World Bank and other lenders criticise Pakistan’s energy negotiations
A group of eight development financing institutions warned that Pakistan's unilateral renegotiation will damage investor confidence in the clean energy sector and harm its long-term prospects.
Last year, Pakistan announced that it would renegotiate contracts with independent energy producers in order to reduce "unsustainable" electric tariffs.
In a letter, the International Finance Corporation of the World Bank, the Asian Development Bank (ADB), the Islamic Development Bank (IDB) and five other institutions stated that Pakistan renegotiated wind and solar energy contracts with independent producers in order to reduce energy costs "in a non-consultative way".
The institutions wrote in a letter sent to the finance and energy ministers of the country, as well as the advisor to the prime minister on energy, that the move would be "disadvantageous to the long-term growth of the sector", undermining the confidence of investors and discouraging future private investments.
The Financial Times reported the first on the letter of February 18 and said that last month, the powerful military was leading the renegotiations of the power contract.
The media arm of the military did not reply to a comment request.
No MILITARY COERCION
Muhammad Ali, the prime minister's adviser on power, denied that military coercion was used in government renegotiations of power plants. He called discussions "very amicable and cordial".
Ali assured lenders that they will not be affected by the sovereign guarantee of the government. He noted that some wind farm owners may have misled their lenders about the financial impacts of the renegotiation and announced plans to conduct a forensic review of certain plants because of suspected inflated costs.
The Islamic Development Bank did not immediately respond. The Asian Development Bank has confirmed receipt of the letter but declined to comment.
The institutions stated in their letter that they had invested $2.7 billion over the last decade in the clean energy industry and that the power producers who they had financed "were not permitted to agree to any changes to a major project document without prior approval."
Khurram Schéhzad, advisor to Pakistan’s Finance Minister, said that short-term adjustments in the energy sector may cause concern, but they will have long-term advantages, attracting investments and driving economic development. The government wants to boost investor confidence by addressing legacy issues and creating a transparent and stable market.
In order to address chronic power shortages, Pakistan approved more than a dozen private projects, mostly financed by foreign lenders.
The deals were based on incentives, such as guaranteed high returns and promises to pay for even unused electricity. But a prolonged economic crisis led to a reduction in consumption, resulting in excess capacity.
The letter follows a statement made by IFC's chief Makhtar DIOP last week, who said that the lender would be increasing equity investments in Pakistan and pursuing large-scale infrastructure funding, including power. This investment plan could yield $2 billion per year over ten years.
Pakistan hosts a delegation from the International Monetary Fund to discuss climate finance worth around $1 billion. This is in addition to a $7-billion IMF program which has played a key role in alleviating an economic crisis. (Reporting from Ariba Shehid in Karachi, additional reporting by AsifShehzad in Islamabad, Writing by SaadSayeed and Editing by Sharon Singleton.)
(source: Reuters)
