Pakistan - Private Sector Energy Development Project
Kopp, Raymond J.
The project assessment of outcome is unsatisfactory, sustainability is unlikely, and institutional development impacts are negligible. Both performances by the Bank, and Borrower are rated unsatisfactory, given that not enough attention was paid by the Bank, to the manner in which the Government was implementing its 1994 Private Power Policy. Several lessons are drawn from the project, among which it is suggested that once independent power producers (IPPs) start operations in a power system, it would be advantageous that an integrated utility sector be unbundled, in order to introduce competition; additionally, an automatic indexation formulae should be set, to protect the utility's purchasing power from fuel costs, currency devaluation, and the cost of purchased power. The support to privatized power infrastructure boards, and organizations, may have had the unintended effect of enabling vested interest in the sector to "capture and stall" structural changes envisaged in the 1992 Strategic Plan for privatization, i.e., the single buyer model had risks in terms of preserving the role of the sector ministry in investment decisions, shielding financiers from market risks, and government interference in electricity wholesale trading. Thus institutional, and regulatory frameworks are being finalized, designed to protect a competitive wholesale market. IPP programs need to be tailored according to public financial support, and guarantees to facilitate efficient investments; limit the size of the first IPP to enable ready substitutions; and, have an efficient fuel supply policy, with managerial, contracting capacity.
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