Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-4056-PAK

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT OF US$178.o MILLION

TO THE

ISLAMIC REPUBLIC OF PAKISTAN

FOR AN

ENERGY SECTOR LOAN

May 6, 1985

This dxocment has a reticted distributio and may be used by recipients y in the perf rmwneeoftheidr official duties. ItS contentsma nuot othenrwie be disclosd witbuut World Bbnk nsohorinizn.

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CURRENCY EQUIVALENTS

Currency Unit = Pakistan Rupee (Rs)US$1.00 = Rs 15.3

FISCAL YEAR

July 1 - June 30

ABBREVIATIONS

ADB - Asian Development BankCIDA - Canadian International Development AgencyENERCON - National Energy Conservation CenterENERPLAN - Office of Energy PlanningESL - Energy Sector LoanCSP - Geological Survey of PakistanKESC - Karachi Electric Supply CorporationKGC - Karachi Gas CompanyNRL - National Refinery LimitedOGDC - Oil and Gas Development CorporationPHDC - Pakistan Mineral Development CorporationPSO - Pakistan State OilSNGPL - Sui Northern Gas Pipeline LimitedUSAID - United States Agency for International DevelopmentWAPDA - Wa-er and Power Development Authority

FOR OMCIAL USE ONLY(i)

PAKISTAN

ENERGY SECTOR LOAN

Loan and Project Summary

Borrower: Islamic Republic of Pakistan.

Beneficiaries: WAPDA, OCDC, KESC, PSO, SNGPL, KGC and PHDC.

Amount: US$178 million.

Terms: Repayable in 20 years, including five years of graceat the standard variable interest rate.

Onlending Terms: From the Government of Pakistan to WAPDA at llX p.a.and to all other beneficiaries at 14Z p.a., with theother lending terms being the same as those of theBank.

Project Description: The Loan would support the Government's reformprogram in the energy sector, as outlined in theattached development policy letter from theGovernment to the Bank, and assist in theimplementation of the Government's core energyinvestment program for the period FY86-87. Thereform program consists of a number of significantimprovements in the areas of: development andinvestment; pricing and demand management; andinstitutional development. The core investmentprogram takes into account the inter-linkages amongenergy subsectors and the implementation andfinancing capabilities of the Government.

The Loan has been designed through extensiveanalysis and discussions on key sector issues betweenthe Government and Bank staff. The reform programand care investment program constitute an integratedand comprehensive policy and investment framework forthe efficient development of Pakistan's energysector.

The Loan would finance imports of equipment andmaterial required by priority projects included inthe core investment program, as well as for theefficient operation of existing facilities. The mainrisk relates to possible political events which mayimpede the implementation of the program. The riskis considered minimal.

Thidcuent has a restcted distributon and may be used by recipients only in the performance ofir offiia dutes. Its contents may not otherwise be discosed without World Bank authorizaton.

(ii,

Estimated Costs:Local Foreign Total------ US$ Million ---

PowerWAPDA 757.4 477.9 1,235.3KESC 116.9 70.4 187.3

PetroleumOGDC 138.1 235.5 373.6SNGPL 107.8 58.6 166.4PSO 19.3 4.4 23.7KGC 16.7 7.5 24.2

CoalPMDC 6.1 5.6 11.7

Planning &Conservation 7.8 8.6 16.4

Total Cost 1,170.2 868.4 2,038.6

Financing Plan

IBRD - Proposed Loan - 178.0 178.0Other - IBRD/IDA - 172.6 172.6Other Multilateral - 98.6 98.6Bilateral Aid &

Suppliers' Credits - 284.3 284.3Internal Generation 583.3 - 583.0Local Borrowing 210.0 - 210.0Government of Pakistan 376.9 134.9 511.8

Total 1,170.2 868.4 2,038.6

Estimated Commitments and Disbursements:

FY86 FY87-- US$ Hillion----

Annual - 104.5 73.5Cumulative - 104.5 178.0

Appraisal Report: N.A.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED ENERGY SECTOR LOAN

TO THE ISLAMIC REPUBLIC OF PAKISTAN

1. I submit the following report and recommendation on a proposed EnergySector Loan of US$178 million to the Islamic Republic of Pakistan. The loanwould have a term of 20 years, including five years of grace, at the standardvariable interest rate.

PART I - THE ECONOMY

2. The most recent economic report "Pakistan: Recent Economic DeveLop-ments and Structural Adjustment" (No. 5347-PAK, dated March 20, 1985) wasdistributed to the Executive Directors on April 4, 1985.

3. The steadily improving performance of recent years was interruptedin FY84 due to an unexpected downturn in agriculture and migrant remittances,and the carry-over of inflationary pressures from FY83. GDP growth slowed to3.5% as a result of a 6.2Z fall in agricultural value added caused by adverseweather and pest attacks. Manufacturing grew by 8.3% and services by 6.2%.Fixed investment rose by 6.5%, while private investment increased by 11.5%.National savings fell to 12.1% of GNP as a result of a drop in privatesavings. Public savings remained low reflecting reduced Federal and Provin-cial budget surpluses. Excess liquidity from FY83 (generated largely byforeign exchange inflows), increases in world prices and reduced agriculturaloutput, contributed to inflation above 9%, as against 5.2Z in FY83.Budgetary policies continued to be prudent. Current revenues increased by20-, largely through improved tax administration, but current expenditur^salso increased reflecting higher allocations for economic and social serv-ices. Considering the economic importance of agriculture, the achievement ofcreditable growth in FY84 points to a considerable resilience of Pakistan'sunderlying economic structure, which is partly the result of recent Govern-ment efforts to begin removing structural imbaLances in the economy.

4. The balance of payments deteriorated in FY84, relative to the markedimprovement in FY83. The current account deficit at US$1 billion was almostdouble that in FY33. Stagnant exports and lower remittances were the maincontributing factors. With cotton and yarn exports much reduced by the poorcotton crop, exports rose by only 1.6%, while imports increased by 6.9%.Remittances, which declined for the first time in FY84, fell by 5.1%.Moreover, recent projections suggest a decline in net migration, which isLikely to lead to lower remittances over the medium term. The higher currentdeficit, together with lower net capital flows, led to a reserve drawdown ofUS$113 million. Gross official gold and foreign exchange reserves wereUS$2.4 billion at end FY84, equivalent to 3.8 months of imports of goods andservices.

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5. Since 1980, the Government has moved gradually to eliminate interestfrom the economy and has announced that the process will be completed by July1985. All transactions will be based on new financing modes consistent withIslamic principles. Existing interest-based commitments will be honored andtransactions with foreign governments and financial institutions will not beaffected. At this stage, it is difficult to determine with any certaintythe potential costs of Islamization. Undoubtedly, there will be some costsin converting the system, but whether long-run efficiency is affected willdepend on how the system is applied. To date, the Government has proceededcautiously and, while fully committed to the elimination of interest, hasstressed that new financing modes will be applied flexibly and developmentsmonitored closely.

6. The slowdown in economic growth in FY84 marked a departure from theimproved performance achieved during the Fifth Plan period (FY79-83). Growthin national output (6.5%), agriculture (4.2%), manufacturing (10.42), exports(11%) and private investment (6.7Z), though beLow Plan targets, was wellabove rates achieved during FY70-78 and very respectable compared to otherLDCs. Growth during this period - coupled with increased remittances -benefited large segments of the population. Improved performance took place,despite a number of adverse factors: (a) a world recession; (b) a 30% declinein the external terms of trade after 1979; and (c) the Afghanistan crisiswith its attendant requirements for increased defense and refugee assistanceexpenditures.

7. Fiscal performance and the balance of payments improved significantlyduring the Fifth Plan. The overall budget deficit and Government bank bor-rowing, which stood at 8.8% and 4.3% of GDP in FY79, fell to 6.4% and 1.7%,respectively by FY83. Reduced levels of Government borrowing from banks,together with overall credit restraint, led to lower money supply growth andlessened inflationary pressures; inflation dropped from 8Z to 5% by the endof the Plan period. The improved fiscal performance was largely the resultof expenditure restraint rather than better revenue performance. Real expan-sion in current expenditures on economic and social services barely kept pacewith population growth and development expenditures declined relative to GDP.Government revenues remained constant at 16% of GDP and public savings,having risen in the first half of the Plan period from 1% to 3.8% of GNP,dropped to 1.6% by FY83. Assisted by remittances, but also strong exportgrowth, the current account deficit tell from 5% of GNP to 2% by the end ofthe Plan period. Gross reserves increased from 3.5 to 4.5 months of importsof goods and services.

8. In addition to improving economic management through fiscal andmonetary policies, the Government took measure- to improve performance inthe commodity-producing sectors. In agriculture, all major crops reachedrecord output levels, with wheat and sugar achieving self-sufficiency. Sub-sidies on pesticides were virtually eliminated, while fertilizer prices wereraised eo reduce the subsidy burden. Crop procurement prices were adjustedto bring them closer to world prices. Provincial allocations for operationsand maintenance in irrigation were increased, along with water charges.

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Encouraged by improved poLicies and incentives, private manufacturing invest-ment grew by 10.9% p.a. Areas open to the private sector were widened, mostagricultural processing units were denatioralized and sanctioning limitsincreased. A flexible exchange rate policy adopted in 1982 was instrumentalin encouraging manufactured exports, while import Liberalization increasedthe availability of raw materials and capital goods. In energy, measureswere taken to accelerate the development of domestic resources, rationalizeprices, and improve policy formulation and energy planning capabilities.

9. The developments in Pakistan's economy since FY78 represent welcomesteps toward the solution of problems which are essentially structural andlong-term in nature. Notwithstanding these improvements, furtherwide-ranging measures to address structural issues are necessary. Two issuesare critical to Pakistan's long-term growth prospects: (a) the need toincrease the level and efficiency of public investment; and (b) the need toencourage export expansion and efficient import substitution. To sustainhigh economic growth, Pakistan is faced with the urgent need to make majorinfrastructure investments, upgrade existing facilities and strengthen itsneglected social base. The latter has fared badly as a result of resourceconstraints and is reflected in Pakistan's social indicators which lagseriously behind these of other LDCs at comparable levels of development.Increases in public investment and recurrent alLocations will not be possiblewithout a major domestic resource mobilization effort. Although reform ofindirect taxation through the introduction of a broad-based sales tax shouldreceive priority, greater reliance on user changes, curtailment of subsidiesand increased self-financing by public enterprises will also be required.Civen the more constrained outlook for official assistance and the likelihoodof lower remittance flows, sustained improvements in both export expansionand efficient import substitution will be necessary to support high growthwith sustainable external capital requirements. Improved trade performancewill require a continuation and strengthening of the structural adjustmentprocess in the key sectors of agriculture, industry and energy. Bothagriculture and industry have considerable potential for increased exportsand some degree of efficient import substitution. In energy, the accelerateddevelopment of Pakistan's underexploited resources can make a major contribu-tion to the reduction of energy imports.

10. In agriculture, high growth has been Largely the result of increasedacreage; average yields remain low by world standards and those of progres-sive farmers within Pakistan. Increasing agricultural productivity anddiversification will require strengthened institutional support, appropriatepricing policies, and the identification and implementation of the coreinvestment program. More effective institutional support should be soughtthrough improvements in the quality and quantity of services to farmers. Inparticular, strengthening the seed program requires more efficient seedmultiplication and dissemination, increased efficiency in public sectorplants and a greater role for the private sector. The delivery of agricul-tural credit needs to be improved to ensure it actually reaches small farmersand tenants, whose credit needs are greatest. Marketing costs need to bereduced together with a strengthening of research and extension services.Agricultural pricing policies should ensure appropriate incentives tofarmers, while minimizing subsidies. Multi-crop approaches to pricing should

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complement the single crop, cost-of-production approach currently used.Finally, a core investment program in agriculture and water is needed toreduce the possibility of distortions in investment priorities. Programsthat are low-cost and yield quick returns should be emphasized along withcritical infrastructural investments that raise farm productivity. Greateremphasis on the complementarity of investment programs, especially betweenagriculture and water would ensure that priority is accorded to programs thatincrease agricultural productivity rather than merely augment the supply ofphysical infrastructure.

11. Increasing and diversifying Pakistan's manufactured export base andencouraging efficient import substitution will depend, to a large extent, ona rationalization of industrial incentives to reduce both the level anddispersion of effective protection rates. The objective should be toincrease the efficiency of the industrial sector by exposing protectedproducers to greater foreign competition and to reduce the antiexport biasinherent in the present incentives system. In addition, reform of Governmentregulations affecting investment sanctioning and cost-plus pricing is alsorequired. The Government should limit sanctioning to a few cases ofstrategic importance, leaving most investment decisions to the private sec-tor, which is better able to assess investment opportunities. Cost-pluspricing arrangements, which provide insufficient incentives to minimize costsor alLocate capital efficiently, should be replaced by market-orientedapproaches which better reflect supply/demand conditions and provide adequateincentives for reinvestment and operational efficiency.

12. In the energy sector issues need to be addressed in three broadareas: (a) investment and development; (b) pricing; and (c) institutionalstrengthening. To date, the Government's power generation program, as wellas other investments in the sector, have not been based on a long-termleast-cost development plan. Given the likelihood of domestic resourceconstraints and persistent power shortages, the Government should ensure thatfuture investments conform to such a plan and that a core investment programis insulated from uncertainties inherent in the budgeting process. Thepresent gas producer pricing formula for new discoveries should be adjustedto provide adequate incentives to attract private sector exploration. Con-sumer gas prices, which were maintained artificially low to encourage thesubstitution of gas for imported oil, have resuLted in a considerable distor-tion of relative prices and uneconomic use of gas. The Government's policyis to increase gas prices to reach two-thirds of fuel oil parity by FY88 andsince 1982, price increases have averaged 15% p.a. in dollar terms. TheGovernment needs to meet its FY88 objective and move to full parity as soonthereafter as possible. Electricity tariffs, which are currently belowlong-run marginal cost, should be adjusted to reflect this cost, not only toensure efficient use of electricity and encourage energy conservation, butalso to mobilize additional funds to meet the substantial resources requiredby the power investment program. Finally, the Government should considerincreasing the autonomy of public enterprises in the energy sector to improvetheir efficiency and should continue efforts'to strengthen energy planningand policy coordination.

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13. The Six:h Five-Year Plan (FY83-88) articulated a pragmatic strategyfor Pakistan's continued rapid development which incladed an expanded rolefor the private secLor, increased public development expenditures andincreased allocations for energy, agriculture, irrigation and the socialsectors. Although the size and composition of the Plan are appropriate,because of insufficient domestic resource mobilization, development expendi-tures during the first two years of the Plan will be 9Z lower than theamounts projected. Although this would not appear overly large, the way inwhich sectoral shortfalls have been distributed contradicts Plan priorities.Education, energy, health and agriculture. received considerably lowerallocations than called for in the Plan. Furthermore, without a predefinedcore investment program, there is a tendency to distribute shortfalls evenlyover a large number of projects within a sector; too many projects areinitiated and projects that should receive priority are underfunded. Inorder to address this issue, the Government has announced the reintroductionof a Three-Year Priority Investment Program (FY86-88). The Government hasemphasized that the adoption of a rolling medium-term program does not meanplan strategies and priorities are being revised, or that shortfalls areconsidered inevitable. The Program will identify sectoral core investmentprograms which will be given priority in formulating annual plans. Byprotecting priority investments, especially in key areas, the effectivenessof the public investment program would be enhanced and priorities sharpened.

14. Despite the temporary setback in FY84, the improved performance andpolicy framework set in motion during the Fifth Plan, which the Governmentintends to continue during the Sixth Plan, have improved Pakistan's credit-worthiness for a blend of Bank and IDA borrowing and commercial borrowing.At the end of calendar year 1983, Pakistan's external public debt (excludingthe undisbursed pipeline) stood at US$9.8 billion, of which US$4.7 billionwas owed to bilateral members of the Pakistan consortium, US$1.3 billion toOPEC, US$2 billion to multilateraL agencies, and the balance, to otherbilateral and private lenders. In 1983, the Bank Group's share in Pakistan'sexternal public indebtedness was 15.3% and in external debt service was 7.0%.Bank projections indicate that, provided recent policy improvements aresustained and structural issues addressed. Pakistan's debt service wouldremain below 15% during the remainder of the 1980s, even with somewhat higherlevels of commercial borrowing.

PART II - BANK GROUP OPERATIONS IN PAKISTAN 1/

15. The cumulative total of Bank/IDA commitments to Pakistan (exclusiveof Loans and Credits or portions thereof which were disbursed in the formerEast Pakistan) now amounts to approximately US$3.2 billion. During its longassociation with Pakistan, the Bank Group has been involved in most sectorsof the economy. This has included its involvement with other donors, over a20-year period, in the major program of works to develop the water resources

l/ Part II is substantially the same as that in the President's ReportP3940-PAK (Fourth WAPDA Power Project), dated February 13, 1985.

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of the Indus Basin. Approximately 30% of total Bank/IDA conmitments toPakistan have been for agriculture and irrigation; 28% for industry, includ-ing import program credits; 18% for transport, telecommunications and publicutility services; 14% for energy, including power, gas pipelines andpetroleum; 5% for social programs in education, population and urban develop-ment; and 5% for structural adjustment lending and technical assistance.

16. In the current period, the Bank's assistance strategy is to supportthe Government's efforts to formulate and implement policy reforms in threesectors--energy, industry, agriculture-which shape the structural adjustmentprocess in Lhe economy. At the same time and in order to ensure that thegains from adjustment are sustained in the long term and shared more broadly,the strategy also includes investments in physical infrastructure and thesocial sectors (education, population, etc.) which have been neglected inPakistan's development efforts. To succeed, this strategy requires aflexibLe deployment of the full range of traditional instruments of Banksupport - sector work and active policy diaLogue, policy and project-basedLending, technical assistance and aid coordination. The Bank Group's lendingprogram has two components. The larger project-based component supportsspecific high priority investments in productive sectors and physical andsocial infrastructure. The smaller but strategic component focuses on policyreforms in the key secturs of agricuLture, industry and energy, relyingheavily on high quality economic and sector work. The strategy includes aseries of technical assistance credits to finance studies and formulateaction programs for policy reform. The experience with the first of thesehas been extremely positive. Through the annual Country Economic Memorandum,we aim to foster a greater understanding among Consortium members of theGovernmentts structural adjustment program and aid requirements which,coupled with increased co-financing, should enhance the policy relevance andeLfectiveness of other official aid and help attract additional resources toPakistan from nonconcessional sources.

17. Historically, the Bank Group has placed special emphasis on lendingfor agriculture which is the mainstay of the Pakistan econoiy. The Bank andthe Government are in agreement on the main elements of a strategy whichunderpins lending in the sector. In recent years, the objective has leen toincrease agricultural productivity through improvements in the efficien- ofthe irrigation system and supporting agriculturaL services. Among the issuesbeing addressed are: the balance between short-gestation projects andlonger-term expenditures, rationalization of input and output prices, market-ing, improvements in operation and maintenance, cost recovery, and a widerrole for the private sector. Projects in the sector have ranged from irriga-tion/drainage to agricultural inputs, research and extension and haveincluded institution building components. OveraLl, progress in agriculturehas been satisfactory.

18. In industry, the strategy has two complementary aspects: tostrengthen and broaden the process of structural adjustment in Pakistan'sindustrial sector and to support the Government's efforts to revitalize theprivate sector through the provision of industrial finance. The industrialreform program is designed to improve the competitiveness of the sector inorder to promote export expansion and efficient import substitution. Issues

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being addressed include trade and industrial incentives; deregulation;efficiency of public enterprises; pricing decontrol; and improvements in thecredit delivery system. Projects have included lines of credits to DFCs andother financial intermediaries which has been mainly for the private sector,totaling US$488.5 million. Direct lending for industry has also includedassistance to three large fertilizer plants and a refinery engineering loan.As of September 30, 1984, IFC has made investments in 15 Pakistan enterprisestotaling US$174.21 million of which US$163.24 million was by way of loans andUS$10.97 million by equity participation (these are shown in Annex II).While individual operations have generally achieved their objectives, theagenda for overall reform in industry remains formidable.

19. Following progress on a number of major sector issues as a resultof the Structural Adjustment Loan (SAL) process in 1981/82, our lendingprogram in cneg is expanding rapidly. The overall objective is to expanddomestic-supply from all energy subsectors, while simultaneously increasingthe e'ficiency of energy use through appropriate pricing, conservation andother demand management measures. No less central have been efforts tostrengthen key institutions in the sector. In power the Bank has assistedboth the Karachi Electric Supply Corporation (KESC) and the Water and PowerDevelopment Authority (WAPDA) in both power generation and transmission; thesector has also been assisted by the construction under the Indus BasinDevelopment Program of Mangla and Tarbela Dams. In oil and gas, the Bankhas financed operations which support a sound expLoration and developmentprogram and has assisted in the development of the extensive gas transmissionsystem. Smaller operations, mostly of an engineering and technical assis-tance nature, have supported coal exploration, energy audits and oil refin-i_g. Despite much progress, however, the Bank will need to continue itsparticipation in institution building in concert with efforts to assist theGovernment to mobilize adequate funds for energy investments through tariffs,co-financing, and greater private sector participation.

20. Bank Group lending for transport and communications has focused bothon new capital investments and on improving the efficiency of existingassets. Operations have also focused on strengthening the institutionsresponsible for these services, especially the Karachi Port Trust, PakistanRailways, the Telephone and Telegraph Department and federal and provincialhighways agencies. However, recent analysis has identified transportinfrastructure as a critical constraint to overall growth due, in largemeasure, to a running down of infrastructure stock. In the future, thebalance between new investments and operation and maintenance and amongvarious modes will need to receive greater attention.

21. With an overall literacy rate of only 252, a population growth rateof about 3%, and rapid urbanization, Pakistan faces a formidable developmentagenda in the social sectors. The Bank has supported the Government'sprogram in education through five credits totaling some US$62.5 milliondesigned to upgrade primary, postsecondary and higher technical and agricul-tural education, middle-level training of primary teachers and agriculturalextension agents. The focus has and will continue to be on the lower end ofthe education system (primary, secondary, technical and nonformal education,including literacy). A first population project designed to expand demand

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for population control services was approved in FY83. In the urban and watersupply sector, the Bank has financed four projects. Besides providing urbanservices, these operations are addressing, among other issues, improved localresource mobilization and cost recovery; improved planning and efficiency ofresource utilization; and urban management, especially at the ProvinciaL andMunicipal levels.

22. 'Jith respect to policy-based lending, a SAL operation was approvedin June 1982. The SAL program consisted of a number of significant reformsin Government development planning and in policies and programs in theagriculture, energy and industrial sectors. The loan was fully disbursed atthe end of FY83 and achieved significant progress in the above areas. Intne next few years, continuing support to the structural adjustment processis envisioned under sector loans.

23. Annex II contains a summary statement of Bank Loans and IDA Creditsas of September 30, 1984. Credit and loan disbursements have been generallysatisfactory. Some projects have experienced initial delays due toprotracted Government procedures for project approval, which are beingaddressed, and to slowness in the procurement of goods and services. Rapidturnover of managerial and technical staff, in part dueL to migration to theMiddle East, and budgetary constraints have been probLems in the case of someprojects.

24. A number of operations are currently under preparation or are beingappraised. These incLude projects for power transmission and generation;oil and gas exploration and development; coal development; lines of creditfor industrial finance for the private sector; industrial subsector restruc-turing, balancing and modernization; irrigation/drainage, agricultural inputsand services; primary and informal education; urban development and watersupply. In addition to the proposed loan, two sector loans which wouldsupport further structural adjustment in industry and agriculture are alsobeing discussed with the Government. Where successfuL, these sector loanswould provide a policy umbrella for projects in those sectors. To assistthe Government to finance agricultural and other high priority projects whichhave a low foreign exchange component, financing of some local expendituresin.specific cases is justified.

25. In addition to lending, economic and sector work provides the basisfor continuing a dialogue between the Bank Group and the Government of Pakis-tan on development strategy, the sector loans now being prepared, and for thecoordination of external assistance within the Pakistan Consortium. The workprogram emphasizes resource mobilization, structural adjustment in the threekey sectors, and physical and social infrastructure.

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PART III - THE ENERGY SECTOR

A. Setting of the Sector

26. The development of Pakistan's resource potential in the energy sectorand measures to limit the growth of energy demand will be critical for sus-taining high economic growth over the long run. Pakistan's commerciallyexploitable domestic energy resources consist, in order of importance, ofhydropower, natural gas, oil and coal. In addition, the country has a sub-stantial nonconventional energy resource base, consisting mainly of fuelwood,agricultural and animal waste, and solar and wind energy. By and large,these resources have remained underutilized and their development hasprogressed at a substantially slower pace than is warranted by the size ofreserves because of inappropriate policies and resource constraints. Aspolicies to contain consumption of energy were inadequate, the country'sdependence on imported energy increased, which, together with increases inoil prices since 1973, contributed to the rapid growth of imports and exter-nal payments deficits. The import bill for oil increased from US$63 million,amounting to 8Z of total imports in FY73, to US$1,496 million representing23% of total imports in FY84. In order to buffer the consumers from thehigher cost of imported energy, the Government encouraged the increased useof domestic energy products such as natural gas and electricity by maintain-ing the price of these products at levels substantially below their economiccost of supply. As a result, by FY78, when the Fifth Five-Year Plan waspromulgated, the economy was experiencing severe resource constraints andrapid growth in energy consumption.

27. In order to address these shortcomings, the Fifth Plan (FY78-83)emphasized the accelerated development of domestic energy resources andrationalization of energy prices. However, the shortages of local and for-eign resources, as well as the unanticipated increases in outlays for ongoingprojects impeded the achievement of the supply targets for all energyproducts except natural gas for whicn over 99% of the output target wasrealized. The largest shortfall was in the power subsector where, betweenFY78 and FY83, only 60% of the forecast generating capacity was commissionedand 85Z of the primary and 53Z of the secondary transmission lines wereenergized. The shortfall was no less pronooaced in tie petroleum subsector,where only 36% of the output target for oil was achieved. These shortages,together with the rapid growth of consumption, precipitated by the delayedand incomplete adjustment to higher world energy prices, resulted in acuteshortages of natural gas and electricity during the last two years of theFifth Plan period. This, in turn, raised the demand for liquid hydrocarbonsand further increased the country's dependence on imported energy. Theadjustments in the prices of petroleum products were initiated in 1978, fiveyears after the first round of increases in the international price of oil,and by FY83 the weighted average price was about 1502 of the border price.By contrast, prices of gas and electricity were not increased until 1980 andeven then at a substantially slower pace than for petroleum proJucts. As ofFY83, the price of natural gas was about 39Z of the border price of fuel oiland electricity was about 63% (WAPDA) and 98% (KESC) of the average long-runmarginal cost for the combined system.

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28. Severe shortages of natural gas and electricity, and the resultantincreases in imports of liquid hydrocarbons ushered the economy into theSixth Plan. The industrial and household sectors were particularly affectedby these shortages, which are increasingly becoming a major impediment tomaintaining the economy's growth momentum. In recognition of the possibleadverse impact of increased dependence on imported energy and of continuingshortfalls in energy supply, the Government accorded high priority torestructuring the energy sector during the Sixth Plan. The objectives of theSixth Plan are to: (a) accelerate the development of domestic energy resour-ces to reduce the country's dependence on imported oil; (b) promote theefficient and rational use of energy to meet the future demand at least-costto the economy; (c) adjust energy prices to reflect their economic costs;(d) streamline the organizations and institutions in the sector to promotetheir efficient operation and management; and (e) develop mechanisms forincreasing private sector participation. The Sixth Plan allocated Rs 116.5billion (US$8.6 billion) to public sector energy programs, representing anincrease of about 120% in real terms over the Fifth Plan and amounting to 38%of total public sector outlays.

29. In addition to increasing the allocation for the energy sector, theGovernment has taken several important policy initiatives to promote theachievement of Sixth Plan objectives. These initiatives, which are discussedin detail below, have addressed some of the constraints that impeded theachievement of the Fifth Plan targets and underscore the Government's commit-ment to restructuring the energy sector. Despite these efforts, the SixthPlan's supply targets are not likely to materialize fully, particularly forelectricity, domestically refined petroleum products and natural gas. Theshortfall in the supply of elecrricity stems primarily from the Government'sinability to mobilize domestic and foreign financial resources which inducedit to scale down subst.ntially the investment program for the power subsec-tor, where actual expend:tures during the first two years of the Plan periodare expected to be only 60Z of the original targets. The shortfall in supplyof domestically refined petroleum products is due to the Government's deci-sion to delay the implementation of projects called for under the Sixth Plan.This decision was prompted by the uncertairty regarding the economic andtechnical viability of these projects in meeting the future demand at leastcost. As for natural gas, strict rationing is expected to continue,primarily because the Government's pricing policies have failed to induce theprivate sector to accelerate exploration and development and contain growthof demand.

B. Strategy for the Development of the Energy Sector

30. The setbacks experienced in the implementation of the investmentprogram for the energy sector during the first two years of the Sixth Planand the high likelihood that existing resource constraints will continue intothe immediate future have prompted the Government to implement a comprehen-sive development strategy to address the issues impeding the development ofthe major sectors of the economy. The energy sector strategy for theproposed loan, which is outlined in the Letter of Development presented inAnnex IV, involves a two-pronged approach. The first focuses on minimizing

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the shortfalls in energy during the remaining three years (FY86-88) of thecurrent Plan period and on ensuring that the slippages in investment that areexpected to occur do not become a major impediment to the implemeiztation ofthe Seventh Plan. Hence, it concentrates on the implementation of: (a) acore program of high priority projects; and (b) policy actions and institu-tional reforms needed to mobilize sufficient revenues for executing theseprojects, restrain the growth of demand for energy and enhance planning andproject implementation capabilities in the sector. The second calls forstudies that would provide the inputs needed to promote the integrateddevelopment of the sector over the Seventh and Eighth Plans. The Govern-ment's development strategy for the energy sector is described in detailbelow and summarized in Annex V under the following three headings: invest-ment and development; pricing and demand management; and institutionaldevelopment.

C. Investment and Development

Euergy Investments

31. Core Investment Program: Pakistan's investment plans for thedevelopment of primary and secondary energy have been progressing in apiecemeal fashion, dictated primarily by the availability of financialresources. Moreover, the planned cargets have been ambitious relative tothe availability of financial resources. This divergence between actual andplanned investment has not only precluded the achievement of the supplytargets, but has also resulted in the distribution of limited resources amonglow and high priority projects. Pakistan's energy plans also suffered fromthe absence of a core investment program which would receive priority in theallocation of resources and from insufficient attention being given to theinterdependence of projects and the subsectoral interlinkages (coal, elec-tricity, etc.). The core investment program for energy, which was formulatedby the Pakistan Energy Working Group with assistance from the Bank, wasadopted to address these shortcomings.

32. The Government's core investment program covers the remaining threeyears (FY86-88) of the Sixth Plan and includes ongoing and new projects aswell as the rehabilitation and maintenance of existing facilities whoseeconomic operation is critical to the achievement of the revised targets.The core investment plan takes as its point of departure a demand projectionfor energy, disaggregated by product, for the period 1985-1993. It wasderived on the basis of a detaiLed review of the developments in the energysector and in the major energy consuming sectors of the economy. Theprojects included in the core investment plan were matched with the forecastdemand for energy. The projects were then ranked on the basis of theirexpected rates of return and selected in a descending order to ensure that,when aggregated within and across sectors, they would meet this demand atleast cost to the economy. The financial requirements in terms of foreignexchange and local costs were ascertained for each project in each subsectoron an annual basis. This provided the total investment required in theenergy sector for FYs 86, 87 and 88. The financial projections of eachimplementing agency as well as the projecced annual allocations by theGovernment were reviewed to assess the adequacy of the financial resources

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for the implementation of the proposed projects. The investment requirementswere then matched through an iterative process with the sources of financing.This culminated in the core investment program which is achievable in termsof both implementation capability and availabiLity of financial resources.

33. The core investment program encompasses high priority projects to becompleted or initiated during the next three years (FY86-88) by OCDC, WAPDA,KESC, Pakistan State Oil (PSO), Sui Northern Gas Pipeline Ltd. (SNGPL),Karachi Gas Company (KGC) and Pakistan Mineral Development Corporation(PMDC). It also includes the services of consultants for energy audits andfeasibility studies as well as instrumentation purchases for energy conserva-tion. The financial requirements of the core investment program amount toabout Rs 50 billion (US$3.2 billion) to be allocated over the next threeyears as follows: Rs 16.0 biLlion (US$1.0 billion) for FY86; Rs 16.0 billion(US$1.0 billion) for FY87 and Rs 18.0 billion (US$1.2 billion) for FY88. Ofthe financial resources earmarked for the core investment program, Rs 36.5billion (US$2.3 billion) would be absorbed by the power subsector; Rs 13billion (US$0.8 billion) by the petroleum subsector; Rs 0.4 billion(US$24 million) by the coal subsector; and Rs 0.2 billion (US$17 million) byenergy planning and conservation activities. The details relating to thecore investment program for each entity are presented in Annex VI. The scopeof the programs to be implemented by OGDC and WAPDA, which are expected toabsorb about 78% of the core investment program outlays, is described below.

34. OGDC's core investment program consists of three main elements: thefirst covers the appraisal and development of fields to be undertaken by theCorporation using its own internally-generated funds and Government alloca-tions; the second covers exploration and development activities to be under-taken under existing joint ventures; and the third involves new joint ven-tures in prospective areas for which further efforts would be made by Govern-ment to mobilize private sector participation. OGDC would concentrate itsefforts on the following: the development of oil and gas fields at Toot,Pirkoh, Dakhni and Tando Alam, smaller investment projects such as Rhodo andSari/Hundi in strongly gas-prone areas, and a modest-sized explorationprogram which gives priority to potentially high-yielding prospects in thevicinity of the Tando Alam discovery and important gas prospects such asLoti. The joint venture components of the core investment program aredesigned with a view to supplementing OGDC's technicaL capabilities andmobilizing resources for exploration and development. The component of thecore investment program covering the existing joint ventures would involveOGDC's non-operating interest as minority partner in Badin and North Potwar,with financing provided by the Corporation and the Bank under the proposedPetroleum Resources Joint Venture Project to cover OGDC's foreign exchangeshare. The component covering the new joint ventures are yet to be firmedup; however, resources have been earmarked under the proposed PetroleumResources Joint Venture Project to finance OGDC's share of any prospectiveagreemeun.s. The implementation of this core investment program would fullyabsorb the Corporation's technical, managerial and financial resources. Theprogram i's viewed as the most effective strategy for enhancing OGDC's perfor-mance and for minimizing the risk to public resources.

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35. WAPDA's core investment program for generation incLudes essentially:the extension at TarbeLa, with completion of units 9 and 10 (2x175 MW) andinitiation of units 11 to 14 (4x406 KW); the completion of a steam unit (210MW) and a combined cycLe group (450 MW) at Guddu; the compLetion of a combus-tion turbine station (4x100 MW) at Kot Adu; the completion of a firstfuel-fired unit (250 MW) at Jamshoro and the initiation of a second unit (210MW); the initiaticn of a fuel-fired station at Multan (3x210 MW) and of theLakhra coal-fired station (300 MW). For power transmission, it includes thecompletion of the first 500-kV scheme Tarbela-Faisalabad- Jamshoro and theinitiation of a second 500-kV scheme Tarbela-Lahore- Jamshoro. The 220-kVnetwork and subtransmission systems will also be expanded to ensure theirintegrated and coordinated development with the 500-kV grid. The distribu-tion system will be reinforced and expanded in order to add about one milLionconsumers. The only major investment not included in the core program is theKalabagh generation project, for which, because of its size, special finan-cial arrangements will be required. However, its exclusion is consistentwith the methodology of formulating the core program, because the projectwould not, in any event, come onstream during the period for which demand isprojected.

36. To finance the core investment program, the Government would con-tribute Rs 10.5 billion (US$0.7 billion) from the Annual Development Plan andthe contribution of the entities from their internally-generated funds wouldamount to Rs 14.7 billion (US$0.9 billion). The remaining Rs 24.6 billion(US$1.6 billion) would be in the form of loans, grants and suppliers'credits. The sources of financing for the core investment program arepresented in Annex VII. In order to ensure that resources are made availablefor the timely implementation of the high priority projects included in thecore investment program, the Government has agreed under the proposed loan toreview with the Bank in detail the performance of the program in the preced-ing year and the sources for financing it in the next year on an annualbasis, beginning April 1986 (Schedule 4, paragraph (b) of the draft Loar.Agreement).

Energy Development

37. Hydropower: Hydropower is Pakistan's most important source of energywith the potential estimated at about 30,000 MW. Of this, only 2,897 MS hasbeen developed and 1,928 MW are under consideration/construction. Another3,600 MW will be added when the site at Kalabagh is fully developed.Detailed engineering has been completed and preparations are underway forinitiating the implementation of this scheme during the Seventh Plan(FY89-93). The Government has also completed a study for ranking hydropowersites on the Indus River whose potential is greater than 200 MW. Of thesesites, Basha and Dasu, whose potential is estimated at about 2,500 MW and2,700 MW respectively, are ranked first and second, after KaLabagh, fordevelopment. The Government's long-term plans call for developing the sitesat Kalabagh, Basha and Dasu by the year 2020. Detailed cost estimates arerequired for integrating the development of these sites with the program forthermal generation and determining the optimal timing for their implementa-tion and commissioning. So far, cost data are only available for Kalabaghand only a feasibility study has been completed, with the assistance of

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consultants financed by CIDA, for Basha. Therefore, in order to ensure thatthe hydrosites following Kalabagh are exploited and commissioned at theoptimal time, minimal cost, and in full integration with thermal generation,the Government has agreed under the proposed Loan to recruit consultants byDecember 31, 1986 to initiate the preparation of detailed site investigation,engineering and cost estimates for Basha (Schedule 5, paragraph 1 of thedraft Loan Agreement). The Government would also initiate in due coursesimilar work for Dasu.

38. Hydrocarbons: Natural gas is Pakistan's main commercially exploitedhydrocarbon resource. Its knLown reserves are estimated at about 340 milliontoe, consisting of 271 million toe of proven reserves and 69 million toe ofprobable reserves. Proven reserves of oil, by contrast, are modest,estimated at about 13 million tons. In addition to the proven reserves,probable oil reserves at known fields are estimated at 3 million tons andpossible reserves at about 6 million tons.

39. In recognition of the prospects for increasing the domestic outputof hydrocarbons, particularly gas, the Government has actively promoted theinvolvement of public and private sector enterprises in exploration anddevelopment of oil and gas over the past two years. As a result, explorationand development have accelerated. In 1984, a record number (46) ofexploratory and development wells were spudded or drilled and four new oiland two new gas fields were discovered. Although there was a significantimprovement in the drilling performance of the Oil and Gas Development Cor-poration (OGDC) in 1984 compared to the Fifth Plan, it was unable to achievethe targets set in the Sixth Plan, due to resource and implementation con-straints. Seismic surveys in the offshore areas, undertaken with the assis-tance of Norway, have identified four promising structures for drilling andfurther evaluation. The Government has finalized negotiations for offshoredrilling of oil-bearing structures located in the Tndus basin. Agreement hasalso been concluded with the private sector on producer prices for gas fromexisting fields at Mari and Sui, which has resulted in satisfactory progressbeing made in the development of this resource.

40. Despite this progress, the exploration and development program needsto be expanded to minimize the anticipated shortfalls in gas supply andachieve the Government's objectives of reducing Pakistan's dependence onimported energy. This requires a national policy aimed at increasing thelevel of foreign and local private equity investment and balancing the invol-vement of the public and private sector in expLoration and development. Sucha policy requires the delineation of the scope of exploration and developmentprogram to be undertaken by OGDC over the next three years (FY86-88). This,in turn, makes possible a parallel delineation of the need for, and theapproach to be followed in attracting private sector participants, bothforeign and local. The Government has identified a core investment programfor OGDC which focuses its activities on high priority projects(paragraph 34). The core investment program includes OGDC-implementedprojects and exploration and development invesements for which furtherefforts would be made to mobilize private sector management and capital tosupplement OGDC's efforts. The Government intends to continue its efforts toattract private exploration investirent in open areas and consider "farm-ins"

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to OGDC acreage on appropriate terms. In particular, the Government plans toundertake new efforts to seek joint venture partners, especially in areaswhere gas discoveries have already been made, once the new gas producer priceformula is announced (paragraph 47).

41. Coal: Coal and lignite reserves are estimated at about 835 milliontons, of which only 107 million tons are proven. Of the total reserves,about 80Z are held by the private sector and the remaining 201, amounting to165 million tons, are held by Pakistan Mineral Development Corporation(PMDC), a Government-owned entity. The size of the proven reserves in theprivate and public sectors is believed to be substantially lower than thecountry's potential; however, as yet, very little is known of the geology ofcoal in Pakistan.

42. The Government has decided to undertake a systematic program for theformulation of a comprehensive coal expLoration strategy. The GeologicalSurvey of Pakistan (GSP), and the US Geological Survey have signed an agree-ment to undertake joint work, under USAID financing, to identify prioritiesfor exploration drilling and geophysical analyses. The first phase of thiswork involves the assessment of the reserves at Lakhra and Sonda-Thatta in1985 and 1986 and the Salt range and Makerwal reserves in 1987 and 1988.This work would identify the concessions, private and public, where furtherexploration is justified. In addition, WAPDA is currently implementing aprogram, under World Bank financing (1355-PAK), aimed at firming up theextent of the reserves at Dukki in Baluchistan and to eventually prepare afeasibility study for mining the coaL for power generation. The Governmentis also assessing, under USAID financing, the potential for stimulatingincreased private sector investment in coal production using the work onLakhra as a model. Should the results prove favorable, the same model couldbe applied to other promising reserves. In addition, the Government hasagreed under the proposed loan to initiate a two-phase program to promotethe accelerated development of coal. The first phase would involve a highlyfocused study to be completed by September 30, 1986, to identify the mainoperational constraints being experienced and outline a plan of action foraddressing them. The second phase would involve the implementation of theplan of action which will be initiated by December 31, 1986 (Schedule 5,paragraph 6(a) of the draft Loan Agreement).

43. Long-Term Development Plan for the Power Subsector: The power sub-sector accounts for almost two-thirds of the overall investment in energy andone-fifth of the public investment. Despite its size and relative impor-tance, the development of the power subsector has not been dictated by aleast cost program which identifies priority projects and the scale andtiming of investments to ensure that resources are earmarked for theirimplementation. This, together with the Government's inability to mobilizeresources, resulted in the commissioning of only 60% of the forecast gener-ating capacity, 85% of the primary transmission lines and 53% of the secon-dary transmission lines during the Fifth Plan. For essentiall*y these samereasons, the targets of the Sixth Plan for the power subsector' al'so are notlikely to materialize fully. In fact, as was noted (paragraph 29), actualexpenditures in the power subsector during the first two years of the current

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Plan period are expected to be only 60% of the original targets. The short-falls in implementing the investment program for the power subsector and thesupply constraints ensuing therefrom have also prompted the Government toassign higher priority to increasing the country's generating capacity thanto the reinforcement and rehabilitation of the transmission and distributionnetwork. This, in turn, has kept the losses at the transmission and dis-tribution networks inordinately high compared to other system with a similarconfiguration, theteby necessitating further load-shedding. In recognitionof the possible adverse impact of excessive load-shedding, the Government hasdecided to improve the efficiency of and rationalize investments in the powersubsector. In order to improve the efficiency of the system, the Governmentis currently being assisted by USAID in reducing the losses in the distribu-tion network (paragraph 51) and by the Bank in expanding and reinforcing thetransmission network. As for rationalizing investments, an interim leastcost plan was formulated jointly by WAPDA and Argonne Laboratory (USA), underUNDP financing with the Bank as the executing agency, for the period1985-2005. It provides the umbrella for the long-term development of thepower subsector. A subset of the least cost plan, covering the period1985-1993, was identified. The front-end of this plan provides a list ofongoing and new generation, transmission and distribution projects that areto be initiated or completed by WAPDA between 1985 and 1993. These con-stitute the core investment program for WAPDA (paragraph 35). In order toreaffirm its commitment to rationalizing investments in the power subsector,the Government intends to finalize the interim least cost plan for whichextensive information on the operation of the power subsector, hydrology andpattern of electricity consumption is currently being prepared. The Govern-ment has decided to use these data and complete the formulation of thenational least cost plan and review its results with the Bank by December 31,1986.

44. Long-Term Development Plan for the Petroleum Products Subsector:Constraints in the supply and delivery of petroleum products are becoming amajor impediment to the deveLopment of the energy sector. Inadequate porthandling facilities for the delivery of oil and petroLeum products, shortagesof storage facilities throughout the country, and a serious imbalance betweenthe production of and demand for petroleum products, particularly up-country,are expected to become more pronounced, unless major investmetLs are under-taken to ensure that future demand is met at least cost. The Government hasagreed under the proposed loan to complete by March 31, 1986 a study for therationalization of the infrastructure for supply and delivery of petroleumproducts (Schedule 5, paragraph 9 of the draft Loan Agreement). The purposeof the study is to outline a least cost development plan for the petroleumsubsector which takes into account the plans for the increased use of bothdomestic and imported coal for power generation; the new mid-country powerplants to come on stream and the prospects for increasing the production ofdomestic oil and natural gas.

Pricing and Demand Management

45. Consumer Gas Prices: Since the discovery of natural gas in Pakistanin 1952, its consumption has increased rapidly. By 1981, consumption startedto surpass supply. As a result, the Government decided to introduce measures

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aimed at restraining the growth of demand and stimulating increased produc-tion. On the supply side, a new cost-plus formula was adopted to inducegreater participation by the private sector in exploration for gas. On thedemand side, the Government agreed with the Bank under SAL I to the gradualincrease in the domestic price of natural gas to reach two-thirds of theborder price of fuel oil by FY88. Consumer price of gas has increased inrupee nominal terms by 125% between 1981 and 1984, which brought the averagedomestic price of gas in December 1984 to 392 of fuel oil parity. TheGovernment will continue to increase the price of gas to achieve the FY88target. Thereafter, the Government has agreed under the proposed Loan toreview with the Bank the general strategy and the measures for inducingconsumers to use this scarce resource more rationaLly and mobilize resourcesfor the development of the subsector (Section 3.06 of the draft Loan Agree-ment).

46. In 1981 the Government commissioned, under Bank financing, a gasstudy aimed at outlining a strategy for baLancing the forecast demand andsupply. This study was completed in 1982 and was used to set a frameworkfor the Gas Development Plan which resulted in increased development includ-ing four projects that received Bank financing. Significant new gas resour-ces are now likely to be available from Pirkoh, Dhurnal, the Badin concessionand Dakhni and the results of drilling on the Loti gas prospect will be knownsoon. Accordingly, the Government has agreed under the proposed loan toinitiate by no later than December 31, 1985: (a) a study to revise the GasDevelopment Plan to determine the optimal supply and utilization pattern forthe next five years; and (b) a study to outline a demand management policyaimed at improving the efficiency of gas supply and consumption. The resultsof these studies would be reviewed with the Bank by December 31, 1986(Schedule 5, paragraph 2 of the draft Loan Agreement).

47. Gas Producer Prices: As stated above, the Government introduced in1981, a cost-plus formula for setting producer prices aimed at stimulatingthe interest of foreign and local firms in accelerating exploration anddevelopment activity in Pakistan. This formula, however, has not eLicitedthe response hoped for from international oil companies. As a result, theGovernment has outlined a new framework for gas producer prices to stimulatethe interest of the private sector. The key elements of this framework are:(a) the price paid to the producer for pipeline quality gas will equal 66Z ofthe international price of fuel oil at main consumption centers, adjusted forthe transport cost of gas from the field to main consumption centers, less apercentage discount; (b) the magnitude of the discount is to be negotiatedand agreed in Concession Agreements before commencing exploration. Thediscount will vary from area to area and will take into account, among otherthings, the geological risk and location of the concession, anticipatedexploration and development costs, oil market conditions and cost of produc-tion. It is the Government's intention to negotiate discounts with the basicobjective of stimulating accelerated exploration by private investors; and(c) the new price formula will apply to all non-associated gas from newconcessions signed on or after September 30, 1985. The Government has agreedunder the proposed loan to make an announcement of the new policy by June1985, and widely publicize it within oil industry circles (Section 3.07 of

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the draft Loan Agreement). The Government intends to keep the operation ofthis formula under review.

48. Electricity Pricing: WAPDA's resource mobilization through tariffshas not been as high as planned by the Government. This, together with thereduction in the budgetary allocation precipitated by resource constraintsexperienced over the past few years, resulted in substantial reductions inthe development program of the Authority. To address this shortcoming,future increases in tariffs would now be directly linked to the three-yearcore investment program, set at Rs 30 billion, according to the formulaagreed with the Bank in the loan agreement for the Third WAPDA Power project.The Government has agreed with the Bank under the Fourth WAPDA Power Project(P3940-PAK), henceforth to adjust tariffs to ensure that at least 40% of theinvestment expenditures called for under the core investment program arefinanced from WAPDA's internal sources (Schedule 4 of the draft Loan Agree-ment).

49. Coal Pricing: Coal prices, unlike other energy products, are notset by the Government but are determined by market forces. However, becauseof its size and the institutional structure governing the tendering proce-dure, PKDC acts as the price setter. As PMDC's costs of production aregenerally higher than those of the private sector, this approach results inhigher prices for domestically produced coal. Despite this distortion, theaverage ex-mine price of PMDC coal of US$84/toe in Baluchistan, US$74/toe inPunjab and US$48/toe in Sind compares favorably with the cif price ofUS$90/toe for imported coal.

50. Since the coal produced in Pumjab and Sind, which accounts for aboutone-half of the country's annual production, is consumed locally, transportcosts add, on the average, only about US$12/toe to the price paid by thefinal consumers. However, the other half, which is produced in Baluchistan,is consumed largely in Sind and Punjab. The transportation costs for thiscoal which, on the average, amount to US$70/toe, add substantially to theprice paid by the consumer. These inordinately high transportation costsare attributable to the bottlenecks in the rail transport system which neces-sitates transporting coal from Baluchistan by trucks to Punjab and Sind. Inrecognition of the fact that the economic value of the fuel used by thetrucks far exceeds that of the coal they carry, the Government has decided toaddress the structural imbalance between the sources of supply and locationof final consumers. As a first step, the Government has initiated aprefeasibility study for the expansion of the infrastructure for coal han-dling around Karachi, aimed at meeting the demand fcr coal in Punjab andSind. When implemented, this development would allow for the importation ofcoaL for these two provinces which would be more economic than the coal fromBaluchistan. In addition, in order to create an expanded market for importedcoaL, the Government has agreed under the proposed loan to allow its use forpower generation in the Karachi area (Schedule 5, paragraph 3 of the draftLoan Agreement). A prefeasibility study is already underway for a powergenerating complex around Karachi. As for Baluchistan, a program is cur-rently underway to firm up the reserves at Dukki (paragraph 42) which couldset the stage for expanding the local coal market by leading to the estab-lishment of mine-mouth power plants. In addition, in order to improve the

F

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efficiency of PHDC, and in turn, reduce its cost of production, the Govern-ment has agreed under the proposed loan to complete by November 30, 1986 astudy that would: (a) outline a strategy for corporate restructuring andtechnical improvements to promote the more efficient operation of mines inthe public sector; and (b) provide a basis for reviewing the role of thepublic sector in coal mining (Schedule 5, paragraph 6(b) of the draft roanAgreement). In the incerim, through its ongoing work in the encrgy sectorthe Bank will continue to monitor the performance of PMDC as well as domesticcoal prices relative to the costs of imported coal.

51. Demand Management: In keeping with the objective of the Sixth Plan,the Government has already taken several important initiatives to rationalizeenergy consumption including: (a) steps to enhance the energy efficiency ofthe NRL refinery, a major energy consumer; (b) a survey of energy consumptionin public sector industries to be followed in 1986-87 with some 20 energyaudits and assessments in the cement, steel, fertilizer, chemical, and otherindustries in the public sector which are designed to define the potentialfor energy conservation, leading to investments resulting in substantialreductions in industrial energy consumption; (c) studies designed to reducelosses in the power transmission and distribution networks; (d) the iden-tification of thermal power plants whose efficiency could be improved throughrehabilitation and retrofitting; (e) the formulation of a least-cost develop-ment plan for the power subsector that would set priorities for investmentsin generation, and ensure the optimal use of primary energy resources;(f) upward adjustments in the consumer price of gas; and (g) the release ofgas from cement industries and the power subsector for higher value uses.The Bank has supported the Government's policy initiatives through SAL I(2166-PAK), the Fourth WAPDA Power Project, a Refinery Engineering Project(2218-PAK), a project for Fertilizer Industry Rehabilitation (2172-PAK) andTechnical Assistance. UNDP, with the Bank as the executing agency, isfinancing the formulation of the least cost plan for power. USAID is assist-ing the Government in implementing its program for reducing losses in thepower subsector at the distribution level (paragraph 43). UNIDO is currentlyfunding a program of audits of a number of smaller textile, metal-working andother plants. Although important, these initiatives are but a first step inthe formulation of a comprehensive strategy for rationalizing the consumptionof energy. If the objective of energy conservation is to be achieved, a moreintegrated and comprehensive strategy is needed. Toward that end, theGovernment has agreed under the proposed loan to establish by December 31,1985, mainly with the assistance of USAID, an Energy Conservation Center(ENERCON) in the Ministry of Planning (Schedule 5, paragraph 8 of the draftLoan Agreement).

Institutional Development

52. Operational Autonomy: The two most important agencies in the energysector, WAPDA and OGDC, need considerable strengthening and greater fiscaland managerial autonomy. The possibility of separating distribution ofelectricity from WAPDA and assigning WAPDA with the responsibility for gener-ation and transmission of electricity for the entire country will beexamined. This would include looking into the possibility of taking over thegeneration and the primary transmission of KESC by WAPDA and restricting the

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KESC operation to bulk purchase from WAPDA and distribution in the Karachiarea. Additionally, the possibility of handing over distribution to privatesector/provinces in the rest of the country would be considered along withthe possibility of creating a separate authority for power distribution. Inorder to assist WAPDA in formulating a plan for the reorganization of itsdistribution department, consultants have been recruited under USAID financ-ing. The Government has agreed under the proposed loan to review with theBank the means and the timetable for reorganizing the power subsector by June30, 1986 (Schedule 5, paragraph 7(a) of the draft Loan Agreement).

53. The Sixth Plan envisages an expanded role for OGDC whose investmentactivity is expected to triple as compared to the Fifth Plan. OGDC's finan-cial position is expected to improve considerably in FY85 as a result of:(a) the Government's decision to allow OGDC to retain a larger share of itsearnings and the setting of oil and gas prices similar to those available tothe private sector in adjacent areas; and (b) anticipated increases inproduction from the Pirkoh gas field and the Tando Alam oil field. Not-withstanding the improved self-financing outlook for OGDC, the key con-straints to OCDC's expanded activities will be directly related to itsability to recruit and retain qualified professional staff and to operate asa commercial concern. The Government intends to take further steps tostrengthen OGDC's managerial and technical capabilities and to move towardsfinancial self-reliance. Accordingly, the Government has agreed under theproposed loan to review with the Bank by June 30, 1986, the measures neededto move OGDC toward that objective and the timetable for their implementation(Schedule 5, paragraph 7(b) of the draft Loan Agreement).

54. Energy Planning: In recognition of the increasing importance of theenergy sector in sustaining the country's growth momentum, the Government hasdecided to strengthen its energy planning capability. Toward that end, anoffice of Energy Planning (ENERPLAN) has been established in the Ministry ofPlanning and Development under financing from USAID to address substantivepolicy issues. It is mandated to coLlect, compile and analyze, on an ongoingbasis, all relevant data on the energy sector and integrate them with thecountry's development plans to enable the Government to identify priorities,evaluate resource requirements, support effective policy formulation andinvestment planning. ENERPLAN, which is divided into two groups, one fordeveloping an energy data system and the other for data analysis, is headedby a Managing Director who was recently appointed. It will be administeredby an interministerial Energy Policy Board. ENERPLAN will be staffedentirely by Pakistani personnel who will be assisted during the first fouryears by consultants financed by USAID. In order to ensure that ENERPLAN'sactivities would provide the input needed for effective policy decision, andintegrated energy sector and macroeconomic planning, the Government hasagreed under the proposed loan to review, on an annual basis, beginning April30, 1986, its scope of work jointly with the Bank, USAID and ADB (Schedule 5,paragraph 5 of the draft Loan Agreement).

55. Energy Conservation: There is an increasing awareness in Governmentcircles and, to a lesser extent, in the private sector of the potentialbenefits of energy conservation. According to a recent study by USAID con-sultants, in the industrial sector alone, energy conservation investments of

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about US$330 million could yield annual savings of about US$200 million. Asmentioned (paragraph 51), a number of conservation activities have beenundertaken in the recent past. However, as one would expect in the initialstages of development of such a program, these efforts are proceedingpiecemeal. To be effective, conservation activities need to be coordinated;therefore, the establishment of ENERCON will be a critical first step. TheCenter will serve as the focal point for all conservation activities and itsmain responsibilities will be to formulate comprehensive and integratednational energy conservation programs covering industry, power, transport,agriculture, households, and commercial and residential buildings; plan andinitiate energy conservation actions; outline policy guidelines; develop adata base; support training activities and private research; undertakedevelopment and demonstration, as well as public information activities; andmonitor the implementation of conservation programs of various public andprivate entities. ENERCON would also mobilize resources to finance invest-ments in energy conservation measures such as energy audits, feasibilitysLudies, instrumentation purchases, retrofitting, fuel substitution andtechnological changes, and support these with fiscal and other incentives.InitialLy, the Center would focus on energy audits in the industrial sectorand the power subsector. A detailed action program for ENERCON is currentlybeing prepared with the assistance of the Bank and USAID. The Center isexpected to formulate a comprehensive national conservation program withinabout one year. Tl. Government has agreed under the proposed loan to reviewthe activities of ENERCON jointly with the Bank and USAID on an annual basisto ensure that these are consistent with the national conservation program(ScheduLe 5, paragraph 5 of the draft Loan Agreement). Administratively,ENERCON will work in close collaboration with ENERPLAN. The Center will beheaded by a Director and manned with long and short term expatriate advisersand Pakistani professional and support staff. The work program of ENERCONwill be guided by a Supervisory Board composed of representatives of Federaland Provincial governments and the private sector. The core activities ofENERCON are expected to be financed by the Government and USAID. The Bankwould co.ntribute to the financing of public and private sector industrialenergy audits, feasibility studies and purchases of instrumentation. As afirst step, the Government has agreed under the proposed loan to ensure thatENERCON identifies by December 31, 1985, on the basis of a private sec-tor-wide energy consumption survey, at least 15 of the largestenergy-consuming plants in the private sector industries for audits to beperformed by local and foreign consultant firms. All efforts will be made tocomplete these by December 31, 1987 (Schedule 5, paragrap'. 4(a) of the draftLoan Agreement). The Government has also agreed to initiate a program ofaudits by November 1, 1985 in at least 20 of the largest energy consumingplants in the public sector industries to be performed by local and foreignconsultant firms and completed by June 30, 1987 (Schedule 5, paragraph 4(b)of the draft Loan Agreement).

56. Manpower Development: To ensure that Pakistani personnel are ableto continue the recently initiated energy planning and conservationactivities, the Government has implener.eed a sectoral manpower developmentprogram. With the assistance of consultants financed by USAID, the Govern-ment will conduct a manpower needs assessment to determine: (a) the range oftechnical, management, and analytical skilLs needed to accomplish the goals

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of energy programs; (b) the present capabilities of local institutions tomeet these needs; (c) the priorities to increase skills to meet these needs;and (d) the actLons necessary to improve existing programs, together with thecost and time requirements. Based on the results of the needs assessment,ENERPLAN would organize and conduct in-country short courses and seminars onselected topics, utilizing highly qualified professionals drawn from thepublic and private sectors; identify further options for overseas training;and pursue strategies to upgrade and enhance training programs in Pakistanfor improving the planning, management, and technical implementation ofenergy sector policies.

PART IV - THE PROJECT

History

57. The proposed loan is the continuation of a process of Bank Groupassistance for long-term structural reforms initiated under the first Struc-tural Adjustment Loan (SAL I) to Pakistan (Loan 2166-PAK; Credit 1255-PAK).The SAL program for energy was wide-ranging, and included: strengthening ofOGDC; accelerated exploration of OGDC concession areas; increased privatesector participation; progressive rationalization of gas consumer prices; andcompletion of a number of detailed studies needed for long-term energy plan-ning. Although overall progress was highly satisfactory, it is clear thatreform of the energy sector in Pakistan will be a long-term process in whichcontinued Bank Group support can play a useful role. This sector loanprovides a comprehensive long-term framework for policy actions and, there-fore, will be the basis for our expanded lending for specific energy invest-ments for the next several years. The policy framework also will serve as abasis for more effective coordination of all external financing for thesector. This approach, a sector loan in support of an agreed long-termpolicy framework followed by lending for specific investments, has substan-tially enhanced our dialogue with the Government, fostering intensive andfocused discussions on issues which cut across energy subsectors and whichotherwise would have been treated, if at all, in a piecemeal and uncoor-dinated fashion through project lending. In the energy sector, the policydialogue has focused on identifying issues constraining the development ofthe energy sector and the actions and measures needed to address them. Theseactions and measures constitute an integral part of the Government's coreinvestment program whose implementation is the basis of this loan. Theproposed loan was appraised in two phases. In Phase I, which was completedin mid-December 1984, policy actions on which agreement was being sought werereviewed with the Government. Phase II, which was completed in February1985, focused on a detailed review of the investment priorities, the equip-ment and material to be covered under this loan and on issues such astimetable for the preparation of procurement documents, disbursements andconditions for tranche releases. Technical discussions and negotiations tookplace in Washington from April 15 to April 22, 1985. The Pakistani delega'tion was led by Mr. Ejaz A. Naik, Secretary General, Economic Affairs Divi-sion, Ministry of Finance.

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Project Objectives

58. The proposed loan would continue the structural adjustment processinitiated under SAL I to promote the integrated development of the energysector. It will also assist the Government in implementing the core invest-ment program to minimize the possible adverse impact of continuing shortfallsin energy and ensure that the slippages in investment that are expected tooccur during the rest of the current plan period do not become major impedi-ments to the implementation of the Seventh Plan (paragraph 32).

Project Description

59. The proposed loan would cover equipment, material and field servicesneeded for projects that are included in and are to be implemented during thefirst two years (FY86 and FY87) of the three-year core investment program(paragraph 33). It would aLso cover purchases of instrumentation and serv-ices of consultants for energy audits and feasibility studies. The equip-ment, material and services would be for projects in the areas of: (a) powergeneration, transmission and distribution; (b) exploration and developmentfor oil and gas; (c) gas transmiss:on and distribution; (d) infrastructurefor the supply of petroleum products; (e) coal assessment and development;and (f) energy conservation.

Project ImpLementation

60. The core investment program includes projects to be implemented byOGDC, KESC WAPDAt PSO, SNGPL, KGC, PMDC, (the Energy Sector Entities),ENERCON, and ENAR Petrotech. In order to ensure the availa.Jility of theequipment, material and services needed by these entities for the timelyimplementation of the core investment program, the timetable for the prepara-tion of procurement documents and award of contracts presented in Annex VIIIwould have to be adhered to. The timetable is rCirly tight and consequentlya concerted effort would have to be undertaken by the Government, thebeneficiaries and the Bank to avoid slippage. The processing of the procure-ment documents has been compressed substantially because WAPDA, KESC, OGDCand SVGPL, who account for over BOX of the disbursements under the fi-rsttranche have had considerable experience in preparing such documents.

Project Cost

61. As noted (paragraph 33), the core investment program for FYs 86, 87and 88 would amount to Rs 50 billion (US$3.2 billion), expressed in currentprices. Of this, Rs 21.3 bi!lion (US$1.4 billion) would be in foreignexchange and Rs 28.6 billion (US$1.9 billion) would be in local currency.

62. The financial requirements of the core investment program for thefirst two years-(FY86 and FY87), the period covered under the proposed loan,would amount to Rs 31.2 billion (US$2 billion). As summarized in the tablebefow and described in detail in Annex IX, about Rs 17.9 billion (US$1.2billion) of the total financial requirements wouLd be in local currency andabout Rs 13.3 billion (US$0.9 billinn) in foreign exchange. The projects forWAPDA, OGDC and KESC, whose financial requirements are about Rs 18.9 billion,

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Rs 5.7 billion and Rs 2.9 billion, respectively, would absorb 80% of fundsfor the core investment program, representing 90Z of foreign exchangerequirement and 87Z of local funds requirements for the two years.

Financial Requirements of the Core Investment Program for FYs 86 and 87

(Rs billion)1985/86 1986/87 Total

Subsector Local Foreign Total Local Foreign Total Local Foreign Total

Power 6.03 4.01 10.04 7.36 4.37 11.73 13.39 8.38 21.77Petroleum 2.54 2.88 5.42 1.77 1.81 3.58 4.31 4.69 9.00Coal 0.03 0.01 0.04 0.07 0.08 0.15 0.09 0.09 0.18Planning andConservation 0.06 0.07 0.13 0.06 0.07 0.13 0.12 0.14 0.26

TOTAL 8.66 6.97 15.63 9.26 6.33 15.59 17.91 13.30 31.21

(US$ million)1985/86 1986/87 Total

Subsector Local Foreign Total Local Foreign Total Local Foreign Total

Power 394 262 656 480 285 765 874 547 1421Petroleum 166 188 354 116 118 234 282 306 588Coal 2 1 3 5 5 10 7 6 13Planning andConservation 4 4 8 4 5 9 8 9 17

TOTAL 566 455 1021 605 413 1018 1171 868 2039

Project Financing

63. The sources of financing fcr the three-year core investment program(paragraph 36), covering the period FY86-88 are presented in Anr.ex VII. Thefinancing plan for FY86 and FY87, the period in which the proposed ESL wouldbe disbursed, is summarized below along with the sources of financing.

p

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Sources of Funds for the First Two Years of Core Investment Plan for FYs 86 and 87

(Rs billion) (US$ million)1985/86 1986187 Total 1985186 1986/87 Total Z

Local Costs

Internal Generation 4.13 4.81 8.94 270 314 584 29Government of Pakistan 2.77 2.99 5.76 181 195 376 18Local Borrowing 1.76 1.46 3.22 115 95 210 10

Subtotal 8.66 9.26 17.92 566 605 1171 57

Foreign Costs

Energy Sector Loan 1.58 1.15 2.73 104 74 178 9Other Bank Loans 1.35 1.28 2.63 88 84 172 8Other Sources 3.86 2.80 6.66 251 184 435 22Financing Gap 0.18 1.09 1.27 71 71 83 4Subtotal 6.97 6.32 13.29 455 413 868 43TOTAL FINANCING 15.63 15.58 31.21 1021 1018 2039 100

The total funds required in the first two years for the implementation ofthe core investment program would amount to Rs 31.21 billion (US$2,039 mil-lion), consisting of Rs 17.9 billion (US$1,171 million) in local exchange andRs 13.3 billion (US$868 million) in foreign exhcange. Of the local currencyrequirements, Rs 8.94 billion (US$584 million) would be generated from inter-nal sources, Rs 5.76 billion (US$376 million) from the Government's AnnualDevelopment Program and the balance Rs 3.2 billion (US$210 million) in loans.The proposed loan would cover Rs 2.73 billion (US$178 million) of the foreignexchange requirement. Other loans from the Bank, ADB, CIDA, USAID, etc.,will cover another Rs 9.14 billion (US$607 million). The balance of theforeign exchange requirements Amounting to Rs 1.27 billion (US$83 million)would be secured through export and suppliers' credits.

64. The financing gap for the various entities covered by the proposedESL is shown below.

Financing Lap

(Rs million)1985/86 1986/87

WAPDA 115 380KESC 64 630KGC 37PMDC - 47Total Financing Gap 179 1,094

Since the financing gap is relatively small for WAPDA compared to its invest-ment program, it is expected to be easily bridged through suppliers' credits.

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In the case of KESC, most of the financing gap is for the construction ofgeneration units at Bin Qasim. The Government has requested the Bank toconsider co-financing for Units 3, 4 and 5 (3x210 NW). ADB is also expectedto finance part of this project.

65. The proposed loan amounts to US$178 million. Of this, US$85 millionwould be absorbed by the power s..bsector, US$64 million by the petroleumsubsector, US$6 million by the coal subsector and US$5 million is earmarkedfor energy conservation. Details relating to the distribution of theproposed loan among the various subsectors and entities is presented inAnnex X. The energy conservation component of the proposed loan is dividedinto two segments. The first would be made available through ENERCON or theMinistry of Production to ENAR Petrotech to undertake a program of energyaudits, feasibility studies and instrumentation purchases to be implementedin 20 of the highest energy consuming public sector industrial plants to bespecified and agreed with the Bank. The purpose of these audits is to iden-tify the actions to be taken and investments needed to reduce their energyconsumption. Since ENAR-Petrotech has already compLeted a comprehensiveenergy consumption survey of the public sector industrial plants and hasadequate experience in conducting energy audits in Pakistani industry, it isin a position to initiate immediately the program of energy audits,feasibility studies and instrumentation purchases. To expedite the implemen-tation of this program, the services of ENAR-Petrotech of up to US$1 millionwill be financed retroactively. The second, to be channeled through ENERCON,will be used (i) by private sector industries to undertake a program simiLarto tnat in the public sector; and (ii) by industry in private and publicsectors for engineering studies and purchases of instrumentation.

Procurement

66. The procurement would cover the foreign exchange cost of equipment,material and consulting services needed by the energy sector entities(paragraph 60) for the implementation and operation of projects included inthe core investment program. For WAPDA and KESC the equipment and materialwould be for the rehabilitation of generating plants and for the reinforce-ment and expansion of transmission and distribution networks. OGDC's equip-ment and material would be for deep and medium depth wells. The equipmentand material for SNGPL would be for the rehabilitation of the gas transmis-sion and distribution system. For KGC, the equipment and material are forimproving its distribution network and its control. PSO's equipment andmaterial requirements cover a tanker discharge line at the Karachi Port,storage tanks and allied facilities. PMDC's equipment and material includescore drilling machines, laboratory and well logging equipment, belt con-veyors, etc. Services of consultants for energy audits and feasibilitystudies, as well as purchases of instrumentation, are required for energyconservation. A summary of the type of equipment needed by each entity ispresented in Annex XI.

67. Of the total proceeds of the proposed loan, about;US$103 millionwould be procured through International Competitive Bidding (ICB) in accord-ance with the Bank guidelines; about US$39 million through Limited Interna-tional Bidding (LIB) by inviting quotations from at least five suppliers from

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at least three eligible countries; about US$6 million through Local Competi-tive Bidding (LCB) using the Borrower's local competitive bidding procedureswhich are satisfactory; and the remaining US$30 million, which is forproprietary equipment obtainable only from one source and specified services,would be through direct contracting (DC), as shown below:

Procurement

(US$ million)First Second

Total ICa LIB LCB DC Tranche Tranche

WAPDA 60.0 21.3 9.5 3.5 25.7 34.0 26.0KESC 25.0 22.0 1.9 - 1.1 15.0 10.0OCDC 52.0 43.4 5.7 - 2.9 28.5 23.5SNCPL 21.0 7.1 .11.4 2.5 - 12.0 9.0KGC 5.0 - 5 - - 4.0 1.0PSO 4.0 4.0 - - - 4.0 -PMDC 6.0 5.2 0.8 - - 2.0 4.0Energy Conservation 5.0 - 5 - - 5.0 -TOTAL 178.0 103.0 39.3 6.0 29.7 104.5 73.5

Documents for individual contracts above US$500,000 equivalent would besubject to prior review by the Bank. Local manufacturers competing underICB will have a 15% preference or the applicable duty, whichever is less,for supply of goods. Consultants wouLd be selected in accordance with Bankguidelines.

On-Iending Arrangements

68 The Government will on-lend the proceeds of the loan to OGDC, KESC,SNCPL, PSO, KGC, PWDC and to industrial companies through ENERCON/Ministry ofProduction at 14Z p.a., with the other lending terms being the same as thoseof the Bank. In the case of WAPDA, because it is a public utility, inaccordance with Government policy, funds will be on-lent at 11. Otherlending terms will be the same as those of the Bank. The Government willbear the interest rate and foreign exchange risk. Subsidiary loan agreementswill be required between the Covernment and each of the beneficiaries, aswell as between ENERCON/Ministry of Production and the beneficiary industrialcompanies. Satisfactory conclusion of the subsidiary loan agreemencs will bea condition of disbursement (Schedule 1, paragraph 3(b) of the draft LoanAgreement).

Tranching and Disbursement

69. The proposed ESL provides support for the core investment programwhich focuses on the implementation of high priority projects and policyactions and measures needed to address the major sectoral issues. Theimplementation of a specific set of these actions will trigger trancherelease and the loan proceeds under that tranche will be disbursed againstspecific equipment and materiaL required to implement the core investment

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program, procured in accordance with Bank guidelines and made on the basis ofwithdrawal applications to the Bank. The proposed loan will be released intwo tranches. Disbursements under the first tranche, amounting to aboutUS$104 million, will begin in September 1985 and continue until the closingof the loan. Likewise, disbursements under the second tranche, amounting toabout US$74 million, will also continue until the closing of the loan. Thesize of each tranche is based on the outlays needed for the timely implemen-tation of the core investment program. The proceeds of the loan will bedisbursed against 100% of the CIF cost of imported goods, 100% of theex-factory cost of locaLly-manufactured goods, and IOOZ of the consultancyservices.

Conditions for the Effectiveness of the Proposed Loan and Tranche Release

70. The conditions for effectiveness of the loan, which are also theconditions for the release of the first tranche, are as follows (Section 5.01of the draft Loan Agreement):

(a) the introduction of a tariff increase, effective July 1, 1985,which will enable WAPDA to finance from internally-generatedfunds at least 40X of its investment program in FY86; and

(b) the announcement of the new formula for determining gasproducer prices.

The conditions for the release of the second tranche would be as follows(Schedule 4 of the draft Loan Agreement):

(a) the introduction of a tariff increase, effective July 1, 1986,which will enable WAPDA to finance from internally-generatedfunds at least 40% of its investment program in FY87; and

(b) the review of progress made in implementing the core investmentprogram in 1985/86 and the program for 1986/87 as well as theindicative programs for 1987/88 and 1988/89.

Benefits and Risks

71. The proposed loan will make a major contribution to the continuingstructural adjustment process in Pakistan. Preparation of the loan hasassisted the Government to articulate a well-defined rnd comprehensivestrategy for the development of the energy sector. By financing importsrequired to implement the Government's core investment program in energy,the proposed loan will support an investment program which takes into accountthe interlinkages among energy subsectors, and the impLementation and financ-ing capabilities of the Government. By providing a comprehensive andintegrated policy framework, the proposed loan will assist the Government toenhance the effectiveness of public investment in energy and, whereappropriate, encourage the mobilization of private sector participation. Themajor benefits of the proposed lo'an will be through its contribution tostrengthened energy sector planning, the adoption of policy reforms whichaddress key structural constraints within an integrated sectoral framework,and the implementation of the Government's core energy investment program.

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Over the next three to five years, progress in these areas should have amajor positive effect on Pakistan's balance of payments and the efficiency ofresource allocation, through the accelerated development of indigenous energyresources to substitute for imports and improvements in energy conservation.Improvements in the energy sector would have a major beneficial impact onother sectors, specially industry.

72. The major risk of the proposed ESL is that political events, eitherwithin Pakistan or in the region, may impede implementation of the reformprogram. However, to date the Government has demonstrated a strong commit-ment to a gradual rationalization of energy sector policies and, in manycases, has successfully implemented measures involving politically difficultdecisions.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

73. The draft Loan Agreement between the Islamic Republic of Pakistanand the Bank, the draft Project Agreement between the Bank and the EnergySector Entities, and the Report of the Committee provided for in Article III,Section 4(iii) of the Articles of Agreement, are being distributed to theExecutive Directors separately.

74. Additional conditions of effectiveness wouLd be the undertaking ofthe review referred to in paragraph 48 of this Report, and the announcementof the formula for determining gas producer prices. Special conditions ofthe project are listed in Section III of Annex III.

75. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

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PART VI - RECOMYEgDATION

76. I recommend that the Executive Directors approve the proposed loan.

A. W. ClausenPresident

Attachments

May 6, 1985Washington, D.C.

-31- ANNE 1TA8LS *A Page 1 of 5

PAXISTAI - SAOCIL INDICATOS DATA PagePAmUTS IU 3C SOUPS (lElfO AUBAI l

MT (MOST RCLUlr ESTMAT) TRINT LOW DICBKDL C

196Ok 1970& ZSTIAThU ASIA & PACIFIC ASIA & PACIFIC

SEA et CU16S9. 3)TOTAL 803.9 803.9 603.9ASICULTURAL 227.5 243.3 253.3

o vs cAI CUS) 70.0 130.0 360.0 278.6 1091.2

a cmmwnou u Ca U(KILOSMS OF OIL EQUIVWAZI) 98.0 139.0 179.0 272.0 567.3

owuTnm AM wrTL mnwuAuitPDPULATION.NID-TYRA (T5OUSAD) 4535.0 60449.0 67135.0URBA POPULATION (C O TOTAL) 22.1 26.9 29.1 21.7 34.7

POPULATION PROJUCT IONSPOPULilTION IN YAR 2000 (HILL) 139.6STATIONARY POPULATION (KILL) 377.3POPULATION MOHNHTUM 1.9

POPULATION ODESBPER SQ. IN. 37.0 75.2 105.1 166.6 261.9PR SQ. IN. AI. wAN 201.5 246.4 333.6 345.5 1733.1

POPULATION ACC STCRSIIC (C)0-14 itS 63.6 46.3 46.1 35.8 39.0

15-64 YRS 53.8 50.5 50.9 59.8 57.665 AND ABOVE 4.4 3.2 2.7 4.3 3.3

POPULATION GROWST RATE CZ)TotAL 2.1 2.8 3.0 1.9 2.3UIRaN 4.6 4.0 4.3 6.1 4.3

CRUDE SlAIN RATE (PgR TtouS) 48.6 46.6 62.0 27.7 30.3CRUDE DEATH RATE (PE THOUS) 23.4 19.3 15.4 10.1 9.5raOSS REERODUCTIOU RATE 3.4 3.4 3.0 1.8 2.0

FAMILY PLANNINGACCEPTORS. ANNUIAL (TNOUS) .. 1906.1 1244.0 /cUSRS ( OP HARIElCD WCN) .. 6.0 Id .. . 52.7

AP I IIITSINDEX or VOOD PlOD. PER CAPITA(1969-71-100) 89.0 102.0 105.0 112.8 123.0

PER CAPITA SUPPLY OFCALORIES (C OP REqUINQEErs) 68.0 106.0 106.0 97.7 114.4PROtEINS (CRAMS PU DAT) 58.0 65.0 65.0 56.8 57.0

OF WHICH ANIMAL AND PULSE 23.0 22.0 20.0 /a 14.9 14.1

CHILD (ACES 1-4) DrATH RATE 25.4 21.0 16.8 9.8 7.2

IALTSLIFE EXPECT. AT BIRTH (YEARS) 43.1 W60 49.6 60.0 60.4INFANT NORT. RATE (P TIOUS) 161.5 143.0 120.9 63.6 66.3

ACCESS To SAFE WATER (IPaP)TOrAL .. 21.0 29.0 /f 3L9 37.0URlN - 77.0 60.0 if 70.9 54.8RURAL .. 4.0 17.0 IF 22.1 26.4

ACCESS TO EXCRETA DISPOSAL(1 OF POPULATIoN)

TOTAL *- 3.0 6.0 tj 16.1 41.3URBAN .. 12.0 21.0 Ij 72.8 67.4RURAL .. .. .. 4.6 33.3

POPULATION PER PtYSICIAN 5600.0 4300.0/h 3480.0 3486.2 7749.4POP. PER NRSING PERSON 16960.0 1o050.0/W 5820.0 4793.1 2460.4POP. PU HOSPITAL SD

ToAL 1790.0 1860.0 1560.0 Ic 1066.5 1044.2URDa 510.0 650.0 710.0 re 298.0 651.2RURAL 22850.0 12480.0 11860.0 re 5993.4 2594.6

AD1MISIONS PER HNSPITAL RED ,. .. . .. 27.0

AVERAGE SIZE OF HOUSEHOLDTOTAL 5.4 5.3 6.1 IcURBN 5.6 5.5 6.6 /rRURAL 5.4 5.2 6.0 Ic

AVERAGE NO. OF PERSONS/ROOWTOTAL 3.1 2.8 ItURBAN 3.1 2.7 .iRURAL 3.1 2.8/1 .. .

ACCESS TO ELECT. (Z OF DWZLLINGS)TOTAL 17.9 /1URBN .. 54.4 6..LAUL .. 4.9 A ..

-32- ANNEX 1TA _UL 3Z , Page 2 of 5

PAISA - SOIA INICTMO DAAINRPAKISTAN RE1UREEma GROUPS (tIzEmTD AVERACR k

HOST (HST RICET STIATE) b1960ik~~~ 117x0D U!*l DlClXlltm IIDDLZ nICoQ

z,eO/tk sg,o1k 3.TINATELk ASI A PACIF= ASIA G PFACIC

ADJU6TED tSOUuN RATIOSPUK1Ys 2OTAL 30.0 40.0 56.0 97.4 102.0

MALM 46.0 57.0 71.0 110.5 105.9vuwzLC 13.0 22.0 31.0 63.7 98.2

8BODAM 4 TOTAL 11.0 13.0 17.0 35.9 46.0HALE 18.0 20.0 27.0 44.6 48.7PUZ 3.0 5.0 7.0 26.8 43.1

VOCATIONAL (I 0F SECONDARY) 1.0 1.5 1.0 Le 2.2 17.5

PUPIL-TRACIUI RATIIDtAuZ 39.0 41.0 46.0 36.5 31.8

SECON T 24.0 20.0 23.0 Ic 15.7 23.5

ADULT LITErAY RATE (x) 15.4 20.7 /1 24.0 /c 53.4 72.9

clmammopASSEN CI*S/flUSN FOP 1.5 2.6 3.4 0.9 10.1

oADwO R1UEIVESITOUWD POP 6.0 17.1 67.0 112.1 113.6TV RWIERS/TUD MOP ., 1.6 9.7 15.7 50.1NiS?AP (wMILY C LENERAI

INTIRET ) CIRCUlATIONPZR TOUSAJ POPULATOS 13.2 .. 13.7 /c 16.2 53.9

CNIA ANNJAL ATTE*UJNCRPITA 1.7 3.0 1j 2.2 re 3.6 3.4

TOTAL LA FORCE (TWOUl) 144.0 17364.0 25240.0WUALE (PELCENT) 6.6 9.3 10.5 33.3 33.5

ACIClULTUK (PERCI) 61.0 59.0 57.0 69.6 52.2NDUSY (PERCENT) 18.0 19.0 20.0 15.8 17.9

PAITICXPATION RI (PU:SIr)TOTAL 31.5 28.7 29.0 42.6 38.7-KLE 55.2 50.4 49.3 54.7 50.9PFUIZ 5.7 5.5 6.0 29.8 26.6

ECONOSIC ZDZ CENCr RATIO 1.5 1.7 1.8 1.0 1.1

PEV (1 PRIUVAs DICOIIRECEIVED ST

HICHEST 5X OF HOUSEHOLDS 20.3 /k 17.8 .. .. 22.2HIGET 207. oF NOUSRODS 45.3 ,r 41.8 .. .. 48.0tIST 201 OF HOUSEHDLDI 6.4 d 8.0 .. .. 6.4LOWZSr 40X OF IENDLOS 17.5 r 20.2 .. .. 15.5

ESTMATZED ABSOLtXE POVMRTY IDCQCLEVEL (USS PER CAPITA)

CARUM .. 68.0 IJ 176.0 lc 133.9 t88.6RURAL .. 47.0 t 122.0 re 111.6 152.0

ESTIMATED RIMATIVE POVEM ITI DLEVEL (US$ PER CAPITA)

URBAN .. 34.0 a.0 / *177.9RURAL .. 22.0 j 58.0 /g .. 164.6

ZST1DATED POP. BELOW ABSOLUTEPOVERTY InCUtI LEVEL (2)

URAnm .. 42.0 /1 32.0 /c 43.8 23.4RURAL ,, 43.0 29.0 re 51.7 37.7

NOI AVAILABLENOT APPLACILE

N o T E S

la Mh group aaeraeu tor each Indicator are population-wight.d arithbetic means. Coverage of eounttie. amog theiedlcatarr depende an avallability of data and IS not uniform.

A Unlcae otberwise noted, "Data for 19M0" refer to any year between 1959 and 1961; 'Deta for 1970" between 1969 and1971; e>d dats for "Noet R eent tatimate" between 1980 and 1982.

/e 1979; /d 1968; 1. 1977; /f 1976; /L 1975; lh Regietered. not ell practoicng In the country: it 1973; /1 1972; /k1964. 1984

JUNE. 1984

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'34-

Page 4 of 5

lXCHeYKC DR ZLOPKCX DATA

GN? PER CAPITA IN N2: WS380 LA

GROSS NATIONAL *R?ODU 13 1998214 a ANNUAL RATE Ol GROWTh (S. comnent prices)

u USZliua S 1969/70-1974/71 1917/76-198081 1981U18 1982/13 l953/84

CFP at market prices 33.68 100.0 3.5 7.1 4.3 7.4 4.2Gross domestic investment 5.23 15.5 -5.5 4.1 10.5 9.6 3.4Gross national saving 4.20 12.5 -2.1 6.7 6.9 24.9 -6.5Current account balance -1.00 -3.0 .Exports of goods, NIF 3.44 10.2 * -3.5 7.3 -5.6 27.5 -3.2Imports of goods, NYS 7.06 21.0 -7.1 5.5 0.7 1.1 22.0

OUTPT, LArsoL rce ANDPRODUCTIVITY IN 1983/84

Value Added labor force /c V. A. Par WorkermNillion 2 i ilLion S U S

Agriculture 6.652 24 14.1 51 472 47Industry /d 8.096 29 5.2 19 1.557 155Services 12.931 47 -.L -0 1.558 1:

Total/Average 27.679 100 27.6 100 1.003 100

GOVERNMNET FINANE

Ce,tgLl CGvernuent le Federal Governmen(Re billion) S of GDP (Re billion) Z of CDP19831U4 LI 1953/ 4 1978179-19831Z 4 1983/S4 IL 1953/84 1978179-1983184

Current receipts 73.2 17.4 16.6 58.2 13.9 12.4Current expenditures "l lL 23. 6LkM A3.2Current surplus -7.2 -1.7 -6.3 -4.6 -1.1 -0.4Capital expenditures IL 34.2 8.1 9.4 34.2 7.0 8.0External assistance (net) 6.0 1.4 2.1 6.0 1.4 2.1

NONET. CREDIT AND PRICES

1974175 1975176 197 617; 1977178 1978179 1979180 19 19151 19 118 I" 2183 1 12184 1k

(Ra billion)

Mouey and quasi money Li 33.1 41.6 51.7 63.7 76.5 90.7 103.5 113.6 146.0 162.5lank credit to public sector 21.2 28.1 36.6 43.5 54.9 61.8 70.9 79.7 95.5 105.6laenk credit to private sector 16.0 17.8 23.0 26.5 30.9 36.9 41.9 51.3 62.8 77.8

(percentages or index numbers)

Money end quasi money as Z of GDP 29.5 31.5 34.6 36.7 39.0 38.3 37.0 35.1 40.1 38.7Consumer price index (1969170-100) 211.3 229.4 256.7 277.0 295.6 331.9 375.4 403.9 418.1 462.0

Annual percentage changes ix:Cosumer price index 23.6 8.6 11.9 7.9 6.7 12.3 13.1 7.6 3.5 10.5lank credit to public sector 32.5 30.2 18.8 26.2 12.6 14.7 12.4 19.8 10.6lank credit to private sector . 11.2 29.2 15.2 16.6 19.4 13.5 22.4 22.4 23.9

/a Based on World Bank Atlas methodology and calculated at an average of 1980-82 prices nd exchange rates. All otherconversions to dollars in this table are at the average exchane rate prevailing during the period covered.

tb Provisional.LE Projection for 1983184. Does not include uneployed labor force.Id Includes mmfacturing, mining, construction end electricity nd g./t Consolidated reveues and expenditures of Federal and Provincial Governments (excluding Federal-Provincial Government

transfers).If Revised budget data.it Excluding principal repayments of foreign loans. Capital expenditures as defined in government budget includ

certain current expenditures also.fh Provisional.Li Monetary statistics of Pak.csta have bean fully adjuated for demonetized notes. devaluation and revaluation of the

rupee. etc. am from June 30, 1975. Data for 1974175 frot State lank sources are not strictly comparable with MKeati mtes for earlier years.

Not applicable.lot available.

March 1985

-35-

Page 5 of 5

l.AU~~~3 OF PAUU!I HIUCE*lDI~~~~U3 UPORT UV(AWI 1979/W0-9831B4)Xlml ~ ~ u~ m1LS nuE1 mLg1w g 1§§1U

199801080/ 121121613 1814ABUA (138 million)

bports of goods. on 2.955 3,461 3,052 3.416 3,439 INV cotton 315.3 11.9Importu of goods, F 5709 _6,466 679 Ue 7.058 Cotton ya 214.7 8.1Resource gap (deficit - -) -2,754 -3.005 -3.627 -3.172 -3.619 Cotton cloth 281.1 10.6

lice 417.9 15.8Interant peymete -285 -357 -453 -421 -477 All other coditis 1 22 53.6Iorkrew rmittanee 1,74a 2.097 2,224 2,687 2,737 Total 2,651.4 100.0Other factor psaymnus (wt) 151 274 321 195 359net tranafera -.-- A ....... q.

Salaam an current account -1,140 -9;1 -1.535 -51 -100 ,DnT. JMU 1984

Direct foreign ineet_mtlet 3? borrmoing fl.million

Disbursenats 1.134 956 1,102 1,301 1.246Amortition -310 -516 .492 -_81K -569 Public debt. including guarciteed 9,890.4Sub-total 824 440 610 915 679 o-uaranteed private debt Ia

Traedction with IMF LL 78 315 353 413 -1 Total otetanding and dimbured 5,390.4

Other iteme n.e.i. Lk 600 546 318 285 142increaee in resrves C-) -362 -310 249 -1.102 180 DI SUIVICS RATo FOR 1983184 L(

Grees reserves (end Year) le 748 1,058 809 1.911 1.731 S

Petroleum import. 1g 1.079 1,535 1,710 1,610 1,423 Public debt, including guaranteed 15.6Petroleum export. LA 178 126 194 77 40 hn-guarateed private debt

Total 15.6

UTZ OF UXCHANG ISIDIIDA LUDIN (December 183M (US$ illiou)

Ibroeth 1ev 11. 1972 From Na, 12. 1972-Feb. 15. 1973 Ufl X

US1 - Re 4.7619 US$1 - an 11.00 Outstanding and diebured 350.7 1,144.7Re I - USS0.21 Rs I - 1SSO.09 Undiabureed 197.0 617.Z

oauttanding including undiebured 547.7 1,761.9

Fom Feb. 16. 197:3-J. 7J 1982 From July 1981-June 1932 LI From JulT 1982-June 1983 L From July 1983-JMe 1984 1

MSS 1 - a 9.90 US$1a1 - l .S5 VS$I - Rs 12.75 5851 - R 13.50as 1 - US$O.10 Re I - US$0.095 Rs I - 1980.078 as 1 - M0.074

Ia Ineluding Truet Fund.sL. Including net abort-te borrowigt and error, ad oniemion..e Recluding golA reservee of about 1. mdllion troy ounces.

/A Crude nd derivecivee.LI Nom-guarated private debt service ie ngligible.IL Ratio of actual debt sevice to exports of goods, factor ed no-factor erviess; debt eevice ineludee DV1 charges.IL Effective January 8, 1982. the rupe is to be mened with reference to a weighted basket of currencies. The arerag

exchane rate aboun ie vis-a-vis US$ for the period aboun.

not Available.

lereb 1985

-36-

Page I of 2

5AI4T OF DANK GROUP OPERATIONS IN PAKS1TAN

A. STATINENT OF LAN LOANS AND IDA CREDITS (as of March 31. 1985) LL

(USS million)Loan/ (Amount net of cancellationslCredit Fiscal Undi-Sunber Year Punrose hnk TW IDA bursed

Ninety-eight loans and credits fully disbursed lk 781.4 32.0 1.001.6/L

648 1976 Irrigation & Drainage (Khairpur) - 14.0 3.51366T 1977 Punjab Livestock Development - 10.0 - 3.5754 1978 Salinity Control & Reclamtion - 70.0 66.8813 1978 Punjab Ext. & Agric. Dev. - 12.5 4.2877 1979 Salinity Control & Recl. (Mardan) - 60.0 53.6892 1979 Primary Education - 10.0 3.9922 1979 Sind Agricultural Extengion - 9.0 4.6968 1980 Third WAPDA Power - 45.0 6.4974 1980 Third Highway - 50.0 .71019 1980 PICIC Industrial Development - 40.0 .711091e 1981 Vocational Training - 25.0 1.41113kI 1981 Small Induatries - 30.0 0.41157Le 1981 Grain Storage - 32.0 16.71158kL 1981 Agricultural Research - 24.0 15.11163Le 1981 On-Farn Water Management - 41.0 13.01186ke 1982 Industrial Development (IDBP II) - 30.0 4.82122 1982 Fourtb Telecomunication 40.0 - 13.82172 1982 Fertilizer Industry Rehabilitation 38.5 - 26.52247 1983 Reservoir Haintenance Facilities 10.2 - 10.02305 1983 Agricultural Dev. (ADIP V) 10.0 -- 5.92324 1983 Fifth Sui Northern Gas Pipelines 43.0 - 42.2'239Lj 1982 Irrigation Systems Rehabilitation - 40.0 25.21243k 1982 Baluchiatan Minor Irrig. & Agr. - 14.0 10.612561e 1982 Technical Assistance - 7.0 4.71278k 1982 Eleventh Railvay Project - 50.0 39.51348ke 1983 Lahore Urban Development - 16.0 14.01350ke 1983 Population - 18.0 14.11355kI 1983 Coal Engineering - 7.0 6.31374ke 1983 Karachi Water Supply - 25.0 22.01375ke 1983 Fourtb Drainage - 65.0 58.81380ke 1983 Agricultural Development (ADBP V) - 47.8 17. '2218 1983 Refinery Engineering Project 12.0 -2351 1984 Petroleum Exploration 51.5 - 48.52374 1984 Second Toot Oil and Gas Development 30.0 - 24.22380 1984 Industrial Investment Credit 50.0 - 49.91439kC 1984 Industrial Investment Credit - 50.0 44.61461kL 1984 Integrated Hill Farning Development - 21.0 19.91480ke 1984 Second Technical Assistance - 7.0 6.51487 1984 Comand Water Management - 46.5 43.31499 1984 Second Small Industries - 50.0 44.015321c 1985 Left Bank Outfall Drain - Stage I - 150.0 150.01533/c 1985 Baluchistan Agricultural Extension - 8.3 8.32499/c 1985 Fourth WAPDA Power 1.0DD _ - 100.0

Total 1,166.6 42.0 2,115.9 1.088.3of which has been repaid 490.2 3.8 39.8

Total now outstanding 676.4 38.2 2,076.1Amunt sold 23.9of which has been repaid 23L. - - - -

Total now held by Sank and IDAId 576.4 38.2 2.076.1

Total undisbursed 330. _JA 754.0 1.088.3

La The status of the projects listed in Part A is described in a separate reporton all Dank/IDA financial projects in execution, vhich is updated twice yearlyand circulated to the Executive Directors on April 30 and October 31.

Lk Excludes the disbursed portion of loans and credits vholly or partly for projectsin the former East Pakistan which have now been taken over by Bangladesh.

Le, Not yet effective.4 Prior to exchange adjustment.

/e IDA Credits under the 6tb Replenisbuent denominated in SDRS. The principalis shown in rUS equivalent at the time of negotiation. Disbursed mounts arecomputed at the _mrket rate on dates of disbursements.

Li By using the mrket rate On dates ofZ disbursements, the current principalfor Credit 1066-PAZ and Credit 1255-PAX (botb fully disbursed) is842.5 and S77.5, respectively.

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ANNEX 11Page 2 of 2

B. STATEMENT OF IFC INVESTMENTS (as of March 31, 1985)

Fiscal Amount In USS MillionYear Obligor Type of Business Loan Equity Total

1958 Steel Corp of Rolled SteelPakistan Ltd. Products 0.63 - 0.63

1959 Adamjee IndustriesLtd. Textiles 0.75 - 0.75

1962- Gharibwal Cement1965 Industries Ltd. Cement 5.25 0.42 5.671963- PICIC Development1969- Financing - 0.52 0.5219751965 Crescent Jute

Products Textiles 1.84 0.11 1.951'%65-1980- Packages Ltd. Paper Products 19.25 0.84 20.0919821967- Pakistan Paper1976 Corp Ltd. Paper 5.38 2.02 7.401969 Dawood Hercules

Chemicals Ltd. Fertilizers 1.00 2.92 3.921979 Milkpak Ltd. Food and Food

Processing 2.40 0.36 2.761979 Pakistan Oilfields

L.d. and Attock Chemicals andRefinery Ltd. Petrochemicals 29.00 2.04 31.04

1980 Fauji Foundation Woven Polypropy-lene bags 1.78 - 1.78

1980 Premier BoardMills Ltd. Particle Board 2.70 - 2.70

1981 Habib Arkady Food and FoodProcessing 3.15 0.16 3.31

1982 Asbestos Cement 4.02 - 4.021983 Pakistaa Petroleum Chemical and

Ltd. Petrochemicals 99.32 1.56 100.881985 National Dev. Money and

Leasing Corp. Capital Market. 3.44 0.38 3.82

Total Gross Commitments 179.91 11.33 191.24

Less: Cancellations, Terminations,Repayments and Sales 13.1.59 0.38 131.97

Total Commitments Now Held by IFC 48.32 10.95 59.27

Undisbursed (including participants) 6S.70 0.70 69,.40

ANNEX III-38- Page I of 2

PAKISTAN

ENERGY SECTOR LOAN

Supplementary Project Data Sheet

Section I : Timetable of Key Events

(a) Time taken to prepare project:14 months

(b) Agency which prepared project:Inter-ministerial Energy Working Group

(c) Date of firs: Bank mission to consider the project:January 1984

(d) Date of departure of appraisal mission:Phase I - December 1984; Phase II - February 1985

(e) Date of completion of negotiations:April 22, 1985

(f) Planned date of effectiveness:September 1985

Section II : Special Bank Implementation Actions

None.

Section III : Special Conditions

(a) review with the Bank in detail the performance of thecore investment program in the preceding year and thesources for financing it in the next year on an annualbasis, beginning April 1986 (paragraph 36);

(b) continue to increase the price of gas to achieve theFY88 target. Thereafter, review with the Bank thegeneral strategy and the measures for inducingconsumers to use this scarce -esource more rationallyand mobilize resources for the development of thesubsector (paragraph 45);

(c) ensure the establishment of ENERCON by December 31,1985 (paragraph 51);

(d) review with the Bank the means and the timetable forreorgacizing the power subsector by June 30, 1986(paragraph 52); and

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ANNEX IIIPage 2 of 2

(e) review with the Bank by June 30, 1986 the measuresneeded to strengthen OCDC's managerial and self-financing capabilities and the timetable for theirimplementation (paragraph 53).

The following would be the conditions for loan effectiveness and triggeringthe release of the first tranche (paragraph 70):

(a) introduction of a tariff increase, effectiveJuly 1, 1985, which will enable WAPDA to financefrom internally-generated funds at least 40% ofinvestment program in FY86; and

(b) announcement of the new formula fcr determininggas producer prices; and

The following would be the conditions for triggering the release of secondtranche (paragraph 70):

(a) introduction of a tariff increase, effective July 1,1986, which will enable WAPDA to finance frominternally-generated funds, at least 40Z of itsinvestment program in FY87; and

(b) review of progress made in implementing the coreinvestment program in 1985/86 and the program for1986/87 as well as the indicative programs for19871/88 and 1988/89.

-40- Annex IV

Page 1 of 10

DRAFT LETTER OF POLICY

Dear Mr. Clausen:

1. Since 1)78, Pakistan's economic performance has improved substan-tially. During the period FY78-83, real GDP increased at an average annualrate of about 6.3%. Much of this improvement was due to the rapid expansionof the energy-consuming sectors such as industry and transport where realvalue-added increased at an average annual rate of 10.4% and 16.5%, respec-tively. This resulted in an unprecedented growth in the consumption ofenergy, which increased at an average annual rate of 9.6%. In order to meetthis demand, the Government emphasized the accelerated development of domes-tic energy resources. Although the domestic output of commercial energyincreased during this period at an average annual rate of about 6.2%, it wasinsufficient to meet the growth of demand. As a result, the country con-tinued to depend on imported energy which, together with the second round ofincreases in oil prices in 1979, led to a rapid expansion of oil import billand large external payments deficits. The import bill for oil rose fromUS$496 million in FY78, representing about 16Z of total imports, toUS$1,587 million, amounting to about 28% of total imports, in FY83.

2. In recognition of the adverse effects of this dependence on importedenergy, particularly on the country's balance of payments, the Governmentaccorded high priority to structurally adjusting the energy sector during theSixth Five-Year Plan (FY83-FY88). This was to be achieved by:Ca) accelerating the development of domestic energy resources to reduce thecountry's dependence on imported oil; (b) promoting the efficient andrational use of energy to meet the future demand at least-cost to theeconomy; Cc) adjusting energy prices to reflect their economic costs andthereby induce energy conservation and mobilize resources for the sector;(d) streamlining the institutional setting of the sector to improve itsefficiency; and (e) increasing private sector participation to mobilizeresources for high-risk ventures and introduce new technologies. The SixthPian's original allocation to public sector energy program amounted toRs 116.5 billion, representing an increase of about 120% in real terms overthe allocation under the Fifth Plan and about 38% of the total public sectoroutlays.

3. Despite the Government's adherence to the general strategy enunciatedabove, adverse de.elopments including the decline in remittances and in thecountry's export earnings have reduced the foreign exchange availability andin turn, the resources needed for the implementation of the energy investmentprogram. As these resource constraints are likely to continue in theimmediate future, the Government has decided to implement a comprehensivedevelopment strategy to address the issues impeding the development of themajor sectors of the economy. In the energy sector, the strategy involves a

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Annex IVPage 2 of 10

two-pronged approach. The first concentrates on the implementation of a coreprogram of high priority projects and of policy actions and institutionalreforms needed to mobilize sufficient revenues for executing these projects,restrain the growth of demand for energy and enhance the project implementa-tion capabilities of the entities in the sector. The second focuses on theimplementation of studies thac would provide the inputs needed for theintegrated development of the sector during the Seventh and Eighth Five-YearPlans. The strategy for the energy sector is outlined below under the fol-lowing three headings: development and investments; pricing and demandmanagement; and institutional development.

I. Development and Investments

Energy Development

4. Hydropower: Hydropower is Pakistan's most important source of energywith the potential estimated at about 30,000 MW. Of this, only 2,897 MW hasbeen developed and 1928 MV are under consideration/construction. Another3,600 MW will be added when the site at Kalabagh is fully developed.Detailed engineering has been completed and preparations are underway forimplementing this scheme. The Government has also completed a study forranking the hydropower sites on the Indus River whose potential is greaterthan 200 MW. Of these sites, Basha and Dasu, with an estimated potential ofabout 2,500 MW and 2,700 MW respectively, are ranked first and second in theorder of priority for development after Kalabagh. The Government's long-termplans for the development of the hydropower potential call for the exploita-tion of the sites at Kalabagh, Basha and Dasu by the year 2020. Detailedcost estimates are required for integrating the development of these siteswith the program for thermal generation and determine the optimal timing fortheir implementation and commissioning. So far, cost data are only availablefor Kalabagh, and only a feasibility study has been completed with the assis-tance of consultants under financing from CIDA for Basha. The Governmentwill recruit consuLtants by December 31, 1986, to undertake the work coveringthe detailed engineering and design for Basha. Similar work would beinitiated in due course for Dasu.

5. Hydrocarbons: Natural gas is Pakistan's main commercially exploitedhydrocarbon resource, with known reserves estimated at about 340 million toe,comprising 271 million toe of proven reserves and 69 million toe of probablereserves. Proven reserves of oil, by concrast, are modest, estimated atabout 13 million tons. In addition to the proven reserves, probable oil

-42-

Annex IVPage 3 of 10

reserves at known fields are estimated at 3 million tons and possible reser-ves at about 6 million tons. Therefore, the prospects for increasing domes-tic production of oil and particularLy, gas are good. In view of the promis-ing prospects for increasing the domestic output of hydrocarbons, the Govern-ment has actively promoted the involvement of public and private sectorenterprises in exploration and development of oil and gas over the past twoyears. As a result, exploration and development acceLerated. In 1984, arecord number (46) of exploratory and development welLs were spudded ordrilled and four new oil and two new gas fields were discovered. Seismicsurveys in the offshore areas, undertaken with the assistance of Norway, haveidentified four promising structures for drilling and further evaluation.The Government has finalized negotiations for offshore drilling ofoil-bearing structures located in the Indus basin. Agreement has also beenconcluded with the private sector on producer prices for gas from existingfields at Mari and Sui whi-h has resulted in satisfactory progress being madein the development of this resource.

6. Despite the progress made so far in the exploration and developmentof hydrocarbons, new initiatives are needed to accelerate and expand theactivities in the subsector to minimize the anticipated shortfalls in gassupply and achieve the Government's objectives of reducing Pakistan's depend-ence on imported energy. This will require a national policy aimed atincreasing the level of private equity investment in both exploration anddevelopment and balancing the public and private sector involvement. Such apolicy would require the delineation of the scope of the exploration anddevelopment program to be undertaken by the Oil and Gas Development Corpora-tion (OGDC) over the next three years. A specific annual work program con-centrating on the high pricrity fields has been outlined by OGDC. For theimplementation of this program the Corporation would have to channel allavailable resources, human, financial and technical. The setting ofpriorities by OGDC has also made possible a parallel delineation of conces-sion areas and fields, where private sector participation, both foreign andlocal, in exploration and development would mobilize resources and the exper-tise needed to accelerate development. This approach is viewed as the mosteffective stra.egy not only for enhancing OGDC's capabilities but also formobilizing capital with minimnal risk to public resources. The Governmentwould review annually, starting April 30, 1986, the progress made in increas-ing private sector participation and in impleienting OGDC's priority program.

7. Coal: Coal and lignite reserves are estimated at about 835 milliontons, of which only 107 million tons are proven. Of the total reserves,about 80Z are held by the private sector and the remaining 20%, amounting to165 million tons, is held by Pakistan Mineral Development Corporation (PMDC),a Government-owned entity. The size of the proven reserves in the privateand public sectors is believed to be substantially lower than the country's

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potential; however, at this point in time, very little is known of the geol-ogy of coal in Pakistan. Consequently, the Government has decided to under-take a systematic program for the formulation of a comprehensive coalexploration strategy. The Geological Survey of Pakistan (GSP), and the USGeological Survey have signed an agreement to undertake joint work, underUSAID financing, to identify priorities for exploration drilling andgeophysical analyses. The first phase of this work involves the assessmentof the reserves at Lakhra and Sonda-Thatta in 1985 and 1986 and the Saltrange and Makerwal reserves in 1987 and 1988. This work would identify theconcessions, whether held by the private or public sector, where furtherexploration is justified. In addition, the Water and Power DevelopmentAuthority (WAPDA) is currently implementing a program, under World Bankfinancing, aimed at firming up the extent of the reser-es at Dukki inBaluchistan and preparing a feasibility study for mining the coal for powergeneration. The Government is also assessing, under USAID financing, thepotential for stimulating increased private sector involvement in coalproduction using the Lakhra reserves as a model. Should the results provefavorable, the same model could be applied to other promising reserves. Inaddition, the Government has outlined a two-phase program to promote theaccelerated development of coal. The first phase would involve a focusedstudy to be initiated by September 30, 1985 and completed by September 30,1986, to identify the main operational constraints being experienced andoutline a plan of action for addressing them. The second phase would involvethe implementation of the plan of action which will be initiated byDecember 31, 1986.

Energy Investment

8. Core Investment: The Government has outlined, in collaboration withthe Bank, a core investment program which encompasses high priority projectsto be completed or initiated during the next three years. The Government hastaken necessary steps to ensure that financial, human and technical resourcesare earmarked to implement the high priority projects. The core investmentplan would amount to about Rs 50 billion to be divided among the subsectorsas follows: about Rs 36.5 billion for the power subsector, Rs 13 billionfor the petroleum subsector and about Rs 0.4 billion for the coal subsector.To finance this core investment plan the Government would contribute Rs 8.7billion from the Annual Development plan; internally generated funds fromvarious agencies in the energy sector would provide Rs 14.5 billion. Theremaining Rs 26.7 billion would be in the form of loans, grants and sup-pliers' credits. Implementation of the core investment plan would bemonitored in detail annually. The first annual review would be in April1986.

9. Long-Term Development Plan for the Power Subsector: The power sub-sector accounts for almost two-thirds of the overall investment in energy andone-fifth of the public investment. In view of the resource constraints

p i

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Annex IVPage 5 of 10

presently being experienced and given the substantial financial requ.rementsof the subsector, there is an urgent need to rationalize the investments inthe power subsector. This would require the formulation of a Long-termdevelopment plan which identifieo the scale and timing of investments inorder to meet the forecast demand at least cost to the economy. As a firststep, the Government has developed, with the assistance of the Bank, aninterim least cost development program for the power subsector. It providesa list of key projects to be initiated or completed over the Sixth andSeventh Five-Year Plans, which were included in the core investment programto be implemented during the period FY86-FY88. In order to finalize thisinterim plan, extensive information on the operation of the power subsector,hydrology and pattern of electricity cuias=.ption, all of which is currentlybeing prepared, would have to be incorporated. The Government intends toformulate a least cost national plan for power based on more detailed data toreplace the interim program. Thig program will be completed and reviewedwith the Bank by December 31, 1986.

10. Long-Term Development Plan for the Petroleum Products Subsector:Constraints in the supply and delivery of petroleum products are becominga major impediment to the development of the energy sector. Inadequate porthandling facilities for the delivery of oil and petroleum products, shortagesin the storage facilities throughout the country, and a serious imbalancebetween the production and demand for petroleum products, particularlyup-country, are expected to become more pronounced from here on, unless majorinvestments are undertaken to ensure that future demand is met at least cost.The Government will initiate by November 1, 1985 and complete by March 31,1986 a study for the rationalization of the infrastructure for supply anddelivery of petroleum products. The purpose of the study is to toutline aleast cost development plan for the petroleum subsector which takes intoaccount the plans for the increased use of both domestic and imported coalfor power generation, the new mid-country power plants to come on st:eam andthe prospects for increasing the production of domestic oil and natural gas.

II. Pricing and Demand Management

Pricing

11. Consumer Gas Prices: Since the discovery of natural gas in Pakistanin 1952, its consumption has increased rapidly. By 1981, consumption startedto surpass supply. As a result, the Government decided to introduce measuresaimed at restraining the growth of demand and stimulate increased production.On the supply side, a new cost-plus formula was adopted to induce greaterparticipation by the private sector in exploration for gas. On the demandside, the Government set as its goal the gradual increase in the domesticprice of natural gas to reach two-thirds of the border price of fuel oil by

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Annex IVPage 6 of 10

1988. Consumer price of gas has increased in nominal terms by 125Z between1981 and 1984. This brought the average domestic price of gas in December1984 to about US$67/toe, representing 38% of the border price of fuel oil ofUS$175ttoe. The Government will continue the increase in the price of gas toachieve the FY88 target. Thereafter, the Government wilL review with theBank the general strategy and further measures for inducing consumers to usethis scarce resource more rationally and mobilize resources for the develop-ment of the subsector.

12. In addition, the Government commissioned in 1981 a study aimed atoutlining a strategy for balancing the forecast demand and supply. Thisstudy was completed in 1982 and its results were used to set a framework forthe Cas Development Plan which is now being implemented. Significant new gasresources are now likely to be available from Pirkoh, DhurnaL, the Badinconcession and Dakhni and the results of drilling on the Loti gas prospectwill be known soon. Accordingly, the Government has decided to initiate byno later than December 31, 1985: (a) a study to revise the Gas DevelopmentPlan to determine the optimal supply and utilization pattern for the nextfive years; and (b) a study to outline a demand management policy aimed atimproving the efficiency of gas supply and consumption. The results of thesestudies would be reviewed with the Bank by December 31, 1986.

13. Gas Producer Prices: As stated above, the Covernment introduced in1981 a cost plus formula for setting producer prices aimed at stimulating theinterest of foreign and local firms in accelerating their exploration anddevelopment activity in Pakistan. In order to further stimulate the interestof the private sector to undertake exploration and development in thecountry, the Government has outlined a new framework for gas producer prices.The key elements of this are: (a) the price paid to the producer forpipeline quality gas will equal 66% of the international price of fuel oil atmain consumption centers, adjusted for the transport cost of gas from thefield to main consumption centers, less a percentage discount; (b) the mag-nitude of the discount is to be negotiated and agreed in the ConcessionAgreements before commencing exploration. The discount will vary from areato area and will take into account, among other things, the geological riskand location of the concession, anticipated exploration and development costsand oil market conditions and cost of production. It is the Government'sintention to negotiate discounts which achieve the basic objective ofstimulating accelerated exploration by private investors; (c) the new priceformula will apply to all non-associated gas from concessions signed on orafter September 30, 1985. The Government intends to make an announcement ofthe new policy by June 1985, and widely publicize it within oil industrycircles. Furthermore, the Government intends to keep the operation of thisformula under review.

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Annex IVPage 7 of 10

14. Electricity Pricing: Resource availability for power developmenthas not been as high as planned by the Government. This resulted in substan-tial reductions in the development program of WAPDA over the past few years.To address this shortcoming a three-year core investment program amounting toRs 30 billion has been set for the remainder of the Sixth Five-Year Plan(FY86-FY88). Henceforth, the Government intends to adjust tariffs using theformula agreed with the Bank in the loan agreement for WAPDA III Project, toensure that at least 40% of the investment expenditures called for under thecore investment program are financed from WAPDA's internal sources.

15. Coal Pricing: PMDC is the single largest producer of coal in Pakis-tan, with about 15% of total anrnual production. Due to a number of opera-tional and financial constraints, PMDC's costs of production are substan-tially above those of the private sector. Although prices are not fixed bythe Government, PMDC, because of its size, acts as a price setter in the coalmarket. As a first step, to promote the use of lower value products forhigher value hydrocarbons, the Government intends to allow the importation ofcoal for power generation around Karachi, provided such imports are deemedeconomic. Currently a prefeasibility study for coal handling is also under-way under financing from the World Bank and CIDA. In addition, in order toimprove the efficiency of PMDC and, in turn reduce its cost of production,the Government will initiate by November 1, 1985, and complete by Novem-ber 30, 1986 a study that would: (a) outline a strategy for corporaterestructuring and technical improvements to promote the more efficient opera-tion of mines in the public sector and (b) provide a basis for reviewing therole of the public sector in coal mining.

Demand Management

16. One of the objectives of the Sixth Five-Year Plan is to promote theefiicient and rational use of energy. The Government has already takenseveral important initiatives to rationalize energy consumption including:(a) steps to enhance the energy efficiency of the NRL refinery, a majorenergy consumer; (b) a survey of energy consumption in public sectorindustries to be followed in 1986-87 with 20 energy audits and assessments inthe cement, steel, fertilizer, chemiciL and other industries in the publicsector industries which are designed to define the potential for energyconservation, leading to investments resulting in substantial reductions inindustrial energy consumption; (c) studies designed to reduce losses in thepower transmission and distribution networks; (d) the identification ofthermal power plants whose efficiency could be improved through rehabilita-tion and retrofitting; and (e) the for...Ulation of a least-cost developmentplan for the power subsector that would set priorities for investments ingeneration, and ensure the optimal use of primary energy resources. Theseinitiatives, however, are but a first step in the formulation of a comprehen-sive strategy for rationalizing the consumption of energy. If the objectiveof energy conservation is to be achieved, a more integrated and comprehensive

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Annex IVPage 8 of 10

strategy is needed. Toward this end, as is indicated below, the Governmentintends to establish by December 31, 1985 an Energy Conservation Center(ENERCON), with the assistance of USAID. Tn addition, to reaffirm its com-mitment to energy conservation, the Government will initiate a program ofaudits by November 1, 1985 in at least 20 of the largest energy consumingplants in the public sector industries, to be performed by local and foreignconsultant firms and completed by June 30, 1987.

III. Institutional Development

Operational Autonomy

17. The two most important agencies in the energy sector, WAPDA and OGDC,need cc:siderable strengthening and greater fiscal and managerial autonomy.The Government intends to review the means for reorganizing the power subsec-tor. The possibility of separating distribution of electricity from WAPDAand assigning WAPDA with the responsibility of generation and transmission ofelectricity for the entire country will be examined. This would includelooking into the possibility of taking over the generation and the primarytransmission of KESC by WAPDA and restricting the KESC operation to bulkpurchase from WAPDA and distribution in the Karachi area. Additionally, thepossibility of handing over distribution to private sector/provinces in therest of the country would be considered along with the possibility of creat-ing a separate authority for power distribution. In order to assist WAPDA informulating a plan for the reorganization of it's distribution department,consultants have been recruited under USAID financing.

18. The Sixth Plan envisages an expanded role for OGDC whose investmentactivity is expected to triple as compared to the Fifth Plan. OGDC's finan-cial position is expected to improve considerably in FY85 as a result of:(a) the Government's decision to allow OGDC to retain its earnings and thesetting of oil and gas prices similar to those available to the privatesector in adjacent areas; and (b) anticipated increases in production fromthe Pirkoh gas field and the Tando Alam oil field. Notwithstanding theimproved self financing outlook for OGDC, the key constraints to OGDC'sexpanded activities will be directly related to its ability to recruit andretain qualified professional sLaff, and to operate as a commercial concern.The Government intends to take further steps to strengthen OCDC's managerialand technical capabilities and to move towards financial self reliance.AccordingLy, the Government intends to review the measures needed to moveOGDC effectively and gradually toward that objective.

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Annex IVPage 9 of 10

Energy Planning

19. In recognition of the increasing importance of the energy sector insustaining the country's growth momentum, COP has decided to strengthen itsenergy planning capability. Toward that end, an office of Energy Planning(ENERPLAN) has been established in the Ministry of Planning and DeveLopmentunder financing from USAID. It is mandated to collect, compile and analyze,on an ongoing basis, all relevant data on the energy sector and integrartthem with the country's annual, Five-Year and long-term development plansusing the most recent analytic and modelling techniques to enable the Govern-ment to identify priorities and evaluate resource requirements to supporteffective policy formulation and investment planning. ENERPLAN, which isdivided into two groups, one for developing an energy data system and theother for data analysis, is headed by a Managing Director who was recentlyappointed. It will be administered by an inter-ministerial Energy PolicyBoard. ENERPLAN will be staffed entirely by Pakistani personnel who will beassisted during the first four years by consultants financed by USAID. Inorder to ensure that ENERPLAN's activities would provide the input needed foreffective policy decision, and integrated energy sector and macroeconomicplanning, the Government would periodically review its scope of work jointlywith the WorLd Bank, USAID and ADB.

Energy Conservation

20. There is an increasing awareness in Government circles and, to alesser extent, in the private sector as to the potential benefits of energyconservation. As mentioned above, a number of conservation activities havebeen undertaken in the recent past, notable among them being the energyconservation survey of public sector industrial concerns. However, as onewould expect in the initial stages of development of such a program, theseefforts are proceeding piecemeal. To be effective, conservation activitiesneed to be coordinated. It is for this p.:rpose that the Government intendsto establish ENERCON, which will be a critical f_'rst step. The center willserve as the focal point for all conservation activities and its main respon-sibilities will be to formulate comprehensive and integrated national energyconservation programs covering industry, power, transport, agriculture,households and commercial and residential buildings; plan and initiate energyconservation actions; outline policy guidelines; develop a data base; supporttraining activities and private research; undertake development and demon-stration, as well as public information activities; and monitor the implemen-tation of conservation programs of various public and private entities.ENERCON would also mobilize resources to finance investments in energy con-servation measures such as energy audits, feasibility studies, instrumenta-tion purchases, retrofitting, fuel substitition and technological changes,and support these with fiscal and other incentives. A detailed actionprogram for ENERCON is currently being prepared with the assistance of theBank and USAID. The center is expected;to formulate a comprehensive national

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Annex IVPage 10 of 10

conservation program within about one year. Administratively, ENERCON willwork in close collaboration with ENERPLAN. The center will be headed by adirector and manned with long and short term expatriate advisers and Pakis-tani professional and support staff. The work program of ENERCON will beguided by a supervisory board composed of representatives of federaL andprovincial governments and the private sector. The core activities of ENER-CON are expected to be financed by the Government. As a first step, ENERCONwill identify in 1985, on the basis of a private sector-wide energy consump-tion survey, aL least 15 of the largest energy-consuming plants in theprivate sector industries for audits to be performed by local and foreignconsultant firms. All efforts will be made to complete these by December 31,1987.

Manpower Development

21. To ensure that Pakistani personnel are able to continue the recentlyinitiated energy planning and conservation activities, the Government hasimplemented a manpower development program. With the assistance of consult-ants financed by USAID, the Government will conduct a manpower needs assess-ment to determine: (a) the range of technical, management, and analyticalskills needed to accomplish the goals of energy programs; (b) the presentcapabilities of locaL institutions to meet these needs; (c) the priorities toincrease skills to meet these needs; and (d) the actions necessary to improveexisting programs for this purpose, together with the cost and time require-ments. Based on the results of the needs assessment, ENERPLAN would organizeand conduct in-country short courses and seminars on selected topics, utiliz-ing highly qualified professionals drawn from the public and private sectors;identify further options for overseas training; and pursue strategies toupgrade and enhance training programs in Pakistan for improving the planning,management, and technical implementation of energy sector development.

Sincerely yours,

Mahbub-ul-HaqMinister for FinanceGovernment of Pakistan

Strlatla for the Develonment of the Eneray Sector

ISSUES A0JgMS _TU eN CTIONS TO BE TAKEN

D8VELOPHENT AND INVU TMENT

Energy Development

1. fvdro: GOP's long-ters plan GOP comuissioned Nuntreal Engineering in In order to ensure thst the hydra site.calls for the accelerated 1980, under financing from CIDA, to evaluate at Ealsbagh, Bamba and Da.u are comic-development of the country's hydro sitem larger than 200 1k in size on the sioned and brought on stream at the optimalhydropover potential; however. Indus River and rant them in order of economic time, minimal cost and in full integrationthe larger sites have as yet merit for development. A total of 26 sites vith the program for thermal generation,to be adequately evaluated in were inventoried excluding Kalabagh and Basab GOP has agreed with the Dank under tbeorder to ensure that these are which are ranked first and second in priority proposed loan to recruit consultants bybrought on stream at the optimal of development. The study concluded that only December 31, 1986 to initiate a detailedtime, m 'nival cost and in fu:l! 11 of the sites inventoried could be exploited site investigation, engineering and costintegraton with the program for economically, with the site at Daou receiving estimates for Saabs. GOP vould also initiatethermal generation. the highest ranking. The results of this in due course similar work for Dasu.

study were reviewed with the Dank.

GOP has completed the detailed engineering for othe site at Kalabagh and preparations are under-way for initiating the implementation of thisscheme during the Seventh Plan.

A feasibility study has also been completed forBasha with the assistance of consultants financedby CIDA.

2. ydrogAbgni: Exploration and GOP's active involvement over the past two years In order to further expand the exploration anddevelopment activity is inadequate has resulted in a record number (46) of explo- development program for hydrocarbons, GOP hasto achieve GOP c objective of mini- ratory and development wells being spudded or outlined a national policy which delineatesmizing the anticipated shortfalls in drilled and in the discovery of four new oil the scope of the exploration and developmentthe supply of hydrocarbons, particu- and two new gas fields. program to be implemented by OGDC over thelarly gas, and reducing the country's next three years (PY86-FYB8) and identifies thedependence on imported energy. Seismic surveys undertaken in the offshore approacb to be followed in attracting private

areas, witb the assistance of Norway, have sector participants, both foreign and local.identified promirsing structures for drilling COP has agreed under the proposed loan toand further evaluation. imple ment the core investment program for

OGDC involving the following: the development 'k

Negotiations have been completed for offshore of Toot, Pirkob, Dakhni and Tando Alrm; salIer o drilling of oil-bearing structures located in projects such as Rhodo and Sari/undi inthe Indue basin. strongly gas proven areas; non-operating interest

an minority partner in ongoing and new joint 0GOP has enabled OGDC to improve its performance ventures; and a modest-sized exploration progra_ hPby allowing it to retain a larger share of its which gives priority to potentially high yielding co

energy, but because of resource and imple- prospects in the i mediate vicinity of the Tandomentation constraints the Corporation is Alam discovery and isportant gas prospects suchunlikely to achieve the targets set in the as Loti. The core investment progra includessixth Plan. exploration and development investments ihbch are

justified from Pakistan's viewpoint and areGOP's effort hbave also resulted in doubling potentially attractive to private investors, butthe domestic output of oil, which either cannot, or should not be undertaken

solely by OCDC to avoid diverting its resourcesGOP has concluded agrpementa on producer prices from its o-n core activities or unduly riskingfor gas from existing fields at Mari and 6ui public resources. It is for these investmentsand consequently satisfactory progress is being that renewed effort should be made to mobilizemade in developiog this resource from these private s*ctor capital to supplement OCDC' eft,rtfields. to attract private ezploration investment in open

areas and consider "farm-ins" to OGDC average onappropriate terms. In particular, the Coverom*ntplans to undertake new efforts to meek jointventure partners, especially in areas whete gasdiscoveries have already been sade, once the newgas producer price formula is announced.

3. Coe: Estimates of the quantity The Geological Survey of Pakistan (GaP) and the In order to promote the accelerated developmentand quality of the reserves are U.S. Geological Survey, under financing from of coal, GOP has agreed with the Bank under thenot based on a systematic evalua- USAID, have signed an agreesent to formulate a proposed loan, to initiate a two-pbased prograt.tion of the resource. comprehensive coal exploration strategy which The first would involve a highly focused study

would identify priorities for exploration, to be initiated by September 30, 1985 and completeddrilling and geophysical analysis. It involves by September 30, 1986, to identify the main opera-the assessment of the reserves at Lnkhra and tional constraints being experienced and outline aSonda-Thatta in 1985 and 1986, and the Salt plan of action for addressing them. The secood phase,Range and Wakerwal reserves in 1987 and 1988. vould involve the implementation of the plan of actton

vhich will be initiated by Deember 31, M9L.VAPDA is currently implementing a program, underBank financing, aimed at firming up the extent ofthe reserves at Dukki to eventually prepare afeasibility study for mining the coal for povergeneration.

GOP is also assessing, under USAID financing,the potential for stimulating increased privatesector investment in coal production using the awlLakhra as a model. Should the results provefavorable, GOP would consider'applying thesame model to other promising areas.

I.'

Enerly Invaotmento

4. Core Investent Absence of COP prepared a sector study in 19f2, with The studies to be initiated under the proposedprogrm for the integration of the assistance of cone tanta, which provided ESL together with the strengthening of energysubsectoral inveetments has the basis for outlining the targets for the planning capabilities. wbicb is being financed byresulted in the initiation of a energy component of the Sixth Plan. This USAID, would provide the inputs needed to identifylarger number of projects than study, however, did not critically evaluate the bigb priority projects and pTomote the integratedcould be implemented with the the resource requirement of the investment development of the subsectors. In the interim. COPavailable resources. program for energy. haa outlined a core investment progrm of bigb priority

projects to be initiated or completed during the periodFYS6-FYBS. It ir designed to miniuize the shortfalleenergy during this period and ensure that slippagesthat are expected to occur do not become an impedimntto the implementation of the Seventb Plan. Thb Bankhbasreviewed the projects included in the core esentmentprogram, their financial requirements and the sourcesof financing and bas found theae to be generally satis-factory. In order to ensure the timely implementationof the core invest-ent progrm, GOP has agreed witb theBank under the proposed loan to reviev in detail theperformance of the program in preceding year and thesourcee for financing it in the next year on an annualbasis beginning April 1986.

5. Power Subeector: Rationalize the GOP has developed, under financing from UNDP In order to formulate a more robust National Least Costinvestments in the power subsector with the Baok as the executing agency, an Plan, GOP bas agreed vitb the lank under the proposedto meet future demand at least cost. interim least-cost plan for the power sub- loan to incorporate the recently complied inforast- n on

lector based on available data. It formed the operation of the power subsector, hydrology and patternthe basis for the identification of projects of electricity consumption in the interim least cost plan.included in the core investment program for This national least cost plan wili be completed and reviewedFY86-FYSa. with the lank by Deeember 31, 196.

WAPDA, with the sasistance of consultants VAPDA has agreed with the Bank under the Fi th Power Projectfinanced by USAID, in currently preparing a to recruit consultants, by no later than Sepcember 30, 1985,comprehensive national rural electrification on terms and conditions satisfactory to the lank, to undertakemaster plan wh eh is expected to be completed a study for the i-plementation of a system for the collection,by March 1985. The lank would reviev its storage and retrieval of data on the power system; the study

vill be completed and reviewed in consultation with the lank,by no later than December 31, 1986.

6. Petroleum Products SubsectL GOP has agreed witb the Bank under the proposed loan toConstraints in the supply and initiate by November 1, 1985 and complete by Mareb 31.delivery of petroleum products 1986 a study for the rationalization of the infrastructureare becoming a major impediment for the supply and delivery of petroleum products.to the development of the energysector.

o C

PRICING AND DEAD MANAGMDIT

Pricing

7. Gas Consumer Price: The consumer In 1981, COP agreed vith the Bank under SAL 1, GOP boo reaffirmed its comitment to be Bonk underprice of gas is inadequate to to raise the consumer price of gas to two- the proposed loan to raise the price ot o#3 torestrain the growth of demand. thirde the border price of fuel oil by FY88. achieve the 7Y8B target. Thereafter, Oi' vill

Since then its price has been increased in review with the Bank the general strategy and otherrupee nominal terms by 1251, vhich raised the measures for inducing consumers to use this scarceaverage domestic price of gas in December 1984 resource more rationally and mobilize resources forto 391 of fuel oil parity, the development of the xubsector.

S. Gas Producer Prices: GOPs gas In 1981, GOP adopted a new cost plus formula To stimulate the interest of the private aector, COPproducer pricing formula is for setting producer prices to stimulate the has outlined nev framework for gas producer priCse.unacceptable to private interest of foreign and local firms in accel- Its key elements are: (a) the price paid to theinvestors. erating exploration and development activity producer for pipeline quality gas will equal 66b of

in Pakistan. This formula, however, has not the international price of fuel oil at mainelicited the response hoped for from the consumption centers. adjusted for the transport costprivate sector. of gas from the field to main consumption centers,

less a percentage discount; (b) the msanitude of the %Adiscount is to be negotiated and agreed in Concec- Lasion Agreements before commencing ezploratou. Thediscount will vary from area to area and will takeinto account, among otber tbings, the goolv4ical rTisand location of the concession, anticipated explora-tion and development costs, oil market conditiogsand cost of production. It is COP's intention tonegotiate discounts with the basic objective ofstimulating accelerated exploration by privateinvestors; and (c) the nev price formula will apply toall non-associated gas from concessions signed on orafter September 30, 1985. GOP has agreed witb the Bankunder the porposed loan to make an announcesent of thenev policy by June 1985, and widely publicize it withinoil industry circles. GOP intendc to keep the operationof this formula under reviev&

9. Blectricity Price: WAPDA's efforts COP has agreed vith the Bank under the Fourth The introduction of a trnriff increase, effective ato mobilize resources through WAPDA Power Project, vhich was presented to July 1, 1985, which will enable WAPDA to finance taritfs have fallen short of the the Loard on March 7, 1985. to link future at least 402 of its investment progrm in IFYO from o targets set by GOP. increases in tariffs to the three year core internally-generated funds, vould be a condition of

investment program set at Res 30 billion, in effectiveness of the proposed ESL sand VAPDA T.accordance witb formula outlined in the Loan Agreement for WAPDA III project. GOP has alsoagreed under YAPDA rv to hencefortb adjust

tariffs to ensure that at least 402 of theexpenditures colled for under the core invest-ment program are financed from WAPDAsc internalsourcec.

10. Coal Pricing: Structural tmbalances GOP has agreed with the Dank under the proposed loanbetween sources of supply and location to allow the use of imported coal for powrt genera-of consumers and bottlenecks in real tion around Karachi, provided that sueb imports aretransport necessitate transportation deemed economic. A prefeasibility study, underof coal by trucks, which raises the financing from the Bank and CIDA is currentlyprice of coal to final consumers underway for coal handling.substantially.

GOP, has agreed with the Bank under the proposed loamto initiate a study that would: (a) outline a strategyfor corporate restructuring and technical improementsto promote the sore efficient operation of mines in thepublic sector; and (b) provide a basis for reviewing therole of the public sector in coal mining.

WAPDA has agreed with the Bank under the proposed FitthPower Project to recruit consultants, no later thanJune 30, 1986 on terms and conditions satisfactory tothe Bank, to undertake a feasibility study and detailedengiDeering for a power generating complex at Karachi,based mainly on imported coal, and prepare the biddingdocents for the first phase of this emplex; thework would be completed and reviewed with the Dpokby no later than December 31, 1987.

11. Demand ILanaaement: Despite short- GOP, under Bank financing is currently imple- In order to reaffirm its ceomitnent to conservationfalls in the supply of energy, in- menting a program for isproving the efficiency COP has agreed with the Dank under the proposed loansufficient attention has been of the IRL refinery and a fertiliser plant. to initiate a progrm of energy audits by Novmber 1,accorded to demand management, 1985 in at least 20 of the largest energy comamuing

VAPDA is preparing, witb the assistence of plants in the public sector industries to be performedconsultants financed by UIAID, a program for by local and foreign consultant firma and completed bythe expansion and rehabilitation of the June 30, 1987.distribution syatem. Specifically it wouldfocus on: energy loss analysis, comprehensive GOP has agreed with the Dank under the proposed loan Z Ilong and ahort terms progream comodities, to intiste by no later than Decmber 31, 1985, (a) a* Iestablishing criteria for selection of feeders, study to revise the optimal supply and utilization lbwork order system, technical reorganixation of pattern for the neat five years; and (bh a study tothe staff, plan for urban and rural expansion, outline a demand mnagement policy aimed at improving o distribution system sapping and updating, the efficiency of gas supply and conao.ption. lbecriteria, for selecting villages, connector results of these studies would be reviewed with the epractices, application of single phsee Dank L. Deember 31, 1986.distribution, distribution eyste- overhead

protection, load management and voltage regula- VAPDA has agreed with the lonk under the proposedtion and service reliability. The stuey is Fifth Power Project to recruit consultants, no laterexpected to be completed bv Mareh 1985. The December 31, 1985 on ters and conditions satisfactoryBank would review and coment on the results to the Bank, to undertake a load Treearch and loadand vould seek agreement from GOP on priority demand manihement study which would be completed andinvestment, and financial requirements. reviewed witb the lank, by no later than June 30. 1987.

USAIJ is also financing a study thet wouldidentify thermal plants whose efficiency couldbe ipro .d through rehabilitation and retro-fitting.

WAPDA bee agreed under the Fourth Power Projectto Initiate by July 31, 1985, and complete byJuly 31, 1986, a study aimed at identifying thesources of energy losses in the transmissionsystem, quantifying such losses, determining theoptiou level of much losses, and producing adetailed work and investment program to achievesuch optimum levels.

GOP bas also completed a survey of energyconsumption by public sector industries.

IHBT1lDTIOUAL DEVELOPI4UT

12. Onerational AutoguoM The two most 'AYDA hba recruited consultants, under USAID GOP has agreed under the proposed loan to reviewimportant asencies in the energy financing, to prepare an action plan designed the ueans and the timetable for reorganizingsector, WAPDA and OGDC, need conai- to improve the operational efficiency of VAPDA the power subsector by June 30, 1986.derable strengthening and greater through its reorganiZAtioL. It Will focus onfiscal and managerial autonomy, assessing the viability of assigning to VAPDA

the responsibility for generation and trans-mission and creating a new decentralizedholding company for the distribution ofelectricity through seei-autonomous agencies.It would also design a comprehensive distri-bution training program, and establish atraining institute.

OGDC's financial position is expected to GOP has agreed vitb the lank under the proposed ii

improve considerably due to: (a) GOP's loan to review by June 30, 1986 the measures needed cdecision to allow it to retain a larger to strengtben OGDC's managerial and self-financinghare of its earnings; and (b) anticipated capabilities and the tisetable for their implo-increases in the production of oil and gas. mentation.GOP intends to take advantage of che improved

financial position of OCDC to move towardsstrengthening its managerisl and self-financingcapabilities.

13. Enerty Planning: Energy planning GOP has established an Office of Energy Plan- In order to ensure that EDERPLM's activities wouldand coordination is inadequate, ning (E2ERPLAN) in the Ministry of Planning and provide the input needed for effective policy

Development under financing from USAID. It is decisions, and integrated energy sector and macro-mandated to collect, compile and analyze, on an oc'.nomic planning, COP has agreed with the Bank underongoing baisua, all relevant dat o the energy the proposed loan, to review on an annual basis,sector and integrate them with the courktry's beginning April 30, 1986, itb scope of work joinL.7annual, Five-Year and lorp-,teru development vith the Bank, USAID and ADS.plans using the most recent analytic andmodelling techniques to enable the Governmentto identify priorities and evaluate resourcerequirements to support effective policy formu-lation and investment planning. EYERPLAN,which is divided into two groups, one for deve-loping an energy data systm and the other fordata analysis, is headed by a Managing Directorwho was recently appointed. It vill be admin-istered by an interi-_inisterial Energy PolicyBoard. ENERPLAN vill be staffed entirely byPakijtani personnel who will be assisted duringthe first four years by consultants financed byUSAID.

To ensure that Pakistani personnel are ableto continue the recently initiated energyplanning and conservation activities, the Govt.has implemented, under financing from USIAD,a manpower development program.

14. Eperay Conservation: Absence of a In order to coordinate the conservation activitiescomprehensive and coordinated and make then more effective, COP intends to estab-strategy for rationalizing energy lish a National Energy Conservation Center (DIUC)consumption. under financing fro- the Dank and USAID. T'e Center

will serve as the focal point for all conservatiomactivities and its sain responsibilities will be toplan energy conservation actions, formulate policyguidelines, develop a data base, support trainingactivities and private research, undertake develop- IVment and donustration, as vell as public informa- astion activities, and mcuitor the implementation of o V3conservation progrems of various public and private %Xent'tles. A detailed action progrm for EuCin is o Ccurrently being prepared with the assistance of the Mt

Bank and USAID. The Center is ezpected to formiulate on

a comprehensive national conservation program vitbinabout one year. At a first atep, GOP bas agreed witbthe Bank under the proposed loan to identity in 1985at least 15 of the largest energy-caustming plantsin the private aector for audita to be performed bylocal and foreign consultant firra. All efforts vouldbe made to complete these by December 31. 1987.

In

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-58- ANNEX VIPage l 'of 8

PAKISTANENERGY SECTOR LOAN

CORE INVESTISNT PRORAM - 198S/86 - 1987/88

(RUPEES MILLION)1985186 1986/87 1987/88 TOTAL

SUBSECTOR LCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL

POWERVAPWA 5382 3717 9099 6214 3599 9813 6764 4324 11088 18360 11640 30000KESC 647 294 941 1143 784 1927 2065 1530 3595 3855 2608 6463

SUBTOTAL 6029 4011 10040 7357 4383 11740 8829 5854 14683 22215 14248 36463

PErROLEUMOGDC 1201 2197 3398 912 1409 2321 1368 2008 3376 3481 5614 9095SNGPL 932 552 1484 717 345 1062 207 -- 207 1856 897 2753KgC 115 61 176 141 53 194 166 26 192 422 140 562PSO 296 68 364 - - -- -- -- -- 296 68 364

SUBTOTAL 2544 2878 5422 1770 1807 3577 1741 2034 3775 6055 6719 12774

CrIALPHDC 25 8 33 68 78 146 93 101 194 186 187 373

CONSERVATION 61 69 130 61 62 123 -- -- - 122 131 253

GRAND TOTAL 8659 6966 15625 9256 6330 15586 10663 7989 18652 28578 21285 49863

(US $ MILLION)1985/86 1986/87 1987/88 TOTAL

SUBSECMOR LOCAL FOREIGN TOTAL LOCAL FOREIGI TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL

PO'WERIIAPDA 351 243 594 406 235 641 442 282 724 1199 760 1960KESC 42 19 61 75 51 126 135 100 235 252 170 422

SUBTOTAL 394 262 656 4U1 286 767 577 382 959 1451 931 2382

PETIROLEUtMOCDC 78 144 222 6f, 92 152 89 131 221 227 367 594SNGPL 61 36 97 46 23 69 14 0 14 121 59 180KGC 8 4 11 it 3 13 11 2 13 28 9 37PSG 19 5 24 0 0 0 0 0 0 19 4 24

SUBTOTAL 166 188 354 116 118 234 114 133 247 395 439 834

COALPMDC 2 1 2 4 5 10 6 7 13 12 12 24

CONSERVATION 4 4 8 4 4 8 -O O 0 8 9 17

GRAND TOTAL 566 455 1021 605 413 101S 696 522 1218 1867 1390 3257. .s ow ..... .. ..... ._- wo_ .... .. ...... _o _ s--- a a n o . _ . s_.__ *..

PAIBSTANENERGY SECTOR LOAN

W&TER AND POWER DIVELOPHIUT AUTRIOlTY .CORE INVESThINT PROGRAH - 1985/86 - 1987188

(RUPEES MILLION)1985/86 1986/87 1987/88 TOTAL

PROJECT LOCAL FOREIGN TOTAL LOCAL FOIRICN TOTAL LOCAL POUIGN TOTAL LOCAL FORuIG TOTAL

Generat ion

Guddu 4 325 46 371 96 23 119 --- 5 5 421 74 495Guddu CS 250 430 680 400 500 900 200 350 550 530 1280 2130Jainhoro 250 MW 93 122 215 400 614 1014 605 480 1085 1098 1216 2314Quetta 35 11W 6 4 10 --- --- --- --- -- -- 6 4 10Iot Addu 400 HU 852 1050 1902 288 222 510 --- --- - 1140 1272 2412Tarbela (9 & 10) 20 16 36 --- --- --- --- - --- 20 16 36Tarbela (11 to 14) 514 396 910 1028 895 1923 1153 1700 2853 2695 2991 5686Gilgit Hydel 40 8 48 35 5 40 35 5 40 110 18 128P &L I of Major Hydsl 50 20 70 61 14 75 40 15 55 151. 49 200Duki Coal(PC I & 11) 5 20 25 10 18 28 17 13 30 32 51 83Low Head Uydel 32 28 60 76 54 130 205 95 300 313 177 490multau (1 to 3) 600 nW 8 2 10 130 20 150 250 100 350 388 122 S10Ja_horo -2 210 KW --- --- --- --- --- --- 30 20 50 30 20 50Lakhr. Coal 300 NV ... --- --- --- --- 90 45 135 90 45 135Chitral Phase II 4 1 5 --- S --- - - 9 1 10Diesel Gilgit 3 HW 16 9 25 --- --- --- --- _-- __ 16 9 25

Subtotal Generation 2215 2152 4367 2529 2365 4894 2625 2828 5453 7369 7345 14714

Transmis ion

TUrbela-faisalbad 500-kV 50 43 93 --- --- - --- --- --- 50 43 93Faisalabad-Jamshoro 500-kV 418 636 1054 220 166 386 102 90 192 740 892 1632Faisalabad-Sahiwal 220-kV 60 70 130 38 14 52 --- --- - 98 84 182load Despatch Center 43 116 159 122 48 170 143 144 287 308 308 616Lehore-Janehoro 500-kV 30 20 SO 1SO 150 300 288 300 S88 465 470 938Tarbela-Lehore 500-kV 14 13 27 50 53 103 170 200 370 234 266 500Guddu-Sibi-Quetta 220-kV --- --- --- 10 2 12 100 20 120 110 22 132Mandan-Peshawar 220-kV 47 90 137 78 27 105 18 2 20 143 119 262nodu-Xuabdar 220-kV 84 4 a8 416 20 436 108 20 128 608 44 652Ludv.-Daud 220/500-kV --- --- --- 6 4 10 30 10 '40 36 14 50

-_____ - --- -___ ------ ------ -- - --Subtotal Transmission 746 992 1738 1090 484 1574 959 786 1745 2795 2262 5057

Subtransai.sion 950 400 1350 950 450 1400 1020 470 1490 2920 1320 4240

Distribution & Rural Elsc. 1440 160 1600 1755 190 1945 2160 240 2400 5355 590 5945

Diesel Sets in Baluchistan 24 20 44 --- --- --- -- -- - 24 20 44

Grand Total 5375 3724 9099 6324 3489 9813 6764 4324 11088 18463 11537 30000uuuu. in**u* **.~ u.** ...... UUUUUU.. .. UU UEUE , UUu... ..... ... ....... ..U..a Eummam.. UUUUUU .....U ..... ...U..... .. ....

PAKISTANENUCY SECTOR LOAN

KARACHI ELECTRIC SUPPLY CORPORATIONCORE INVESTHENT PROGRAM - 1985/86 - 1987188

(RUPEES MILLION)

1985/86 1986/87 1987/88 TOTAL

PROJECT LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL IOCAL FOREIGN TOTAL LOCAL FOUIGN TOTAL

200 NW BIN Q&SIN TIERMAL POWERSTATION UNIT - I 71.8 32.5 104.2 --- --- --- --- --- --- 71.8 32.5 104.2

200 NV 4IN QASIN THERMAL POWERSTATION UNIT - III 62.4 141.8 204.2 385.7 389.0 774.7 791.2 675.4 1466.6 1239.2 1206.3 2445.5

200 HW BIN QASIN THERHAL POWERSTATION UNIT - IV 1.8 4.6 6.4 62.4 141.8 204.2 385.7 389.0 774.7 449.9 535.4 985.3

200 NW BIN QASIN THERAL POWERSTATION UNIT - V --- --- --- --- --- 71.0 162.1 233.1 71.0 162.1 233.1

TRANSMISSION LINE & EXTENSIOd IN TIIEEXISTING GRID STATION.UNITS III 6 IV 0.5 0.8 1.2 68.3 104.2 172.5 126.4 144.4 270.8 195.2 249.3 444.5GRID STATIONS AND TRANSMISSION LINES 135.7 114.3 250.0 201.6 148.4 350.0 241.2 158.8 400.0 578.5 421.5 1000.0NORMAL DISTRIBUTION AND OTIIERS 375.0 --- 375.0 425.0 --- 425.0 450.0 --- 450.0 1250.0 -- 1250,0

…______ ------- ------- ------- ------- ------- ------- ---- -- ------- ------- ___ ------TOTAL 647.1 293.9 941.0 1142.9 783.5 1926.4 2065.4 1529.8 3595.2 3855.5 2607.1 6462,6

0.

PAK ISTANENERGY SECTOR LOAN

OIL 6 GAS DEVELOPMENT CORPORATIONCORE INVESTMENT PROGRAM - 1985/86 - 1987/88

(RUPEES MILLION)

1985/86 1986/87 1987/88 TOTAL

PROJECT LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL

DEVELoPMENT OF OIL a GAS RESOURCES 140 280 420 140 280 420 601 1001 1602 881 1561 2442PETROL8UU EXPLORATION 180 326 506 163 220 383 163 220 383 506 766 1272DAKHNI DEVEWPHENT - PHASE I 118 124 242 -- --- --- --- --- 118 124 242PIRKON DEVELOPMENT - PHASE I ENHANCED 259 285 544 75 90 165 --- --- -- 334 375 709RODHO DEVELOPMENT 20 29 49 --- --- --- --- --- --- 20 29 49TOOT DUVWLOPNENT - PHASE II 18 27 45 --- --- --- --- --- 18 27 45TANDO AIAN DEVELOPMENT 94 139 233 63 92 155 --- --- -- 157 231 388PINKON DEVELOPMENT - PHASE 11 --- --- --- 89 165 254 104 210 314 193 375 568DAKHNI DEVELOPMEfT - PHASE 11 43 80 123 89 123 212 267 369 636 399 572 971OHODAK DEVELOPMENT - PHASE II 159 316 475 33 32 65 --- --- -- 192 348 540EQUIPMEN a TECHNOLOGY ACQUISITION 4 77 81 24 113 137 1 6 7 29 196 225CANADIAN T.A. PROGRAM - PIASE 11 22 74 96 14 75 89 12 52 64 48 201 249DRILLING IIATERIAL RESERVE DANK 19 123 142 --- - --- --- --- --- 19 123 142SARI/HUNDI GAS FIELDS --- --- --- 50 84 134 is IS 65 84 149DRILLING EQUIPNENT HOD. & UPGRAD. 12 45 57 --- --- --- --- ---- 12 45 57OGDC OFFICE BUILDING - PHASE I a 11 20 --- 20 22 10 32 30 --- 30 72 10 62JOINT VENTURES 93 272 365 150 125 275 175 150 325 418 547 965

------- ---------

TOTAL 1201 2197 3398 912 1409 2321 1368 2008 3376 3481 5614 9095m... ..... .....m"" ......................... ....... ......... .. m.... .......... ....... EU....... mu.... ummumum mums. .U~~ .. m...S....-

IC

e4

PAKISTANENERGY SECTOR LOAN

SUI NORTHERN GAS PIPELINES LTD.CORE INVESTHENT PROGRAM - 1985186 - 1987/88-_-----------------------------------------

(RUPEES HILLION)

1985/86 1986/87 1987/88 TOTAL

PROJECT LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL…______ ------- ------- ------- ------- ------- ------- ---- --- … ---

SNCPL V & Others 881 489 1370 550 120 670 207 --- 207 1638 609 2247Energy Sector 51 63 114 167 225 392 --- --- --- 218 288 506

TOTAL 932 552 1484 717 345 1062 207 --- 207 1856 897 2753n..uma -mu....... wumum ....... mum........ u.. . ....... mu......... usammu muannu aumamma uunuuu *sauumu.....s uu .......

aoJ

PAR ISTANU1HERCY SECTOR LOAN

KARACHI GAS COMPANY LTD.CORE INVESTHUNT PROGRAM - 1985/86 - 1987/88---------------------------------.---------

(RUPEES MILLION)

1985/86 1986/87 1987/88 TOTAL

PROJECT LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL

EXPENDITURE ON DISTRIBUTION NETWORKHains and Services 54.5 7.4 61.9 73.1 11.7 84.8 93.1 11.7 104.8 220.6 30.9 251.5Consumer Meter Stations TBS/TRS 26.9 7.1 34.0 30.4 7.8 38.2 34.4 8.6 43.0 91.6 23.6 115.2Reinforcement of Hain. 11.5 1.6 13.1 13.0 2.0 15.0 14.7 2.4 17.2 39.2 6.1 45.3Ancillary Equipment 6 Others 17.5 2.5 20.0 20.2 2.8 23.0 22.9 3.1 26.0 60.7 8.3 69.0Computerized Cen. Control Station 4.1 41.9 45.9 3.7 27.9 31.6 --- --- --- 7.8 69.8 77.5

METER HANUFACTURING PLANT 0.5 0.5 1.0 0.5 0.5 1.0 0.5 0.5 1.0 1.5 1.5 3.0

TOTAL 114.9 61.0 175.9 140.9 52.7 193.6 165.7 26.3 192.0 421.4 140.1 561.5... c.s~ **Ufl. **SU.m US**Uf *--lSUf- *--flS* *--*S f*-**-- *----- *U*- *---- *-----

00

Pt

PAKISTAN ANNEXURE IENERGY SECTOR LOAN Pase 6 of 7

PAKISTAN STATE OIL COMPANY LTD.COKE INVESTHENT PROGRAM - 1985/86 - 1987/88--------- _-_-_--,-_------------------------

(RUPEES MILLION)

1985/86 1986/87 1987/88 TOTAL_______ _____ __- -------___…

PROJECT LOCAL FOREIGN TOTAL LOCAL FOREIGZI TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL…______ ____.- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------

20" KARACtII PORT PIPELINE 33.3 19.6 52.9 --- --- --- --- --- --- 33.3 19.6 52.9

STORAGE FACILITIES 262.8 48.4 311.2 --- --- --- --- --- --- 262.8 48.4 311.2…__ __ __ - -- -- - - __ _ __ __…___ _ __ _ __ _ __ __ _ ___ ___ _______ _______ _______ _______ _______ _____

TOTAL 296.1 63.0 364.1 --- --- --- --- --- 296.1 68.0 364.1f-naaa- nlw.. ---.m n. e--s"" *ar..s =n.M n *.nn ….....a me .. W. *ssfs. SUSas. Samoa=

ph

0IPh

ox

PAKISTANENERCY SECTOR LOAN

PAKISTAN MINERAL DEVWLOPMEN CORPORATIONCORE INVESTMENT PIOCRJM - 1985/86 - 1987/SB

(RUPEES MILLION)

195/86 1986187 1987/88 TOTAL

PROJECT LOCAL FOREICH TOAL OCAL FOREIGN TOTAL WCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL----- ----- ---------- ----- ----- ----- ----- - .-

ON ODING

EXPLORATION OF GOOD HOPE AREA,DIARI, BALUCHISTAN 5.5 -- 5.5 --- -- -- -- - 5.5 0.0 5.5

FESI8ILITY STUDY FOR PRODUCTION OFSMOKELESS COAL BRIQUETTES 0.2 2.8 3.0 --- --- -- -- --- -- 0.2 2.8 3.0

DEVELOPMENT OF COAL NINES AT tAKIIRA(OTHER THAN FOR POWER GENERATION) 5.7 2.0 77, --___- --- --- _ 5.7 2.0 7.7

NEW PROJECTS

DEVELPNIT OF COAL HINES AT LAHRA(FOR POWER GENERATION-PHDC'S SHARE) --- .--- --- 20.0 40.0 60.0 40.0 60.0 100.0 60.0 100.0 160.0

ESTABLISHMENT OF S.OKILESS COALBRIQUETTES PLANT --- --- --- 5.0 20.0 25.0 5.0 20.0 25.0 10,0 40.0 50.0

DETAILED EXPLORATION OF COAL RESERVESIN NORTHERN BLOCK OF LAHIA 9.7 2.5 12.2 12.6 -- 12.6 12.6 2.0 14.6 34.9 4.5 39.4

DETAILED EXPLORATION OF COAL RESERVESIN GOOD 11OPE AREA,DEGARI --- --- --- 10.0 5.0 15.0 10.0 5.0 15.0 20.0 10.0 30.0

OTHER SCHEMES

EXPANSION OF MXAARWAL COLLIERIES --- -- --- 5.0 3.0 8.0 5.0 5.0 10.0 10.0 8.0 18.0EXPANSION OF DEGARI COLLIERIES 4.0 1.0 5.0 3,0 2.0 5.0 8.8 1.2 10.0 15.8 4.2 20.0REORGANIZATION OF SOR-RANGE COLLIERIE --- --- --- 6.0 4.0 10.0 6.0 4.0 10.0 12.0 8.0 20.0EXPANSION OF METING COAL HlNES,SIND --- --- --- 3.0 2.0 S.0 3.0 2.0 5.0 6.0 4.0 10.0DEVELOPHENT OF PIR-CENANIAN COAL MINE --- --- --- 3.0 2.0 5.0 3.0 2.0 5.0 6.0 4.0 10.0

Po------ -------------------------------

TOTAL 25.1 8.3 33.4 67.6 78.0 145.6 93.4 101.2 194.6 186.1 187.5 373.6=.M Masa M. a . . ....... *..M.=.... mo.a. Sa-.neS lo.w' . ., ass-.amX

O HF,

PAKISTANENERGY SECTOR LOAN

ENERGY SECTORFINANCING PLAN FOR CORE INVESTMENT PROGRAM - 1985/86-1987/88

…________________________________-________

(RUPEES MILLION) (05$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985186 1986/87 1987/88 TOTAL……----- ------- ------- ------- ------- ------- ------- -------

InvestmentsLocal Costs 8659 9256 10663 28578 566 605 697 1867Foreign Costs 6966 6330 7989 21285 455 413 522 1390

_______ -------- ------- ----- - _-----…- -…-----

Total Investment 15625 15586 18652 49863 1021 1018 1218 3257-muummm noun== mumumum mu urn.. muini3 3S-nin-

FinancingLocal Financing

Internal Generation 4125 4805 5752 14682 269 314 376 959Govt. of Pakistan 2776 2994 2959 8728 181 196 193 570Local Loans 1758 1457 1953 5168 115 95 128 338

…______ ------- ------- ------- ------- ------- -------TotaL Local Financing 8659 9256 10663 28578 566 605 697 1867

Foreign FinancingBank - ESL 1575 1151 0 2727 104 74 0 178Bank - Other 1354 1288 1517 4159 88 84 99 272Other Multilateral 739 770 1580 1509 48 50 103 99Bilateral 2588 1765 1218 5571 169 115 80- 364GOP 1/ 531 261 102n 1812 35 17 67 118Financing Gap 179 1094 2654 3928 12 71 173 257

Total Foreign Financing 6966 6330 7989 21285 455 413 522 1390

_____ --- _ _-_- ------- ---- --- H

Total Financing 15625 15586 18652 49863 1021 1018 1218 3257 " '?

1/ In the case of OGDC only.

PAKISTANENERGY SECTOR LOAN

POWER SUBSECTORWATER AND POWER DEVELOPMENT AUTHORITY

FINANCING PLAN FOR CORE INVESTMENT PROGRAM - 1985/86-1987/88…------------------------------------------

(RUPEES MILLION) (US$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985/86 1986/87 1987/88 TOTALn______ ------- ------- ------- ------- ------- ------- -------

InvestmentsLocal Costs 53B2 6214 6764 18360 352 406 442 1199Foreign Costs 3717 3599 4324 11640 243 235 282 760

…______ ------- ------- ------- ------- ------- -------Total Investment 9099 9813 11088 30000 594 641 724 1960

.momunm um m s == mmmminm inmuinn

FinancingLocal Financing

Internal Generation 2688 3323 3854 9865 176 217 252 644Govt. of Pakistan 2694 2891 2910 8495 176 189 190 555

Total Local Financing 5382 6214 6764 18360 352 406 442 1199

Foreign Financing 1/Bank - ES Loan 512 408 --- 920 33 27 0 60Bank - Other 244 719 1147 2110 16 47 75 138Other Multilateral 409 515 1370 2294 27 34 89 150Bilateral 2437 1577 1160 5174 159 103 76 338Financing Gap 115 380 647 1142 8 25 42 75

Total Foreign Financing 3717 3599 4324 11640 243 235 282 760 0

Total Financing 9099 9813 11088 30)00 594 641 724 1960 c*0

PAKISTANENERGY SECTOR LOAN

POWER SUBSECTORKARACHI ELECTRIC SUPPLY CORPORATION

FINANCING PLAN FOR CORE INVESTMENT PROGRAH - 1985/86-1987/88-------------------------------------------

(RUPEES MILLION) (US$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985/86. 1986/87 1987/88 TOTAL

InvestmentsLocal Costs 647 1143 2065 3855 42 75 135 252Foreign Costs 294 784 1530 2607 19 51 jon 170

Total Investment 941 1926 3595 6463 61 126 422

FinancingLocal Financing

Internal Generation 73 221 417 711 5 14 27 46Local Loan. 574 922 1648 3144 37 60 108 205

… ------- ------- ------- ------- ------- ------- -------Total Local Financing 647 1143 2065 3855 42 75 135 252

Foreign FinancingBank - ES Loan 230 153 --- 383 15 10 0 25Other 1/ 64 630 1530 2224 4 41 100 145

Total Foreign Financing 294 784 1530 2607 19' 51 100 170

Total Financing 941 1926 3595 6463 61 126 235 422------------- ------------ ------------ ------------- " s - ---------------- ----- =S - - -Q--p

1/ Is the Financing Gap that will meet the entire Foreign Exchange Outlays win these Fiscal Years required to implement Bin Qasim Units III & IV. 0 H

I1,

PAKISTANENERGY SECTOR LOAN

PETROLEUH SUBSECTOROIL AND GAS DEVEWPMENT CORPORATION

FINANCING PLAN FOR CORE INVESTMENT PROGRAM - 1985/86-1987/88------------------------------ ______-------

(RUPEES MILLION) CUS$ MILLION)

OIL & GAS DEV. CORPORATION 1985/86 1986/87 1987/88 TOTAL 1985/86 1986/87 1987/88 TOTAL…_________________________ ------- ------- ------- ------- ------- ------- -------

InvestmentsLocal Costs 1201 912 1368 3481 78 60 89 227Foreign Costs 2197 1409 2008 5614 144 92 131 367

… _ _ _ _ _… ------- .. - - ---- _ __ ------ ------ -------

Total Investment 3398 2321 3376 9095 222 152 221 594

FinancingLocal Financing

Internal Generation 1139 912 1368 3419 74 60 89 223Govt. of PakistanLocal Loans 62 --- --- 62 4 0 0 4

…______ ------- ------- ------- ------- _ -------Total Locul Financing 1201 912 1368 3481 78 60 89 227

Foreign FinancingOGDC/GOP 531 261 1020 1812 35 17 67 118Bank - ES WAN 436 360 --- 796 29 24 0 52Bank - Other 749 345 370 1464 49 23 24 96ADB 285 255 210 750 18 17 14 49CIDA 151 188 58 397 10 12 4 26Islamic DB 45 --- --- 45 3 0 0 3Financing Gap --- --- 350 350 0 0 23 22

_______ ------- ------- ------- ------- ____ ------- ------- ---- 0Total Foreign Financing 2197 1409 2008 5614 144 92 131 367

______- ------- ------- ------- ------ O-

Total Financing 3398 2321 3376 9095 222 152 221 594" ..m... .m.mmin. .. uumuum a *.u..mm mi m.um isn..

PAKISTANENERGY SECTOR LOAN

PETROLEUM SUBSECTORSUI NORTHERN GAS PIPELINES LTD.

FINANCING PLAN FOR CORE INVESDIENT PROGRAM - 1985/86-1987/88------------------------------------------

(RUPEES MILLION) (US$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985/86 1986/87 1987/88 TOTAL

InvestmentsLocal Costs 932 717 207 1856 61 47 14 121Foreign Costs 552 345 --- 897 36 23 0 59

…______ ------- ------- ------- ------- -------Total Investment 1484 1062 207 2753 97 69 14 180

*maum .m..... *.u.mun . ...... mm...... =. ..... m...un.. .......

FinancingLocal Financing

Internal Generation 147 248 --- 395 10 16 0 26Local Loans 785 469 207 1461 51 31 14 95 1

_______- - - - ------- ------- ------- ------

Total Local Financing 932 717 207 1856 61 47 14 121

Foreign FinancingBank - ES Loan 182 132 --- 314 12 9 0 21Bank - SNGPL V 370 213 --- 583 24 14 0 38

----- … ------- _ ------ ------- -------

Total Foreign Financing 552 345 --- 897 36 23 0 59_______ ------- ------- ------- -------

Total Financing 1484 1062 207 2753 97 69 14 180===. .... mu...... mum.... u.m=== mmn====. ====w mum.mmu 0.00mu.

st1nO H

U'

'a

PAKISTANENERGY SECTOR WAN

PETROLEUM SUBSECTORKARACHI GAS COMPANY

FINANCING PLAN FOR CORE INVESTMENT PRUGRAM - 1985/86-1987/88…____..____________________________________(RUPEES MILLION) (US$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985/86 1986/87 1987/88 TOTAL______a ------- ------- ------- ------- ------- ------- -------

InvestmentsLocal Costa 115 141 166 421 8 9 11 28Foreign Costa 61 53 26 140 4 3 2 9

…______ ------- ------- ------- -- ----- ------- ------- -------

Total Investment 176 194 192 562 11 13 13 37*-*.un *inuomm *umuummon uimmumu *Ubuum au.mze nuu. sin

FinancingLocal Financing

Internal Generation 74 87 93 254 5 6 6 17Local Loans 41 54 73 168 3 4 5 11

- - -… - - - - -- - - - - - - -…-- - - -- - - -

Total Local Financing 115 141 166 421 8 9 11 28

Foreign FinancingBank - ES Loan 61 15 --- 77 4 1 0 5Financing Gap 0 37 26 64 0 2 2 4

…_____ ------- ------- ------- ------- ------- ------- -------

Total Foreign Financing 61 53 26 140 4 3 2 9a____a_ a--_a_ ------- ------ _ _ ------- ------- -------

Total Financing 176 194 192 562 11 13 13 37muumuu. ummminm ==ummmm *muinam =mmnmmi umminmu~mo Um m

0 H

PAKISTANENERGY SECTOR LOAN

PETROLEUM SUBSECTORPARISTAN STATE OIL COMPANY

FINANCING PLAN FOR CORE INVESTMENT PROGRAM - 1985/86-1987/88

(RUPEES MILLION) (US$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985/86 1986/87 1987/88 TOTAL

InvestmentsLocal Costs 296 --- --- 296 19 0 0 19Foreign Costs 68 --- --- 68 4 0 0 4

Total Investment 364 0 0 364 24 0 0 24unmmsmuu u..n.muum==u uUUU uw==u.uminn=

FinancingLocal Financing

Internal Generation --- --- --- 0 0 0 0 0Local Loans 296 0 0 296 19 0 0 19 %

_______ ------- ------- ------- ------- ------- _______-_______-I

Total Local Financing 296 0 0 296 19 0 0 19

Foreign FinancingBank - ES Loan 68 --- --- 68 4 0 0 4

… ______ ------- - --- …-- ------ ------- ------- ------- ---

Total Foreign Financing 68 0 0 68 4 0 0 4…______ ------- ------- ------- ------- _ _____ -- ----

Total Financing 364 0 0 364 24 0 0 24

~0

PAKISTANENERGY SECTOR LOAN

COAL SUBSECTORPAKISTAN MINERAL DEVELOPHENT CORPORATION

FINANCING PLAN FOR CORE INVESTHENT PROGRAM - 1985/86-1987/88…__________________________________________

(RUPEES MILLION) (US$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985/86 1986/87 1987/88 TOTAL

InvestmentsLocal Costs 25 68 93 186 2 4 6 12Foreign Costs 8 78 101 188 1 5 7 12

_______ _______ ------- ---- - -- ----- …- -----

Total Investment 33 146 195 374 2 10 13 24

Financ ingLocal Financing

Internal Generation 4 14 20 38 0 1 1 2Govt. of Pakistan 21 42 49 111 1 3 3 7Local Loans --- 12 25 37 0 1 2 2

…______ ----- _ _ ------- ------- ------- ------- -------Total Local Financing 25 68 93 186 2 4 6 12

Foreign FinancingBank - ES LOAN 8 78 --- 87 1 5 0 6Financing Gap 0 0 101 101 0 0 7 7

…______ ------ ------- ------- ------- ------ -____ -------Total Foreign Financing 8 78 101 188 1 5 7 12

Totsl Financing 33 146 195 374 2 10 13 24

W LJ

0340 H

D0

PAKISTANENERGY SECTOR LOAN

PETROLEUM SUBSECTORENERGY CONSERVATION

FINANCING PLAN FOR CORE INVESTMENT PROGRAM - 1985/86-1987/88

(RUPEES MILLION) (US$ MILLION)

1985/86 1986/87 1987/88 TOTAL 1985/86 1986/87 1987/88 TOTAL

InvestmentsLocal Costs 61 61 122 4 4 0 8Foreign Costs 69 62 --- 131 5 4 0 9

…______ ------- ------- ----- - ------- ------- _______Total Investment 130 123 0 253 8 8 0 17

FinancingLocal Financing

Internal Generation --- --- 0 0 0 0 0Government of Pakistan 61 61 0 122 4 4 0 8

_______ ------- ------- ------- ------- ------- ------- _____ _ -*

Total Local Financing 61 61 0 122 4 4 0 8

Foreign FinancingBank - ES Loan 69 15 --_ 84 5 1 0 6Financing Gap 0 47 0 47 0 3 0 3

_______ ------- ------- ------- ------- ------- ------- ______

Total Foreign Financing 69 62 0 131 5 4 0 9

Total Financing 130 123 0 253 8 8 0 17*UUmmmm *umumUom Wmwommu =Mummum= ==a=="= Mmumma= m1mimoma noummnWEd

%00.-

~0

-75-ANNEX VII_Attachment 1

PAKISTANENERCY SECTOR LOAN

WATER AND POWER DEVELOPMENT AUTHORITYSOURCES OF FOREIGN EXCHANGE FINANCING BY PROJECT

EXPECTED PROJECT COSTDATE OF (Rs. MILLION) FOREIGN EXCHANGE FINANCING

PROJECT COMPLETION LOCAL FOREIGN T0TAL SOURCE Rs. MIL. U31S IL.

Cenerat ion

Guddu 4 Fab '86 1065 546 1611 CHIN 690 46Cuddu CS 1381 2436 3817

*.300 NW Gas Turbine Nov '85 ADD 2115 141b.150 KW Combined Cycle Feb '86 USAID 780 52

Jamaboro 250 MW Dec '88 1558 1665 3223 JAPAN 1875 125Quetta 35 MU Aug '85 52 115 167 JAPAN 150 10Kot Addu 400 MW Oct '86 1296 1668 2964 W.GERlMNY 570 38

ITALY 750 50Tarbels (9 & 10) Aug '85 701 731 1432 OPEC 480 32

ADS 435 29CIDA 300 20

Tarbels (11 to 14) Jun '90 5466 5000 10466 ADB 2535 169Gilgit Hydel 169 89 258P & I of Major Hydel 171 72 243Duki Coal(PC I & II) 53 63 116 IBRD 105 7Low Read Rydel 1098 600 1698Hulttn (1 to 3) 600 KW Jun '89 4154 3920 8074 USSR 4155 277Jabhoro -2 210 MV Jun '90 1457 1676 3133 CHINA

JAPANLakhra Coal 300 KW Dec '90 6660 3700 10360 IBRD

ADBUSAID

Chitral Pbase 1U 12 1 13Diesel Gilgit 3 MW 21 9 30

Transmission

Tarbela-Faisalbad 500-kV 488 341 829 CIDA 750 50Faisalabad-Jamboro 500-kV 1868 1744 3612 IBRD 750 50

KUWAIT 660 44JAPAN 470 31FRANCE 465 31

Faisalabad-Sahiwal 220-kV 175 181 356 DDBLoad Despatch Center 399 347 746 ADB 360 24Lahore-Jaushoro 500-kV 2857 2118 4975 IBRD 1275 85

JAPANFRANCE

Tarbela-Lahore 500-kV 815 585 1400Cuddu-Sibi-Quetta 220-kY 310 50 360Nandan-Peshawar 220-kV 171 122 293 KFWDodu-Kuzhdar 220-kV 661 52 713 KFWLudv.-Daud 2201500-kV 467 433 900

Subtr ansission 15408 2615 18023 IBRD 1500 100

Diesel Sets in Baluchistan 104 -- 104

-76-

ANNEX VJ.II

PAKISTAN

ENERGY SECTOR LOAN

Procurement Schedule

1st Tranche 2nd Tranche

CONTRACTS OVER US$250,000

Loan effective Disbursement effectedInternational Competitive Bidding (ICB) September 1, 1985 June 1, 1986

Procurement Notice March 15, 1985 November 1, 1985Bidding Documents for Bank Review May 31, 1985 December 1, 1985Issue Bidding Documents June 15, 1985 January 1, 1986Closing Date for Bids Receipt August 31, 1985 March 15, 1986Recommendation for Bank Review September 30, 1985 May 1, 1986Contract Signature October 30, 1985 June 1, 1986

Limited Competitive Bidding (LCB)

Bidding Documents and List ofPrices for Bank Review May 31, 1985 November 15, 1985

Issue Bidding Documents June 30, 1985 January 1, 1986Closing Date August 15, 1985 March 1, 1986Recommendation for Bank Review September 15, 1985 May 1, 1986Contract Signature September 30, 1985 June 1, 1986

Direct Contracting (DC)

Purchase Order for Bank Review August 31, 1985 March 31, 1986Purchase Order Signature October 1, 1985 June 1, 1986

CONTRACTS BELOW US$250,000

Post Award Review September 15, 1985 May 15, 1986

-77-ANNEX IX

PAKISTAN

ENERGY SECTOR LOAN

Financial Requirements of the Core Investment Program for FYs86 and 87

(Rs billion)1985/86 1986/87 Total

Local Foreign Total Local Foreign Total Local Foreign Total

POWER

WAPDA 5.38 3.71 9.09 6.21 3.59 9.80 11.59 7.30 18.89IESC 0.65 0.29 0.94 1.14 0.78 1.92 1.79 1.07 2.86

PETROLEUM

OGDC 1.20 2.20 3.40 0.91 1.41 2.32 2.11 4.52 6.63SNGPL 0.93 0.55 1.48 0.72 0.34 1.06 1.65 0.89 2.54PSO 0.29 0.07 0.36 - - - (.29 0.07 0.36KGC 0.12 0.06 0.18 0.14 0.05 0.19 0.26 0.11 0.37

COAL

PMDC 0.02 0.01 0.03 0.07 0.08 0.15 0.09 0.09 0.18

PLANNING & CONSERVATION

ENERPLAN 0.03 0.02 0.05 0.03 0.02 0.05 0.06 0.04 0.10ENERCON 0.01 0.02 0.03 0.01 0.02 0.03 0.02 0.04 0.06ENARPETROTECH 0.02 0.03 0.05 0.02 0.03 0.05 0.04 0.06 0.10

TOTAL 8.65 6.96 15.6 9.25 6.32 15.57 17.9 13.28 31.2

P ~ ~ ~ ~ ~ ~~ _ == = _ = === _

-78-

ANNEX X

PAKISTAN

ENERGY SECTOR LOAN

Distribution of the Proposed Loan

First SecondTotal Tranche Tranche

(US$ million)

Power

WAPDA 60.0 34.0 26.0KESC 25.0 15.0 10.0

85.0 49.0 36.0

Petroleum

OGDC 52.0 28.5 23.5SNGPL 21.0 12.0 9.0KGC 5.0 4.0 1.0PSO 5.0 4.0 -

82.0 48.5 33.5

Coal

PMDC 6.0 2.0 4.0

Conservation 5.0 5.0 -

Total 178.0 104.5 73.5

-79-

ANNEX XIPage 1 of 7

1000t StIl LOANPOW. s3lm31 - 1A5

PUKOS LI or or rQuIuN=f aND rm_sur Ranmws

(13 3 500.)1st 2nd

TlOt TOTAL IC5 LIB LC2 tC 7ASCNC IDAiWHE

STEIN CENESATION

-PREgUTUT & CONDOS1 aLE 1650 - - -- 350 950 700-10R11 IAE 750g -- --- --- 750 40 300-CI3SIAION Pimps 1500 --5 -_ -- 900 600-IUCNWAD owwrm al -- --- -- i, *o 417-PAU IPAr rP 5AM3 -NICII.

*6 AU3UAR3 EQIPLUI 290 _ .50 27.4I 2500 400-IuhtMMmAnION & TuSnIHO

quirPN 550 - 1S -- 4C0 200 350-100I.S.SQUIJPHET & NATEliAL

VIJ NWC. & OVUEHAUL 625 625 -- -- -- 325 300

SUSISIL 3i02 62 1800 -- U77 57)5 30NU

COSBttMON hT331U7n

(Vlhs.n .qina

-30T73s (3 km.) G000 --- -- -- G00 4000 2000-rntL nFn 2600 -- 2400 --- -- 1300 30-TURS1I1 LUe 7i1o -- - 7a10 0s0 360-MDT QS PAIT CON011ENS 1160 1160 650 51-SPADE PARTS POR ELUTCOIECU1.

A AUEZIU I £QOPIUPNET 2039 - 1437 - 602 00 1239-INSTEDISATIllO T& 1T3 C

iFflurT 326 - 300 - 526 200 623-ToOL3.9qV2 MUTr 6 MATERIAL

pan noTCB. AC UEo UL 79 54 195 - 106 6

SOM4AL 14924 59 4332 - 9o 3203 3728

371.07 CNEaIouTll

(UhEUi.ANC3ICA.TAA3EA)_n31. (2 lle..AA) 200 - -2 2000 2000 -

& AXILIARY EIrNgfh 2053 - - 2053 900 1153- tuNcrasD iqencir 1670 400 - - 070 770 700-INST2EUTAT1o 6 TSTINGC

Dnnxr no S5o - - 3m 4o00 ,A0-1M0LS.QMNWr & MATW BL

-- I ma . 4 0oumaL 597 300 - - 207 223 364

U500AL *no0 1200 -- - 5s7n 4293 2391

sin & mamfxungu

GRID STATION quip.0-Cs.,c & T TLNS-. 1090 1090 -09

-tS)ATOUS 554 - 555 -- ---- 5--L4C UGtG AST. 152 - -- - -- 152-TEAKS. UJ3HIJIS 503 - 503 -- 3-RELAYS 520 -- 520 --- -- -- 520-ISTnInuRs & OTT. 7N0 --- 700 - -- 700 --

-SPARE PANTS 1000 - --- --- 1000 1000

SIITOTAL 4519 1090 2429 - 1000 334 1175

11-Eu SWITCHAR 3200 - - 3200 --- 3600 160

PVER CABLE A Sins 72 512 - - 572 --CGW1WL CAK 200 200 - - - 200 -7uSPOMr OIL 3O a ISO - - 360TESTING EQCIlpHSo3 3246 32 6 - - - 3246

WOSHOP E pEncT 1403 350 933 120 - 0 1343SPARE PARTS 2500 -- - - 2500 2500 -

SUBrOrAL 31601 454 33 30so 2500 4932 3549

OISTRIIUTOW

-sU"WT CPACIStlS 3150 MO50 - - - 1700 1450-LT POTZIC N SWItCH 3000 .00 o - 1620 1330-EMOTE CONTROL EQUI. 320 320 - 320 -

-MERS 2734 2764 - - - IS0 12"

-MAINTEIE EQUIPNUT 4050 4050 - - - 233 1690

SUBTOTAL 13284 1323 -- - - 750 5734

GPAW TOTAL 6000 2131 94 31500 2565 3l 2590- -. _ --.. ....... . ..... ....... .......

-80-ANNEX XIPage 2 of 7

PAKISTANElL Slama IJWAN

POVR SWCOR - KUCPROPOSED LIU Or IWIPNU AND PRoCMNh ARRANGUNET

(uS S utoo.)lot 2nd

ITEMS TOTAL ICU L18 LC PC TRANCKE TRANCL

STEAM GenEATION

(KORAsGI,PIPrI)-PR ATU ZLMENTS 160.0 - 1---060.0 160.0 -

-TURBINE BLAD 900.0 - -90 -- 0.0 900.0 ---SPARS PARTS MOR ELlCTR-NECH

4 AUXILIARY EQUIPMENT 548.5 7.0 - -- 41.6 74.6 104.2

SUtrOTAL 1903.8 7.0 - - 1901.8 1804.6 104.2

-SPAI¢ PARTS FOR ELfCTRP-MECII& AUXILIAtY EQUIPMENr 281.4 -- - -- 281.4 281.4 -

-SWITCVtARD EQUIPMENT 41.9 41.9 -- -- --- 41.9

SUBOTAL ,23.3 4.9 -- -- 251.4 281.4 41.9

TRANSMISSION L DISTRIAIT10N

ULTENBIOR OF SULTATION(ADDITION OF TRANSPOR

4 SWITCUVARD CQUIPIINT)132111 - KT

SITE (30 EVA) 1940.0 1940.0 - 1940.0 -FDERAL C30NVA) 680.0 680.0 - - -- 680.0IALOCR COLON! (30NVA) 1910.0 1910.0 - 1910.0 --KUB CuIozI (20nVA) 1150.0 1150.0 --- - 1150.0

66111 - tVNORTH NAUZIAAD (20NVA) 920.0 920.0 - -- - 920.0 --

SUINSTATION aglrwoacNr(REPLIACEIQT Or TtANS ZRE

* SVITCIARD EQUIPHKNHT)132111 - KY

LOASGCI TOWN (30 NRA) 1310.0 1310.0 - - 1310.0 -6/11 - xv

NIJLR (t0 MVA) 760.0 760.0 - - 760.0OLD TOWN (20 MIA) 920.0 920.0 - -- 920.0 -

SUAnTION COIERSIONFROM 66111 -XV tO 132111 - XV(TRANSOllIRS.SWlTCHYRtAD

EQUIP. 6 GCID CONNTION)CUiiAN (2X30 RVA) 4070.0 470.0 - - - 4070.0 -

MN SUBSTATION 132111-kV(TIIUISoIC S,SVITCN!ARD

ZQuIP. & CUID CONNECTiON)LlAqIITABAD (30 MU) 2890.0 2890.0 - - - 2890.0 -

SPARE PARTS COU SWITCHNRAUX. & TELECOISt. EQUIPElNT 1175.1 181.1 136.4 - 857.6 767.2 407.9

SUNTOTAL 17725.1 16732.1 116.4 - 857.6 14727.2 2907.9EQUIP. & MATERIAL 1/ 6993.5 5245.1 1748.4 - b_ 6993.5

TOTAL 25000.0 21976.2 1884.8 1139.0 iba00.6 9991.4

11 ACTUAL EQUIPMENT AND MATRIAL WILL E DECIDED FOWWINC i) TIHE CompLETIONOF AU ON-COlINC STUDY 2DERTAKEN TO REVIEW AND REC0 D IMPROVEMENT AND RE-EARILITION OF TKE DISTRIBUTION SYSTEM, AND (iiTEE CMPLETION OF AN ONOIIUCSTUDY 70 C014PUrIEZE KESC'S FiNANCE DEPATMET.

PAKISTANENERGY SECTOR LOAN

OIL & GAS SUBSECTOR - OGDCPROPOSED LIST OF EQUIPMENT AND PROCUREMENT ARRANGEIENT

(US $ MILLION)lst 2nd

ITEHS TOTAL ICB LIB LCB DC TRANCHE TRANCHE

Oil Fiald TubularMaterial 7.5 7.5 --- --- 3.8 3.7

Rock Bits & Core Heads 2.0 2.0 --- --- --- 1.0 1.0Miscellaneous drillingEquipment & Materials 0.8 0.6 0.2 --- --- 0.4 0.4Wellheads and Christ-

mas Trees 3.4 3.4 --- --- --- 1.7 1.7Chemicals 4.0 2.8 1.2 --- 2.0 2.0Cement & Additives 4.9 4.6 0.3 --- --- 2.5 2.4Packers 0,7 0.4 0.3 .- 04 0.3Miscellaneous ProductionEquipment 6 Materials 4.2 3.7 0.5 --- 2.1 2.1Valves & Fittings 0.5 0.5 --- --- 0.4 0.1Drilling Rig Spares 2.9 --- -__ ___ 2.9 1.9 1.0Water pumps 1.4 1.4 --- --- --- 1.0 0.4BOPe & Choke Manifolds 2.3 2.3 --- --- 2.3 --

Mobile Cranes 1.4 1.4 --- --- --- 1.0 0.4Services

Well Services & DrillingCrane 6.0 4.8 1.2 --- --- 3.0 3.0

Logging & Perforation 5.0 4.0 1.0 --- --- 2.5 2.5Production Testing &

Well Completion 5.0 4.0 1.0 --- --- 2.5 2.5

TOTAL 52.0 43.4 5.7 --- 2.9 28.5 23.5 imuuu OWN"= NUNN mnuimi mam mamman ini

01-

S~~~~

PAKISTANENERGY SECTOR WAN

OIL & GAS SUBSECTOR - SNGPLPROPOSED LIST OF EQUIPMENT AND PROCUREMENT ARRANGEHENT______________________________________________________

(US $ 'OOOs)lst 2nd

ITEMS TOTAL ICB LIB LCB DC TRANCES TRANCHE…____ _____ ------- ------- ------- -------

METERS FOR GASHEASUREMENT 0.7 --- 0.7 --- 0.7TELECOMM. EQUIPMENT 0.2 --- --- 0.2 --- 0.2DIGITAL NATURAL GASANALYZER & ATTACHHEN 0.3 --- --- 0.3 --- 0.3 -

VALVES & FITTINGS 0.3 0.3 --- 0.3

TEST CELL FOR TUR-BINES 1.3 --- --- 1.3 --- 1.3

REHAB, OF 30 TUR-BINE UNITS 6.7 --- 6.7 --- --- 6.7 ---

FILTERATION OF 30TURBINE UNITS 1.9 --- 1.9 --- _- --- 1.9

DISCHARGE GAS COO-LING EQUIPMENT 5.7 5.7 --- --- --- --- 5.7HARD CHROME PIATINGPIANT .0 --- .0 -- --- .0

COMPUTER F&RDWARE &SOFTWARE 0.6 - 0.6 --- --- 0.6 ---CORROSION EQUIPMENT 0,2 0.2 --- --- --- 0.2

SUBTOTAL 17.8 6.2 9.9 1.8 --- 10.2 7.6CONTINGENCIES 2.7 0.9 1.5 0.3 --- 1.7 1.0

TOTAL 20.5 7.1 11.4 2.1 --- 11.9 8.6

0 iO X

PARISTANENERGY SECTOR LOAN

COAL SUBSECTOR - PMDCPROPOSED LIST OF EQUIPMENT AND PROCUREWIENT ARRANGEMENT

(US $ MILLION)1st 2nd

ITEMS TOTAL ICB LIB LCB DC TRANCHE TRANCHE

Drum Rope Haulage 0.18 --- 0.18 --- --- 0.18 -

Air Compressor 0.04 --- 0.04 --- -- 004 --Ventilation Fan 0.02 --- 0.02 --- --- 0.02Face Pumps 0.01 --- 0.01 --- --- 0.01 ---Multistage Turbine Pump 0.04 --- 0.04 --- --- 0.04 -Hammer Drills 0.03 --- 0.03 --- --- 0.01 0,02Pnuematic Picks 1/ .00 --- .00 --- .00Underground Locomotive 0.12 --- 0.12 --- --- 0.07 0.06Underground Telephone l/ .00 - .00 --- .00 ---Core Drilling Machine 3,60 3.60 --- --- --- --- 3.60Laboratory Equipment 0.50 0.50 --- --- --- 0.50 --Well Logging Equipment 0.65 0.65 --- --- 0.65 ---Shovel Loaders 0.04 --- 0.04 --- --- 0.04Steel Arches 0.10 --- 0.10 --- 0.10Auxiliary Fans 0.01 --- 0.01 - 0.01 .00Rail Switches 1/ .00 --- .00 --- --- .00 .00Mining Tubs 0.07 --- 0.07 --- --- 0.03 0.03Load Haul & Dump Shovel 0.07 --- 0.07 --- --- 0.07Belt Conveyor 0.44 0.44 --- --- --- 0.22 0.22Boring Machine 0.07 --- 0.07 -- ---- 0 .W"

TOTAL 6.00 5.19 0.81 2.00 4.00

o 6

.- 84-

ANNEX XIPage 6 of 7

PAKISTAN

ENERGY SECTOR LOAN

OIL & GAS SUBSECTOR - KGC

PROPOSED LIST OF EQUIPMENT AND PROCUREMENT ARRANCEMENT

(US$ million)

lot 2ndITEf TOTAL ICB LIB LCB DC TRANCHE TRANCHE

Computer 5.0 - 5.0 - - 4.0 1.0

Total 5.0 - 5.0 - - 4.0 1.0

~~~ ===

-85-

ANNEX XIPage 7 of 7

PAKISTAN

ENERGY SECTOR LOAN

OIL & GAS SUBSECTOR - PSO

PROPOSED LIST OF EQUIPMENT AND PROCUREMENT ARRANGEMENT

(US$ million)

1st 2ndITEM TOTAL ICB LIB LCB DC TRANCHE TRANCHE

20-inch Pipeline 1.28 1.28 - - - 1.28

Storage Facilities 2.72 2.72 - - - 2.72

Total 4.0 4.0 - - - 4.0 -

= = = = _ == = =

IBRD 16248Red 6S ! 12 ~~~~~~~~~~~~~~~~~~ ~~~ $ ~~~I MAYT?UlN68- ~ ~~ U. S. S R 5> v d

j .4H~~~INA

PAKISTAN (of szJ H i, NATIONAL CAPITAL 'o CITIES AND TOWNS- NATIONAL ROADS

PRIMARY AND SECONDARY ROADS q

-' s RAILWAYS -+ AIRPORTS -\ Coo5\: Appwo ii ob Co CDm

- _ PROVINCIAL BOUNDAF :S Ni , 9 A

INTERNATIONAL BOUNDARIES AMA AD'

- RIVERS Zp.4.

32,~~~ a, 329 _

! p < < K hu*e ~~~~~~~~~~~~- >_/ \--JDI ho

* ~~~~AFGHANISTAN * U Fosoab H 8

U---

D |INDIA

ISLAMAIC jt, O ,/)REPUBLIC OF Boi'p

I RAN .d . /X<-Ko, Dh~* /0 10l 200 300 A00I RA -j ( KutO ETERS

N 0 so~~5 JOG 15,0 200 250

( . . Ic. \ a6dN,ohoh ( slE

£ Hyde._ ' a~~t ,>?S$ro bod .iu,g * sar. c. .lme

- ~~~~~~~~bruji; Pt-.mar. .a - . IO M

a,CIaIDo T~ d,,,,n,

or. U,.00 .q pv

24~~~~~~~~~~~~~~~~~- - - . 11 bW,Mfi..V. aM I...d

Arobicn Sea C j6. .

2- md

1<=~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,l n f r - --- n--- yt

-:, ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0r