ADB cancels $20m loan for privatisation

Updated June 21, 2018


ISLAMABAD: The Asian Development Bank (ADB) has cancelled a approved loan of $20 million to Pakistan for a project aimed at strengthening the government’s capacity to privatise and restructure its designated public sector enterprises (PSEs) and strengthening the privatisation progrgamme.

ADB announced on Wednes­day that the privatisation programme has been slowed down even further and remain largely on hold to date, therefore funds from the loan were no longer needed by the government.

The main purpose of the loan funds was to finance some of the government’s privatisation actions. The government resumed its public sector enterprise divestment programme in 2013 and initiated a number of privatisation related transactions including banks, a petroleum company and a strategic sale of a construction company.

While the government was successful in some cases, it needed to revise its strategy for some of the larger transactions, owing to market conditions such as progress of negotiations with labour unions and financial conditions of public sector enterprises.

This led to revised timelines and mode of transactions for some of the large transactions, including Pakistan International Airlines (PIA), Pakistan Steel Mills (PSM) and power distribution companies, and resulted in a much-reduced scope of privatisation actions for the government.

Moreover, after the loan was signed in 2015, large grant funds from other development partners also became available, and the use of grant funds was prioritised by the government for privatisation actions like advisory services.

The project scope was to strengthen the government’s capacity to privatise and restructure its designated public sector enterprises by strengthening the privatisation programme, improving corporate governance, structure and management of selected public sector enterprises, enhancing governance and regulatory regimes in selected sectors currently dominated by PSEs, and project management support including planning, procurement, project implementation and financial management.

Based on this scope and outputs, the project impact was set as reduced fiscal and economic costs associated with PSEs. The outcome was successful privatisation and restructuring of selected PSEs while the project was expected to be completed by December 2019 with the loan closing date of June 2020.

A component of the loan was also allocated for energy sector reform monitoring, as ADB supported the government’s reform activities through sustainable energy sector reform programme from 2013 to 2017.

However, monitoring was conducted by the government’s own resources from the ministries finance, water and power, and petroleum and natural resources. Prior to the cancellation request, the government prepared energy sector reform monitoring reports to summarise the reform actions and progress up to May 2017.

With this background on privatisation and reform monitoring, funds from the loan were no longer required, and the government requested the cancellation of the entire amount of the loan in its letter of July last year.

Published in Dawn, June 21st, 2018