ISLAMABAD: The World Bank is set to approve a ‘development policy’ credit of $500 million to help Pakistan design an efficient and consumer-oriented electric power system which will lead to reducing subsidies and improving tariff policy, entailing a reduction of the subsidies allocated in the federal budget from 1.8 per cent in 2013-14 to 0.7pc in 2014-15, Dawn officially learnt here on Wednesday.

The loan from International Development Association (IDA) will be the first in a proposed series of two development policy credits focusing particularly on policy and institutional actions which will restore financial viability and thus reduce the burden of public financing for the power sector.

The loans will be structured around three objectives: reducing subsidies and improving tariff policy; improving sector performance and opening the market to private participation; and ensuring accountability and transparency.

Since the government has taken decisive action on a number of fronts including on reforming the energy sector, improving tax collections, privatisation of state-owned enterprises, and improving the business climate, the two development policy credits will form the cornerstone of the World Bank engagement over the next few years, and seek to support the government in deepening the agenda.

The structural reform of the energy sector is a major feature of three-year agreement with IMF, and the energy sector policy dialogue and support to the IMF over the recent years has been carried out jointly by ADB and the World Bank, and the proposed series deepens the IMF reforms.

The operations series has been identified and prepared, and it is planned that they will be monitored by the World Bank in cooperation with ADB.

The Japan International Cooperation Agency (JICA) has also recently confirmed its participation in the proposed operation, it was further learnt.

According to the proposed plan, it has been decided that the rate at which amounts billed are collected is expected to improve from 86pc now to 94pc at the end of fiscal year 2015-16, and secondly, the amount of gas supplied from domestic resources is expected to increase from 3.8 billion standard cubic feet per day to 5 billion standard cubic feet per day by the end of the programme.

The market and systems operations will be separate, providing greater comfort to generators that they will receive contractually-obligated payments on time. The outcomes expected is that more electricity will become available for consumption.

A World Bank document connected to the project says that the first development policy credit operation front loads politically challenging reforms and provides the seed for future reform in the power sector.

While any reform package of such scale carries with it risk of derailment as well as the challenge of permanently changing the sector, the first operation is sufficiently potent to be seen as a ‘no regret operation’ if the bank is only able to undertake one operation.

The actions are politically challenging and will set the path for further reforms but if that does not take place the actions are self-contained to make substantial changes to the future trajectory of the sector, the document says.