ADB’s $200 million loan to strengthen Pakistan’s power distribution

The Asian Development Bank (ADB) is expected to approve a $200 million loan for Pakistan’s Power Distribution Strengthening Project, aimed at modernizing the electricity distribution infrastructure in four key regions: Hyderabad, Sukkur, Multan, and Lahore, reported The News.

The project targets the four distribution companies (DISCOs) by upgrading outdated systems, reducing technical losses, and improving revenue collection. The initiative includes climate-resilient measures, enhancing institutional governance, and supporting Pakistan’s goal of reducing its circular debt.

The project will focus on upgrading transformers, power lines, and other infrastructure to reduce technical and commercial losses. This includes installing climate-resilient technologies to maintain stability during extreme weather events. By addressing inefficiencies in billing and revenue collection, the project aims to improve the financial viability of the power sector and reduce Pakistan’s circular debt.

Pakistan’s energy sector has been plagued by circular debt, resulting from inefficiencies in cost recovery and poor revenue collection. The project aims to enhance the financial performance of the DISCOs by upgrading billing systems and implementing institutional reforms.

The DISCOs face significant challenges, including high losses, which averaged 16.5% in fiscal year 2022-2023. Tariff collection remains low, with an average of 93.4%, varying significantly by region. For instance, Sukkur Electric Power Company (Sepco) reported a collection rate of 68.2%, while Hyderabad Electric Supply Company (Hesco) recorded 75.9%. Aging infrastructure and administrative inefficiencies further hinder their performance.

By addressing these deep-rooted challenges, the project is expected to reduce Pakistan’s debt burden, promoting long-term sustainability in the energy sector.