The Asian Development Bank (ADB) will help to bridge a pending electricity shortfall and encourage the development of hydropower resources in Pakistan through a new US$37.3mn loan.

The loan will help finance an approximately 80MW power plant located downstream of the Mangla Dam on the Jhelum River in Azad, Jammu and Kashmir. This is ADB’s first proposed assistance to a private sector hydropower project in Pakistan and the first such project to be developed in the region.

The New Bong Escape Project, so-called because of its position on the escape channel from the existing Mangla power station, will be a “run-of-the-river “scheme involving no new dam or reservoir and will thus have minimal environmental and social impacts. The electric power generated by the project will feed into the national grid.

The project company, Laraib Energy, is owned by a subsidiary of Ranhill, a Malaysian engineering and utility asset-owning company listed on the Kuala Lumpur Stock Exchange and by various local and international business interests.

The project is expected to begin construction shortly and is scheduled to begin commercial generation of electricity by the beginning of 2009.
Azad, Jammu and Kashmir is home to some of the areas worst affected by the devastating earthquake that hit parts of south Asia in October.
“The project, while far enough from the epicentre not to have been directly affected, should bring job opportunities and will help upgrade infrastructure in an area where both are much needed,” says Michael Barrow, an ADB principal structured finance specialist.

Together with the ADB loan and the sponsor equity, the project is expected to be financed with loan facilities from the Islamic Development Bank and Pakistan commercial banks. The Islamic Development Bank facility will be sharia-compliant.

“This project represents a number of important firsts for ADB and for the region,” says Barrow. “It will be the first private sector hydropower project in Pakistan which should lead the way for many similar schemes. It will be the first large-scale, private sector infrastructure project in Azad, Jammu and Kashmir. And it will also be the first private sector cofinancing between the ADB and the Islamic Development Bank.”

ADB’s loan is without government guarantee and comes from ADB’s ordinary capital resources. Interest is determined in accordance with ADB’s Libor-based loan facility.