September 2, 2012
Reposted from Business Recorder
Posted by Imaduddin
ISLAMABAD: A burgeoning circular debt, power sector issues, poor law and order situation and a highly adverse rating of Pakistan by the Moody’s are likely to result in low level investment of private sector.
This was stated by Philip C Erquiaga, Director General, Private Sector Operations Department of Asian Development Bank (ADB) while talking to a select group of journalists here on Friday.
He said that Pakistan lacks a proper policy and a comprehensive framework of investment that is often discouraging to the private investors as well. Werner E. Liepach, Country Director ADB and Muhammad Azim Hashimi, Senior Investment Officer, Pakistan Resident Mission ADB were also present.
Philip said banking system in Pakistan is strong. The ADB is helping private investors in investing in projects of energy like in the country’s first private independent power producers (IPPs) in hydro power, he said, adding that in gas exploration projects and in the projects of solar and wind energy while the projects in transport and solid waste management are also going on.
“It’s my first-ever visit to Pakistan…this country is rich in having investment opportunities for private sector especially due to its strategic geographical importance,” he added.
He further said total investment portfolio of ADB financed projects of private sector in Pakistan is worth $1.1 billion, while through trade financing program of ADB that offers guarantees to banks, an investment of $5 billion has been made so far in Pakistan through 13 different financial institutions operating in the country.
The Trade Finance Program (TFP) is an example of a private sector program that facilitates regional integration by supporting cross-border trade, he added, particularly between small and medium sized enterprises (SMEs) which also help the growth of SMEs.
When asked is there any private sector project of gas exploration, financed by ADB, being affected with the increasing security issues in Pakistan, he said: “There is not even a single project of this kind [besides] none of the ADB financed private sector project of gas exploration facing any setback due to worsening law and order situation in Pakistan.”
Liepach said overall investment in Pakistan is low but it is true that no major policy change in expected in Pakistan due to the upcoming elections. He said it is the need of the hour to make heavy investment in energy sector of Pakistan and the ADB is committed to providing cooperation to the private sector to make investment in this sector.
According to the Development Effectiveness Report 2011, discussed during the briefing, ADB’s regional departments work with governments to create an enabling environment for private sector development, while its private sector operations directly finance, share, and mitigate risks for private sector transactions.
The report reveals that hydropower was once the major source of energy in Pakistan, accounting for nearly 45 percent of all electricity generation in 1991. However, this share dropped to 28 percent due to lack of new hydropower plants, and the share of thermal generation has increased correspondingly. Approximately 70 percent of installed generation capacity is thermal and the vast majority of plants run on imported oil.
The report says that ADB has developed Pakistan’s first wind power project with Zorlu Enerji of Turkey, owner and operator of Turkey’s largest wind farm. ADB led the financial structuring and helped mobilize co-financing from the Economic Trade and Development Bank, Habib Bank, and the International Finance Corporation. In March 2012, the Zorlu wind power project won the Middle East Renewables Deal of the Year award by Euromoney Project Finance Magazine.
This 54.6 MW pioneer wind project has had a considerable demonstration impact, and several follow-on wind projects are now being developed in Pakistan. These include the Foundation Wind Energy I and II projects (two 50 MW wind farms to be built in Kutti Kun, near Karachi), which will also be financed by ADB.
The report says that ironically, Pakistan has an abundance of hydropower potential, the development of which has been stalled due to the tight fiscal situation and limited domestic and international financing appetite.