The multi-billion-rupee energy savers'' project, being financed by Asian Development Bank (ADB) and Agence Française de Development (AFD), French development agency, is reportedly in doldrums after the Law Ministry raised queries over the official status of the agreement with AFD, sources close to Secretary, Economic Affairs Division (EAD), told Business Recorder.
Unfamiliar with French law, the EAD had signed the agreement with the approval of Prime Minister Yousaf Raza Gilani a couple of months back, without vetting done by the Law Ministry. The Cabinet in its meeting on October 6, 2010 constituted a committee comprising Minister for Law and Justice, Minister for Finance and Minister Water and Power for further examination of the agreement, already signed by the EAD. The committee has been directed to look into the points raised by the Law Ministry.
The EAD has expressed the view that AFD is an entity and is not covered by Rule 16 (i) (h). The Law Ministry is of the view that AFD is an agency of the French government which provides development financing, and any dispute arising from the agreements is likely to affect relations between the two governments. Further, without comprehensive information and understanding of the French system of government and devolution it is difficult to understand how the EAD has determined whether AFD can at all be categorised as an entity.
The Law Ministry further says that the committee constituted by the Cabinet had not evaluated the proposal when the agreements were submitted to Law Division for vetting and up to the time that preliminary instructions were issued. The defined state agencies'' through which the government of Pakistan (GoP) undertakes obligations with a French public agency warrants the attention of the Cabinet.
The Law Ministry has requested the EAD, time and again, to ensure that drafts de submitted in a timely manner for vetting and the reference be forwarded as required under rule 8. EAD has also been requested to require financial institutions to forward the drafts to EAD well in time, allowing for completion of mandatory procedures. The loan agreement is to be governed by French law, which is of concern, as there is little appreciation and understanding for the French legal system in Pakistan, in addition to the language barrier. English law may be proposed.
On the other hand, EAD in writing informed the Cabinet that the ADB had threatened to withdraw from a loan agreement with Pakistan for energy savers if the government does not ink a pact with AFD. ADB is providing Pakistan a multi-tranche financing facility (MFF), amounting to $980 million for energy efficiency investment programme.
The MFF program is being co-financed by ADB and AFD. ADB will extend $780 million and AFD''s share will be $200 million. The counterpart funding by Pakistan will be equivalent to $200 million. This programme will be implemented over a period of 10 years. The sub-projects in the programme are: (i) replacement of incandescent bulbs with ''compact fluorescent lamps'' (CFLs); (ii) rehabilitation of gencos: and (iii) industrial efficiency. The Cabinet had approved implementation of Energy Efficiency and Energy Conservation (EEEC) initiative on January 27, 2010. Sources said that tranche-1 of the facility would finance the government''s national energy saver program, initiated by the Prime Minister.
It aims at replacing 30 million incandescent bulbs of residential consumers with high quality CFLs/energy savers. The amount of this tranche will be $65 million, comprising ADB''s share of $40 million (OCR- nonconcessional) and AFD''s share of $25 million, while GoP counterpart financing in the project is $20 million equivalent.
The Ministry of Water and Power will be the executing agency, while discos and KESC would be the implementing agencies. In addition, Pepco (now defunct) was to facilitate and co-ordinate the implementation of the project. Sources said that in the process of vetting of financing framework agreement and loan agreement with AFD, the Law Ministry had advised the EAD that Cabinet''s approval, in principle, under proviso of rule 16(1)(h) of the Rules of Business, 1973 should be acquired.
"Since ADB had informed that they would cancel their loan if AFD loan agreement was not signed immediately, it was considered appropriate to seek Prime Minister''s approval before the signing of the agreement" sources added.