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Pakistan’s firm resolve towards green energy financing

The power sector in Pakistan is a mix of hydel and thermal units dominated by two vertically integrated public sector utilities that are Water and Power Development Authority (WAPDA) for all of Pakistan except Karachi, and the K-Electric (formerly KESC) for the city of Karachi and its surrounding areas while there are a number of independent power producers that contribute significantly in electricity generation in Pakistan.

For years, the matter of balancing Pakistan’s supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity. Due to an unrealistic power tariff, high inefficiencies, low payment recovery and the inability of the government to manage its subsidies mechanism that lead to a serious “circular debt” issue, which is becoming a barrier for future energy sector investment.

The economy is badly affected by electricity crisis with loss of huge capital. The solution to the current crisis lies in energy conservation at all level in the country. The use of alternate energy such as wind and solar power could be utilized to immediately reduce the shortages, while electricity projects from coal and large dam could provide a long-term solution to the electricity shortage.

Pakistan produces 64 percent of its energy from oil, gas and coal-based operations. Besides increasing domestic oil output, it will have to gradually do away with the use of oil for power generation. Use of oil by the transport sector should also be minimized by adapting to CNG- based transport system. Modern mass transit projects also need to be designed and completed on an emergency basis. This will not only minimize the use of private transport but will also improve the fast deteriorating traffic situation throughout the country.

New investment in the field of oil and gas exploration will have to be attracted by offering incentives to the local and foreign investors. These incentives should be well thought out and based on a win-win theory. We have sufficient gas reserves, which, if properly exploited, can give our economy a real break. Another option is to switch from oil-based to coal-based energy.


Coal is globally considered as one of the most important source of energy. Pakistan is said to have about 185 billion tons of coal deposits located in Sindh, mainly at Thar. It is unfortunate that a viable national coal policy yet remains to be evolved. Coal-based energy projects require mining facilities and supporting infrastructure. In the absence of a feasibility report and a consensus on tariff, the Thar project is being unduly delayed. An early use of domestic coal reserves also seems a distant possibility as the requirement of cement sector is being met through import from Indonesia. Hydro power is also a cheap and clean alternate source of energy. Pakistan produces 34 percent of its energy from water.


The significant challenges for Pakistan are scarcity of resources, poverty, decreased fuel reservoirs and health issues etc. Abrupt and towering energy needs, rickety oil prices and motions to curb global warming are few forces, which compel the world to invest in clean energy, termed as ‘green financing’.

The term green finance is explained by United Nations Environment Program as “Green finance accounts for the environment and its natural capital and seeks to improve human well-being and social equity while reducing environmental risks and improving ecological integrity”.

Generally, green financing is defined as devising the financial products and services for lending purposes in connection to environmental factors and monitoring the phases of the post lending and risk management processes with intent to promote environment-friendly investments and kindle low carbon technologies, projects, industries, businesses and economies.

SOURCES OF GREEN ENERGY: Following are key sources of green energy: Wind, solar, hydel and biomass. International Finance Corporation (IFC) worked on green financing product development and divided the green financing products based on usage level such as:

  • Retail Banking (home mortgage, green mortgages, commercial building loan, home equity loan, auto loan, fleet loan, credit card)
  • Corporate and Investment Banking (project finance, partial credit guarantee, securitization, bonds, technology leasing, private equity, carbon finance emission & trade, indices)
  • Asset Management (fiscal green funds, cat bond funds)
  • Insurance (auto insurance etc.)
  • The strategy that financial industries should develop, finance and manage products for green financing should be for two targets:
  • Environmental Betterment
  • Economic Growth

The International Energy Agency (IEA) has forecasted that demand for primary energy will increase by 40 percent between now and 2030. The mounting energy demand in Pakistan is a huge challenge for development and stability. The subsidy of Rs2,245 billion has been provisioned for power sector during the last five years but circumstances are far worse than the past.

The basket of circular debts is getting heavier day by day. Green financing is only panacea for all concerns of intensifying global energy demand, of vanishing fossil fuels and exhausted natural resources. Usage of renewable energy sources and other environmental-friendly technologies can only assist in sustainable socio-economic growth over the globe. To curtail the country’s energy issues Pakistan has to divert its policies and consequent actions for green financing.


Government of Pakistan has realized the significant contribution of alternative energy in economic growth and sustainability. Establishment of Alternative Energy Development Board (AEDB) in 2003, inauguration of Quaid-e-Azam Solar Park over an area of 5,000 acres, issuance of licenses to private companies to build tidal power stations and elimination of 32.5 percent tax imposed on imported solar equipment are some efforts, which demonstrate that Pakistan is moving towards green energy with solid intents. Government of Pakistan is encouraging the financing for green energy. Following are a few examples in connection to green financing:

– To promote the trends of alternative energy, Pakistan has approved the use of grid connected solar energy, rooftop solar installations and mortgage financing for home solar panels.

– National Bank of Pakistan introduced novel financing scheme for solar tube wells for the farmer community.

– Bank of Punjab is going to launch its solar financing product.

– Bank Alfalah Limited and Buksh Energy have jointly introduced a product under banner of Green Financing Partnership.

– German renewable energy company CAE plans to invest Rs12.9 billion in solar panel manufacturing in Pakistan.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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