ADB provides $100 mln loan to help tackle power shortages

The Asian Development Bank (ADB) on Tuesday agreed to lend up to $100 million to a privately owned gas-fired power plant in Pakistan that will help alleviate chronic power shortages which are undermining growth and poverty reduction.

ADB’s loan will fund construction of the 404 megawatt gross capacity Uch-II Power Project in Dera Murad Jamali in Balochistan Province, around 600 km north of Karachi.

The plant is expected to take 30 months to build, with the project due for completion in September 2013, according to ADB statement received here.

It will be located on surplus land at the existing Uch-I site and will be developed by International Power plc of the UK, a leading independent power generation company and the single largest private investor in Pakistan’s electricity sector,

“Along with helping to address the current power shortfall, the project will tap an underused indigenous energy source to provide affordable electricity, which will help reduce expensive oil imports, relieve stress on Pakistan’s foreign exchange reserves, and support overall energy security,” said Michael Barrow, Director in ADB’s Private Sector Operations Department.

Pakistan’s power deficit is weighing heavily on the economy, the press statement said adding regular outages affect all major urban centers, with shops and factories often closing early as a result of energy rationing.

The shortfall in supply has reached over 22% of the country’s peak demand and the problem is set to worsen without new generating capacity.

Industry debt, which has undermined revenues for distribution firms and forced generating companies to halt, delay, or reduce payments to fuel suppliers to balance cash flows, has deterred private investment and hampered development of the power sector, it added.

To address these problems, the government is seeking to improve the investment environment and to scale up the energy sector with support from independent power producers.

ADB has played a pioneering role in attracting private capital to the power sector, including financing the country’s first private hydropower project and its first private wind power project.

“ADB’s support for this project will reassure the developer and encourage co-financing support for future projects, which otherwise might not be forthcoming,” said Takeo Koike, Senior Investment Specialist in ADB’s Private Sector Operations Department.

The project will tap gas from the Uch field about 47 km from the site, with electricity supplied to the state National Transmission and Despatch Company under a 25-year take-or-pay power purchase agreement.

The tariff structure will ensure that electricity is both affordable, and that the project is financially viable, with the operator able to recover costs while the facility will also lead to new jobs in a remote and economically deprived area of Balochistan, with up to 800 jobs created during construction.