Loans in sight for Pakistan following sector reforms

Loans in sight for Pakistan following sector reforms

Sarta Aziz, Pakistan`s foreign minister, has said that the partial lifting of US sanctions was the green light to resume International Monetary Fund (IMF) lending which would help narrow a looming $5bn balance of payment gap.

The positive news follows progress in getting both Pakistan and India to sign the Comprehensive Test Ban Treaty (CTBT); as well as signs that Pakistan was resolving its ongoing dispute with a number of IPPs.

Aziz said the IMF was coming to Pakistan after on-off talks on a $1.56bn loan programme, frozen after sanctions for Pakistan`s nuclear tests in May. The IMF had postponed its visit to the country in October after a surprise decision by prime minister Nawaz Sharif to cut the domestic electricity tariff by 30 per cent, which called into question the financial viability of contracts awarded to some 19 private power companies during the former government of Benazir Bhutto.

The IMF and donor countries are also concerned over a government drive to get IPPs, many of which have international backing, to cut the rates they charge to the indebted state Water and Power Develop- ment Authority (Wapda) for power. The government is also accusing some of the IPPs of obtaining their contracts corruptly under the Bhutto government.

Pakistan announced that five IPPs have agreed to cut tariffs from 6.1 à‚¢/kWh to between 5.5 and 5.8à‚¢/kWh. Hub Power, however, one of the companies caught up in the tariff and corruption dispute, welcomed a Pakistani court ruling that the tariff promised to the company could not be unilaterally changed by Wapda.

Wapda currently faces losses due to inefficiencies and outstanding payments. Its transmission losses of about 30 per cent are among the highest in the world. The reform of Wapda is said to essential to the success of the economy since it is at the centre of debt which amounts to three per cent of gross domestic product.

The World Bank is working with Pakistan on reforms under which Wapda aims to collect some $565m in unpaid bills. According to sources at the ministry of water and power, Wapda has closed 40 per cent of its thermal stations due to lack of funds to buy fuel and for technical reasons.

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