ISLAMABAD, Jan 15: Pakistan's plan to prepay $1 billion expensive foreign debt has hit snags following the government's differences with the Asian Development Bank (ARD) over the proposed termination of two ongoing loan programmes.

"We have asked the government of Pakistan to clear some pending issues related to the ongoing projects before repayment of the amount," said Marshuk Ali Shah, the country representative of the ADB.

He said the issue would have to be considered seriously because the ADB provided loans to Pakistan at a time when interest rates in international markets were higher and nobody was ready to finance projects in Pakistan.

"We cannot agree on the cancellation of the ongoing projects," he said. As such, prepayment of $600 million, out of proposed $1 billion debt prepayment, has become questionable.

Marshuk Shah said the ADB had pledged $300 million for the Ghazi Barotha Hydropower Project, of which only $45 million were remained to be disbursed. The second loan programme was the $300 million energy sector restructuring, for which $150 million had been disbursed and $150 million was remaining, he added.

Mr Shah said the Ghazi Barotha project had almost been completed and a $10-12 million contract for its switchyard was currently in process. "We have told the government that if it cancels the ongoing project, then it will have to take over the entire project and complete it on its own," Mr Shah said and said what would become of the ADB's investment if the project was dropped half way through.

He said Pakistan had initially identified 17 programmes for the repayment. Later the number was reduced to seven, including these two ongoing projects, he added.

In reply to a question, he said at the time of loan approval interest rates in the international market were quite high but the ADB still offered loans on cheap rates.

He said when the ADB extended loan at six per cent, interest rate in international markets was 10 per cent and when it lent at 11 per cent, the international markets interest rates were at 17-18 per cent.

Finance Minister Shaukat Aziz has been saying that Pakistan would be prepaying $1 billion to the multilateral donors anytime. The government had earlier announced that it would prepay loans to both the ADB and the World Bank. But later it decided to prepay only the ADB because of its higher debt service cost.

Responding to another question, Mr Shah said the ADB was still concerned about the delayed implementation of its loan programmes and the portfolio management of its programmes was still facing a lot of challenges in Pakistan.

He, however, expressed confidence that the government's devolution programme would remain intact even after six years. The ADB official called for a proper alignment of duties between the federal government and provinces and between provinces and the local governments.

He said the ADB would be providing eight loan programmes worth $800 million to Pakistan during the calender year 2004, while three other projects worth Rs300 million had been approved as stand-by programmes.

So far, the ADB's cumulative assistance to Pakistan in the form of 207 public sector loans totalled $13.6 billion. In addition, the bank has provided $109 million in grants for 273 technical assistance projects.

Fifty one per cent of the total assistance provided by the ADB to Pakistan has been through the concessional Asian Development Fund (ADF) window. The ADB achieved significant progress in the various areas of its operations in 2003. Continuing with its strong commitment and support to the reform programme and poverty reduction strategy, the ADB approved $870.7 million in lending assistance in 2003 for five projects.