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Document of
The World Bank
Report No: ICR00004110
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IDA-54360 & IDA-57400)
ON A
SERIES OF CREDITS
IN THE AMOUNT OF SDR744 MILLION
(US$1.1 BILLION)
TO THE
ISLAMIC REPUBLIC OF PAKISTAN
FOR
POWER SECTOR REFORM DEVELOPMENT POLICY CREDITS I & II
December 29, 2017
Energy and Extractives Global Practices Global Practice
South Asia Region
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CURRENCY EQUIVALENTS
(Exchange Rate Effective as of December 31, 2016)
Currency Unit = Pakistan Rupee (PKR)
US$1.00 = PKR 104.375
SDR 1.00 = US $1.34433
FISCAL YEAR
July 1 – June 30
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank
BISP Benazir Income Support Programme
CPPA-G Central Power Purchasing Agency
(Guarantee) Limited
CPS Country Partnership Strategy
DPC Development Policy Credit
Disco Distribution Company, (WAPDA
successor company)
ECC Economic Coordination Committee (of the
Pakistan Cabinet)
EFF Extended Fund Facility (of IMF)
FBR Federal Board of Revenue
FDI Foreign Direct Investment
FGD Flue Gas Desulfurization
GDP Gross Domestic Product
Genco Generation Company (WAPDA Successor
Company)
GHG Greenhouse Gas
GWh Gigawatt Hour
HESCO Hyderabad Electric Supply Company
HFO Heavy Fuel Oil
Hydel Hydroelectric
IDA International Development Association
IFC International Finance Corporation
IPP Independent Power Producer
JICA Japan International Cooperation Agency
KESC Karachi Electric Supply Company Limited
(now K-Electric)
kWh Kilowatt Hour
MEPCO Multan Electric Power Company
MoF Ministry of Finance
MPNR Ministry of Petroleum and Natural
Resources
MW Megawatt
MWP Ministry of Water and Power
MTB Market Treasury Bill
MYT Multiyear tariff
NDT NEPRA-determined Tariff
NEPRA National Electric Power Regulatory
Authority
NPL Non-Performing Loan
NTDC National Transmission and Dispatch
Company
OGRA Oil and Gas Regulatory Authority
PEFA Public Expenditure and Financial
Accountability
PESCO Peshawar Electric Supply Company
PFM Public Financial Management
PMT Proxy Means Test
PSIA Poverty and Social Impact Assessment
SBP State Bank of Pakistan
SDR Special Drawing Rights
SEPCO Sukkur Electric Power Company
SOE State owned Enterprise
USAID United States Agency for International
Development
WAPDA Water and Power Development Authority
Senior Global Practice Director:
Practice Manager:
Task Team Leader:
ICR Team Leader:
Riccardo Puliti
Demetrios Papathanasiou
Richard J. Spencer
Fanny Missfeldt-Ringius
iii
ISLAMIC REPUBLIC OF PAKISTAN DEVELOPMENT POLICY CREDITS I & II
IMPLEMENTATION COMPLETION REPORT
CONTENTS
Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Program Performance in ISRs
H. Restructuring
1. Program Context, Development Objectives and Design ......................................................... 1 2. Key Factors Affecting Implementation and Outcomes ........................................................... 4 3. Assessment of Outcomes ....................................................................................................... 12
4. Assessment of Risk to Development Outcome ..................................................................... 20 5. Assessment of Bank and Borrower Performance .................................................................. 21
6. Lessons Learned (both operation-specific and of wide general application) ........................ 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ....................... 24 Annex 1: Bank Lending and Implementation Support/Supervision Processes ............................ 25
Annex 2: Development Outcome Indicators ................................................................................ 27 Annex 3: Stakeholder Workshop Report and Results ................................................................... 28
Annex 4: Summary of Borrower’s ICR and/or Comments on Draft ICR ................................... 29 Annex 5: Comments of Co-financiers and Other Partners/Stakeholders ..................................... 30
Annex 6: List of Supporting Documents ..................................................................................... 31
iv
A. Basic Information
Program 1
Country Pakistan Program Name Power Sector Reform
Development Policy Credit
Program ID P128258 L/C/TF Number(s) IDA-54360
ICR Date 12/07/2017 ICR Type Core ICR
Lending Instrument DPL Borrower Islamic Republic of
Pakistan
Original Total
Commitment SDR 387.80M Disbursed Amount SDR 387.80M
Implementing Agency: Ministry of Finance
Co-financiers and Other External Partners: N/A
Program 2
Country Pakistan Program Name
Power Sector Reform:
Second Development
Policy Credit
Program ID P152021 L/C/TF Number(s) IDA-57400
ICR Date 12/07/2017 ICR Type Core ICR
Lending Instrument DPC Borrower Islamic Republic of
Pakistan
Original Total
Commitment SDR 356.20M Disbursed Amount SDR 356.20M
Implementing Agency: Ministry of Finance
Co-financiers and Other External Partners: N/A
v
B. Key Dates
Power Sector Reform: Development Policy Credit - P128258
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 10/28/2013 Effectiveness: 05/06/2014
Appraisal: 03/20/2014 Restructuring(s): - -
Approval: 05/01/2014 Mid-term Review: - -
Closing: 06/30/2015 06/30/2015
Power Sector Reform: Second Development Policy Credit - P152021
Process Date Process Original Date Revised / Actual
Date(s)
Concept Review: 01/28/2015 Effectiveness: 12/04/2015 12/31/2016
Appraisal: 09/22/2015 Restructuring(s): - -
Approval: 11/12/2015 Mid-term Review: - -
Closing: 12/31/2016 12/31/2016
C. Ratings Summary
C.1 Performance Rating by ICR
Overall Program Rating
Outcomes Satisfactory
Risk to Development Outcome High
Bank Performance Highly Satisfactory
Borrower Performance Satisfactory
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Overall Program Rating
Bank Ratings Borrower Ratings
Quality at Entry Highly Satisfactory Government: Satisfactory
Quality of Supervision: Highly Satisfactory Implementing
Agencies Satisfactory
Overall Bank
Performance Highly Satisfactory
Overall Borrower
Performance Satisfactory
C.3 Quality at Entry and Implementation Performance Indicators
Power Sector Reform: Development Policy Credit - P128258
Implementation Performance Indicators QAG Assessments Rating
Potential Problem
Program at any time No Quality at Entry None
Problem Program at any Time No Quality of
Supervision None
DO rating before
Closing Satisfactory
vi
Power Sector Reform: Second Development Policy Credit - P152021
Implementation
Performance Indicators QAG Assessments Rating
Potential Problem
Program at any time No Quality at Entry None
Problem Program at any
time (Yes/No): No Quality of Supervision None
DO rating before
Closing/Inactive status
Moderately
Satisfactory
D. Sector and Theme Codes
Power Sector Reform: Development Policy Credit - P128258
Original Actual
Major Sector
Energy and Extractives
Other Energy and Extractives 100 100
Major Theme/Theme/Sub Theme
Public Administration 33 33
Public Finance Management 6 6
Business Enabling Environment 56 56
Fiscal Policy 6 6
Power Sector Reform: Second Development Policy Credit - P152021
Original Actual
Major Sector
Energy and Extractives
Other Energy and Extractives 75 75
Oil and Gas 25 25
Major Theme/Theme/Sub Theme
Public Finance Management 19 19
Business Enabling Environment 45 45
Fiscal Policy 19 19
E. Bank Staff
Power Sector Reform: Development Policy Credit - P128258
Positions At ICR At Approval
Vice President: Annette Dixon Philippe Le Houerou
Country Director: Patchamuthu Illangovan Rachid Benmessaoud
Practice Manager/Manager: Demetrios Papathanasiou Julia Bucknall
Task Team Leader: Richard J. Spencer Richard J. Spencer
ICR Team Leader: Fanny Missfeldt-Ringius -
ICR Primary Author: Sati Achath -
vii
Power Sector Reform: Second Development Policy Credit - P152021
Positions At ICR At Approval
Vice President: Annette Dixon Philippe Le Houerou
Country Director: Patchamuthu Illangovan Patchamuthu Illangovan
Practice Manager/Manager: Demetrios Papathanasiou Julia Bucknall
Task Team Leader: Richard J. Spencer Richard J. Spencer
ICR Team Leader: Fanny Missfeldt-Ringius -
ICR Co-author: Sati Achath -
F. Results Framework Analysis
Program Development Objectives (PDOs)
The objective of the DPC program was to support the government of Pakistan in: (i) reducing
subsidies and improving tariff policy; (ii) improving sector performance and opening the market
to private participation; and (iii) ensuring accountability and transparency.
viii
PDO Indicator(s)
Power Sector Reform: Development Policy Credits 1 and 2
Indicator Baseline Value DPC1 Target
(end FY15/16)
DPC2 Target
(end
FY15/16)1
Actual Achieved
at Completion or
Target Years
Policy Area A: Reducing Subsidies and Improving Tariff Policy
A.1. Subsidies allocated in
Federal budget (as % of budget) 1.80% 0.40% 0.80% 0.70%
Date achieved 30 June 2013 30 June 2016 30 June 2016 30 June 2016
Comments (incl. % achievement) DPC2 target overachieved. Original target changed from 0.4% to 0.8%
of GDP (see table 2).
Policy Area B: Improving Sector Performance and Opening the Market to Private Participation
B1. Increased bill collection in
DISCOs (% of total billing) 86% 90% 94% 94.60%
Date achieved 30 June 2013 30 June 2016 30 June 2016 30 June 2016
Comments (incl. % achievement) Targets overachieved.
B2. Increased gas supply 3.8 billion SCFD 5 billion SCFD 3.9 billion SCFD
Date achieved 30 June 2013 30 June 2016 30 June 2016
Comments (incl. % achievement) Target not achieved.
B3. Separation of market
operations and transmission
system operations
Market and system
operations in
single entity
(NTDC/ CPPA-G)
All contracted
power generated
by IPPs,
GENCOs and
WAPDA Hydel
traded through an
independent
CPPA-G
All contracted
power generated
by IPPs, GENCOs
and WAPDA
Hydel traded
through an
independent
CPPA-G
Date achieved 30 June 2013 30 June 2016 30 June 2016
Comments (incl. % achievement) Achieved.
Policy Area C: Ensuring Accountability and Transparency
C1. Disco performance reports
and NEPRA review published None Yes Yes
Date achieved 30 June 2013 30 June 2016 30 June 2016
Comments (incl. % achievement) Achieved.
G. Ratings of Program Performance in ISRs
Power Sector Reform: First Development Policy Credit - P128258
No. Date ISR
Archived DO IP
Actual
Disbursements
(USD millions)
1 05/20/2015 Satisfactory Satisfactory 603.79
1 Listed if different from DPC1 target.
ix
Power Sector Reform: Second Development Policy Credit - P152021
No. Date ISR
Archived DO IP
Actual
Disbursements
(USD millions)
1 12/13/2016 Moderately Satisfactory Satisfactory 489.39
H. Restructuring (if any)
Not applicable.
1
1. Program Context, Development Objectives and Design
1.1 Context at Appraisal
1. The program was prepared at a time when Pakistan’s energy sector performance was
weak. Over the previous five years, Gross Domestic Product (GDP) growth had averaged only
3.6 percent, barely keeping pace with population increase. Low growth was in part the result of
recurrent natural disasters, including severe floods in 2010 and 2011, and a difficult security
situation. Economic management was poor, and much-needed structural reforms had been
neglected. Productivity growth had slowed, private investment had fallen, the external position
had weakened, and Central Bank reserves had declined to critical levels. The fiscal deficit for
fiscal year 2012/2013 (fiscal year (FY)12/13) was 7.6 percent of GDP and was projected to
increase further in the coming year.
2. Pakistan’s energy sector was facing a serious crisis, especially in electricity. In FY12/13,
shortages averaged 4,000-5,000 Mega-Watt (MW), meaning that about one quarter of demand
was not met. At the same time, up to 5,000 MW of capacity was lying idle because an acute
liquidity crisis among generators prevented sufficient fuel from being purchased. Yet in the
same year, the government provided subsidies to the sector that amounted to four times federal
expenditure on the health and education sectors. Both personal and economic life in Pakistan
were deeply affected by routine load shedding of 8-9 hours daily, and sometimes even more.
3. The poorly performing electricity sector was thought to have reduced GDP growth by 2
percent per annum for the past several years. The sector relied heavily on government support
through direct subsidies amounting to about 1.8 percent of GDP in FY12/13. Costs that could not
be recovered from consumers or the government were accumulated in the books of the public
electricity distribution companies (Discos). The Discos in turn failed to pay fully for goods and
services they received, especially electricity generated by independent power producers (IPPs).
4. Commonly called the circular debt2, these accumulated arrears amounted to about four
percent of GDP in FY12/13. Actions were required to address two main distortions: the
longstanding gap between the cost of service and revenues gained either from tariffs or subsides;
and the unusually high cost of providing that service. At the same time, there was a need to
address the inequities caused by poorly targeted subsidies to ensure that the sector developed in a
socially and environmentally sustainable way.
5. The reforms of the energy sector in Pakistan had begun with the support of the World
Bank in July 1992 when the government of Pakistan adopted a strategic plan for the unbundling
of the energy sector, that up to that point had been vertically integrated. It was to open the door
for private sector participation, which in turn was to bring more resources and efficiency of
implementation. As in FY12/13, the government was facing a non-sustainable fiscal situation.
Attracting private partners to finance generation moved forward with the adoption of the 1994
“Policy Framework and Package of Incentives for Private Sector Power Generation.”
2 Circular debt is being referred to as the amount of cash shortfall within the CPPA-G, which it cannot pay to power
supply companies. This shortfall is the result of (a) the difference between the actual cost of providing electricity
and the revenue realized by the Discos from sales to customers, plus subsidies; and (b) insufficient payments by
Discos to CPPA-G out of the revenue realized (due to prioritizing their own needs before payments).
2
6. This policy proved highly successful with the financial close of about 20 IPPs with a total
capacity of 4,500 MW and total leveraged foreign debt of about US$3 billion. However, in
hindsight the program lacked a transparent mechanism to select those power plants that were part
of the least-cost expansion plan, and an upper threshold of power plants to be installed (the
World Bank had recommended a limit of 2,000 MW).
7. Partly because of a lower than expected demand, and partly due to the inability of the
government to raise tariffs and rain in the inefficiencies of the distribution sector (losses,
collections), the overall cost of the program was too high for the sector to absorb. Rather than
forcefully moving forward the needed reforms to improve the performance of the Discos, the
government focused on renegotiating the agreements with the IPPs over a period of nearly ten
years. It left the relationship between the private sector and government bruised. This together
with a lack of investments in hydropower led to the shortfall of power experienced in FY12/13
and an ever-growing need for subsidies for the power sector stifling economic development
elsewhere.
8. The general election of April 2013 delivered a new Federal government with an absolute
majority, and presaged the first democratic-to-democratic government handover. The strong
mandate enabled a bold reform agenda aimed at stimulating growth. The government agreed a
three-year Extended Fund Facility (EFF) agreement with the IMF early in its term, a major
feature of which was structural reform of the energy sector. Other major donors were also
undertaking programs aligned with the reform of the sector, most notably the Asian
Development Bank (ADB), Japan (JICA), the UK and the US.
9. The World Bank prepared two independent Development Policy Credit (DPC) series in
support of the IMF program. Aside from the DPC series dedicated to the energy sector and under
review in this ICR, there was a DPC series supporting “Fiscally Sustainable and Inclusive
Growth,” which was also a series of two DPCs and focused on macroeconomic reform, including
financial sector, business environment, revenue collection, and privatization. Both DPC series
were prepared in close collaboration across the teams. The strong partnership of international
organizations and donors together with a determined new government led to a success of all
programs across the board, and broke the record of a series of unsuccessful fiscal DPCs and IMF
programs.
Rationale for Bank Assistance
10. The new government identified its strategy around the ‘four Es’: energy, economy,
extremism and education. The Country Partnership Strategy (CPS) planned to be in place from
the start of FY15 reflected similar aims in its four pillars: transforming the energy sector; private
sector development; reaching the underserved, neglected and poor; and service delivery. The
program for the energy pillar of the CPS reflected a twin-track approach: sector reform,
accompanied by investment aimed at improving efficiency and reducing costs. The CPS had
been built up through a wide process that included broad consultation across all sections of civil
society in Pakistan.
11. Early actions by the government included the transfer of the circular debt directly onto its
books in June 2013 and the adoption of a National Power Policy in July 2013. In August and
October 2013, it implemented substantial tariff increases. The coincidence of a new and
empowered government, an IMF program and broad consensus among business, households and
3
donors on the need for deep reform offered a solid opportunity for tackling the most challenging
issues of the power sector.
12. The DPC series formed the cornerstone of Bank’s engagement on the policy side and
supported the Government in deepening this agenda. Lessons from development policy
financing in Pakistan in the early 2000 period pointed clearly towards the need for energy reform
to be supported through separate, sectoral instruments.
1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved)
The original PDOs were:
(i) Reduce subsidies and improve tariff policy.
(ii) Improve sector performance and open the market to private participation.
(iii) Ensure accountability and transparency.
Original Key Results Indicators:
13. The following results indicators were selected for the program:
(i) Reduced subsidies allocated in the federal budget from a baseline of 1.8 percent of GDP
in FY12/13 to 0.4 percent by the end of FY15/16.
(ii) Increased bill collection in Discos from a baseline of 86 percent of bills collected in
FY12/13 to 90 percent of bills collected in FY15/16.
(iii) Increased domestic gas supply from 3.8 billion standard cubic feet per day in FY12/13 to
5 billion standard cubic feet per day in FY 15/16.
(iv) All contracted power generated by IPPs, Gencos and WAPDA Hydel traded through an
independent Central Power Purchasing Agency by the end of FY 15/16.
(v) Household consumer awareness of the extent to which the government subsidizes
electricity from a baseline of zero in FY12/13 to 25 percent of all household consumers
by FY15/16.
1.3 Revised PDO (as approved by original approving authority) and Key Indicators
14. The PDO was not changed. Between DPC-1 and DPC-2 the following indicators were
revised:
(i) Reduced subsidies allocated in the federal budget. The end of program target was revised
from 0.4 percent by the end of FY15/16 to 0.8 percent by the end of FY15/16.
(ii) Increased bill collection in Discos. The end of program target was revised from 90
percent of bills collected in FY15/16 to 94 percent of bills collected in FY15/16.
(v) Disco performance reports and NEPRA review published from a baseline of zero in
FY12/13 to a target of the reports and review published [no date given].
1.4 Original Policy Areas Supported by the Program (as approved)
15. The DPC program series supported the government’s reforms in three policy areas:
(i) Reduce subsidies and improve tariff policy: This programmatic area supported reducing,
making more transparent, and better targeting subsidies to support the financial viability of the
sector and improve the government’s fiscal position. Measures in this area aimed to limit
subsidies, move tariffs to levels consistent with recovery of reasonable costs incurred through
efficient operations, and strengthen the role of the sector’s economic regulator, the National
Electric Power Regulatory Authority (NEPRA).
4
(ii) Improve sector performance and open the market to private participation: Support was
provided to: (a) reduce electricity theft and increase bill collection by the Discos; (b) increase gas
supply; and (c) move the electricity sector towards market-oriented operation.
(iii) Ensure accountability and transparency: To ensure broader stakeholder support, the DPC
program improved monitoring, governance, transparency and rigor in reporting of results in the
energy sector. Actions included monitoring and self-reporting mechanisms for sector entities,
and oversight by independent experts.
1.5 Revised Policy Areas (if applicable):
16. The policy areas were not changed during implementation.
1.6 Other significant changes
17. Changes were made to the indicative triggers and results indicators for DPC-2 during
preparation to react to changing circumstances during the operation, and the evolving dialogue.
The changes made and their rationale are discussed in Section 2.1, Program Performance, below.
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
18. The Power Sector Reform Credits consisted of two programmatic DPCs with the
schedule and amounts as set out in Table 1.
Table 1: Power Sector Reform DPC Series: Operation Schedule
Operation
Approval
Dates
Disbursed Amount
(US$ Million)
Actual
Closing Date
DPC 1 (P128258) 05/01/2014 603.79 06/30/2015
DPC 2 (P152021) 11/12/2015 489.39 12/31/2016
19. Several of the indicative DPC-2 triggers set out in the Program Document for DPC-1
were modified during preparation of DPC-2, as were some of the outcome indicators. They
recognized changes in approach agreed during the continued dialog between the authorities and
the Bank. Table 2 sets out the program performance, adjustments and the outcomes.
5
Table 2: Program Performance, Adjustments and Outcomes
Prior Actions DPC 1 Indicative Triggers in DPC 1 for DPC 2 Prior Actions DPC 2 Changes, Performance and Outcomes
Policy Area A: Reducing Subsidies and Improving Tariff Policy
1. Ministry of Water and Power notifies
the revised tariffs determined by NEPRA
resulting in an average 44% tariff increase
for industrial, commercial, and bulk
consumers and an average 32% increase
for households using more than
200kWh/month, agriculture and other
consumers compared with tariffs effective
June 2013.
1. Following the mechanism in 2014
Tariff and Subsidy Policy Guidelines,
MWP informs NEPRA of the FY14/15
budgeted subsidy to incorporate in the
tariff determination of each Disco, to
apply in FY14/15 expected to result in
electricity subsidies to be reduced to 0.7%
of GDP.
1. Following the mechanism in 2014
Tariff and Subsidy Policy Guidelines,
MWP has informed NEPRA of the
FY14/15 subsidies by consumer category
to incorporate in the tariff determination
of each Disco, to apply in FY14/15
expected to result in electricity subsidies
to be reduced to 0.8% of GDP.
Minor change to accommodate the way
notification is done. Based on NEPRA
determination in March 2015 the subsidy amount
was 0.7% of forecasts. By the time of notification
in June 2015 a changed consumer mix and
slightly lower GDP resulted in an increase to
0.9%. In the target fiscal year 2016, a lower level
of 0.7 percent was reached.
Monitored through result indicator A1: Reduced
subsidies allocated in Federal budget. Baseline in
FY12/13: 1.8% of GDP; period between DPC-1
and DPC-2, reduced to 1.2% of GDP in FY
12/13, 0.9% of GDP by end FY14/15, and 0.7%
by end of FY15/16. Original program target of
0.4% of GDP was not achievable because of
continued government commitment to provide
subsidies to consumers using up to
300kWh/month. Tracked using government-
provided data.
2. MoF settles power sector circular debt
in the amount of PKR 480 billion.
2. Further to Prior Action 3 of DPC 1: (i)
NEPRA issues guidelines for Disco tariff
determination covering principles,
methodologies, timetable, formula and
procedures for both annual and multi-year
tariff (MYT); and (ii) MWP publishes in
its website a cap for total overdue
payables to power generators not to
exceed [PKR 220 billion]; and (iii)
overdue payables to power generators are
below the cap for at least [3] months.
2. MWP has published in its website a
cap for total overdue payables to power
generators not to exceed PKR 314 billion
and a plan to reduce the flow of new
overdue payables to PKR 39 billion by
FY17/18, with interim targets for the
flows of PKR 92 billion in FY15/16 and
PKR 57 billion in FY16/17.
The action was simplified to focus on key action
in the original trigger, namely the cap on circular
debt and strengthened by an action plan to phase
it out, which government published. It was
subsequently monitored as part of the IMF
program.
Monitored through result indicator B1: increased
bill collection by Discos. Baseline in FY12/13:
86%; target in FY15/16: 94%. Tracked in
collaboration with the IMF program, which was
reviewed quarterly. The Bank supported the
review process.
6
Prior Actions DPC 1 Indicative Triggers in DPC 1 for DPC 2 Prior Actions DPC 2 Changes, Performance and Outcomes
3. Economic Coordination Committee
(ECC) approves the Tariff and Subsidy
Policy Guidelines covering: (i) subsidy
policy for low-income residential
customers; (ii) multi-year tariffs; (iii)
equalization mechanism and guidance for
tariff setting as envisaged in the NEPRA
Act, including forward looking fuel price
adjustments; and (iv) guidance for
circular debt management related to
overdue payables to generators by CPPA-
G.
3. The Government has implemented a
mechanism based on tariff surcharges and
a Tariff Rationalization Fund to maintain
nationwide uniform tariffs in Discos
while ensuring cost recovery.
This new action was included to give credit for an
important structural reform that shifted the cost
from the national uniform tariff on to the
electricity consumer, done at a time to take
advantage of falling oil prices.
The team suggested that this action was
opportunistic and identified in the dialogue during
preparation of DPC-2. Nevertheless, given that
the tariff setting process adopted mechanics for
adjustment to ensure cost recovery, subsidies will
be reduced in the long run.
Policy Area B: Improving Sector Performance and Opening the Market to Private Participation
4. (i) MWP instructs PESCO, HESCO,
SEPCO, and MEPCO to outsource to the
private sector collection of their
respective feeders with losses of 50% or
above; (ii) MWP instructs all Discos to
implement a revenue protection program
that ensures correct billing, reduces
losses, in particular theft, and improves
collections; (iii) Council of Common
Interests initiates discussion on a
mechanism to automatically withhold a
proportion of the electricity arrears of
provincial government entities; and (iv)
Federal Government establishes
mechanism to withhold budget transfers
to federal agencies or entities which have
arrears of payment for electricity that
exceed 90 days of billing by Discos.
3. Each Disco identifies and assesses
existing consumer receivables and their
respective recoverability to reflect, in
accordance with the Companies
Ordinance and the General Accounting
Practices, re-classification and
provisioning of the qualified receivables
in its audited financial statements for
fiscal year ended 30 June 2014.
The action was dropped This action was completed satisfactorily and the
accounts reflected the change. Nevertheless, the
action did not adequately reflect the outcome
being sought, namely to increase collections in
Discos which was included in the circular debt
plan completed under prior action 2 in DPC-2.
7
Prior Actions DPC 1 Indicative Triggers in DPC 1 for DPC 2 Prior Actions DPC 2 Changes, Performance and Outcomes
5. (i) MPNR discloses the 2013 Model
Petroleum Concession Agreement on its
website; (ii) MPNR announces the award
of petroleum exploration blocks for the
2013 bidding round; and (iii) OGRA
issues at least 3 pricing notifications to
enable producers to start developing new
and incremental gas production with
increased prices allowed under the 2012
Petroleum Policy.
4. MPNR notifies rules for enhancing gas
production from producing, dormant or
under-producing concessions.
4. MPNR has signed supplemental
agreements agreeing revised prices for 92
exploration concessions and production
leases at the levels set out in the 2012
Petroleum Policy, including 26 with the
private sector.
The replacement action addressed a long-
outstanding issue of greater concern to gas
exploration and production companies. It was
expected to increase domestic gas production
more rapidly. Measured through result indicator
B2, Increased gas supply: from a baseline in
FY12/ 13 of 3.8 billion standard cubic feet per
day (bcfd) to a target at the end of FY15/16 of 5
bcfd.
Tracked through dialogue with MPNR which
provided relevant data.
5. The Economic Coordination
Committee of the Cabinet has approved
policy directives that LNG will be
provided to consumers who pay its full
cost through the tariff.
This new action was introduced in response to the
plan to import significant quantities of LNG.
Supports adoption of a sound policy that will
improve investor confidence and avoid risk of gas
being diverted to segments where costs cannot be
recovered. The LNG imports contributed to result
indicator B2.
Identified through dialogue with MPNR.
Dialogue led to support for wide ranging gas
sector reform.
6. CPPA-G’s Memorandum and Articles
of Association amended to establish
CPPA-G as an agent to purchase
electricity on behalf of distribution
companies (including Discos); and
CPPA-G and Genco Holding Company
endorse Heads of Agreement reflecting
key principles for Power Purchase
Agreements (PPAs) for existing thermal
plants, with energy price based on heat
rate testing.
5. (i) NTDC files request and NEPRA
amends NTDC license to remove CPPA-
G functions and NTDC’s authority to
purchase or sell electricity; and (ii)
CPPA-G signs an energy supply
agreement with each Disco to procure
power on its behalf.
6. (i) CPPA-G signs on behalf of Discos
PPA with WAPDA Hydel for existing
plant and PPAs with all Gencos, one PPA
for each existing operational thermal
plant of Gencos; and (ii) WAPDA enters
into agreement with CPPA-G for
administration of current PPAs of IPPs
under 1994 policy.
6. (i) CPPA-G has demonstrated
operational capability to handle all steps
in the billing and settlement cycle of
electricity sales by Generators and
purchases by Discos; and (ii) NEPRA has
granted an amendment to NTDC license
to eliminate CPPA-G functions.
The single revised action better focused on the
desired outcome of the original two triggers rather
than processes leading to it, and reduced the risk
of reversal. Measured through result indicator
B3, separation of market operations and
transmission system operations: from a baseline
in FY12/13 of market and system operations
being in a single entity (NTDC/CPPA-G) to a
target in FY15/16 for all contracted power
generated by IPPs, GENCOs and WAPDA Hydel
being traded through an independent CPPA-G
acting on behalf of Discos.
Change was agreed through dialogue with MWP,
NEPRA and NTDC.
8
Prior Actions DPC 1 Indicative Triggers in DPC 1 for DPC 2 Prior Actions DPC 2 Changes, Performance and Outcomes
Policy Area C: Ensuring Accountability and Transparency
7. NTDC implements web-based open
access to operational information,
including merit order, and daily payment
instruction to generators.
7. CPPA-G implements web-based
access to monthly amount due and
payment by each Disco including arrears,
to CPPA-G and by CPPA-G to
generators.
7. CPPA-G publicly disclosed on its
website the monthly amounts due, and
payments made, by each Disco to CPPA-
G, and by CPPA-G to Generators,
including arrears.
Largely rewording, but introduced public access
to information and supported transparency for
privatization. Tracked through regular
monitoring of the CPPA-G web site by task team,
and feedback to MWP as the owner of CPPA-G
when performance lagged.
8. Each Disco (i) includes subsidy
amount in customer’s bills; and (ii)
publishes on its website monthly billing
and collection data aggregated by
consumer category.
8. MWP implements public web-based
access to monthly results of performance
contracts signed with Discos, NTDC and
Gencos.
9. NEPRA publishes at least monthly on
its website, information provided by all
licensees on selected performance
standards results and indicators.
8. NEPRA has disclosed the annual
Discos’ performance and evaluation
report, and has initiated outreach action to
consumers on the content thereof; and
Discos have disclosed on their respective
websites their annual performance
reports, including their plans to improve
service delivery.
Combined the two triggers and focused on
monitoring of performance of licensees through
regulator rather than management by MWP. Was
also aimed at building consumer awareness of
comparative Disco performance. Measured
through result indicator C1, Disco performance
reports and NEPRA review published from a
baseline of no publication in FY12/13 to a target
of the reports and review published (not dated in
original program document).
9. ECC approves establishment of
monitoring units within both MWP and
MPNR with responsibilities for
monitoring the energy sector, reporting on
a quarterly basis; and MWP and MPNR
formulate the scope of work for advisors
who will review the quarterly monitoring
reports and make those reviews public.
9
2.2 Major Factors Affecting Implementation:
20. Preparation and early implementation of the operation was positively affected by the
following factors:
Strong government commitment: The new government publicly expressed its commitment
to reducing the chronic electricity shortages and sector indebtedness, as well as introducing
sector reforms that had been planned for a number of years. The program was largely driven
by the government reform agenda and its commitment, specifically, to end load shedding in
2017, before the end of its term in power.
Harmonized messaging from development partners: The program was jointly prepared and
monitored with Asian Development Bank (ADB) and Japan International Cooperation
Agency (JICA) using a shared policy matrix, though with minor differences. It was part of a
wider program of support which included an IMF extended arrangement, a substantial focus
of which was structural adjustment in the energy sector. The UK and US, two other key
donors also coordinated their policy dialogue. The harmonized messaging allowed the
government to focus on a single set of agreed actions, while providing additional leverage for
the donors.
The first operation focused on crisis management, the second on reform. The first
operation focused on the immediate actions required to get the sector functioning adequately,
with the intention of enabling deeper reforms, that needed to be rooted in a functioning sector
in the second operation. This approach was well aligned with the government’s interests but
risked the later and more difficult reforms not being followed through adequately.
Lessons learned from previous operations: The program drew on previous experience with
energy policy lending in Pakistan3 and elsewhere, in particular by ensuring:
(i) Executing dedicated sector operations rather inserting a limited number of prior actions in
a multi-sector or general macro-economic support operation.
(ii) Continuous assessment of progress and adaptation as the reform evolved, including
changing indicative triggers and indicators. This was greatly facilitated by the regular
review of the IMF program in which the Bank participated
(iii)Precise definitions of actions, and when they were considered complete were prepared in
advance and documented in a separate program Technical Memorandum.
Prior actions were designed to trigger further reform works. The prior action that
introduced the policy that the users of LNG should pay the full cost of gas triggered a major
reform of the downstream gas sector, while the work on gas concessions has triggered
upstream reform, including plans to create an independent regulator. The Bank has
supported these further reforms through ASA.
3 Particularly Independent Evaluation Group, World Bank, Project Performance Assessment Report on Public Sector
Adjustment Loan/Credit (Ln 3645-PK, Cr. 2542-PK); Structural Adjustment Loan (Ln. 4435-PK); Structural
Adjustment Credit (Cr. 3515-PK); and Second Structural Adjustment Credit (Cr. 3655-PK), Report No. 34101,
December 19, 2005.
10
Soundness of background analysis underpinning the program: Given the long-standing
concerns with the performance of the power sector in Pakistan, there was a wealth of analysis
that had been prepared by the Bank and other development partners. Policy notes prepared in
the run up to the recent election had updated much of the earlier work and there was close
agreement between most parties on what was needed.
21. Later implementation of the program was negatively affected by the following factors:
Waning commitment to reform. With the passage of the most immediate crisis in the power
sector, the government commitment frayed. While MoF’s interest in the program remained
strong, MWP’s weakened, as it perceived it gained little from the reforms while having to
undertake the bulk of the work. This was not so obvious with MPNR, perhaps because of the
closer relationship between the two, based on MPNR’s role in raising revenue for
government.
Withdrawal from privatization program. Privatization was not made an explicit part of the
program but several prior actions were designed to support the government’s ambitions to
privatize the Gencos and Discos. Actions that supported this, and would have been sustained
by privatization include reduction of subsidies, improvement of performance, clarification of
contractual relationships and greater transparency.
Vested interests reduced the impact of the reforms. The separation of the National
Transmission and Dispatch Company (NTDC) and the Central Power Purchasing Agency
(CPPA-G) was delayed resulting in delayed appraisal of the second operation. While CPPA-
G has now become an independent agency, its mandate is still temporary and the
underpinning Commercial Code has not yet been fully revised, arguably because market
participants favor the status quo over moving to a wholesale market.
Limited capacity for follow through. In two examples, limited capacity has affected the
implementation of the reforms:
(i) MWP’s ability to prepare and implement a plan to reduce the circular debt slowed down
the process of restoring the sector’s financial viability. Partly in consequence, the
circular debt has continued to rise.
(ii) The management of upstream gas concessions have remained a bottleneck to increased
gas supplies. MPNR’s Directorate General of Petroleum Concessions had few and
poorly qualified staff. The volume of work required to manage new concessions exceeds
its capacity, contributing to the limited increase in domestic gas production.
Sustained implementation of some prior actions has been difficult. Some prior actions,
particularly where continued disclosure of information is required, have not been sustained.
In consequence, the chance has been lost of creating a virtuous circle of supply of
information bringing greater transparency to the sector.
22. Risk was broadly assessed correctly. The overall risk was assessed as high, with the
following factors identified:
Political, social and industrial opposition to increases in the retail electricity tariff and its
impact on inflation. The risk to the subsidized tariff did not materialize. Helped by the
marked reduction in oil prices, which are reflected in tariffs by a monthly adjustment
mechanism, tariffs fell during the DPC period. Some of the subsidies were clawed back by
11
not passing the full fuel price adjustments through to the subsidized consumer categories,
thus helping reduce the overall subsidy burden.
Judicial intervention delaying implementation of tariff adjustments and other reform
measures. The risk was assessed as moderate in the first operation and raised to substantial
in the second and may have been underestimated. Judicial interventions in the tariff policy
area affected two issues: surcharges and tariff determinations, and both these can impact the
sector’s financial position and hence put at risk the subsidy reduction outcome. Although
mitigation measures were adopted, they have not been effective.
Macroeconomic stability affected by vulnerability to external and internal shocks. The risk
did not materialize and was not specifically rated. If anything, the positive economic shock
of sharply reducing oil prices, that took place during the implementation of DPC-2 assisted in
achieving its objectives, by providing additional space for the government to reduce
subsidies in the sector.
Weak management in operating companies and excessive control by MWP. The risk was
correctly identified but underestimated. Weak management has continued to hold the sector
back, despite mitigation through performance contracts (which have since been allowed to
lapse), monitoring and criminalizing power theft. MWP has continued to manage the sector
closely. The abandonment of the privatization program and failure to follow through on the
mitigation has further worsened the effect of the risk. In consequence companies continue to
underperform.
Opposition from vested interests. The risk that vested interests would oppose
commercialization and increased accountability and access to information was correctly
identified. Substantial opposition to the changes, in detail rather than in principle, mostly
from within the sector and led in part by MWP, has reduced the effectiveness of some of the
reforms. Technical Assistance to NEPRA (by the Bank) and to CPPA-G (by ADB) has been
put in place but this has not been sufficient to avoid backtracking, so the mitigation has not
been fully effective.
The first operation front loaded politically challenging ‘no regrets’ actions. The risk
identified here was that while such actions were potent, it may have made it more difficult to
undertake the reforms to address more deep-rooted problems. This does seem to have been
the case.
Fiduciary risks were assessed as substantial. The mitigation identified was the new PEFA
Plus program that was initiated during the program. There have been no issues with
fiduciary aspects of any of the budget support operations, so it appears that the mitigation has
been satisfactory.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:
23. M&E Design: Design was satisfactory, and relied on a simple framework operating with
limited but key indicators that are linked to the CPF outcomes. Government of Pakistan and the
Bank used the Results Framework presented in Annex 2 as a monitoring tool. M&E was
designed to be reported jointly with ADB and JICA. Periodic monitoring and dialogue with the
relevant line ministries and other stakeholders involved in implementing the reforms was
designed to take place through Bank field missions and through staff on the ground in Pakistan.
The targets were slightly modified during implementation to better reflect the reform progress.
12
The indicators were relevant to the PDOs and the collection methods were those of the
government. Load shedding data, which would have been desirable as a monitoring indicator,
were not available because it was not made available by the Government.
24. M&E Implementation: The program relied on routinely reported indicators for
quantitative M&E purposes and carried out discussions with the stakeholders, all of whom were
responsive to requests for information. Regular monitoring of key issues took place through face
to face interaction and, more formally, during IMF program reviews, held quarterly. The MoF
provided necessary information regarding disbursement and utilization of the funds including
regular and reliable documentation on progress regarding the reform program.
25. M&E Utilization: Appropriate data collected by the Government on indicators were
evaluated and used during supervision missions, and for decision-making on policy work. The
information provided was used in dialogue with the Government in further shaping and
improving power sector governance. The same indicators were used for inputs to the program
Learning Review which took place in FY 17, when the operation closed. The information was
used to help develop how the Bank could further support the sector, particularly relating to gas
sector reforms.
2.4 Expected Next Phase/Follow-up Operation (if any):
26. The Bank formulated the program as a two-operation series. ADB formulated the
program as a five-operation series. The Bank informally considered whether its participation in
further operations as envisaged under the ADB program but decided against continuation.
3. Assessment of Outcomes
Rating: Satisfactory
3.1 Relevance of Objectives, Design and Implementation
27. Relevance of Objectives: The program objectives were relevant at the time of appraisal
and remain so at closing. The three policy areas: reducing subsidies and improving tariff policy;
improving sector performance and opening the market to private participation; and putting in
place accountability and transparency are central to improved sector performance. Improved
performance in the electric power sector and the wider energy sector is vital if Pakistan’s fiscal
sustainability, growth and job creation aspirations are to be met. The negative impact of the
performance of the electricity sector on businesses was noted again in 2018 where the World
Bank’s “Doing Business” report ranks Pakistan at 167 out of 190 countries in terms of the ease
with which business can get access to electricity. These were at the core of the Country
Partnership Strategy (CPS) for 2010-2014 and continue to be so in the CPS for 2015-2019.
28. Relevance of Design: The program design was relevant in that the design balanced
adaptation as reforms were implemented with a framework to ensure continued coherence. Prior
actions were precisely formulated to avoid any delays or failures to complete them. Indicative
triggers were adapted as required. The design took into account several key lessons from
previous experience in energy policy lending in Pakistan. Policy measures supported by the
program and results indicators were in line with the operation’s and higher level objectives set
out in the CPS.
29. Relevance of Implementation: Implementation arrangements enabled the operations to
remain relevant during implementation. The robust country office in Islamabad and the presence
13
of the Task Team Leader (TTL) in the field greatly facilitated implementation and monitoring on
a continuous basis.
3.2 Achievement of Program Development Objectives
30. The DPC operation was successful in achieving its objectives in which the government’s
actions paved way for attaining all of the triggers and most of the targeted outcomes of sector
reform. Progress on individual pillar objectives is detailed below:
Achievements under Policy Area A - Reducing Subsidies and Improving Tariff Policy:
31. At the heart of the measures taken under Policy Area A was the attempt to get a handle
on the “circular debt problem” that Pakistan’s energy sector is hostage of. Over the past decade
it reached up to 5 percent of nominal GDP. This circular debt problem follows from the Discos’
inability to recover their full cost either from their customers or the Government. The cash
shortfall means that they cannot pay the bills for electricity supplied to them. In turn, the public
generators are unable to pay their fuel bills, and IPPs curtail their supply. The consequent
shortages of electricity are the main cause of load shedding, and all the economic and social
consequences following on from there. The problem was well documented ahead of the DPC
(Trimble et al (2011) and USAID (2013)).
32. By targeting this singularly most important reason for failure of Pakistan’s power sector
in a head-on manner, the team – with full support from Bank management – demonstrated that
the DPC is a suitable instrument for energy sector challenges that are financially significant, but
otherwise near intractable. It is worthwhile noting that addressing the financial viability as a
single key issue in Pakistan had not been tried before. Other efforts had sought out secondary
objectives such as privatization or private sector participation as an indirect means to achieving
financial viability of Discos.
33. The combination of actions proposed under the DPC focused on (i) reducing the
subsidies allocated by the Federal government as a driver for better performance throughout; (ii)
cleaning up the debt problem (MoF settles the circular debt, and thereafter a debt ceiling is
maintained); and (iii) moving the tariff setting mechanism towards better cost recovery by
introducing automatic adjustments (see Table 2).
34. Results indicator A1: “Reduced subsidies allocated in Federal Budget”. The baseline
value was 1.8% of GDP. In the period between DPC-1 and DPC-2, subsidies were reduced to
1.2% of GDP in FY 12/13. By the end of FY15/16 they reached 0.7% of GDP.
35. For the target year of FY 2016, a level of 0.7 percent was reached, amounting to a more
than halving of the annual subsidies.
36. Originally a program target of 0.4 percent of GDP had been set. However, it was revised
because of continued government commitment to provide subsidies to consumers using up to
300kWh/month. Against the background of prevailing political economy, it was felt that
maintaining the subsidy at up to the 300kWh level would support the middle class in Pakistan at
a time when further social unrest was not desired. The cost of the subsidy did amount to 0.4% of
GDP.
37. As a complementary measure to reaching A1, a cap on circular debt was to be maintained
at levels less than PKR 314 billion. Circular debt is being referred to as the amount of cash
shortfall within the CPPA-G, which it cannot pay to power supply companies. This shortfall is
14
the result of (a) the difference between the actual cost of providing electricity and the revenue
realized by the Discos from sales to customers, plus subsidies; and (b) insufficient payments by
Discos to CPPA-G out of the revenue realized (due to prioritizing their own needs before
payments).
38. While the government maintains a cap as a goal of its policy, the level of circular debt
has de facto increased above the level of this cap reaching PKR 321 billion at the end of FY16,
and PKR 450 billion in November 2017. By comparison, the level of circular debt that was
eliminated as a result of the DPC program in 2013 was PKR 480 billion. The reason for the
resurgence of circular debt is that its sources have not been eliminated (higher than allowed
losses and lower than allowed collections).
39. Another complementary measure was the implementation of a mechanism based on
tariff surcharges and a Tariff Rationalization Fund to maintain nationally uniform tariffs in
Discos, while ensuring cost recovery. The background for this was that about 45 percent of all
electricity subsidies in FY12/13 were used to maintain the government’ policy of uniform
national tariffs. Under the historical implementation of the policy, the lowest determined tariff
for any consumer category among all Discos was notified, and the government made up the
shortfall in the Disco’s revenues from the budget.
40. This new measure was introduced in November 2014 and not foreseen when the first
operation in the series was prepared. It was taken in response to falling fuel costs and introduced
a surcharge that equalized the tariffs across seven of the ten Discos. The seven Discos affected
were those whose tariffs would have fallen because of the periodic fuel price adjustment. But
they were, due to the surcharge, maintained at their pre-November levels. The remaining three
Discos have continued to receive the subsidy indirectly from the other Discos to bring tariffs
down to the uniform rate.
41. As the implementation of the new tariff mechanism shows, the subsidy reforms were
helped by windfall gains produced alongside falling oil prices. As the example above
illustrates, those windfall gains were smartly used by the government to bring about structural
change. They also indirectly helped keep the needs for subsidies lower. For example, part of the
(negative) fuel price adjustment was no passed on to household and agricultural customers. The
available extra funds have de facto been used to help pay the generators, thus reducing the
subsidy needs and circular debt compared to a situation where a fuel price adjustment would
have been made. For FY15/16 the saving on the subsidy requirement due to oil price decline is
estimated to be in the order of 30 percent, equivalent to 0.25 percent of GDP.
42. While the measures undertaken under the Policy Area A have delivered the expected
results, and led to some overall fiscal relief, it is unclear whether the momentum can be
maintained and subsidies phased out over time. The goal was to achieve a permanent solution
of the circular debt problem by means of privatizing the Discos. While government remains
committed to this sale, it is currently not actively pursuing the sale.
43. In the absence of the planned privatization of Discos, however, there do not seem to be
sufficient incentives within the existing framework to lead to better performance by the Discos.
The last monitoring report by NEPRA for 2014/2015 highlights not only that trends for the
reduction in losses are not clear, but also that Discos deliberately misreport on load shedding,
and the System Average Interruption Frequency (SAIFI) and System Average Interruption
Duration Index (SAIDI). Further analysis on the incentive mechanisms prevailing among Discos
15
and potential political economy among stakeholders may help inform how long lived and
sustained the reform efforts undertaken under the DPC program will be.
Achievements under Policy Area B - Improving Sector Performance and Opening the
Market to Private Participation
44. This Policy Area considered both the downstream electricity provisions, and the upstream
supply of gas for power generation. The underlying theme was to identify key bottlenecks for the
private sector to operate in areas of the power sector that are commonly seen as being most
suited for private sector intervention.
45. To help improve collection and reduce distribution losses, one prior action to DPC 1 had
required the outsourcing of collections of four Discos (“MWP instructs the outsourcing”).
However, only PESCO and MEPCO proceeded with the outsourcing of the collection of feeders
with losses of 50 percent and above. This illustrates how difficult it can be to implement reforms
even once a requisite prior action has been met. In addition, the value added of the measure is
difficult to estimate.
46. For PESCO the results provided showed that in some feeders losses increased and overall
losses declined only slightly (from average losses in those feeders being 22.69% for the period
July – December 2013, average losses were 22.5% for the same period in 2014); and data
provided by PESCO did not allow assessing the impact on collection. Although the data included
the level of collection in the outsourced feeders, it did not include the period or the collection
level for the same feeders prior to outsourcing. Therefore, it was not possible to assess
improvements due to outsourcing, if any, in collections through the publicly available data.
47. Discos have not implemented revenue protection plans, nor have the Discos submitted
loss reduction paths for review by NEPRA before submitting their petitions. However, each
Disco has developed a program to reduce losses, improve meter reading and billing, and
collection. The programs have some similarities guided by measures that were required in
NEPRA’s annual tariff determinations, but there are also differences as conditions and
challenges vary. Nevertheless, the effect was the same: Discos became more accountable and
transparent. Undertaking quarterly review meetings with the IMF helped keep these measures on
track.
48. Results indicator B1: “Increase bill collection in Discos”. In FY14 bill collections were
89.1 percent and losses were 18.6 percent. Aggregate bill collections in FY16 were 94.6 percent
and losses were 17.9 percent. The target was therefore achieved.
49. The background to focusing on gas as part of the DPC series had been that while
domestic gas is a low cost source for power generation, it had lost share in generation because
the government had allocated gas to other sectors that pay below current average cost of supply
(such as household), thus reducing the availability of gas for power generation and creating poor
incentives to explore and produce domestic gas. The DPC focused on building up domestic
supply, which is cheaper and which reduces dependence on oil. While the domestic sector is
rebuilding, supporting LNG - which has a quicker response time – was to lead to quicker
availability of gas for power generation.
50. When looking at the history of the Bank’s engagement since the nineties, this is
surprisingly the first time that the gas sector came into the focus of reform efforts supported. As
illustrated above, the lack of focus on supporting power plant that were part of the least cost
16
expansion plan contributed substantially to the financial crisis in Pakistan’s energy sector in the
late nineties/early 2000s. Aside from hydropower, gas is technically an obvious choice to
support: gas-fired power plant in the energy mix provides for both least cost (among thermal
power plants) and baseload power.
51. Under DPC2, the original trigger was modified to better target some of the underlying
problems in accessing new gas resources: (i) that new and profitable agreements for further
domestic exploration needed to be signed, and (ii) that LNG gas needed to be made available at
full cost recovery level to supply those gas-fired power plants that were willing to offtake gas at
such prices. The wording of the respective triggers are presented in table 2.
52. In focusing and helping the Government meet these two actions, the team believed that
the gas supply would rapidly increase from 3.8 billion square cubic feet per day (bscfd) to 5
bscfd by the end of the reporting period (Result indicator B2: “Increased Gas Supply”). The gas
supply remained stable at the end of the reporting period at 3.9 bscfd (additional LNG coming
online in 2015 made up for some further domestic declines), and the overall gas supply will
reach 4.5 bscfd by mid-2018 with the commissioning of the second LNG terminal. The third
LNG terminal is expected to go online in 2020 and will bring overall supply to 5.1 bscfd.
53. Therefore, while the actual indicator has not been met within the timeframe targeted
under the program, the reform achieved in the sector is nevertheless considered groundbreaking
and will put Pakistan’s energy future on a much more sustainable pathway.
54. While the pricing reform helped bring in LNG terminal, the domestic gas target proved
unachievable because the regulator (Director General of Petroleum Concessions) is understaffed,
lacks capacity, and is not well structured. A World Bank sponsored dedicated Technical
Assistance program is underway in 2017/18 to help prepare a reform of upstream regulation.
55. Another results indicator for the downstream electricity sector was Result Indicator B3.
“Separation of market operations and transmission”. The Central Power Purchasing Agency
(Guarantee) Limited (CPPA-G) was incorporated in 2009 after its segregation from the “National
Transmission and Despatch Company” (NTDC). However, it continued its operations under
NTDC (as department of NTDC) until June 2015. With the help of the prior actions sought under
the DPC program, CPPA-G was spun off from NTDC and established as a separate entity.
56. The goal of the separation from NTDC was to minimize the conflict of interest that arises
by having both the dispatch of the system and the market operations housed within the same
organization. CPPA-G contracts with all power plants on behalf of the Discos and establishes the
merit order that will allow the dispatch center to do economic dispatch. Thus transparently
managed power trades were to open the sector up to competition and new investment.
57. In late 2017, CPPA-G has become a well-staffed independent entity, located in its own
office building, and with a well-designed website (2016) that provides clear information to all
market participants. Today all power contracted by IPPs, GENCOs and WAPDA Hydel are
being traded through the CPPA-G acting on behalf of the Discos. CPPA-G’s core functions
include: (i) settlement, (ii) power procurement on behalf of Discos, (iii) finance, (iv) legal and
corporate affairs, (v) strategy and market development, and (vi) monitoring and coordination.
The CPPA-G being the Market Operator is facilitating the power market transition from the
current single buyer to competitive market by overseeing the revisions of the Commercial Code.
17
58. However, the current role was entrusted to CPPA-G for a 24-month period up until June
2017 on the assumption that this would be sufficient for CPPA-G to be officially registered as
market operator. A revision in the legal base is now being processed in order for CPPA-G to be
able to continue to lawfully enter into and perform its obligations under the standard power
purchase agreements. The delay in the registration process of CPPA-G and in the review of the
Commercial Code, which CPPA-G is leading, illustrates that CPPA-G is still in transition to
becoming the agency it was intended to become and that transition to a wholesale market is still
some way ahead. Further support will be needed if these reforms are to be concluded
satisfactorily.
Achievements under Policy Area C – Ensuring Accountability and Transparency
59. The proposed measures under this Policy Area focused on building a transparent
accounting for all parties to enhance and build investor confidence. Given liquidity shortages in
the sector, generators are often paid less than they are owed by the Discos. IPPs, with obligations
to banks and suppliers, needed reassurance that they are not being discriminated against. Greater
accountability and transparency were expected to improve the quality of the structural reforms
overall by giving all stakeholders better access to information.
60. Prior actions here related to (i) CPPA-G publicly disclosing the monthly amounts due,
and payments made, by each Disco to CPPA-G; and (ii) NEPRA disclosing an annual report on
the performance of Discos, and outreach to consumers; and (iii) Discos to disclose on their
respective websites their annual performance reports, including their plans to improve service
delivery.
61. The CPPA-G website has improved and has more information, as required in the
Commercial Code though with some shortcomings. CPPA-G continues to make public (with
delays) on its website the daily payment instructions and the monthly amounts invoiced, payment
and outstanding for each Disco and K-Electric, and each type of generator. This disclosure partly
tracks the circular debt, and the payment discipline of each Disco. However, monthly settlement
data are not disclosed.
62. Although the prior action required publication of report for one FY, NEPRA disclosed
four performance evaluation reports for distribution licensees: for FY2012-2013, FY2013-2014,
FY2014-2015, and FY2015-2016. Each report included historical performance during a five-year
period, progress and issues for each distribution licensee, and comparison among Discos with a
ranking system. Additionally, NEPRA has prepared the performance evaluation report for
transmission licensees (NTDC and K Electric) for the period 2010-2014. NEPRA highlights the
need for better quality reporting by Discos to NEPRA. However, reporting is often much
delayed.
63. Lastly, each Disco disclosed in its website the performance information at a minimum for
FY2013-2014 sent to NEPRA in accordance to the Performance Standards (Distribution) Rules.
(Some Discos also published an additional FY performance information). Although for some
Discos the information is not easy to find in the respective websites, the action showed that the
Discos were willing to let their consumers know about the quality and reliability of their
distribution network services and commercial services. The websites of Discos are being updated
from time to time, and the links or menus of information may change with the upgrade. Progress
differs by Disco.
18
64. Under DPC1, MWP was also to prepare monthly reports. However, DPC2 combined both
triggers and focused on monitoring of performances through the regulator rather than
management by MWP. A survey was supposed to assess consumer awareness as a result of these
publications, but was not carried out. Anecdotal evidence suggests that the assumption that once
the public would get some information it would then go on to demand more information does not
seem to have been correct.
65. In conclusion, more data on the energy sector are available today than before the program
started. However, the quality and level of detail of disclosed data are still not sufficient for the
wider public to understand the underlying working of the energy sector.
3.3 Justification of Overall Outcome Rating
Rating:
DPC I: Satisfactory
DPC II: Satisfactory
66. The DPC program leveraged significant yet targeted reforms in Pakistan’s energy sector.
Both DPC 1 and 2 met most of the performance indicators, indicating only minor shortcomings
in the operation’s achievement of objective:
The Government reduced energy subsidies by more than half from 1.8 percent of GDP to 0.7
percent of GDP (in line with the target set under DPC2). Bill collection by DISCOs in
FY15/16 was 94.6 percent against 94 percent targeted.
The results indicator for the gas sector was not met, reflecting an overly optimistic
assumption that gas sector reforms would rapidly translate into increased net availability of
gas. Nevertheless, the reforms initiated as part of this program are projected to yield the
originally targeted increased gas availability by 2020 due to new LNG terminals coming
online.
Separation of market operations and transmission system operations, were fully met as all
contracted power generated by IPPs, GENCOs and WAPDA Hydel is being traded through
CPPA-G acting on behalf of Discos.
Disco performance reports and NEPRA reviews are now available on the website. The FY15-
16 report shows that NEPRA actively works on improving the quality of its reports to
provide all stakeholders with the best available information. Disclosure by Discos is mixed
and only few are updating this information regularly and comprehensively.
67. The DPC program was a central part of the Bank’s engagement in Pakistan and remained
fully consistent with the Bank’s country strategies and corporate goals, underlining the
relevance of the DPC program to the Bank’s engagement.
3.4 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
19
68. Poverty Impact: For each of the DPCs in the program a dedicated Poverty and Social
Impact Analysis (PSIA) was undertaken (Walker et al. 2014 and 2016). Since the subsidies for
consumers using up to 300 kWh/month have been maintained, no adverse indirect effects from
the reforms on low-income electricity customers compared to the status quo before the reforms
were expected. However, the PSIAs note that subsidies in energy continue to be regressively
targeted, many poor households remain exposed to high bills especially in the summer months,
and the poor can be better targeted.
69. Despite struggling to afford electricity, respondents appear willing to pay higher prices
provided service quality improves and governance problems are addressed. In line with the
findings of the PSIAs and in order to protect fully all the poor from the indirect reform impacts,
the government is also planning to provide income support to households in the bottom 20
percent of the population by poverty score. Broadening the coverage of the Benazir Income
Support Fund (BISP) payments and increasing the benefit in line with inflation was an indicative
trigger for the second operation in the proposed Fiscally Sustainable and Inclusive Growth DPC
that was developed in parallel.
70. Gender Aspects and Social Development: This program did not explicitly target gender
issues. The second PSIA conducted under this program (Walker et al, 2016) finds that reforms
targeting load shedding in Pakistan disproportionately benefits women because women are more
affected by load shedding and by the household’s efforts to manage electricity expenses since
they are on average the main users of electrical appliances and spend more time in the home.
(b) Institutional Change/Strengthening:
71. Institutional strengthening was part and parcel of the DPC program series:
The Bank provided technical assistance to the government in analyzing options to
introduce changes before the next round of tariff increases.
Separation and operationalization of CPPA-G helped NTDC focus on its core business.
Tariff and subsidy policy guidelines contributed to NEPRA’s development.
The gas sector reform led to the implementation of the 2012 Petroleum Exploration and
Production Policy, and helped strengthen the Ministry of Petroleum and Natural
Resources (MPNR). A follow-on technical assistance program supports wide ranging
reform of the upstream, midstream and downstream domestic gas sector that is a direct
result of the Prior Actions in this operation series.
72. The DPC program was inscribed in a wider context of capacity-building programs and
technical assistance on various fronts provided by developing partners including ADB, JICA,
USAID, and the Australian Department of Foreign Affairs and Trade.
(c) Other Unintended Outcomes and Impacts (positive and negative):
73. No unintended outcomes or impacts were observed.
3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops:
20
74. Not Applicable.
4. Assessment of Risk to Development Outcome
Rating: High
75. In the highly volatile political context of Pakistan outcomes of reform are inherently
under threat. This is not a function or result of any program in support of policy reform, but
reflects the nature of undertaking reforms in a politically charged and complex environment.
Those aspects of reform that are more remote to these politics will thus be able to experience a
lower risk of reversal (gas sector), while others that relate more closely to people’s lives have a
higher risk of reversal (distribution sector).
76. Results in the Pakistan context should also be measured against the counterfactual of
“what would have happened, had the program not been implemented.” It is thus worthwhile
noting that continuation of 2011/12 policies in the energy sector would have led to a financial
collapse of the sector, followed by a technical collapse (reflected in increasingly pronounced
load shedding). The financial collapse of the energy sector could have led to an overall fiscal
collapse of government. The DPC program was an essential part of an overall donor effort to
avert such crisis.
77. The following are the key risks to the development outcomes reached under the program:
Risk of reversal of key reform actions, especially those that led to institutions having to
divest previous powers. In a volatile political context, it is challenging to keep reform efforts on
track or to keep them even at the level of status quo. Thus the newly acquired status of the
CPPA-G as independent agency remains under threat as the agency’s roles and responsibilities
remain to be formally confirmed. Also, there is uncertainty at least as to the future of
privatization of Discos, which was to help eliminate the problem of circular debt.
The DPC required CPPA-G, Discos and NEPRA to disclose information according to
prescribed formats. Certain quality and timing issues aside, reporting has been adequate thus far.
However, there is a risk that stakeholder pressure may lead to discontinuation of certain reports,
especially if they portray sector participants in a negative light. An example could be that some
Discos are already not accurately reporting on their actual outages.
There is a high risk of political, social and industrial opposition to further reform if service
quality does not improve. Although increases in billing levels have been offset by lower oil
prices with consumers seeing little change in electricity bills, there is a risk that stakeholder
expectations of service quality improvement, especially a reduction in load shedding, will be
unfulfilled. There is also a risk that worsening security or political situation could distract
government from reforms, which may be tied to a widespread non-acceptance of the reforms and
manifest itself as social action or unrest, for example by consumers refusing to pay their bills.
Pakistan’s vulnerability to external and internal shocks causing macroeconomic
fluctuations could derail macroeconomic stability. While the government has a strategic action
plan under the National Power Policy 2013, delays or ineffective implementation of policy
measures may result in government not being able to maintain subsidy support to the power
sector.
The risk that vested interests will oppose measures to commercialize, increase
accountability and raise access to information is considered high. Therefore, there is further
need for closer dialogue and support to NEPRA in implementing reform measures.
21
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry
Rating:
DPC I: Highly Satisfactory
DPC II: Highly Satisfactory
78. The Bank worked closely with the government to identify reforms and to follow-up on
the progress. The quality at entry was ensured by a strong program of support outside the DPC to
help facilitate technical assistance and guidance in the trigger selection and execution. As a
result, all triggers were made into prior actions with fewer changes than normally associated with
programmatic DPCs. This demonstrated the strategic relevance and the buy-in of the
government’s commitment. The DPCs were prepared in close collaboration with the ADB, JICA,
and the IMF. This provided a harmonized approach to policy-based lending and also reduced the
government’s transactional costs.
(b) Quality of Supervision
Rating:
DPC I: Highly Satisfactory
DPC II: Highly Satisfactory
79. During implementation, the Bank's performance was highly satisfactory. The Bank
focused on the program’s development impact and allocated sufficient budget and staff
resources, to carry out adequate supervision by closely monitoring program activities. Aide-
Memoires were prepared to alert the government on issues found during implementation and
prompt corrective actions were taken when necessary. The Bank deepened the policy dialogue
with the institutions involved in the implementation of reform program, and ensured the
availability of staff and specialists to advise the government on all policy and technical areas
involved.
80. The task team closely monitored the program’s progress and worked effectively with
Country Management Unit management in dialogue with the government. Vice President Unit
level assistance was also provided as necessary to support the ongoing dialogue. The program
was developed in close collaboration with the IMF, thus leveraging their US$6.6 billion
program. The World Bank team participated in the IMF quarterly meetings that closely
monitored progress of the implementation of the reforms. Close coordination also helped the
IMF in their program, allowing them to conclude their first program in Pakistan in more than a
decade. To improve synergies, the JICA and ADB also participated in the Bank’s relevant review
meetings.
(c) Justification of Rating for Overall Bank Performance:
22
Rating:
DPC I: Highly Satisfactory
DPC II: Highly Satisfactory
81. The overall rating for the Bank Performance is Highly Satisfactory. The Bank worked
closely with the government, the IMF and development partners to develop a relevant reform
agenda that strategically addressed several core constraints in the country while delivering the
program on time.
5.2 Borrower Performance
Rating:
DPC I: Satisfactory
DPC II: Satisfactory
82. For the Government, MoF monitored the implementation of the overall program jointly
with the Bank, ADB and JICA. The quarterly review meetings were set to coincide with IMF’s
quarterly reviews. MoF, with support from the Prime Minister’s office took close ownership of
the program development and implementation and worked closely with the Bank team in the
design and implementation of this program.
83. MoF also took responsibility for the overall supervision and monitoring of program and
furnished relevant documents to the Bank to validate program’s progress. The overall support,
provided by the Prime Minister’s office, helped the implementing agency in proper coordination
and communication in program development and implementation.
84. At the level of the sector, MWP led the overall implementation of the program. Both
MWP and MPNR had focal points/delivery units to help with the implementation of the reform
process across sector institutions. As is to be expected when substantial reforms are
implemented, not all parts of the government agreed with all elements of the reform. On the side
of MWP there may have been a concern of losing control over the management of the sector.
Following completion of the program – once the government had received the necessary funds to
stabilize its finances - momentum at the level of the government was lost especially in
privatization of the Discos.
85. The Borrower’s ownership of the program during preparation and implementation was
adequate and their commitment was evident in their successful implementation of the prior
actions and interest in the implementation of the program.
X Click here if the Government and the Implementation Agency is the same or indistinguishable.
6. Lessons Learned (both operation-specific and of wide general application)
86. The following lessons were learned from the development and implementation of this
operation:
23
Focusing on the challenges of the power sector alone brings tangible results: In this series
of DPCs, the government and the task team have actively sought out critical challenges in the
sector and focused only on energy. When undertaking broader policy DPCs there may be an
inherent pressure to adopt more lenient sector targets (or adjust targets), because the sector does
not want to hold the entire economy-wide program “hostage”. Instead, the team was able to
actively change and adjust triggers and measures from DPC1 to DPC2, allowing to push the bar
further than originally envisaged. This finding is well aligned with the IEG (2005) report on
DPCs.
The government’s ownership of reform is necessary for the success of a DPC operation. In
the case of this operation, the government’s ownership, interest and involvement in the reform of
power sector was most focused while the need for budget support dominated its priorities. When
these were no longer present, the leverage of MoF over MWP diminished, and MWP reasserted
its interest in keeping control of the sector.
A balanced approach between instruments targeting federal and sectoral levels can help
bring about more sustained results. Federal DPCs have supported IMF programs to stabilize
country macroeconomics by providing budget support for reforms aimed at improving energy
sector sustainability and private sector growth. However, with limited domestic resource
mobilization and high circular debt, the risks remain. A more strategically balanced mix of
budget support with other Bank instruments can help leverage more sustained results. A key
lesson has been the need for sectoral ownership of ‘tough’ reforms. To sustain incentives for the
sector stakeholders to move reform forward, instruments that allow working directly with the
sector are important tools. The ongoing technical assistance for the gas sector is demonstrating
that the impetus created by the DPC program can be sustained with the help of this TA. Going
forward, the use of a program for Results Financing (PforR)4/
could also be considered as a
means to providing direct incentives at the line Ministry level.
Allowing for differentiated gas pricing helped break a deadlock over gas supplies. Rather
than only focusing on how the domestic supply could be enhanced to curb the shortage of gas
supplies in Pakistan, the client deliberately considered how the domestic supply could be
complemented with LNG. Recognizing that any new LNG terminal would need to cover its
costs, the surprisingly simple solution was to allow for price differentiation. Accordingly, a ring-
fenced full-cost recovery model for LNG was adopted by Government. In 2017, one LNG
terminal is in operation and one under construction at Port Qasim. Three other terminal projects
are in various stages of development.
Close collaboration with IMF and other donors benefits the program, the client, and the
development institutions. Closely aligned positions among donors help push through difficult
reforms. While this is common knowledge, in the context of the DPC program it may be
worthwhile noting that the collaboration with the Bank’s program arguably led to the effective
completion of an IMF program: the only IMF program out of 18 programs with Pakistan that was
concluded effectively.
4 approach which has unique features such as using a country’s own institutions and processes, and linking
disbursement of funds directly to the achievement of specific program results.
24
It can be difficult to implement reforms even once a requisite prior action has been met: To
help improve collection and reduce distribution losses, one prior action to DPC 1 had required
the outsourcing of collections of four Discos (“MWP instructs the outsourcing”). Even though
this prior action was met, only PESCO and MEPCO proceeded with the outsourcing of the
collection of feeders with losses of 50 percent and above.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners
(a) Borrower/Implementing Agencies: N/A
(b) Co-financiers: N/A
(c) Other partners and stakeholders (e.g. NGOs/private sector/civil society): N/A
25
Annex 1: Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
First Power Sector Reform Development Policy Credit (P128258)
Name Title Unit
Richard Jeremy Spencer TTL and Lead Energy Specialist AFCE3
Beatriz Arizu de Jablonski Consultant GEE06
Rashid Aziz Senior Energy Specialist SASDE - HIS
Kristin Anne Mayer E T Consultant SASDE - HIS
Kazim M. Saeed Consultant GEE06
Mohammad Saqib Senior Energy Specialist GEE06
Tjaarda P. Storm Van Leeuwen Adviser AFTG1 - HIS
Mehwish Ashraf Economist GMF06
Abid Hussain Chaudhry Program Assistant SACPK
Robert Michael Lesnick Consultant GEE06
Jose Lopez-Calix Program Leader AFCW3
Ameet Morjaria Consultant DECDP
Martin Serrano Senior Counsel LEGES
Thomas Walker Senior Economist GSP06
Paul Welton Lead Financial Management Spec GGO24
Second Power Sector Reform Development Policy Credit (P152021)
Name Title Unit
Richard Jeremy Spencer TTL and Lead Energy Specialist AFCE3
Beatriz Arizu de Jablonski Consultant GEE06
Umul Awan Local Consultant ST CASEE
Defne Gencer Senior Energy Specialist GEE06
Kazim M. Saeed Consultant GEE06
Mohammad Saqib Senior Energy Specialist GEE06
Martin M. Serrano Senior Counsel LEGES
Michael C. Stanley Lead Mining Specialist GEEDR
Paul Welton Lead Financial Management Spec GGO24
Khalid Bin Anjum Senior Procurement Specialist GGO06
Mehwish Ashraf Economist GMF06
Rachid Benmessaoud Country Director AFCW2
Helene Bertaud Lead Counsel LEGES
Anwar Ali Bhatti Financial Analyst SACPK
Enrique Blanco Armas Lead Country Economist GMF06
Abid Hussain Chaudhry Program Assistant SACPK
Anthony Cholst Operations Adviser SACPK
Akram El Shorbagi Sr. Financial Management Spec GG024
26
Boonsri Kim Program Assistant GEE06
Jose Lopez-Calix Program Leader AFCW3
Peter Meier Consultant GEESO
Victoria Minonian Consultant GEE06
Uzma Sadaf Senior Procurement Specialist GGO06
Sebnem Sahin Senior Environmental Specialist GENGE
Thomas Walker Senior Economist GSP06
Paul Welton Lead Financial Management Spec GGO24
(b) Staff Time and Cost (from SAP) (the system pulls data available for all fields)
Stage
Staff Time/Cost
(Bank Budget Only)
No. of staff
weeks
USD (‘000)
(including travel
and consultant)
First Power Sector Reform Development Policy Credit (P128258)
Lending
FY13 5.62 54,809
FY14 20.91 334,068
Supervision
FY15 (BB + TF) 26.69 320,305
FY16 (BB + TF) 1.50 21,049
Total: 54.72 730,231
Second Power Sector Reform Development Policy Credit (P152021)
Lending
FY15 33.76 265,518
FY16 24.89 156,405
Supervision
FY16 4.11 28,892
FY17 6.28 48,243
Total: 69.04 499,058
27
Annex 2: Development Outcome Indicators
Key Results Indicators, as listed in Annex 1 of the Program Documents:
Indicator Baseline Value DPC1 Target
(end FY15/16)
DPC2 Target
(end
FY15/16)5
Actual Achieved
at Completion or
Target Years
Policy Area A: Reducing Subsidies and Improving Tariff Policy
A.1. Subsidies allocated in
Federal budget (as % of budget) 1.80% 0.40% 0.80% 0.70%
Date achieved 30 June 2013 30 June 2016 30 June 2016 30 June 2016
Comments (incl. % achievement) DPC2 target overachieved. Original target changed from 0.4% to 0.8%
of GDP (see table 2).
Policy Area B: Improving Sector Performance and Opening the Market to Private Participation
B1. Increased bill collection in
DISCOs (% of total billing) 86% 90% 94% 94.60%
Date achieved 30 June 2013 30 June 2016 30 June 2016 30 June 2016
Comments (incl. % achievement) Targets overachieved.
B2. Increased gas supply 3.8 billion SCFD 5 billion SCFD 3.9 billion SCFD
Date achieved 30 June 2013 30 June 2016 30 June 2016
Comments (incl. % achievement) Target not achieved at the target date.
B3. Separation of market
operations and transmission
system operations
Market and
system operations
in single entity
(NTDC/ CPPA)
All contracted
power generated
by IPPs,
GENCOs and
WAPDA Hydel
traded through an
independent
CPPA
All contracted
power generated
by IPPs,
GENCOs and
WAPDA Hydel
traded through an
independent
CPPA
Date achieved 30 June 2013 30 June 2016 30 June 2016
Comments (incl. % achievement) Target achieved.
Policy Area C: Ensuring Accountability and Transparency
C1. Disco performance reports
and NEPRA review published None Yes Yes
Date achieved 30 June 2013 30 June 20166 30 June 2016
Comments (incl. % achievement) Target achieved.
5 DPC2 target mentioned in this column, if the value was revised compared to its original value under DPC1.
28
Annex 3: Stakeholder Workshop Report and Results
Not Applicable
29
Annex 4: Summary of Borrower’s ICR and/or Comments on Draft ICR
The Borrower has prepared two separate reports summarizing their assessment of the reform
efforts:
On downstream energy sector reform, the Ministry of Water and Power (MWP) has provided an
assessment of overall reform efforts in their March 2017 Monitoring Report. It reviews progress
of the efforts jointly supported by the World Bank, ADB, and JICA from about 2013 up until
2017 under the first two phases of the program, while the last phase is still underway and
supported only by ADB. The reform program is rated as satisfactory throughout in the report
with most of the targets achieved. The report poignantly describes the situation pre-reform where
there was a shortfall of about 5,000 MW of power leading to 12 to 16 hours of load shedding all
across Pakistan. Post reform, the gap is said to have shrunk with an addition of 1,700 to 2,000
MW to the grid and about 5-6 hours of load shedding across the country. It notes a few measures
to be still outstanding such as the privatization of the Discos. The report finds that MWP’s
performance in supporting the sector reform was highly satisfactory. There is no assessment of
donor performance in the report.
On upstream gas sector reform, the Ministry of Petroleum and Natural Resources (MPNR) - has
provided an assessment of the gas sector reform efforts undertaken between 2013 and 2017. The
review accounts the history of gas reform as a client led activity that was started in 2013 under
the heading of “Sustainable Energy Sector Reforms Program” and focused on the
implementation of the 2012 Petroleum Exploration and Production Policy. It was described as
having been supported by donors, including World Bank, Asian Development Bank (ADB), the
Japan International Cooperation Agency (JICA), and USAID. The report highlights that the
involvement of above donors has been “very instrumental in approaching towards the
Government’s objectives in a structure manner.” The report from MPNR notes that the process
of unbundling of the gas companies has been going more slowly than expected. The unbundling
process is being steered by a Gas Leadership Committee. The report notes that a lesson learnt
from these processes could be to put a periodic reporting and monitoring mechanism along with
them to keep the momentum going after the initial triggers are met.
30
Annex 5: Comments of Co-financiers and Other Partners/Stakeholders
Not Applicable.
31
Annex 6: List of Supporting Documents
1. Program Documents
Report No. 86031 – PK
Report No. 100233 – PK
2. Letter of Development Policy
3. Tranche Release Document
4. Aide-Memories/ISRs
5. USAID. The Causes and Impacts of Power Sector Circular Debt in Pakistan. Commissions
by the Planning Commission of Pakistan. March 2013.
6. Trimble, C., N. Yoshida, and M. Saqib (2011). Rethinking Electricity Tariffs and Subsidies
in Pakistan. World Bank Policy Note. Report No. 62971-PK.
7. Fraser, J. M. (2005). Lessons from the Independent Private Power Experience in Pakistan.
World Bank Energy and Mining Sector Board Discussion Paper No. 14, May 2005.
8. Aziz, R. (2013). Pakistan Policy Note 1. Building an Efficient Energy Sector. The World
Bank Group, South Asia Region.
9. NEPRA. Performance Evaluation Report of All Distribution Companies (IESCO,
PESCO, GEPCO, FESCO, LESCO, MEPCO, QESCO, SEPCO, HESCO, K-Electric) for the
Year 2014-1
10. Government of Pakistan/Ministry of Petroleum and Natural Resources (Monitoring and
Evaluation Unit). Monitoring and Evaluation Report July 2013 – March 2017.
11. Ministry of Water and Power (2017). MONITORING REPORT – MOWP Energy Sector
Reforms Program till March 2017. http://mowp.gov.pk/mowp/userfiles1/file/Monitoring.pdf
12. Walker, Thomas; Sahin, Sebnem; Saqib, Mohammad; Mayer, Kristy. 2014. Reforming
Electricity Subsidies in Pakistan: Measures to Protect the Poor. World Bank Policy Paper Series
on Pakistan; PK 24/12. World Bank, Washington, DC. © World Bank.
https://openknowledge.worldbank.org/handle/10986/21569 License: CC BY 3.0 IGO.
13. Walker, Thomas; Canpolat, Ezgi; Khan, Farah Khalid; Kryeziu, Adea. 2016. Residential
Electricity Subsidies in Pakistan: Targeting, Welfare Impacts, and Options for Reform. Policy
Research Working Paper; No. 7912. World Bank, Washington, DC. © World Bank.
https://openknowledge.worldbank.org/handle/10986/25811 License: CC BY 3.0 IGO.”
14. Information from agency websites: npra.org.pk; www.ntdc.com.pk; www.cppa.gov.pk