The Affordable and Clean Energy (PACE-II) program has called off a budgetary support loan to Pakistan between the range of $500-600 million from the World Bank. This was because Pakistan could not satisfy core prerequisites, such as rewriting its power purchase agreements with CPEC investment power plants. it also announced that no new budgetary support loans would be extended during this fiscal year because Pakistan has exhausted its quota.
This takes any fiscal plans for Pakistan awry as it had incorporated $2 billion from World Bank loans. The cancellation is attributed to delays in the renegotiation of contracts with Independent Power Producers (IPPs), inefficiency among power distribution companies, and outstanding circular debt that has now crossed Rs2.393 trillion. Although 22 energy contracts have been renegotiated, electricity prices are still between Rs65 and Rs70 a unit. It indicated “slower-than-expected progress” as a rationale for shifting its support strategy from budget support to direct financing in projects such as the Dasu Hydropower Project, improving distribution efficiency.
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In 2015, under policies leaning on IMF approval, Pakistan had to adopt the world’s highest rate of return on coal investments, reaching as much as a mind-boggling 30%. The policy was conditioned on IMF disbursement and began the conversion of Pakistan to an investor’s paradise for coal, especially for Chinese companies. The private finance arm of the World Bank promoted local banks to give guarantees for coal projects. Today, those same banks demand that Pakistan renegotiate the contracts that they helped create.
Pakistan’s energy crisis reflects the failure of even broader purposes.