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| ADB Headquarters in Manila [PHOTO: © Eugene Alvin Villar, 2007/CC BY-SA 3.0] |
“Pakistan urgently needs to utilize its existing power generation capacity fully, while reducing its reliance on costly imported diesel fuel for electricity generation,” said Mohammed Azim Hashimi, an investment specialist in ADB’s Private Sector Operations Department. “Regasification of LNG will allow generation facilities to reach their maximum potential, using a cleaner and more efficient fuel, and will support the country’s push for greater energy security and diversification.”
The loan, to the special purpose unit of listed Pakistani company, Engro Corporation Ltd, will be used to build and operate the regasification facility at Port Qasim, Karachi. The plant will have the capacity for regasification of up to 3 million tons of LNG per annum from March 2015 onwards. The fuel, suitable for use at most of the country’s combined cycle power plants, will be supplied to the state-owned Sui Southern Gas Company’s gas distribution network via a new high pressure pipeline.
The converted fuel will help the government make an estimated savings of about $1 billion per annum on its current fuel import bill of nearly $15 billion.
Since 2008, Pakistan has been suffering from crippling power shortages, caused by a lack of fuel, which has resulted in unscheduled industry shutdowns, power interruptions in cities, and public unrest. The country’s natural gas resources are also under severe strain with a recent survey showing that the rate of gas extraction is declining by over 2% a year, even as demand accelerates.
Regasification converts LNG into natural gas, making it easier to store and distribute through pipelines to end users including power generators. The project will help avoid up to 2 million tons of greenhouse gas emissions a year.
ADB works closely with the government to attract private sector capital into Pakistan’s energy sector, and has helped finance the country’s first two private hydropower projects and first three private wind power projects. ADB also offers long term commercial financing which is not readily available in Pakistan. The regasification project is expected to set legal and financial benchmarks for similar projects in future.
Along with ADB’s loan, International Finance Corporation is expected to provide $20 million and local banks another $50 million. The rest of the project financing will come from equity proceeds of $33.3 million, for a total cost of $133.3 million, including contingencies.