ISLAMABAD: While noting sluggish progress on two prior policy actions, an Asian Development Bank (ADB) Mission has underscored that Pakistan should remain on track as the country is in the process of negotiating the International Monetary Fund (IMF) 9/10th Review of Extended Fund Facility (EFF).

The Mission visited Pakistan from February 7-21, 2023, to consult with the government on ADB’s support for the energy sector development and review the progress of prior policy actions under the Energy Sector Reforms and Financial Sustainability Program (Subprogram 3).

The Mission comprising Seung Duck Kim, Senior Energy Specialist (Mission Leader), Ehtesham Khattak, Senior Project Officer (Infrastructure) under guidance of Joonho Hwang, Director of Energy Division, and Asad Aleem, Deputy Country Director. The Mission, in its Aide Memoire discussed different issues.

According to Aide Memoire, Mission has noted that Circular Debt (CD) stood at Rs 2.253trillion at end of FY22 with a decrease of Rs 27 billion during FY22 due to CD stock payment from the budget. Policy Action 3.3 has two conditions: (i) reduction of the circular debt flow by between Rs 325 billion and Rs 724 billion and (ii) reduction of PHPL debt by between Rs 130 billion and Rs 180 billion. PHPL debt was reduced by Rs 130 billion during FY22 and thus, the second condition is complied with. However, CPPA-G payables grew by Rs 102billion during FY22, mainly due to delayed regular tariff adjustments and high generation costs from upsurging international energy prices, currency depreciation, and high interest rates. The Mission reviewed the revised CDMP FY23 which projects the increase of CD to Rs 2.374trillion in FY23 with increased circular debt inflow.

The ADB argues that the policy action to reduce circular debt flow is unlikely to be achieved by June 2023.

The ADB’s definition of the “circular debt flow’ used in the ADB’s Report and recommendation of the President to the Board of Directors is the accumulated CPPA-G payable portion of circular debt. ADB uses “new accumulation of circular debt” equivalent to “CD flow” in CDMP.

The Mission maintained that approval of National Electricity Plan (NE-Plan) is being delayed since October 2022. The MoE (Power Division) updated the Mission that the NE-Plan is finalized and was expected to be presented to CCoE in February 2023. However, the commitment has not been honoured. In addition to the approval of NE-Plan itself, prior action requires some gender elements included in the NE-Plan. ln October, the Mission proposed to include gender aspects in the priority area i.e. restructuring and capacity building and such provisions as are expected to form part of NE-Plan.

NTDC Restructuring: NTDC updated on the progress of restructuring with key features: (i) introduction of Environmental Responsible Procurement (ERP) to streamline business process and provide information for the management decisions; (ii) development of the robust performance management system; (iii) capacity strengthening trainings; and (iv) establishment of the health, safety, and environmental department. NTDC plans to separate the National Power Control Center (NPCC) from NTDC as an independent entity. NTDC pointed out the need to re-assess the validity of E&Y’s restructuring plan, however NTDC’s restructuring plan remains unapproved by the management of NTDC. The Mission requested the government and NTDC to approve and implement the restructuring plan without any further delay.

The Mission delivered the draft energy sector gender policy framework in October for Power Division’s consideration. Power Division updated that the draft report along with draft gender policy framework was circulated to stakeholders for comments. Once comments are compiled, CCoE will approve it. Expected timeline is June 2023. The Mission requested to expedite the approval of gender policy by March 2023.

On privatisation of two RLNG power plants, Privatisation Commission (PC) shared that the divestment of two LNG power plants has been stalled since ADB’S review in March 2022. The Mission was informed that despite multiple attempts to divest two LNG power plants, asking prices by buyers were unacceptably low. The MoF (Power Division) noted that the government is under discussion with other governments on a bilateral basis on the privatisation of those power plants.

The ADB Mission in its Aide Memoire has held that this policy action is unlikely to be met by June 2023.

The ADB has requested Ministry of Finance and Ministry of Economic Affairs to timely complete the targets agreed in subprogram 3.

The Mission, while noting progress made by the government, has stated that some of the policy actions are still in progress and two policy actions stated are unlikely to be met. The Mission will consult internally on the unmet policy actions. The Mission also underscored that IMF 9/10th review of EFF should remain on track. To follow up on the progress, the Mission will plan a next review in the month of March or April.