ISLAMABAD, Nov 9: The Asian Development Bank will become an investment partner with the Fauji Foundation through a combination of $47 million investment and loan to set up a 171MW gas-based combined cycle power project at Daharki in Sindh’s Ghotki district.

The ADB will extend a commercial loan guarantee of $44 million to the Fauji Foundation and make a direct investment of $2.75 million to become a minority shareholder. The plant will provide additional low-cost electricity to consumers,” said an ADB announcement.

According to the bank’s estimates, Pakistan needed an additional power generation of 2,000MW every year to avoid power shortages.

The combined cycle project will use low-BTU (non-pipeline quality) gas to feed electricity to the national grid. Gas for the project will be supplied from nearby Mari gas fields of Mari Gas Company Limited (MGCL), also owned by Fauji Foundation. The plant will increase the net electricity generation capacity of Pakistan and help reduce constraints on economic growth caused by power shortages. About 60 per cent people have access to electricity from the national grid. The rest use kerosene, wood and other bio-fuels for lighting, cooking and heating.

The project will promote efficient management of natural resources because it will tap an otherwise idle gas resource and pave the way for low cost generation given the proximity of the plant to the gas field. The project, to be set up at an estimated cost of $200 million, will be the first gas-only plant developed under the 2002 power policy and is expected to begin commercial operations in the fourth quarter of 2009.

Pakistan’s average annual electricity demand is increasing by 11 per cent, with urban areas experiencing significantly higher demand growth.

The ADB is a major source of external investment in the energy sector in Pakistan, having provided about one-third of the total finance from external sources.

“The proposed assistance is consistent with energy strategies of the ADB and the government of Pakistan. In addition to its long-term partnership with the government in the power sector arising from its public sector activities, the bank is also, since 1996, involved in the sector through private-sector loans and investments,” said Robert Bestani, director-general of the ADB’s Private Sector Operations Department.

Subject to approval of authorities concerned, both guaranteed loan and equity investment will be contributed by the holding company as equity in Foundation Power Company Daharki Ltd which will own the plant. Proceeds from the equity investment and guaranteed loan will be used to partially fund the costs of designing and constructing the project.

A consortium of local and international banks has provided $150 million in debt financing for the project.