Funding Pakistan‘s „National Biomass-to-Energy Initiative“ via the World Bank‘s IDA Private Sector Window

Presentation for the Summit „Unlocking the Trillions“ at the Innovate4Climate in Barcelona By Nawaz Sharif, Prime Minister and Foreign Minister of Pakistan

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The Pakistani government urgently needs to address Pakistan‘s severe energy problems The prevailing energy crisis in Pakistan can be characterized in two ways (Pakistan NDC): a.) Lack of access to sustainable energy sources and products (energy poverty); and b.) Power sector (electricity) demand and supply gap

According to the World Energy Outlook 2013, some 55 million people in Pakistan do not have access to modern sources of energy (28% of total population). Conversely, peak demand supply gap in the electricity sector currently amounts to over 5600 MW.

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Current energy sources in Pakistan are mainly based on expensive and dirty fossil fuels The availability of electricity in Pakistan depends on a routinely disrupted supply of fossil fuels

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Using fossil fuels does not work in Pakistan

Plant shutdowns, failure to meet production schedules, and increased maintenance have serious commercial impacts.

Economic Cost of Power in Pakistan Financial Cost of Power in Pakistan

The dependence on imported fuels has large hidden costs

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Renewable biomass based power generation is the only viable option for Pakistan Using renewable biomass has a lot of advantages for Pakistan

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Biomass projects can avoid grid infrastructure

Alternative renewable energy sources cannot address high base load demand

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Biomass based renewable energy projects generate reliable energy and have a large economic potential for Pakistan A typical biogas project covers the following steps of production and value creation:

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Pakistan‘s renewable biomass energy market is very attractive for foreign and domestic companies...

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The country has an important primary sector (25% of GDP and 44% of employment). Its imports are USD 44 billion (30% crude oil) and its exports are USD 22 billion (2015), mainly textiles and food products

The market for reliable power generation has a size of roughly USD 63 billion, with little competition in place and a solid base of potential customers with many big Pakistani industrial conglomerates

+ „The Pakistani government wants to cut down the country‘s GHG emissions in line with its Paris Nationally Determined Contribution (NDC) and strongly promotes its renewable energy sector

+ Many governments from developed nations and other emerging economies are eager to help their domestic renewable energy firms to get access to the Pakistani market

+ Pakistan with its population of nearly 190 million, a GDP of USD 270 billion and GDP growth of 5.5% (2015) is a lower middle income country and „one of the best hidden frontier markets“ (Bloomberg 2015)

What makes Pakistan’s renewable biomass energy market so attractive?

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... on the other hand, there are considerable barriers to renewable biomass energy investments in Pakistan

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Foreign investors have to overcome significant bureaucratic hurdles as well as large cultural and language barriers but they often lack the necessary Pakistan experience or local network

Pakistan is heavily exposed to natural desasters (floods, earthquakes) and the negative effects of climate change. These might also affect renewable energy investments

- „Other than Pakistan‘s large conglomerates, most Pakistani SMEs do not dispose of the required capital and technological know-how to participate successfully in Pakistan‘s renewable energy market

- Many Pakistani farmers are low-income and do not yet know about the commercial opportunities of selling agricultural biomass residues for renewable energy production

- Pakistan has a significant country risk because of interior and exterior conflicts. Some Pakistani provinces are not considered safe for investments

What prevents renewable biomass energy investments in Pakistan?

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Based on Pakistans NDC and SD strategy, the Pakistani Government has decided to launch its „National Biomass-to-Energy Initiative“

Increase the share of renewable energy in Pakistan‘s energy production to 30% by 2030

Reduce the share of Pakistanis without access to modern energy services to below 20% in 2030

Contribute to closing the electricity demand and supply gap until 2030

Promote economic growth, create new sources of income and lower unemployment in Pakistan‘s energy and agriculture sector

Encourage massive domestic public and private sector investments in Pakistans renewable biomass energy market

Attract the required foreign public and private sector investments to get Pakistan‘s renewable biomass energy market off the ground

Helping to cut Pakistans projected GHG emissions by 20% until 2030

Main objectives:

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The World Bank‘s IDA Private Sector Window provides the right mix of facilities to unlock the needed foreign and domestic investments The IDA PSW architecture of facilities at a glance:

Source: IDA 18. Towards 2030: Investing in Growth, Resilience and Opportunity

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Pakistan intends to use the full range of IDA PSW facilities to promote private sector investments into its renewable biomass energy market The four IDA PSW facilities and their use for Pakistan‘s biomass energy initiative:

Source: IDA: Further Details on the Proposed IFC-MIGA Private Sector Window in IDA18

Facility PSW instrument on IDA balance sheet

Instruments offered to end-use clients

Applicable Pakistani Sectors

Additionality with regard to Pakistan

Indicative Allocation

(USD millions)

Risk Mitigation Facility for Infrastructure (RMF)

Project-based guarantees without sovereign indemnity

Project-based guarantees without sovereign indemnity to private sector IFC arranged transactions, where MIGA acts as guarantee administrator

Biomass-based renewable energy infrastructure

Increased investment in Pakistan above IFC baseline

Expanded uses for existing MiGA products

Possible range between USD800-1200m

MIGA Guarantee Facility (MGF)

Guarantees to MIGA projects (in the form of reinsurance or shared first loss)

MIGA Political Risk Insurance (PRI) products to private sector

Biomass-based renewable energy infrastructure, Agribusiness, Financial Markets

Increased risk participation in Pakistan above MiGA's baseline

USD500m

Local Currency Facility (LCF)

Guarantee or Swap with IFC

Local currency denominated loans or hedges to private sector clients (e.g. SMEs) who operate in markets where there are limited currency hedging capabilities

Sectors to be linked with the underlying loan

Enables local currency financing for clients in Pakistan

Development of local currency financing instruments and capacity building

Possible range between USD300-500m

Blended Finance Facility (BFF)

Loan, equity, subordinated debt (to private sector); guarantee (to private sector or IFC)

Loans, subordinated debt, equity, guarantees and risk sharing (to private sector)

Biomass-related SMEs, Access to Finance, Agribusiness, Climate Finance

Increased investment in Pakistan above IFC baseline

Blended Finance Investments in new renewable biomass energy sector and to underserved client base for sustainable energy services

Possible range between USD400-800m

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The World Bank‘s IDA PSW will contribute decisively to creating an attractive renewable biomass energy market in Pakistan.

With renewable biomass energy for a sustainable development of Pakistan! Thank you for your attention!