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Doument of
The World Bank
FOR OMCAL USE ONLY
R*ps No. P-3940-PAX
REPORT AND RECOMMENDAON
OF THE
PRiSIDE2NT OF THE
INTERNATIONAL BANRK FOR RECONSTRUCTION AND DEVELOPMENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
IN AN AMOUNT EQUIVALENT TO USS1O0 MILLION
TO THE
WATER AND POWER DEVELOPMENT AUTHORITY
WITH THE GUARANTEE OF THE
ISLAMIC REPUBLIC OF PAKISTAN
FOR A
FOURTH WAPDA POWER PROJECT
February 13, 1985
This docout b a resuicted disth. md my be nod by redplenls only in the perfmumamce oftir ouejal du&b lts cme_mt my na otbeawie be disdosed witht Wwrld Bank autborlzbo.
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CURRENCY EQUIVALENTS
Currency Unit - Pakistan Rupee (Rs)Rs 1 = Paisa 100US$1 = as 14.5RS 1 = US$ 0.0690
FISCAL YEARS
Government of Pakistan : July I-June 30
ACRONYMS AND ABBREVIATIONS
ADB Asian Developsent BankCIDA Canadian International Development AgencyGNP Gross National ProductGDP Gross Domestic ProductGOP Government of PakistanGCh gigawatt hourIERK Internal Economic Rate of ReturnKESC Karachi Electric Supply Corporation, L d.km kilometerkV kilovoltkWh kilowatt hourMW megawattNIC National Insurance CorporationTOE Tons of Oil EquivalentUSAID United States Agency for International
DevelopmentWAPDA Water and Power Development Authority
FOR OFFICJL USE ONLY
PAKISTAN
FOURTH WAPDA POWER PROJECT
Loan and Project Summary
Borrower: Water and Po-wer Development Authority (WAPDA).
Guarantor: Islamic Republic of Pakistan.
Amount: US$100.0 million equivalent.
Terms: Repayable in 20 years, including five years of graceat the standard variable interest rate.
Project Description: The proposed project, which would assist WAPDA in thefurther reinforcement and expansion of the secon-dary power transmission network, thereby reducingtransmission losses, consists of (a) the erectionof about 3,815 km of transmission line, (b) theconstruction of 139 new substations, (c) theextension and reinforcement of another 86 existingsubstations, and (d) studies, technical assistance
- and training to (i) prepare an investment program'or reducing losses in the transmission network,(ii) prP-pare a program of action to improve powerplant efficiency, (iii) develop a least costnational power plan, and (iv) modernize WAPDA'sinternal audit system and strengthen its acccunt-ing capabilities. The proposed project consistsof normal electric utility work entailing nounusual risks and there should be no difficulty inits execution. Under the Third WAPDA project,WAPDA has built up and demonstrated the capabilityto design and execute the planned program. The
* likelihood of serious delays or substantial costoverruns is therefore considered to be mi.nimal.
This document has a restricted distribution and may be used by recipients only in the performanceof their official dutiet Its contents may not otherwise be disclosed without World Bank authorization.
Estimated CostsLocal Foreign Tota1
US$ million
Transmission Lines 95.6 33.6 129.2Substations 203.6 147.0 350.6Studies, Technical Assistance and Training - 2.4 2.4
Base Cost 299.2 183.0 482.2
Physical Contingencies 15.0 9.4 24.4Price Contingencies 49.4 36.0 85.4
Total Project Cost 363.6 228.4 592.0
Interest During Construction 14.4 7.6 22.0Total Financing Required 378.0 236.0 614.0
Duties and Taxes 141.4 - 141.4
Net Financing Required 236.6 236.0 472.6
Financing PlanLocal Foreign Total-- - = US$ million
IBRD - 100.0 100.0Bilateral Aid and Suppliers Credits 46.3 46.3WAPDA 245.6 - 245.6GOP 132.4 89.7 222.1
Total 378.0 236.0 614.0
Estimated Commitments and Disbursements:
--- US$ million-IBRD FY86 FY87 FY88 FY89 FY90 FY91
Annual 2 20 43 25 8 2Cumulative 2 22 6, 90 98 100
Rate of Return: 14X
Appraisal Report: No. 5047-PAK dated January 31, 1985.
Map: IBRD 18148
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
REPORT AND RECOMMENDATION OF THE PRESIDENTM TO HE EXECUTIVE DIRECMRS ON APROPOSED LOAN TO THE WATER AND POWER DEVELOPNENT AUTHORITY
WITH THE GUARANTEE OF THE ISLAMIC REPUBLIC OF PAKISTANFOR A FOURTH WAPDA POWER PROJECT
1. I submit the following report and recommendation on a proposed Loan tothe Water and Power Development Authority (WAPDA) with the guarantee of the
X Islamic Republic of Pakistan for the equivalent of US$100 million to helpfinance a Fourth WAPDA Power Project. The loan would have a term of 20 years,including five years of grace, at the standard variable interest rate.
PART I - THE ECONOMY 1/
2. The most recent economic report "Pakistan: Recent EconomicDevelopments" (No. 4906-PAK, dated February 24, 1984) was distributed tothe Executive Directors on March 13, 1984.
3. Economic developments during FY83 were generally favorable. GDPgrew by 5.8Z, with value added in agriculture rising by 4.8Z and inindustry by 8.3Z. Continued stagnation in (fixed) investment, whichdeclined slightly from 13.6% of GNP in FY82 to 13.4% of GNP in FY83, wasamong the few unfavorable events. National savings, on the other hand,rose sharply from 10.9% to an estimated 14.1% of CNP. The declining trendin the rate of inflation continued; as measured by the consumer priceindex, the rate of inflation slowed from 11.5% in FY82 to 5.2% in FY83.
4. There was a dramatic turnaround in the balance of payments inFY83. The current account deficit, at US$554 million (1.8% of GNP), wasless than half the size of deficits in recent years. This outcomereflected three main factors: a resumption in the growth of exports fol-lowing a substantial decline in FY82; a slight decline in the value ofimports; and buoyant remittances from migrant workers. Exports grew by13%, nearly regaining their FY81 level. The most striking feature of theexport performance was the growth of non-traditional exports, whichincreased by over a third. The drop in imports reflected, inter alia,higher domestic production of oil and import-substitution in some keycommodities. The incipient recovery in world trade and delinking of theexchange rate from the U.S. dollar in January 1982, with its subsequentdepreciation, contributed significantly to the improved balance of pay-
1/ Part I is substantially the same as Part I of the President's ReportP3892-PAK (Baluchistan Agricultural Extension and Adaptive ResearchProject), dated November 20, 1984
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=ants picture. Given the favorable outcome on the current account, normallevels of net inflows of long-term capital, and net IMF purchases,Pakistan's reserves more than doubled. At the end of FY83, gross officialreserves stood at US$1,911 million, the equivalent of 3.5 months' ofimports of goods and non-factor services.
5. Notable progress was made in many areas during the Fifth Five-YearPlan Period (FY79-:3). Real growth rates in national output (6.3%),agriculture (4.4Z), industry (9.1Z) and exports (9.2x), though below Plantargets, were all substantially above the rates achieved during 1970-78and very respectable compared to the performance of other LDCs over thesame period. This growth - coupled with increased inflows of migrantremittances - benefited large segments of the urban and rural population.The output of all major crops reached record levels and self-sufficiencyin wheat and sugar was achieved. Encouraged by improved governmentpolicies, private investment in manufacturing expanded by 8% p.a. in realterms; this expansion was more than offset by the declining public invest-ment in the sector, however. The balance of payments performance wasquite satisfactory: the current account deficit declined significantlyrelative to GDP. Government fiscal and credit policies reduced budgetdeficits and monetary expansion and inflationary pressures graduallysubsided. This progress was made despite a number of unforeseen events:(a) world recession; (b) a 30Z decline in the external terms of tradeafter 1979; (c) the Afghan crisis, which necessitated increased outlaysfor defense and refugee assistance; and (d) a continued decline in realnet aid flows.
6. In recent years the Government has taken a number of initiativesto improve agricultural, industrial and fiscal and credit policies. Inagriculture, particular attention has been given to improving farmerincentives and input supplies. Support prices for all major crops havebeen raised so that they are now closer to world prices. At the sametime, steps have been taken to reduce the fertilizer subsidy. AnAgricultural Prices Commission has been set up to make recommendations onappropriate changes in crop support and input prices on a consistent andtimely basis.
7. The Government has formulated and begun to implement a newagricultural policy based on the main recommendations of a UNDP study onirrigated agriculture which emphasizes the need to improve the efficiencyof the water delivery system through the rehabilitation of canals andbetter scheduling of water deliveries to the farmer, and to expand therole of the private sector. Other programs--in pesticides, seeds,agricultural credit, extension, research and farm power--have also beenstrengchened. These initiatives are still at an early stage and abreakthrough from the problems of low productivity at the farm level isyet to take place.
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8. Major changes have also been made during the past five years ingovernment policies in the industrial sector. The policies pursued in theearly and mid-1970s of extensive nationalizations, tight restrictions onthe private sector, and rapid expansion of the public sector LO spearheadindustrial investment and growth have been gradually reversed. Mostagricultural processing and some industrial units have been denationalized;constitutional safeguards have been provided to private industry againstfurther arbitrary government acquisitions; and the areas open to the
* private sector have been widened. A wide range of fiscal incentives havebeen granted to encourage private investment and exports. These have beensupplemented by a liberalization of imports which has improved theavailability of inputs. The investment sanctioning procedure has beenstreamlined. These measures hav. led to an improvement in private sectorconfidence and stimulated private investment, mainly in small and medium-scale projects.
9. At the same time, the Government has embarked on the difficult andinevitably long process of reforming the public industrial sector, whichhas been plagued by low efficiency and profits. Major studies have beencompleted of the management and organization of the public sector, and theperformance of individual enterprises. In accordance with the recommenda-tions of these studies, the Board of Industrial Management (BIM) hac beenabolished, the number of sector holding corporations has been reduced, andboards of directors have been established which have helped to increaseautonomy at the enterprise level. Some public sector units which havelittle prospect of improved financial performance have been closed down.These measures have helped to incredse production and capacity utilizationsubstantially in the public sector.
10. Fiscal performance improved significantly over the Fifth Planperiod. The overall budget deficit and government borrowing from thebar.-ing system, which stood at 8.8% and 4.3% of GDP in the first year ofthe Plan, fell to 6.4% and 1.7%, respectively, by the final year. Reducedlevels of government borrowing from banks, together with overall creditrestraint, led to lower rates of growth of the money supply and lessenedinflationary pressures; prices rose by 5% in the final year of the Plan ascompared with 8% in the first year. The improvement in fiscal performancewas, however, largely the result of expenditure restraint rather thanbetter revenue performance. Real expansion in current expenditures oneconomic and social services barely kept pace with population growth anddevelopment expenditures declined relatively to GDP. At the same time,government revenues remained constant at 16% of GDP and public savings,having risen in the first half of the Plan period from 1% to 3.8% of GNP,amounted to only 1.6% in the last year of the Plan. Greater resourcemobilization by the public sector will be critical for the implementationof the Sixth Plan.
11. The developments in the Pakistan economy since 1977 representwelcome steps towards the solution of a set of problems which are essen-
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tially structural and long term in nature. Notwithstanding theseimprovements, further wide-ranging measures to address the main issuesare necessary if Pakistan is to sustain its recently improved economicperformance over the Sixth Five-Year Plan period (FY84-88). These issuesinclude the farm-level factors affecting low productivity in agriculture;the structure and competitiveness of the industrial sector; the need torestrain the growth of energy demand and improve the exploitation ofdomestic energy resources; the factors lying behind continued rapid growthin population; and the problems of resource mobilization.
12. Agriculture remains the economy's mainstay, accounting directlyfor roughly a third of GDP, employing about 55Z of the labor force and,directly or indirectly, providing nearly two thirds of total exports.Except in the important case of wheat, agricultural growth since themid-1970s has been the product of acreage expansion with little improve-ment in yields. Because of the high cost of extending the irrigationsystem, a switch to more intensive agriculture is essential. The achieve-ment of higher productivity will require improved agricultural servicesand increased efficiency of the irrigation system as well as continuedattention to producer incentives. Toward the latter part of the FifthPlan, some progress was made in reorienting expenditures towards projectsdesigned to rehabilitate and improve the operation and maintenance of theirrigation system, increase the efficiency of water use, improve qualityof research and e'tension, and increase the supply of complementaryagricultural inputs. These efforts will need to be accelerated during theSixth Plan period. To encouraze greater agricultural yields, theGovernment must also continue to rationalize prices of agricultural out-puts and inputs. In recent years, pricing decisions have been taken in amore systematic and timely fashion based on recommendations by the newlyformed Agricultural Prices Commission; procurement prices have beenbrought more nearly in line with international prices and subsidies forfertilizers and pesticides substantially reduced. These efforts, too,will need to be continued during the Sixth Plan period.
13. Manufacturing contributes about 15Z of CDP and during much of the1950s and 1960s provided a major stimulus to growth. After a period ofstagnation during the period 1970-77, manufacturing growth has againaccelerated. To provide a solid economic basis for continued rapidgrowth, incentives for greater private and public manufacturing enterpriseefficiency will have to be implemented. Despite some success in revivingthe private sector and improving the performance of public enterprises,much remains to be done to bring about a major restructuring of industryand place it on a competitive basis. The efficient long-term developmentof the industrial sector will require both a relaxation of governmentcontrols and rationalization of industrial incentives. To encourageindustrial growth more in line with Pakistan's comparative advantage, theprocess of import liberalization initiated over the past few years must becontinued. In addition, the differential rates of protection given tovarious domestic products need to be substantially narrowed. To providefurther encouragement for private investment as well as to attract riskcapital, the number of administrative regulations must be reduced. In
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addition, the scope of price controls should be substantially narrowed,especially the use of cost-plus pricing which discourages improvements inefficiency and energy conservation. Further strong measures to increaseefficiency and self-financing capacity in the public sector are alsoessential. The implementation of the Public Enterprises Signaling Systemin FY84--which has set performance objectives for individual enterprisesand will provide bonus incentives for managers--should contribute towardthe achievement of these objectives.
14. Energy shortages have become a significant constraint to rapideconomic growth in Pakistan. Power and gas shortages are common and thecountry imports 90% of its petroleum needs accounting for over 26Z oftotal imports. Energy investments to improve the energy situation totalover 33Z of public investment in the Sixth Five Year Plan. TheGovernment's efforts to deal with the energy situation by adjusting domes-tic oil prices, and by encouraging the substitution of other energy formsand the exploration and development of domestic oil resources, have metwith some success. Growth of petroleum consumption has been restrained bythe development of hydroelectricity and natural gas resources as well asby petroleum price adjustments. At the same time, activity in the oilsector has been stepped up, in some instances through joint ventures withforeign private companies. Nevertheless, due to a variety of technical,geological and other reasons, progress on exploration of new fields aswell as the development of existing fields has been slow and Pakistan'sconsiderable potential in the oil and gas sector has yet to be realized.The Government has begun to implement a number of reforms relating to suchmatters as energy planning, pricing and organization in order toaccelerate progress.
15. While it is clearly vital to sustain rapid economic growth, it isalso necessary to contain the rapid growth in population, currently run-ning at about 2.8% p.a. Family planning programs have so far had littleeffect and there have been few changes in the socio-economic environmentof a type that usually accompany declines in fertility. Rapid populationgrowth places severe burdens on government resources simply to maintaineducation and health programs at their current inadequate standards.However, without higher literacy rates, improved health facilities and areduction in child mortality, it is doubtful that population growth ratescan be much reduced. The Government has recently shcin more awareness ofthis problem.
16. Policies that face the longer-term issues in both the productiveand the social sectors will take time to have an appreciable effect andwill have to be implemented in the context of continued domestic andexternal resource constraints. National savings averaged only 12% of GNPover the Fifth Plan Period. To improve the budget and the balance ofpayments, a fundamental improvement is required in the overall savingslevels in the economy, particularly in public savings. Given the size ofthe public sector's domestic resource requirements, a comprehensivestrategy that utilizes all available instruments, including taxationpolicy, greater reliance on user charges, curtailment of open and implicit
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subsidies and improved self-financing of investment by public enterprises,will be needed.
17. The Sixth Five-Year Plan, initiated on July 1, 1983, represents apragmatic overall strategy for Pakistan's continued rapid deveLopment.The Plan puts heavy stress upon improvements in economic policies as weLlas on a public expenditure program. Recognizing the importance of adynamic private sector for rapid economic growth and the limitations onpublic sector resources, it calls for reduced reguLations on the privatesector, increased emphasis on market incentives for greater production andefficiency and for increased participation in sectors where the Governmenthas previously played a large role. The size and composition of thepublic sector development program is appropriate. While public develop-ment expenditures would expand only as rapidly as gross domestic product,this is a realistic target given projected available resources and thedemands for improved public services. To achieve such an expansion - areversal of the declining trend experienced under the Fifth Plan - and tofinance an increasing share from domestic resources will require a majormobilization effort. The largest increases in sectoral allocations willgo to energy, agriculture and irrigation, and the social sectors. Theshift in the composition of the public sector development program isjustified because of the threat to future growth posed by energyshortages, the need to increase agricultural yields by improvements inagricultural and irrigation/drainage services, and the past neglect of thesocial sectors.
18. The recent policy initiatives, which are to be continued duringthe Sixth Plan, have improved Pakistan's creditworthiness for commercialborrowing and for a bLend of Bank and IDA borrowing. At the end of calen-dar 1982, Pakistan's external public debt (exclding the undisbursedpipeline) stood at US$9.2 billion, of which US$4.8 billion was owed tobilateral members of the Pakistan Consortium, US$1.3 billion to OPEC andUS$1.8 bilLion to multilateral agencies and the balance to other bilateraland private lenders. In 1982, the Bank Group's share in Pakistan's exter-nal public indebtedness was 15.2X and in external debt service was 12.1%.According to Bank forecasts, provided recent policy improvements aresustained, Pakistan's debt service ratio (debt service divided by exportsof goods and services), which was about 13.7% (including IMF charges) inFY82, is likely to remain below 15X during the 1980s, even with somewhathigher levels of commercial borrowing.
PART II - BANK GROUP OPERATIONS IN PAKISTAN
19. The cumulative total of Bank/IDA commitments to Pakistan(exclusive of Loans and Credits or portions thereof which were disbursedin the former East Pakistan) now amounts to approximately US$3.2 billion.During its long association with Pakistan, the Bank Group has been
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involved in most sectors of the economy. This has included its involve-ment with other donors, over a 20-year period, in the major program ofworks to develop the water resources of the Indus Basin. Approximately30% of total Bank/IDA commitments to Pakistan have been for agricultureand irrigation; 28% for industry incLuding import program credits; 18% fortransport, telecommunications and public utility services; 14% for energyincluding power, gas pipelines and petroleum; 5% for social programs ineducation, population and urban development; and 5% for structural adjust-ment lending and technical assistance.
20. In the current period, the Bank's assistance strategy is to sup-port the Government of Pakistan's efforts to formulate and implementpolicy reforms in three sectors--energy, industry, agriculture--whichshape the structural adjustment process in the economy. At the same timeand in order to ensure that the gains from adjustment are sustained in thelong term and shared more broadly, the strategy also includes investmentsin physical infrastructure and the social sectors (education, populationetc.) which have been neglected in Pakistan's development efforts. Tosucceed, this strategy requires a flexible deployment of the full range oftraditional instruments of Bank support - sector work and active policydialogue, policy and project based lending, technical assistance and aidco-ordination. The Bank Group's lending program comprises two components.The larger project-based component supports specific high priority invest-ments in productive sectors and physical and social infrastructure. Thesmaller but strategic component focusses on policy reforms in the keysectors of agriculture, industry and energy, relying heavily on highquality economic and sector work. The strategy includes a series oftechnical assistance credits to finance studies and formulate actionprograms for policy reform. The experience with the first of these hasbeen extremely positive. Through the annual Country Economic Memorandum,we aim to foster a greater understanding among Consortium members of theGovernment's structural adjustment program and aid requirements, whichcoupled with increased co-financing should enhance the policy relevanceand effectiveness of other official aid and help attract additionalresources to Pakistan from non-concessional sources.
21. Historically, the Bank Group has placed special emphasis on lend-ing for agriculture which is the mainstay of the Pakistan economy. TheBank and the Government are in agreement on the main elements of astrategy which underpins lending in the sector. In recent years, theobjective has been to increase agricultural productivity through improve-ments in the efficiency of the irrigation system and supporting agricul-tural services. Among the issues being addressed are: the balancebetween short-gestation projects and longer term expenditures,rationalization of input and output prices, marketing, improvements inoperation and maintenance, cost recovery, and a wider role for the privatesector. Projects in the sector have ranged from irrigation/drainage toagricultural inputs, research and extension and have included institution
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building components. Overall, progress in agriculture has beensatisfactory.
22. In industry, the strategy has two complementary aspects: tostrengthen and broaden the process of structural adjustment in Pakistan'sindustrial sector and to support the Government's efforts to revitalizethe private sector through the provision of industrial finance. Theindustrial reform program is designed to improve the competitiveness ofthe sector in order to promote export expansion and import substitution.Issues being addressed include trade and industrial incentives;deregulation; efficiency of public enterprises; pricing decontrol; andimprovements in the credit delivery system. Projects have included linesof credits to DFCs and other financial intermediaries which has beenmainly for the private sector, totaling US$488.5 million. Direct lendingfor industry has also included assistanre to three large fertilizer plantsand a refinery engineering loan. As of September 30, 1984, IFC has madeinvestments in 15 Pakistan enterprises totaling US$174.21 million of whichUS$163.24 million was by way of loans and US$10.97 million by equityparticipation (these are shown in Annex II). While individual operationshave generally achieved their objectives, the agenda for overall reform inindustry remains formidable.
23. Following progress on a number of major sector issues as a resultof the Structural Adjustment Loan (SAL) process in 1981/82, our lendingprogram in energy is expanding rapidly. The overall objective is toexpand domestic supply from all energy subsectors while simultaneouslyincreasing the efficiency of energy use through appropriate pricing,conservation and other demand management measures. No less central havebeen efforts to strengthen key institutions in the sector. In power theBank has assist^d both the Karachi Electric Supply Corporation (KESC) andthe Water and Power Development Authority (WAPDA) in both power generationand transmission; the sector has also been assisted by the constructionunder the Indus Basin Development Program of Mangla and Tarbela Dams. Inoil and gas, the Bank has financed operations which support a soundexploration and development program and has assisted in the development ofthe extensive gas transmission system. Smaller operations, mostly of anengineering and technical assistance nature, have supported coalexploration, energy audits and oil refining. Despite much progress,however, the Bank will need to continue iLs participation in institutionbuilding in concert with efforts to assist the Government mobilize ade-quate funds for energy investments through tariffs, co-financing, andgreater privdte sector participation.
24. Bank Group lending for transport and communications has focussedboth on new capital investments and on improving the efficiency of exist-ing assests. Operations have also focussed on strengthening the institu-tions responsible for these services, especially the Karachi Port Trust,Pakistan Railways, the Telephone and Telegraph Department and federal andprovincial highways agencies. However, recent analysis has identified
transport infrastructure as a critical constraint to over-all growth, duein large measure to a running down of infrastructure stock. In the futurethe balance between new investments and operation and maintenance andamong various modes will need to receive greater attention.
25. With an over-all literacy rate of only 25Z, a population growthrate of about 32, and rapid urbanization, Pakistan faces a formidabledevelopment agenda in the social sectors. The Bank has supported theGovernment's programs in education through five credits totaling someUS$62.5 million designed to upgrade primary, post secondary and highertechnical and agricultural education, middle-level training of primaryteachers and agricultural extension agents. The focus has and will con-tinue to be on the lower end of the education system (primary, secondary,technical and non-formal education including literacy) A first populationproject designed to expand demand for population control services wasapproved in FY83. In the urban and water supply sector, the Bank hasfinanced four projects. Besides providing urban services, these opera-tions are addressing, among other issues, improved local resource mobi-lization and cost recovery, improved planning and efficiency of resourceutilization; and urban management especially at the Provincial andMunicipal levels.
26. With respect to policy-based lending, a SAL operation was approvedin June 1982. The SAL program consisted of a number of significantreforms in government development planning and in policies and programs inthe agriculture, energy and industrial sectors. The loan was fully dis-bu-rsed at the end of FY83 and achieved significant progress in the aboveareas. In the next few years, continuing support to the structuraladjustment process is envisioned under sector loans.
27. Annex II coctains a summary statement of Bank Loans and IDACredits as of September 30, 1984. Credit and loan disbursements have beengenerally satisfactory. Some projects have experienced initial delays dueto protracted government procedures for project approval, which are beingaddressed, and to slowness in the procurement of goods and services.Rapid turnover of managerial and technical staff, in part due to migrationto the Middle East, and budgetary constraints have been problems in thecase of some projects.
28. A number of operations are currently under preparation or arebeing appraised. These include projects for power transmission andgeneration; oil and gas exploration and development; coal development;lines of credit for industrial finance for the private sector, industrialsubsector restructuring, balancing and modernization; irrigation/drainage,agricultural inputs and services; primary and informal education; urbandevelopment and water supply. Three sectoral loans which would supportfurther structural adjustment in energy, industry and agriculture are alsobeing discussed with the Government. Where successful, these sector loanswould provide a policy umbrella for projects in those sectors. To assist
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the Government to finance agricultural and other high-priority projectswhich have a low foreign exchange component, financing of some localexpenditures in specific cases is justified.
29. In addition to lending, economic and sector work provides thebasis for continuing dialogue between the Bank Group and the Government ofPakistan on development strategy, the sector loans now being prepared, andfor the co-ordinatior. of external assistance within the PakistanConsortium. The work program emphasizes resource mobilization, structuraladjustment in the three key sectors, and physical and socialinfrastructure.
PART III - THE ENERGY SECTOR AND POWER SUB-SECTOR
A. Energy Sector
30. Pakistan's commercialLy exploitable domestic energy resourcesconsist of hydropower and natural gas, which account for a major share ofthese resources, followed by oil and coal. In addition, the country has asubstantial non-conventional energy resource base consisting maiiily offirewood and agricultural waste. Despite Pakistan's past efforts todevelop its hydropower potential and natural gas resources, the countrystill remains dependent on imported oil, while much of its energy resour-ces are underutilized. In its dialogue with the Government of Pakistan,the Bank has stressed the critical importance of a comprehensive programfoi accelerating the exploration and development of the country's domesticenergy resources and increasing private sector participation in theimplementation and financing of energy development. In its effort toreduce dependence on imported energy the Government instituted a range ofpolicy measures for strengthening the local capabilities for energyplanning, resource development and conservation. These measures arereflected in the understandings reached between the Bank and theGovernment under the first Structural Adjustment Loan and Credit (Ln.2166-PAK/Cr. 1255-PAK) and a number of projects in the petroleum sector.
Pakistan's Energy Supply, Consumption and Resources
31. Pakistan's gross domestic consumption of commercial energyincreased from 9,852 thousand tons of oil equivalent (TOE) in 1978 to15,586 thousand TOE in 1983, representing an average annual rate of growthof about 9.6%. Industry and transp-rtation were the major consumersrepresenting about 31Z and 21%, respectively, of total energy use. Therate of growth is expected to remain virtually unchanged over the nextfive years at about 9.7%. With real tDP growth between 1983 and 1988expected at the bame rate as in preceding five years, no change isexpected to occur in the intensity with which energy is consumed. As the
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Government's growth targets for domestic energy output are unlikely to bemet, the scenario for energy consumption over the period 1983-1988 impliesa substantial increase in energy imports, particularly, liquidhydrocarbons. Recognizing that such increases in imports could offset therecent turn- around in the country's balance of pavment situation andaffect economic growth, Government has initiated a number of measures toencourage greater efficiency of energy use, including increased consumerprices for natural gas and a program of industrial energy audits andconservation measures.
32. Pakistan's gross supply of energy increased during the period1978-1983 at an average annual rate of about 8%, from 10,978 thousand TOEto 16,160 thousand TOE. Concomitant with this increase, the country alsobecame less dependent on imported liquid hydrocarbons, whose share as apercentage of gross energy supply decLined from 45Z in 1978 to 38% in1983. This was due largely to the rapid increase in domestic output ofnatural gas, which grew at an average annual rate of about 11.6%, from4.453 thousand TOE in 1978 to 7,695 thousand TOE in 1983. During thisperiod, increased allocation of gas to domestic consumers and the fer-tilizer industry necessitated the substitution of fuel oil, Pakistan'smain energy export, for gas in the industrial and power sub-sectors. As aresult, exports of liquid hydrocarbons as a share of gross energy supplydeclined from 10.3% in 1978 to 3.5% in 1983. The structure of energysupply observed between 1978 and 1983 is unlikely to continue through1988. The financial resources, time and institutional capacity requiredto bring on stream the existing reserves of gas, oil and coal, preclude adrastic increase in the supply of domestic energy in the immediate future.Consequently, unless a comprehensive program for rationalizing the con-sumption and supply of energy is formulated and implemented, the country'sdependence on imported energy will increase over the next decade, with adecline thereafter as new domestic supplies of coal and gas, andhydropower projects are brought on stream.
33. Conversion losses in electricity generation, petroleum refining,as well as distribution losses, remained virtually unchanged between 1978and 1983, accounting for about 22% of the gross consumption of energy.According to Government estimates, these are forecast to increase mar-ginally over the next five years reaching 22.5Z by 1988, implying noimprovements in the efficiency with which energy is consumed or suppliedby the power and refining sub-sectors. In view of the objectives of theproposed project and a Bank supported refinery engineering and energyefficiency projeLc (Ln. 2218-PAK), and recent Government policy.nitiatives, this scenario can be revised with a decrease in losses overthe period 1983-1988. The downward trend could be further accelerated ifa comprehensive plan is formulated and implemented for the expansion andreinforcement of the transmission and distribution networks and forimproving the efficiency of thermal power plants through rehabilitationand retrofitting. Studies to assist in developing such a plan would becarried out under the proposed project (paragraph 52).
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Hydrocarbons
34. Natural gas is Pakistan's main commercially exploitable energyresource accounting for over 40% of commercial energy consumption. Totalremaining reserves are estimated to be about 343 million TOE of which 92Zis non-associated gas. A gas development program is being implemented toincrease production from 18 thousand TOE/day in FY82 to 26 thousandTOE/day in FY86. Increases in production beyond that level will requireadditional gas discoveries. Although the prospects for increasing gasreserves are good, this would require the implementation of an expandedexploration program. Government has negotiated substantial increases ingas prices for existing fields in return for expanded investment toincrease production. However, given the reluctance of foreign oil com-panies to explore for gas and the absence of an attractive gas pricingpolicy for new discoveries, private sector exploration in gas prone areasis minimal, while public sector investment is constrained by institutionalweaknesses in the Oil and Gas Development Corporation (OGDC), the statepetroleum corporation. A new pricing initiative to make gas explorationattractive to private oil companies is urgently needed and will be pursuedin the Bank's ongoing dialogue on petroleum policy. There is an increas-ingly severe shortage of gas in Pakistan with restrictions on new gasconnections and curtailment of supply during the winter months to existingconsumers. To limit excess demand and encourage substitution in favor ofother fuels, Government has decided to substantially increase gas consumerprices (paragraph 42). The long-term goal is to increase the price tofull fuel oil parity. In the absence of very major new gas discoveries,the Government will increasingly have to ensure that the limited gassupplies are diverted tc the highest value user. The Government hasagreed under Loan 2324-PAK to undertake a gas utilization study aimed atdetermining the optimal allocation of gas among various end uses andlocations.
35. Proven oil reserves are modest, estimated to be about 10 milliontons, including about 5 million tons of condensate. In addition to theproven reserves, probable reserves at the known fields are estimated atabout 3 million tons and possible reserves at another 6 million tons. Theestimates of oil reserves have remained virtually unchanged since 1976when the Government adopted a new policy aimed at increasing the par-ticipation of the private sector, both domestic and foreign, in explora-tion an; ievelopment. At the time, the policy was successful in attract-ing abc .t a dozen foreign oil companies to undertake exploration conces-sions in Pakistan, which increased exploration activities. However,despite this effort, the only success to date has been the discovery byUnion Texas (US firm) of a small field at Khaskeli. At present, only twoof the new entrants have active work programs, and the rest are eitherinactive or have relinquished their concessions. The prospects for sub-stantially increasing the participation of the private sector in oilexploration over the next few years are fairly modest. However, active
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prootion efforts by the Government and the OGDC designed to identify andmarket new oil-prospective areas would sustain the level of privateexploration at its current level or slightly above it. Assistance inthese efforts are being provided to the Government under the recentlyapproved Petroleum Exploration Project (La. 2351-PAK). These effortswould be continued under the Bank's future lending program in thepetroleum sector.
36. Hydropower. Pakistan's hydropower potential is estimated to beabout 30,000 MS, at several sites, ranging in size between 100 MS and2,500 MW. To date, about 2,547 MW has been developed, 350 MS is underconstruction, and another 6,300 MW are expected to be exploited by theyear 2000. Prior to 1981, the development of the hydropower potential wascarried out on a site by site basis rather than a long-term strategy thatintegrated the development of the hydropower potential as part of a leastcost plan for development of thermal and hydropower generation.Recognizing this shortcoming, the Gcwernment commissioned a study in 1981,financed by CIDA, to evaluate sites in the Northern Sector With potentialgreater than 1,000 GWh, and rank them in terms of priority of development.The results of this ranking study, expected by March 1985, will be acritical input to the formulation of a national least cost program(paragraph 50) for the development of the power sub-sector. WAPDA wouldreview with the Eank nor later than June 30, 1985, the results of thehydro ranking study financed by CIDA and identify the priority schemes,their sequencing and the timetable for their preparation and development(Section 3.05 of the draft Loan Agreement).
37. In addition to sites with large potential there are many smallerhydro sites suitable for the development of hydropower schemes. Verylittle has been done to integrate the development of this hydropowerpotential with the long-term plan for extension of public supply of elec-tricity to the rural areas and in the least cost development of the powersubsector. Investigation into developing such sites on irrigation bar-rages and link canals is being undertaken with bilateral donor assistanceand provincial governments are doing the same on minor canals and rivers.
38. Coal and Nuclear. Total recoverable reserves of coal areestimated at 640 million tons, of which only 20Z are proven. Althoughmost of the proven coal reserves are of poor quality, the prospects aregood for incr2asing domestic output to meet part of the power sub-sectorneeds. In 1982 reported coaL production amounted to about 1.65 milliontons, representing 5.4% of commercial energy supply. The share of coal indomestic commercial energy supply has declined continuously over the past20 years because of the maintenance by the Government of gas prices atlevels substantially below the domestic price of coal. The Government isnow placing greater emphasis on the exploration and development of domes-tic coal and has received an IDA credit in support of a Coal EngineeringProject for Baluchistan (Cr. 1355-PAK). Pakistan has one operationalnuclear power generation station (137 MW) which provided 0.3% of commer-
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cial energy supplies in FY82; a secord 900 MW unit is planned to be com-missioned in the early 1990s.
39. Nonconventional Energy Resources. tonconventional energyresources, mainly firewood, agricultural and animal waste, have tradition-ally supplied over half of the country's total energy requirements.However, this has recently declined and in 1983, they accounted for 40X ofoverall consumption if energy. Data on their consumption by fuel type andsector are sparse. USAID is assisting the Government in the formulationand implementation of a comprehensive program for promoting the use andthe development of the country's renewable energy resources.
Institutional Framework
40. Three ministries share primary responsibility for the energysector: The Ministry of Water and Power (MWP), the Ministry of Petroleumand Natural Resources (MPNR) and the Ministry of Production (MOP).Operational responsibilities in the sector are vested in a large number ofentities and agencies in both the public and the private sectors.Coordination between the ministries on energy matters is secured throughthe National Energy Policy Committee (NEPC), which is responsible for theformulation of the Government's energy policy. Energy pricing policiesare subject to the approval of the Finance Ministry and are under theultimate jurisdiction of the Economic Coordination Committee of theCabinet (ECC).
41. Each ministry has specific responsibilities within the sector.The MWP is responsible for the electric power sub-sector, with jurisdic-tion over WAPDA and the Karachi Electric Supply Corporation (KESC). Theresponsibilities of MPNR relate mainly to the development of oil, gas andcoal resources, including oil and gas production, distribution andmarketing. It also has responsibility for the development of renewableenergy and for the collection and publication of data on the energysector. MOP's jurisdiction in the sector covers the three state-ownedenterprises engaged in oil refining and the manufacture of petrochemicals.The organizational structure of the energy sector is characterized by amultiplicity of ministries, committees and agencies responsible for plan-ning and development. This diffusion of responsibility has led to a lackof coordination, clear policy directions and effective decision making forwhat is a crucial sector in the economy. The Government recognizes theproblem and is seriously considering a number of alternatives including,inter, alia, establishing a Ministry of Energy and strengthening theplanning role and capability of the Ministry of Planning in the energysector.
Energy Pricing
42. The various enterprises in the energy sector are notionaLlyresponsible for setting prices at levels that cover costs, generate suffi-
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cient revenue for their investment programs and earn an acceptable rate ofreturn on their assets. In practice, however, all changes in the struc-ture and level of prices must be reviewed by the ministry concerned andapproved by the Cabinet. Since 1973, Government has consistentlv bufferedthe economy from the full impact of the higher cost of energy, by main-taining the upward adjustment in prices at levels that were substantiallybelow economic cost. As a result, energy prices decreased in real termsbetweer 1973 and 1979, seriously distorting the relative prices of compet-ing fuels and resulting in increased uneconomic use of energy products andresources. In 1980, the Government decided to rationalhze the consumptionand supply of energy and increased the domestic prices of petroleumproducts and electricity, at rates that, on the average, exceeded theincrease in the general price level. Further steps are still required,however, to fully eliminate the distortion in energy prices, particularlywith respect to gas pricing and differential pricing for various users.The Government recognizes the need for consistent and systematic adjust-ment in the structure and level of prices, and has set as one of theobjectives of the Sixth Five-Year Plan (FY84-88) the achievement of paritybetween domestic prices of energy and border prices or economic cost,wbichever is applicable.
43. Over the past decade the petroleum sub-sector has been a netcontributor to the resources of the Government. The veighted averagedomestic price of petroleum products is at 150Z of the border price.Under the prevailing price structure, prices of all petroleum products,with the exception of fuel oil, are at or above their respective borderprices. Gasoline continues to be the major contributor to the resourcesmobilized by the sub-sector. Domestic price of natural gas has tradition-ally been kept below its opportunity cost, which is assumed, in the caseof Pakistan, to be equal to the border price of fuel oil. As a result,demand for natural gas during the 1970s increased at about 1OZ a year,culminating in the supply shortages experienced in the early 1980s. In aneffort to stem the growth of demand, Government has agreed under SAL I tomove the price of gas to reach two-thirds the border price of fuel oil by1988. As a result, the weighted average domestic price of gas hasincreased since 1980 at an average annual rate of 23Z.1/ In January 1985,the weighted price of natural gas was about 40% of the border p.-ice offuel oil.
44. The weighted average electricity tariffs in Pakistan, for bothWAPDA and KESC, increased in real terms between 1973 and 1983 at anaverage annual rate of 1.8Z. In real terms, the tariff charged to dif-
11 Specifically, in 1982, nominal increase in the price of gas Was 19Zfor industry, 17% for the commercial consumers and 17% for households.In 1983, the corresponding increases were 58%, 35% and 14%,respectively.
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ferent consumer categories increased for all, except the residentialconsumer category. In January 1984, average revenue represented 63% forWAPDA and 98% for KESC of the average long-run marginal cost (LRMC) ofabout 100 paisa/kWh for the combined system. The Government has made acommitment to a minimum investment program for WAPDA of Rs 30 billion forthe period FY86-88. It is estimated that this would require a tariffincrease, net of fuel surcharge, of 112 for FY86, 15% for FY87 and 18% forFY88 in order to achieve the 40X level of internal cash generation asrequired under the Third WAPDA Power Project (Cr. 968-PAK). The resultsof a tariff study undertaken jointly by WAPDA and the Bank in 1979-80 toestimate the LRMC have been used to correct some of the distortions in thestructure of electricity tariffs. Currently, WAPDA is updating that studyin compliance with an agreement with ADB. The results of the updatedstudy are expected later this year, at which time they would be reviewedby Government with the Bank and ADB with the aim of agreeing onappropriate measures and their timing ta correct remaining distortions inthe structure and level of tariffs.
Energy Strategy in the Sixth Five-Year Plan
45. With the emergence of shortages of power and natural gas andhigher imported oil costs during implementation of the Fifth Five-YearPlan (1978-83), Government has recognized the need for new policy initia-tives to improve the domestic energy balance. In recognition of theseconstraints, the Sixth Five-Year Plan gives priority to re-structuring theenergy sector. To achieve the needed improvements, Government has iden-tified the following key objectives:
(i) promote efficient and rational use of energy and reduce thegrowth in demand through price and non-price policy instru-ments while meeting future demand for energy at least costto the national economy;
(ii) accelerate the development of domestic energy resources,particularly proven oil and gas fields and intensify explora-tion for additional domestic energy reserves including oil,gas and coal; and
(iii) increase the participation of the private sector in financingand implementing energy investments.
46. In keeping with these objectives, the Government has substantiallyincreased the allocation to the energy sector for the Sixth Five-YearPlan. The allocation for the energy sector accounts .or about 38% of thetotal public sector development outlays. In addition, the Government hastaken several important policy initiatives to rationalize the consumptionand supply of enorgy. A medium term gas development plan has beenprepared with Bank assistance (paragraph 34) to accelerate the developmentof proven gas fields. The development of domestic coal is being given
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high priority and projects being prepared with assistance from the Bankand USAID foz accelerating coal exploration at the Lakhra field.
47. Tmportant policy and planning issues remain unresolved including:the formulation and implementation of a coordinated fuel policy to mini-mize the cost to the economy of meeting the future demand for energy; thetranslation of the objectives relating to the conservation of energy intoa concrete plan of action; and the formulation and implementation of a
g comprehensive plan for the exploration and development of domestic energyresources including an attractive compensation package for gas producers.These would be addressed in the Bank-s continuing sectoral dialogue withthe Government and in future operations.
B. Power Sub-sector
48. Public electricity supply plays a crucial role in meetingPakistan's energy requirements. Agriculture derives 75% of its commercialenergy from electricity, industry 48Z and households 46Z.
49. Electric Power. Pakistan"S total installed power generatingcapacity as of January 1985, was 4,052 MV, of vhich 2,547 MV (63Z) washydro and the balance 1,505 NW (37Z) was thermal. Pakistan's hydropowerpotential has been estimated at 30,000 MW of vhich only 9X has beendeveloped. Power demand in the decade to 1981/82 grew at about 9Z p.a.and is expected to increase at about 10% p.a. over the next ten years.Power supply, as measured by gross generation, more than doubled betweenFY72 and FY82, from 7.6 to 17.5 billion kWh, asd installed generatingcapacity grew from 1,863 to 4,123 MN over the same period. Despite sub-stantial expansion of the power system in the past decade, supply hasfailed to keep pace with demand, leading to shortages at present of up to700 MW at peak hours. Power shortage has become one of the critical con-straints on the continued growth of the economy as demand growth has beenmore a function of power availability than of actual needs. Alleviatingthese shortages is a primary objective of WApD&'s investment program. TheSixth Five-Year Plan forecasts continued rapid growth with installedcapacity projected to reach 8,200 M4 by the end of the period. To financethis expansion the Plan allocates Rs 80 billion for the power sub-sector,
* which represents 80% of the allocation for energy or 27% of the totalallocation for public investment. Thermal generation until recently wasbased almost exclusively on gas-fired plants, but with increasing gasshortages most of the new thermal plants are to use fuel oil and/or coal.
50. Over the past decade power demand has outstripped supply leadingto severe power shortages, particularly during peak hours (paragraph 49).So far, the development of the power sub-scctors has been based on anincremental approach to planning, which suffers from the absence of acomprehensive analysis needed for the expansion of a power system of thesize operated in Pakistan. There is an urgent need for a national planthat would set the priorities and ensure the coordinated development of
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hydro and thermal capacities. Several needed studies have recently beencarried out including a ranking study for hydro development, formulationof a preliminary least cost plan for generation development, developmentplan for the expansion of the primary transmission system, and a study ofthe operation and control of the grid system. However, the combination ofthese various activities into the preparation of a National Power Plan(NPP) has not yet been effectively addressed. With Bank assistance WAPDAhas already startea work on the preparation of a long-term NPP and by theend of this year will be retaining consultants to assist them in the majorpart of this exercise. The principal objectives of the NPP are to developa sound planning and decision making system for the development of gener-ation and transmission facilities in the country, and to prepare, on thebasis of this system, a 20-year expansion program, identifying the leastcost sequence of additions to the generation and transmission systems.Further, the competence of WAPDA's planning unit will be strengthened sothat the power plan may be kept current with annual reviews and modifica-tions by WAPDA's own staff. In order to ensure progress in formulatingthe NPP, WAPDA would engage consultantsl/ to assist in formulating anational least cost plan for the power sub-sector and to initiate work byJune 30, 1985, and complete the study and review the results with the Bankno later than June 30, 1986 (Section 4.08 of the draft Loan Agreement).
51. Institutionally, the responsibility for the power sub-sector restswith the Ministry of Water and Power whereas the responsibility forprimary energy policy and planning is under the Ministry of Energy. Theexecution of the power projects and their operation is carried out by twomajor organizations; WAPDA, which accounts for 80% of power supply inPakistan, distributes electricity throughout most of the country and KESCwhich generates and distributes electricity under license in the Karachiarea. WAPDA is responsible for the supply of electricity through itspower wing.
52. In 1977, WAPDA's system-wide energy losses in the transmission anddistribution networks were about 34.7Z. Under the Third WAPDA Project(Cr. 968-PAK), it was agreed that system losses should be reduced to 21%by 1984. Losses in 1983 amounted to 27.2% and are expected to be about25% for 1984. A.though WAPDA has not fully achieved the targets forreducing system losses agreed under the Third WAPDA Project, progress has,nevertheless, been satisfactory, particularly in light of delays inproject components critical to system loss reduction such as extension ofthe subtransmission grid and the high voltage transmission network. Overthe next few years progress can be expected with the completion of ongoingwork in extending the high voltage transmission network, commissioning ofnew secondary transmission lines and substations and installation of
1/ Financed out of the First Technical Assistance Credit (Credit1256-PAK).
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capacitors. WAPDA would be required to take necessary measures to reduceits system losses to 21% by June 30, 1988 (Section 4.07(a) of the draftLoan Agreement). At present, WAPDA lacks experience in identifying andreducing energy losses further. WAPDA would engage consultants by nolater than July 31, 1985, to assist in undertaking a study for identifyinglosses, and preparing a program to reduce system-wide transmission lossesand to complete and review the results of the study with the Bank by July31, 1986 (Section 4.07(b) of the draft Loan Agreement). WAPDA also lacksexperience in designing a comprehensive investment program for improvingthe efficiency of its thermal power plants by reinforcing, rehabilitatingand retrofitting. To assist in formulating a plan for energy efficiency,WAPDA would engage consultants by no later than June 30, 1985, to under-take a study aimed at the preparation of an investment program for improv-ing the energy efficiency of its thermal power plants and to review theresults of the study with the Bank by June 30, 1986 (Section 4.09 of thedraft Loan Agreement).
The Bank Group Involvement
53. The Bank Group's involvement in Pakistan's energy sector startedin 1955, with a loan to KESC for the construction of a thermal powerstation. Since then, it has assisted in financing projects in all theenergy sub-sectors including petroleum, coal, pipelines and refineries.For the future, Bank Group operations would continue this broad coveragewith a focus on supporting the Government's adjustment process as outlinedin the Sixth Five-Year Plan.
54. In the pouir sub-sector, the Bank has participated in the IndusBasin Development Projects, which include the hydro generation capacitiesat Mangla and Tarbela. Together, these account for 83% of the country'stotal hydro generation capacity. A series of four credits/loans were madeto KESC between 1955 and 1967 for generation facilities. Since 1970, theBank has been more directly involved with the Government's program toupgrade the power transmission and distribution network, for which threecredits/loans were made to WAPDA. The first credit to WAPDA (Credit213-PAK) was made in 1970 to finance a project to augment the transmissionsubstation capacity of the power system. The project faced implemenLation
* delays as fund limitations required scaling down the physical componentsof the project; high losses impacted unfavorably on WAPDA finances andmajor financial covenants were not met; and operational improvementswithin WAPDA were slow and major targets were met much later thananticipated. The main finding of the Project Performance Auditl/ was thatwhere institutional change is a prime objective, careful planning andrealistic targets are of the utmost importance. Loan 1208T-PAK was madein 1975 to finance part of a 500 kV transmission system which would even-
1/ "Project Performance Audit Report", April 6, 1981 (SecM81-291).
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tually create the backbone of a high voltage grid connecting tne hydroresources of the north with the thermal generation in the center andsouth, providing the most economic means of supplying power throughout thecountry. The start of the project was delayed by about nine months due tolate employment of consultants and slowness in awarding contracts.Despite this delay, the project has been satisfactorily implemented. Acredit was extended to WAPDA in i980 to cover a four year time slice(FY78-FY82) of its secondary transmission program (Cr. 968-PAK).Implementation, though somewhat delayed, has been satisfactory and theproject is expected to be fully implemented by the end of calendar year1985.
55. Over the course of its involvement in the power sub-sector, theBank has directed its institution building efforts to strengthen KESC'sand WAPDA's management and technical capabilities. WAPDA is now capableof undertaking the design and implementation of projects for the develop-ment of the transmission network. The role of the Bank in the proposedproject would be to continue supporting the institution building measuresalready undertaken by WAPDA.
Bank Objectives in the Power Sub-Sector
56. The main objectives of the Bank in the power sub-sector include:
(a) to assist in the establishment of a permanent planning anddecision making system for the power sub-sector in Pakistanleading to the least cost expansion program in the long run;
(b) to establish close coordination between the primary energydevelopment policies (production, imports, pricing, etc.) andthe power generation program;
(c) to promote the use of local energy resources, especiallyhydro, for power generation in the medium and long term;
(d) to support in the short run projects aimed at improving theuse of existing generating facilities, reduction of energylosses, implementation of load management programs, etc., toalleviate the power shortage; and
(e) to strengthen the institutional arrangements and themanagerial capabilities of the sub-sector to adequately copewith planning, execution and operation needs.
The proposed project has been designed within this context and is seen asone of a series of projects and sectoral operations designed to addressthe above issues in progressively greater depth.
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PART IV - THE PROJECT
57. The proposed project was prepared by WAPDA. It was appraised inNovember 1983. Negotiations took place in Washington from May 15 to May16, 1984; the delegation from Pakistan was led by Mr. Akram Khan. A StaffAppraisal Report, entitled "Pakistan: Fourth WAPDA Power Project" (ReportNo. 5047-PAK, dated January 31, 1985) is being circulated separately tothe Executive Direetors. A supplementary data sheet is attached as AnnexIII.
Project Objectives and Background
58. The power sub-sector is the largest consumer of petroleum productsand natural gas in Pakistan. Reduction in the losses in its transmissionand distribution networks and improvements in the efficiency of its ther-mal power plants are pivotal to the Government's efforts to reduce overallenergy consumption in the country. Because of the recent growth of demandfor electricity, WAPDA has concentrated on the expansion of the network atthe expense of rehabilitation and reinforcement needed to maintain lossesat a technically acceptable level. Moreover, the efficiency of WAPDA'sthermal power stations, a large number of which are quite old, is rela-tively low.
59. The objectives of the proposed project are to continue theinstitution building efforts initiated under the Bank Group's earlierlending operations by strengthening WAPDA's capabilities in formulatingand implementing an investment program for upgrading and enhancing thepower transmission system in order to improve its overall energyefficiency. The project would also assist WAPDA in planning for a morerational use of primary energy for power generation and the efficientproduction and distribution of secondary energy. The proposed projectwould finance equipment and materials covering five years (FY86-FY90) ofWAPDA's ongoing program for the expansion of the transmission network andprovide technical assistance for studies to address the issues of energyuse and efficiency in the power sub-sector.
* 60. Project Description. The proposed project would include theequipment and materials, construction and engineering services required toimplement a five-year Lime-slice (FY86-FY90) of the program for the rein-forcement and expansion of the secondary transmission network. It wouldcontribute to the reduction of losses and ensure that power is transmittedat least cost. TLe proposed project would also include studies and tech-nical assistance aimed at improving the management, operations andefficiency of the power sub-sector. Specifically, the proposed projectconsists of:
(a) the erection of about 3,815 km of transmission line compris-ing 280 km at 220 kV, 2,458 km at 132 kV, 1,077 km at 66 kV;
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(b) the construction of 139 new substations;
(c) the extension and reinforcement of another 86 existingsubstations; and
(d) studies, technical assistance and training to: (i) develop aleast -ost national power plan (paragraph 50); (ii) preparean in%astment program for reducing losses in the transmissionnetwork (paragraph 52); (iii) prepare a program of action toimprove power plant efficiency (paragraph 52); (iv) formulatea program for decentralization of the power distributionfunction in the power sub-sector (paragraph 71); and(v) strengthen WAPDA's accouncing capabilities (paragraph 75)and modernize it's internal audit system (paragraph 77).
Project Implementation
61. The implementation of the project will be undertaken by WAPDAthrough a special project management team assembled for the execution ofthe Third Power Project (Cr. 968-PAK). Most of the construction would becarried out by local contractors whose performance would be monitored byWAPDA's team. In the areas where local contractors cannot mobilize theresources or lack experience, installation and erection would be carriedout by WAPDA's own forces. WAPDA is not expected to have any difficultyin managing and implementing the project, as the experience gained inimplementing the third project has greatly enhanced its capability toundertake these tasks.
62. WAPDA has already prepared standard engineering designs,specifications and bidding documents, using procedures and practicesestablished under the Third Power Project. These have been developed withactive Bank participation and review, and consequently, no difficulty isexpecLed in entrusting the engineering work to WAPDA.
63. The studies under the project would be carried out by consultantsunder terms of reference acceptable to the Bank.
Project Cost
64. The total financing required for the project, including price andphysical contingencies, customs duties, and interest during constructionis estimated at US$614.0 million. Of this, US$236.0 million would be inforeign exchange, and the remaining US$378.0 million in local cost. Theseestimates are based on April 1984 prices. Escalation of foreign costs wasassumed to be 3.5% for calendar year 1984, 8.5% for 1985, 9% for 1986 and1987, 8.25% for 1988 and 6.75% thereafter. Escalation of local costs wastaken as 8% FY85, 7% for FY86, 6.5% per annum for FY87, and 6% from FY88and thereafter. The total price escalation amounts to 16.9% of the base
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cost plus physical contingencies. Physical contingencies were calculatedat 5% for equipment, materiaL and services amounting to 5% of the b_;ecost. Taxes and duties included in the estimate of total cost amount to$141.4 million. Studies and technical assistance amounting to US$2.4million is included in the proposed project. The total project cost, netof taxes and duties, is estimated at $472.6 million.
Project Financing
65. Of the total foreign exchange costs of about US$236.0 millionequivalent, US$100.0 million (42%) would be financed by the Bank, andUS$46.3 million (20Z) through co-financing, suppliers" credits and otherbilateral aid. The Government would provide the remaining foreignexchange -equirements amounting to $89.7 million from its foreign exchangeresources.
66. Of the total local cost of the project of about US$378.0 million,about US$245.6 million would be financed by WAPDA from its internallygenerated cash and the rest, amounting to US$132.4 million, would becovered by loans from the Government, at an interest rate of 11%.
Procurement and Disbursement
67. With the exceptions noted below, contracts financed under theproposed loan for the supply of equipment and materials, construction anderection equipment and tools would be awarded in accordance with Bankguidelines for international competitive bidding (ICE). Local manufac-turers are expected to win about 30% of the contracts for equipment andmaterials. For purposes of bid comparison, a preference limited to 15% ofthe CIF price of imported goods, or the customs duty, whichever is lower,would be extended to responsive local manufacturers. Contracts for stand-ard equipment and materials, and tools, also financed under the proposedloan, not exceeding US$50,000 each and in the aggregate not exceeding theequivalent of US$500,000, wouid be procured through limited internationalbidding (LIB) by inviting quotations from at least three suppliers fromeligible countries. The tendering documents for contracts larger than theequivalent of US$250,000 to be financed out of the proceeds of theproposed loan would be subject to prior review by the Bank.
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Procurement Method 1/(Us$ million)
Component ICB LIB LCB Other N.A. Cost
Land & Riehts of Way 16.0 16.0Equipment
(i) Substations 103.8 0.3 40.8 128.3 273.2(77.4) (0.3) (77.7)
(ii) Lines 32.2 0.2 75.0 107.4(22.1) (0.2) (22.3)
Civil Works(i) Substatinns 57.9 57.9
(ii) Lines 4.4 4.4Transport, Erection, etc. 104.9 104.9Engineering & Administration 25.4 25.4Technical Assistance. etc. 2.8 2.8Interest During Cz--struction 22.0 22.0
TOTAL 136.0 0.5 283.0 131.1 63.4 614.0(99.5) (0.5) (100.0)
11 Figures in parentheses are amounts financed out of the loan.
68. Disbursements from the proposed loan would be made against IOOZ offoreign expenditure on directly imported goods and 100Z of the ex-factoryprice of locally manufactured goods. Based on a .project implementationperiod of four years, disbursemr:nts are estimated to be completed in fiveand one-half years. This is bout one an 4 one-half years less than theBank-wide average for transmission and dis.zibution projects and is basedon the experience and performance under the previous transmission projectin Pakistan.
Water and Power Development Authority
69. Organization and Management. WAPDA is a semi-autonomous agencyestablished to --oordinate the development of Pakistan's water and powerresources. It s dividca into two I"rgely independent "wings", one forpower and the other for water. Tne Power Wing is responsible for theconstruction and operation of power generation, transmission and distribu-tion facilities throughout the country, except for the Karachi area whichis served by KESC. The Water Wing is responcible for the overall planningand investigation of water resources, and the design and construction ofsurface and griundwater development projects for the federal and provin-cial governm=nts. The managemenc of WAPDA is vested in an executive boardcomprising a chairman and three members, in charge of power, water, and
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finance, respectively. The board is appointed by the Government and themembers act as chief executives of their respective sections.
70. Within the Power Wing the Member Power is assisted by sevengeneral managers in charge of generation, transmission, distribution,finance, coordination and planning, design and protection, and inventorycontrol. Dist-ibution is the largest department within the Power Wing,accounting for 70% of the staff, including staff of the eight Area
r Electricity Boards (AEBs), with responsibility for local electricityservice. Each AEB has its own chairman, three full-time members, andthree part-time members representing local interests, one of whom isnormally a representative of the Provincial Government.
71. Recently, the Government has been reviewing options for reorganiz-ing WAPDA's distribution department. Preliminary thinking has focused ontransfering the responsibility for distribution to regional and localagencies, leaving WAPDA to concentrate on generation and transmission.The Government, in keeping with goals in the power sub-sector outlined inthe Sixth Five-Yea- Plan, has explored the possibility of attracting theprivate sector to take over the distribution of electricity throughout thecountry. The private sector has, however, only expressed interest intaking over the main urban areas, which the Government is unwilling toaccept. In order to develop alternatives for decentralization of thepower distribution function, WAPDA intends carrying out a study financedby USAID. The results and recommendations of the study will be reviewedby the Bank.
72. Financial Aspects. The accounts of WAPDA's Power Wing for the lastfive fiscal years (FY80-FY84) show a generally satisfactory financialperformance and position. Both the ratio of current assets to currentliabilities and the coverage of debt service from internally generatedcash are satisfactory. As of June 30, 1984, WAPDA's capitalization showeda debt/equity ratio of 48/52 in FY84 compared to a ratio of 61/39 forFY79, reflecting an increased reliance on internal resources for financingits investment program. The Authority has been able to finance between53Z and 76Z of its capital investments from internal sources correspondingto a rate of return of between 15Z and 18% on historically valued netassets in operation or between 82 and 10% on proforma revalued assets.The cash generation covenant under Cr.968-PAK required WAPDA to financenot less than 40% of its capital expenditures from internal sources. Thisimpressive level of internal cash generation has been achieved throughtariff increases, reductions in system losses and a fuel adjustmentsurcharge, which allows WAPDA to recover the cost of fuel from itsconsumers. Moreover, recently adopted accounting and commercial systemshave enabled management to begin exerting a tighter control overoperations. Although WAPDA has been able to satisfy the existing cashgeneration covenant the formula used for calculating the level of cashgeneration covers the current and the two preceding years and therefore isretrospective, rather than prospective, which forces the Authority to take
-26-
corrective action for shortfalls only after they have occurred. Toaddress this, WAPDA would change the basis for the calculation of thelevel of internal cash generation by adopting a rule requiring the averag-ing of the year under consideration, the preceding year and the forthcomt-ing year, and take into account increases/decreases in working capital,for each of its fiscal years after its fiscal year ending on June 30, 1988(Section 5.04 of the draft Loan Agreement).
73. Projections of WAPDA's financial position over the next seven-yearperiod shows a substantial growth in gross fixed assets, from Rs 29.3billion in FY84 to Ks 103.9 billion at the end of FY91 and a threefoldincrease in equity from Rs 17.3 billion in FY84 to Rs 46.1 billion byFY91. Retained earnings would account for 80Z of this increase. Over thesame period, long term debt is forecast to increase fourfold to Rs 65.6billion resulting in a debt/equity ratio of 59/41, which is consideredreasonable for an electricity utility operation. The coverage of debtservice by net revenues would be satisfactory during this period, as wouldthe ratio of current assets to current liabilities. Nevertheless, thedebt servicing position of WAPDA would be monitored. WAPDA would limitit's incurring debt, based on the Bank's forecast cash flow debt limita-tion covenant, with debt service coverage at 1.5 times (Section 5.05 ofthe draft Loan Agreement).
74. Financial/Commercial Operations. VAPDA has made good progress instreamlining its commercial operations and in establishing modern account-ing and commercial systems with the assistance of consultants., vertheless, additional steps still need to be undertaken in areas suchas materials management, asset valuation and accounting. Also, extensivetraining programs are needed to ensure that the new systems are properlystaffed. This additional work requires substantial outside assistance,which will be furnished by USAID under its recently approved rural elec-trification project.
75. A Limiting factor in continuing the development of WAPDA is theshortage of qualified staff for key posts in the accounting and commercialdepartments. Although the new commercial procedures have beenimplemented, the desired results have not always been achieved, mainlybecause of the inadequacy or lack of key staff. WAPDA is currentlyevaluating its recruitment practices, job grading and compensations forthe financial staff to facilitate the recruitment of experienced financialstaff outside the Authority. In order to improve its accountingcapabilities, WAPDA would review from time to time with the Bank thequalifications and adequacy in number of the accountants in its powerwing, and thereafter establish, as necessary, a plan satisfactory to theBank for recruitment of professionally qualified accountants (Section4.04(a) and (b) of the draft Loan Agreement).
76. The commercial function in WAPDA is of major importance, andbecomes increasingly so, as a large number of new consumers is added each
-27-
year. The commercial operations include application processing, connec-tion of service, meter reading, billing and collection, disconnection andreconnection, and customer relations, each of which directly affectsWAPDA's realization of revenue. The commercial department is headed by aChief Commercial Manager at a level lower than that of a general manager,which tends to hinder the commercial functions of the Authority. In orderco improve the organizational structure of WAPDA and strengthen its com-mercial department vis-a-vis other departments, WAPDA would grant the
r Chief Commercial Kanager all the powers of a general manager in all com-mercial matters as a condition of loan effectiveness (Section 4.05(a) ofthe draft Loan Agreement).
77. Internal Audit. WAPDA's Internal Audit Department's functionsurgently need to be examined and revised with the objective of enhancingits role and influence within the Authority. Compliance auditing clearlyshould be a major function of the Department, and a more positive roleshould be established, embracing the wider aspects of management audit.Developing and implementing a suitable internal audit function wouldrequire assistance of consultants. WAPDA would undertake to engage bySeptember 30, 1985 consultants, satisfactory to the Bank, to help developa modern system for internal auditing (Section 4.04(c) of the draft LoanAgreement).
78. External Audit. The WAPDA Act stipulates that the Auditor General(AG) of Pakistan is responsible for auditing WAPDA's accounts. He dis-charges his responsibility through one of his special groups, theDirector, WAPDA Audit, which employs some 400 staff attached to WAPDA on apermanent basis and are located at all points of its operations. UnderCredit 968-PAK, it was agreed to accept AG as the independent auditoruntil the WAPDA accounting system was strengthened sufficiently to permita judgement as to the quality of the Government audit. It is still tooearly to render a judgement though AG is making a significant effort tostrengthen the audit function. These improvements, together with WAPDA'sefforts to reform its accounting procedures and strengthen its internalaudit functions, will go a long way in facilitating AG in performing asatisfactory audit. The Bank has resarved the right to monitor thepresent audit arrangements and, if necessary, to request an audit consis-tent with Bank guidelines. It is proposed that the existing audit arran-gements continue until the new internal audit system is in place and rhenew accounting system is fully implemented and operational, so that ajudgement may be made on the quality of the Government audit. WAPDA hasconfirmed that the financial statements and the Preliminary Audits wouldbe furnished to the Bank within six months of the end of each fiscal year.
79. Government Arrears. Private consumers have been settling theirelectricity bills satisfactoriLy, while Government has been delinquent insettling its accounts. Though there has been improvement, the position isstill not satisfactory. Government arrears are now estimated at theequivalent of about four months' Government billings. The Government has
-28-
agreed to settle all arrears owing to WAPDA as of June 30, 1985, by notlater than December 31, 1985, and that all future electricity bills wouldFe paid by all government agencies and departments within three monthsafter the receipt of bills (Section 3.03 of the draft GuaranteeAgreement). If necessary, the Federal and Provincial Governments wouldensure that adequate provision is made in the budgets of Federal andProvincial agencies for the payment of current bills.
80. Insurance. Prior to 1977, WAPDA placed its insurance with theNational Insurance Corporation of Pakistan, a Government insuranc' agency.Due to difficulties in settling its claims with this agency, WAPDA electedto insure its assets under a self-insurance scheme, and with the assis-tance of actuarial consultants, established a self-insurance scheme cover-ing substations, power houses, machinery and workshops against loss fromfire and machinery breakdown. Based on studies carried out by WAPDA andits actuarial consultants an amount of Rs 14.4 million is allocatedannually to the insurance fund. The insurance fund, which amounted to Rs64.7 million as of June 30, 1984, is administered independently by a Boardof Hanagement with assistance from its actuarial consultants. The Bankhas reviewed these insurance arrangements and found them acceptable.
Benefits and Risk
81. The projected growth in energy consumption in Pakistan will resultin increasing oil imports until domestic energy production is furtherincreased. Given the resource and institutional constraints and timeneeded for realizing production increases, short term energy demandmeasures are an obvious high priority. The proposed project, therefore,aims to enhance the institutional capabilities for improving energyefficiency as a first step towards rationalizing consumption of primaryenergy and the production and distribution of secondary energy in thepower sub-sector.
82. The project is expected to play a critical role in ensuring theoptimal development and operations of the power system as part of theleast cost investment program for transmission being undertaken by WAPDA.The internal economic rate of return (IERR) on the project is 14%. Thisis based on WAPDA's average tariff being increased in real terms, by about122 annually between FY86 and FY90 in order to meet 40% of its developmentprogram of a minimum of Rs 30 billion agreed with the Bank for FY86-88,and a reduction in incremental sales by about 3% per year to accommodatethe likelihood that higher real tariffs would induce greater conservationand economy in the use of electricity. Based on using KESC's averagetariff of 98 paisa/kWh as a proxy for WAPDA's consumers' willingness topay and incremental sales are reduced by 5% to allow for the possibilitythat not all consumers would be willing to pay the higher tariffs. TheIERR on the investment program is about 13.1% Though it is not possible toisolate the benefits of the Project from those of generation anddistribution, this provides an accurate approximation of the real return
-29-
on the Project and the best measure of economic merit. A calculationbased on WAPDA's average tariff (62 paisa/kWh) yields a 6.2% IERR, whichunderstates the real return as the Government maintains WAPDA's tariffslow for social reasons, enabling WAPDA consumers to capture surplus orbenefits greater than is reflected in its tariffs. The surplus currentlycaptured by WAPDA's consumers has been quantified to provide the bestestimate of economic viability of the project. In the absence of adequatedata to specify a demand curve, a partial measure of the surplus wasestimated by determining the maximum price consumers are willing to payfor public supply of electricity, best reflected by KESC's average tariff.The 13.1% IERR is based on measurable costs and benefits. If all benefitsassociated with the project such as power plant efficiency improvements,reductions in overall fuel costs due to efficient plant operation andreduced transmission and distribution losses, could be quantified, theIERR would reflect an even higher value.
83. The project consists of normal electric utility work entailing nounusual risks, and no particular difficulty is foreseen in its execution.Project costs estimates are based on similar work currently in progress inthe country, and provision has been made for escalation, so there shouldbe little risk of substantial cost overrun. No ecological problems areanticipated.
PART V - LEGAL INSTRUMENTS AND AUTHORITY
84. The draft Loan Agreement between the Bank and the Water and PowerDevelopment Authority of Pakistan, the draft Guarantee Agreement betweenthe Islamic Republic of Pakistan and the Bank and the Recommendations ofthe Committee provided for in Article III, Section 4(iii) of the Articlesof Agreement, are being distributed to the Executive Directors separately.Additional conditions of effectiveness would be approval by the ExecutiveCommittee of the National Economic Council (ECNEC) of the PC-1 documentfor the projectl/; and the granting to the Chief Commercial Manager ofWAPDA the powers of a general manager in all commercial matters. SpecialConditions of the project are listed in Section III of Annex III.
85. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.
1' A PC-1 (Planning Commission Proforma No. 1) is an internal govern-ment project appraisal document necessary for the Government ofPakistan's approval procedures.
-30-
PART VI - RECOMMENDATION
86. I recommend that the Executive Directors approve the proposedloan.
A. W. ClausenPresident
Attachments
February 13, 1985Washington, D.C.
-31- A.NNE I
TABLE 36 PAII
nun - sociAL WcAs DATA SH-jxTs3133G SUs3IWM AVERAGKB) D
HOST (MST RBClr RSTDIATZ) fb
19W 19w0t!b wrcC um INC tsarsc S rincowaLk 19701k ESTINATKIkb ASIA A, PACIFIC ASIA A PACIFIC
ANA (swa sq m)TOTAL 103.9 303.9 803.9AGRTICULRL 227.5 243.3 233.2
GM Sm ChIN (on) 70.0 1 30.0 3 O.0 278.6 1091.2
CinoPAuS OF OX. EQUIVAtEN) 93.0 139.0 179.0 272.0 567.3
nOww aM VIUL s _AmCPOPMATIOIINID-IEAR CTHOUSAIIU) 45351.0 60449.0 87125.0t1UAN POPULATION ( o TOTAL) 22.1 24.9 29.1 21.7 34.7
PP*ULATION PROJECTIONSPOPMlATXI IN YEA 2000 (HIL) 199.6STATIONRT PouMATIN (MILL) 377.3POPULATIO NbmFIh 1.9
FPOPULATION ImI?xa Sq. IN. 57.0 75.Z 105.1 166.6 261.9Fm SQ. IN. ACXI LAND 201.5 248.4 333.6 345.5 1735.1
POPUIATION AC;E STIUCIUR (2)0-14 ItRS 43.8 46.3 46.1 35.6 39.0
15-4 TYS 51.3 50.5 50.9 59.8 57.665 A AIME 4.4 3.2 2.7 4.3 3.3
POPUATION Gmot RATE (Z)TOrAL 2.3 2.S 3.0 1.9 2.3URAN 4.6 4.0 4.3 4.1 4.3
CRE BIRIt RATE (PERL lO) 48.6 46.6 42.0 27.7 30.1CRUE DEATH URAT (PER 730) 23.4 19.3 15.4 10.1 9-5CROSS REPRODICTIONl KlAT 3.4 3.4 3.0 1.8 2.0
FAMILY PLAIINCACE S, AN_AL (I005) .. 1903t.1 1244.0 JcUSERS t: OF ARRID 9N1) .. 6.0 /d .. .. 52.7
FM AD NOtD MIINDEX OF FOOD PROD. ER CAPIrA(1969-71-100) 39.0 102.0 105.0 112.6 123.0
PER CAPrET sumIP OrCAUORIES ts OF REQUINUiENTS) U3.0 106.0 106.0 97.7 114.4PRTINS (CRAKS PR DAT) 58.0 65.0 65.0 56.8 57.0
OF UMUCH ANDIAL AND PULSE 23.0 22.0 20.0 /e 14.9 14.1
*ltLD (ACES 1-4) DClAi RATE 25.4 21.0 16.8 9.S 7.2
HEALINLIFE ErECT. AT 31n2 (TEAS) 43.1 46.0 49.8 60.0 60.4INFANrT MORT. RATE (PER 30t0S) 161.5 143.0 120.9 83.6 66.3
ACCESS TO SAFE WATER (2POP)TOTAL .. 21.0 29.0 if 32.9 37.0untA .. 77.0 60.0 if 70.9 54.8RURAL . 4.0 37.0 If 22.1 26.4
ACCESS TO EXCRETA DXSPOSAL(7 OF POPULATION)
L TOTAL .. 3.0 6.0 IR 18.1 41.3URBAN .. 12.0 21.0 I 72.6 47.4RURAL .. .. .. 4.6 33.3
POPULATION PER PHYSICIAN 5400.0 4300.Olh 3480.0 3464.2 7749.4POP. PER NURSIN PERSON 16960.0 1053O. o& 5320.0 4793.1 2460.4POP. PER HOSPTAL MM
TOTAL 1790.0 1660.0 1560.0 /c 1066.5 1044.2URBAN 510.0 650.0 710.0 Ie 298.0 651.2RURAL 22850.0 12480.0 11860.0 1 5993.4 2594.6
AIiISSIORS PER HOSPIL ED .. .. . .. 27.0
AVERACE SIZE OF NDUSEIOLDTOTAL 5.4 5.3 6.1 /cUKRBN 5.6 5.5 6.4 /..RURAL 5.4 5.2 6.0 -c
AVERAGE NO. OF PELSOr/ROoErTOAL 3.1 2.8 1URUJN 3.1 2.7 j ....RURAL 3.1 2.811 .. .. ..
ACCESS TO ELECT. (: OF DIELIlGS)TOTAL 17.9 /iURBAN .. 54.4 ItRURAL .. 4.9 if
-32- ANNEX I
TABLE £P PACK 2
7AKIST1N - SOCIAL DICATO ATA SNOPAKISTAN REPUREiIM m GOUPS (HEICETR AVENACUS)
MOST 0 0? RICENT ESTnA) fRECENT LOW IUCrI CIDDI INCORV
iffOI £P7Ok1970= gSTDME ASIA & ACC ASIA & PACIFIC
ADJUSTE EHEOLJIUTJIT ATIOSP111MB?: TOTAL 30.0 40.0 56.0 97.4 102.0
VALE 46.0 57.0 78.0 110.5 105.97uL1 13.0 22.0 31.0 83.7 U.2
SECOUMAT: TOTAL 11.0 13.0 17.0 35.9 4.0KLM. 1.0 20.0 27.0 44.6 48.7VUAE 3.0 5.0 7.0 26.8 43.1
V0eLATIosW. (2 OF SECONDART) 1.0 1.5 1.0 /c 2.2 17.S
?UPL-TRAaNER IRATWIP311KB? 39.0 41.0 48.0 38.5 31.8s _cou 24.0 20.0 23.0 Lc 18.7 23.5
ADULT LITEAY RAU (S) 15.4 20.7 /I 24.0 /c 53.4 72.9
IASWICE CARS/THOUSASD P0O 1.5 2.6 3.4 0.9 10.1RADIO RPcIT1USAIC 7OP 6.0 17.1 67.0 112.1 113.6Tv cEvE S/Tou0s PoP .. 1.6 9.7 15.7 50.1
ISPAPE ('DAZ CIIIEALINTREST") CIRCULATIOPM 11EUSAD POPUTXON 13.2 .. 13.7 /c 16.2 53.9
CIDMD4 ANNUAL ATZENDANCEICAI 1.7 3.0 /I. 2.2 /; 3.6 3.4
TOL LIW Z C (TOM) 14448.0 17364.0 25240.0zKALE C(,R ) 8.6 9.3 10.5 33.3 33.5
AGRICULTR (PERcE) 61.0 59.0 57.0 69.6 52.2lDSRY (PERCENT) 18.0 19.0 20.0 15.8 17.9
PARTICIPATION RATE C(PUCRT)TOTAL 31.5 28.7 29.0 42.6 38.7RAIZ 55.2 50.4 49.3 54.7 50.9FPLRA 5.7 5.5 6.0 29.0 26.6
EC0NlIIC UPEIMCYr SATIO 1.5 1.7 1.8 1.0 1.1
IE DZBRN_
PERCENT OF PRIVATE IaERECEIVED BS
RIXCGST 52 0F HOUSENDLOS 20.3 hk 17.6 .. .. 22.2lUcUS 20% OF NOUNLas 65.3 a1 *1.8 .. .. 48.0LOWEST 202 OF IDUSENOIIS 6.4 Jr 8.0 .. .. 6.4LOWEST 602 OF eroUSESOLDS 17.5 J 20.2 .. .. 15.5
POUT TRPOESTIMATED ABSOLU POVET INCULEVEL (11S5 PER CAPIT)
URUBA .. 68.0 II 176.0 tc 133.9 188.6uRAL .. 67.0 122.0 /_ 111.6 152.0
ESTD mRTIVE PVRT ICURJL (USS PER CAPITA)
uRBAN .. 34.0 lj J8.0 /S In.9RURAL .. 22.0 1 58.0I .. 164.6
ESTMAD POP. BW ASOUTSPOVERTY INCOE MLEV (Z)
URBA ,, 42.0 /I 32.0 /c 43.8 23.4RW@UR .. 43.0 29.0 /; 51.7 37.7
NOT AVAILABLENOT APPCABLE
NOTES
/a 7A. group average for each ildcator arm poputton-ul mi9bted erithetlc meann. Coverage of coantries amo bheindicators depends on availablity of data and is not uiform
lb Unlaes otherute noted, 'Onta for 1960" refer to any year betueen 1959 and 1961; 'DatB for 1970" between 1969 and1971; end data for 'Vost Recet ntleate" betumn 19H0 and 1962.
/c 1979; d 1968; Je 1977; If 1976: /, 1975; /h Rqietered. not all practiciug In the cootry; It 1973; /J1972; h1964. l17i
JKUE* 1984
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3333343843333"'3333333433-or- 9133633p v ."3.-39 333 3- 30343 33a3 333 _43 I-3 33 W3 f3 34 333I3.30 4333e "M "A 3.93P MI3331 333)333" 3- l 3Al 9at "'333343 Sp=34338334 33-33333)349.3."3333)9
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-34-
Page 4
GROSS N PRIQUL ODUCT IN 1982/83 & Aat. h 4-J.TfOF9YzX JL.moost sunt micee2I
Us buAllon. -1 13L269=122§125 ]251 i§1 2Q1138 12.011} 2138
GNP at mrket prices 33.07 100.0 3.5 6.8 3.8 7.3 5.6Grose domestic investment 5.13 15.4 -5.5 4.0 9.4 9.0 3.4Gross national saving 4.12 14.1 -2.1 6.9 5.0 20.3Current account balance -1.00 -1.7Resource gap -3.18 -10.1
.
9TIMUM LABR ORE AMD PRODUCTIVITY I1 1983184
Value Added Labor Force Lb V. A. P¢Worker1 Miallio 2. tillion, X_ Us$ Z_.
Agriculture 6,679 24 14.1 53 474 46Industry LS 7,832 29 5.2 19 1,506 147Services 12.812 47 7.4 28 1721 169
Total/Average 27,323 100 26.7 100 1,023 100
GOVERN1MNT _F'tCE
General Government Ld _ Federal Government(&g billon ___ ofCGDP Ng ioo _ , of GDP
1983184 /e 1983/84 1979180-1983i84 1983/84 Le j83/84 j9/8 4,
Current receipts 73.2 17.4 16.6 58.2 13.9 12.8Current expenditures 71.9 17.1 14.9 55 9 13.3 11.4Current surplus 1.3 0.3 1.7 2.3 0.6 1.4Capital expenditures Lf 29.1 6.9 8.3 22.1 5.2 6.5External assistance (net) 6.0 1.4 2.8 6.0 1.4 1.3
MONEY. CREDIT AND PRICES1976/77 M97I.h 1978972 192.9/8 1980/81 1981182 l982L83 1 83/84 La
(Rs billion)
Money and quasi noney 51.7 63.7 76.5 90.7 103.5 113.6 146.0 162.5Bank credit to public sector 29.5 34.3 43.1 48.1 54.1 60.1 71.4 77.8Bank credit to private sector 30.1 35.7 42.7 50.6 58.7 70.9 86.9 105.6
(percentages or index numbers)
Money and quasi oney as 1 of GDP 34.6 36.7 39.0 38.3 37.0 35.1 40.1 38.7Consumer price index (1975/76-100) 111.8 120.5 128.5 142.2 159.8 175.3 183.7 199.0
Annual percentage changes in:Consumer price index 11.8 7.8 6.6 10.7 12.4 9.7 4.8 8.3Bank credit to public sector 28.8 16.6 25.6 11.6 12.5 11.1 18.8 9.0Bank credit to private sector 30.3 18.6 19.6 18.5 16.0 20.7 22.6 21.5
La Provisional.Lb Does not include unemployed labor force.jc Includes manufacturing, mining, construction and electricity and gas./d Consolidated revenues and expenditures of Federal and Provincial Governments (excluding Federal-Provincial
Government transfers).Le Revised budget data./f Excluding principal repayments of loans. Capital expenditures as defined in government budget include
certain current expenditures.
-35-
Page 5
112"1122 1222139 139§1111 12311111 132#112 1232B JL1iJJ 4L(us$ million)
ftports of goods. gF 2.107 2,955 3.461 3,052 3.416 3,440 Raw cotton 302.3 12.4Imports of goods. Nr8 _43 .5-15.9 3 JAB .A622 J458 _L9fl Cotton yarn 210.7 8.6Resource gap (deficit - -) -2,371 -2.754 -3,005 -3,627 -3.172 -3,619 Cotton cloth 252.3 10.3
Rice 401.9 16.4Interest payments -26: -285 -357 -453 -421 -477 All other consodities 1,277 4 _thWorkers' remittances 1.395 1,748 2,097 2.225 2,886 2.737 Tot.l S,444.6 100.0Other factor payments (net) 134 151 274 325 162 331Not transfers .24 _._ __w _" JJ JJ .-- JjBalance on current account -1.110 -1.140 -991 -1.530 -554 -1,028 EXTERNAL 0E3T- JUNE_ 12f
Direct foreign invetent .. ..Net NLT borrowing US$ million
Disbursements 813 1.134 956 1,102 1.301 1,234Amortization - __ .. Q _....fl__ 63U _951 Public debt, including guaranteed 9,141.1Sub-total 578 824 440 610 915 665 Non-guaranteed private debt if
Transctions with IWFL. -14 78 315 358 413 -15 Totel outstanding and disbursed 9,141.1
Other items n.e.i. Lb 238 600 546 364 337 296Increase in reserves C-) 308 -362 -291 198 -1,111 62 DEBT_SERVICE RATIO_FOR 1382/83 Lf
Cross reserves (end year)Lf 3S6 748 1,039 841 1,952 1,870 __S_Official Cold (year end;
million ounces) 1.8 1.8 1.8 1.8 1.9 1.9Public debt, including guaranteed 11.2Non-guaranteed private debt
ap4353 flit Nan an aa C5dTotal 11.2
Petroleum imports Ld 530 1,079 1.535 1,710 1,610 1,419Petroleum exports /d 61 178 126 194 77 72
RATE OF CEIIAGE IBRD)IDA LENDING J ng 819 5S vikLionj
=T=hxnzLDhsJt1] 1972 I 9- 12 l97-F 15. 1973 BD IDA
USS1 - In 4.7619 USS1 - Rs 11.00 Outstanding and disbursed 353.5 1,105.7Rs 1 - USSO.21 Rs 1 - us$0.09 Undisbursed 114.7 _ 670.3
Outstanding including undisbursed 468.2 1,776.0
fYo Feb. I 19_17-J1zn. 7 1982 F ra l19lIhJwaJlf a oo ulx 182-June 1983 a FrojJuly 398 -June 1984 LS
US1 I - Rs 9.90 US$1 - Rs 10.55 US$1 - Rs 12.75 USSI - Rs 13.75Rs 1 - US$0.10 R 1 - $SSO.095 RS I - USS0.078 Rs I - USSO.073
|n Including Trust Fund.Ak Including net short-tern borrowing and errors and missions.Lc Excluding gold reserves of about 1.8 million troy ounces.1d Crude and derivatives./e Non-guaranteed private debt service is nes1lgible.f_ Ratio of actual debt service to exports of goods, non-factor services and worker- remittances; debt service does not include
short-tern or UVI charges.I& Effective January 8, 1982. the rupee is being managed with reference to a weighted basket of currencies. The average
exchange rate shown is vis-a-vie US$ for the period shown.Not available.
October 1984
-36-
hz-11Page 1
STASOF bANMIQPgLzHATIONSJLEMIITM
A. STATD OFEMSJ4T AN DA CR Ifl.In_L Spte oer30. 192 Is
(USS million)Loan/ Shswn Dets1 cnst]inn1Credit Fiscal Undis-Nynbu. in. r "." Ierk. fW 31PA buae
Ninety-five loans and credits fully diubursed Lb 781.4 32.0 960.8af
630 1976 Second Lahore Water Supply - 26.6 0.2648 1976 Irrigation & Drainage (Ehairpur) - s$.
04.4
1366T 1977 Punjab Livestock Development - 10.0 - 3.8678 1977 Third Education - 15.0 3.5751 1977 Hill Farming Tech. Development - 3.0 0.1754 1978 Salinity Control & Reclamation - 70.0 67.0813 1978 Punjab Ext. & Agric. Dev. - 12.5 5.7877 1979 Salinity Control & Recl. (Nardsn) - 60.0 54.4892 1979 Primary Education - 10.0 4.5922 1979 Sind Agricultural Extension - 9.0 6.2968 1980 Third WAPDA Power - 45.0 8.9974 1980 Third Highway - 50.0 24.41019 1980 PlICC Industrial Development - 40.0 4.81109/e. 1981 Vocational Training - 25.0 9.81113kt 1981 Small Industries - 30.0 3 71157/e 1981 Grain Storage - 32.0 20.91158/e 1981 Agricultural Research - 24.0 17.01163kI 1981 On-Farn Water Management - 41.0 15.81186/e 1982 Industrial Development (IDBP I1) - 30.0 11.02122 1982 Fourth Telecomunication 40.0 - 20.42172 1982 Fertilizer Industry Rehabilitation 38.5 - 30.82247 1983 Reservoir Maintenance Facilities 10.2 - 10.02305 1983 Agricultural Dev. (ADBP V) 10.0 - 7.42324 1983 Fifth Sui Northern Gas Pipelines 43.0 - 42.21239e 1982 Irrigation Systems Rehabilitation - 40.0 28.21243fL 1982 Baluchistan Minor Irrig. & Agr. - 14.0 10.81256ke 1982 Technical Assistance - 7.0 5.11278ke 1982 Elevenrb Railway Project - 50.0 41.61348/e 1983 Lahore Urban Development - 16.0 14.81350fe 1983 Population - 18.0 14.91355Lk 1983 Coal Ehgineering - 7.0 6.51374/e 1983 Karachi Water Supply - 25.0 22.91375/e 1983 Fourtb Drainage - 65.0 59.31380/e 1983 Agricultural Development (ADBP V) - 47.8 21.32218 1983 Refinery Engineering Project 12.0 - 9.52351 1984 Petroleum Exploration 51.5 - 51.32374 1984 Second Toot Oil and Gas Development 30.0 - 25.62380 1984 Industrial Investment Credit 50.0 - 49.91439e 1984 Industrial Investment Credit - 50.0 47.2146Le 1984 Integrated Mill Farming Development - 21.0 21.01480Le 1984 Second Technical Assistance - 7.0 6.61487Lc 1984 Command Water Managesent - 46.5 46.51499c 1984 Second Small Industries - 50.0 50.0
Total 1,066.6 42.0 1,962.2 909.9of which has been repaid - 503.2 0.7 _ 35.4
Total now outstanding 562.7 41.3 1,926.8mount sold 23.9of which has been repaid 23.9 -
Total now held by Bank and IDAJA 562.7 41.3 1.926.8
Total undisbursed 247.1 3.8 659.0 90.2
/a The status of the projects listed in Part A is described in a separate reporton all Bank/IDA financial projects in execution, which is updated twice yearlyand circulated to the Executive Directors on April 30 and October 31.
Lb Excludes the disbursed portion of loans and credits wholly or partly for projectsin the former East Pakistan whicb have now been taken over by Bangladesh.
IS Not yet effective.id Prior to exchange adjustment.k IDA Credits under the 6th Replenishment denominated in SDRs. The principal
is shown in USS equivalent at the time of negotiation. Disbursed amounts arecomputed at the market ralte on dates of disbursements.
Lf By using the market rate on dates of disbursements, the current principalfor Credit 1066-PA alnd Credit 1255-PAZ (both fully disbursed) is$42.5 and $77.5, respectively.
-37-
ANNEX IIPage 2
B. STATEENT OF IFC INVESTMENTS (as of Seitember 30. 1984)
Fiscal Amount In US$ MillionYear Obligor Type of Business Loan Eciiti Total
1958 Steel Corp of Rolled SteelPakistan Ltd. Produc-ts 0.63 0.63
1959 Adamjee IndustriesLtd. Textiles 0.75 - 0.75
1962- Gharibwal Cement1965 Industries Ltd. Cement 5.25 0.42 5.671963- PICIC Development1969- Financing - 0.52 0.5219751965 Crescent Jute
Products Textiles 1.84 0.11 1.951965-1980- Packages Ltd. Paper Products 19.26 0.84 20.1019821967- Pakistan Paper1976 Corp Ltd. Paper 5.38 2.02 7.401969 Davood Hercules
Chemicals Ltd. Fertilizers 1.00 2.92 3.921979 Milkpak Ltd. Food and Food
Processing 2.40 0.37 2.771979 Pakistan Oilfields
Ltd. and Attock Chemicals andRefinery Ltd. Petrochemicals 29.00 2.04 31.04
1980 Fauji Foundation Woven Polypropy-lene bags 1.78 - 1.78
1980 Premier BoardHills Ltd. Particle Board 2.70 - 2.70
1981 Habib Arkady Food and FoodProcessing 3.15 0.17 3.32
1982 Asbestos Cement 4.05 - 4.05t 1983 Pakistan Petroleum Chemical and
Ltd. Petrochemicals 86.05 1.56 87.61
Total Gross Commitments 163.24 10.97 174.21
Less: Cancellations, Terminations,Repaymts and Sales 122.83 0.39 123.22
Total Comitments Nov Held by IFC 40.41 10.58 50.99
Undisbursed (including participants) 67.12 0.33 67.45
-38-
ANNEX IIIPage 1
PAKISTAN
FOURTH WADPA POWER PROJECT
Supplementary Proiect Data Sheet
Section I: Timetable of Key Events
(a) Time taken to prepare project:
20 months.
(b) Agency which prepared project:
Water and Power Development Authority (WAPDA)
(c) Date of first presentation to the Bank and da-c of firstBank mission to consider project:
June 1982; December 1982.
Cd) Date of departure of appraisal mission:
February, 1984.
-e) Date of completion of negotiations:
May 16, 1984
(f) Planned date of effectiveness:
June 30, 1985
Section II: Special Bank Implementation Actions
None
Section III: Special Conditions
(a) Results of the CIDA-financed hydro ranking study to bereviewed with the Bank by June 30, 1985, and priorityschemes, their sequencing and timetable for preparationand development identified (paragraph 36);
-39-
ANNEM IIIPage 2
(b) Consultants to be engaged to undertake formulation of anational least cost plan for the power sub-sector; resultsto be reviewed with the Bank no later than June 30, 1986(paragraph 50);
(c) Necessary measures to be taken to reduce system losses by21Z by June 30, 1988 (paragraph 52);
(d) Studies to be undertaken to: Ci) identify energy lossesand prepare program to reduce system-wide transmissionlosses; and (ii) prepare an investment program for improv-ing energy efficiency of thermal plants. Results ofstudies to be reviewed with the Bank by July 31 andJune 30, 1986, respectively (paragraph 52);
(e) All Government arrears as at June 30, 1985 to be settled(by Government) by December 31, 1985; all future bills tobe paid within three months of receipt (paragraph 79).
The following would be additional conditions of effectiveness(paragraph 84):
(i) approval by ECNEC of the PC-1 document for the project;and
(ii) granting the Chief Commercial Manager of WAPDA all thepowers of a general manager in all commercial matters.
hemMe¢ LAHORE RING u s s R L' . k\EIN ,/ 40'\ -+'.. hcuMinittb
MUIIAN~~AL A SHI KAK A2 r||4 of ma lotI |t c||vitc of ASIOW/
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26* I I 9Wk ,^ 1 GTRANSMISSION LINES
3rd POWER PROJECT 4i~
,. - K0 * i (it * @ POWER SIATIONSS
~~~~~~~~~~~~~~~~~~~~~~~~XISIN PLA NE COMPIOAD P YROFOEDETIDU, TRANSMISSION LINES~~~~~~ ,
DA ( 1. II(. - $00 kV
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A1 rao b I a n £) @; o2y X * z o xoo 2900 , 3020 KILOMETERS
S ea t .- 0 sJ 100 200 MILE5tS
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