JICA LOANS FOR POWER SECTOR

KANWAL SALEEM
(feedback@pgeconomist.com)
Apr 5 - 11, 2010

The Japan International Cooperation Agency (JICA) has signed a Japanese soft loan agreement with the government of Pakistan with up to 23 billion yen for the "National Transmission Lines and Grid Stations Strengthening Project".

This is the first Japanese ODA loan project based on the Pakistan Donors Conference hosted by Japan in April 2009, where a maximum of $1 billion in aid was pledged over the next two years. This project will construct and expand high-voltage (500kV and 220kV) substations (4 sites) and related transmission lines (approximately 428 km) in Punjab and Sindh provinces that are home to approximately four-fifth of the country's total population.

Providing a reliable and efficient power supply will improve the serious power shortage and contribute to economic development and improvement of living standards of local residents in the concerned area.

The funds will be allocated to the civil works and equipment procurement costs related to the new construction and expansion of substations and related transmission lines. The operations and maintenance of the newly constructed and expanded substations and related transmission lines in this project will be implemented by employees trained at the training institution that will be strengthened under JICA technical cooperation.

Power supply in Pakistan has been unable to keep up with power demand, which is growing at an annual 7 per cent rate since the last decade. Demand-supply gap is reportedly one-fourth of the demand or 4,500MW to 5,000MW, causing nation-wide power cut for around 10 hours per day. Due to the frequent power cut, machinery at factories frequently stop operations leading to stagnated production activities; and even in the country's important agriculture and industry are suffering from the power outages. Machinery-dependent agriculture works are impeded due to power breakdowns. One of the causes of this power shortage is the high losses incurred due to poor transmission and distribution facilities.

Pakistan's power transmission and distribution loss ratio is 21.6 per cent and markedly high, in contrast to Japan (5 per cent), and Sri Lanka (15 per cent). The purpose of this project is to reduce losses, which are equivalent to the power consumption of about 2.05 million people. Pakistan achieved an economic growth of about 6.5 per cent annually for five consecutive years until Fiscal Year 2007/2008 (July 2007 to June 2008).

In 2008, the country's foreign currency reserves rapidly fell due to the sharp increase in international food and fuel prices as well as foreign capital outflow caused by the global financial crisis.

To improve this economic situation, the government of Pakistan has pursued an economic stabilization program under IMF assistance, but the FY2008/2009 economic growth rate dropped to 2 per cent.

Since the 9/11, the international community has continued to fight with the terrorists, but anti-government forces continue to fight back along the Afghanistan and Pakistani borders, and continually threaten public security both in Pakistan and in the region.

After April 2009, the Pakistani government forces conducted military operations in the border regions that begot numerous internally displaced persons. The country plays an important role in the international community's fight against terrorism. It is vital that Pakistan achieves economic and political stability as a modern and moderate Islamic nation in order to achieve peace and stability.

Japan's new strategy addressing the threat of terrorism is (I) assisting for economic growth (energy including electricity, infrastructure development), for macroeconomic reform (co-financing with the World Bank), and for improvement of people's livelihood in poverty reduction sector (health, basic education, rural development), and (2) assisting for improvement of people's livelihood in regions such as 'North West Frontier Province' (NWFP) and Federally Administrated Tribal Areas (FATA).

JICA will employ an integrated approach taking advantage of three schemes of assistance, technical cooperation, loan assistance (yen-loans), and grant aid, to actively support Pakistan.