $86.80 IDB Hydropower Projects of Ali Khawar, Khan Khawar, and Dubair 2008–2018 $150.20 Khawar Neelum–Jhelum Hydropower Plant Project 2009 –2019 $357.64 Uch II Power Expansion Project Ongoing $90.00 Star (Patrind) Hydropower Project Ongoing $60.00 Fauji Wind Projects Ongoing $140.00 IMF Extended Fund Facility-1 2013 –2017 $6,600.00 Extended Fund Facility-2 2019 –2023 $6,000.00 JICA Load Dispatch System Upgrade Project 2015 –2014 $38.39 Punjab Transmissions Lined and Grid Stations Project 2008 –2020 $126.00 National Transmission Lines and Grid Stations Strengthening Project 2010 –2019 $257.00 Dadu-Khuzdar Transmission System Project 2006 –2015 $37.02 Improvement of Training Capacity on Grid System O&M NTDC 2011 –2014 $3.77 Sustainable Energy Sector Reform Program Subprograms 1 and 2 2014 – 2016 $90.00 USAID Program Support for Energy Generation 2003 –2014 $3.42 Transmission Lines for Wind and Hydro Power Projects 2014 –2016 $7.63 Guddu Thermal Power Station Repair and Maintenance 2010 –2015 $18.07 Muzaffargarh Thermal Power Station Repair Maintenance 2010 –2015 $15.19 Jamshoro Thermal Power Repair and Maintenance 2010 –2013 $18.36 Power Distribution Program for DISCOs 2010 –2015 $60.00 Power Generation and Transmission Improvement Program 2012 –2015 $6.69 Clean Energy for Pakistan Economy Program 2016 –2019 $70.00 World Bank Tarbela Fourth Extension Hydropower Project (IBRD and IDA) 2012–2019 $725.00 Tarbela Fifth Extension Hydropower Project (IDA and AIIB) 2017–2022 $690.00 Dasu Hydropower Stage I Project (IDA) 2014–2022 $1,048.00 Central Asia South Asia Power Transmission Trade Project (IDA) 2014–2020 $198.00 National Transmission Modernization Project 2017 –2024 $425.00 Sindh Solar Energy Project (IDA) 2019–2023 $100.00 Natural Gas Efficiency Project (IBRD and IDA) 2012–2017 $200.00 3 Development Amount Partner Project Name Duration ($ million) Water Sector Capacity Building and Advisory Services Project 2008 –2015 $38.00 First Power Sector Reform Development Policy Credit 2014 –2015 $600.00 Second Power Sector Reform Development Policy Credit 2015 –2016 $500.00 ADB = Asian Development Bank, AFD = Agence Française de Développement, AIIB = Asian Infrastructure Investment Bank, DISCO = distribution company, EIB = European Investment Bank, EU = European Union, GIZ = German Society for International Cooperation, IBRD = International Bank for Reconstruction and Development, IDA = International Development Association, IDB = Islamic Development Bank, IMF = International Monetary Fund, JICA = Japan International Cooperation Agency, KPK = Khyber Pakhtunkhwa, MW = megawatt, NTDC = National Transmission and Despatch Company, O&M = operation and maintenance, USAID = United States Agency for International Development. Source: Asian Development Bank. B. Institutional Arrangements and Processes for Development Coordination 4. ADB, as the largest and anchor development partner, facilitates the interaction between the energy sector development partners by hosting regular meetings to coordinate policy dialogue and discuss sector and project issues. The development partners in the last meeting in June 2019 were updated on the assistance being provided by ADB to the government in preparing the electricity policy (2019–2023) and electricity plan. The government has recently reached a staff level agreement with the IMF, under the Extended Fund Facility, to curtail the energy sector’s burden on the annual state budget and to stem its negative impact on economic growth. ADB and the World Bank have been requested by the IMF to provide sector analysis as an input to their periodic reviews and program formulation. 5. The program builds on lessons from previous ADB and development partner investments in Pakistan and the successes generated by their complementary approaches and multipartner dialogue.