Document of The World Bank FOR OMCAuL USE ONLY Report No. P-4054-PAK REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED -LOAN IN AN AMOUNT EQUIVALENT TO US$100 MILLION TO THE WATER AND POWER DEVELOPMENT AUTHORITY WITH THE GUARANTEE OF THE ISLAMIC REPUBLIC OF PAKISTAN FOR A FIFTH WAPDA POWER PROJECT c May 8, 1985 This document hs a restricted dribution d may be used by recipients only in the performac of their ofic duties s content may not odthrwse be discosed nthowut World Dank authion. l CURRENCY EQUIVALENTS Currency Unit = Pakistan Rupee (Rs) Rs 1 = Paisa 100 US$1 = Rs 15.31 Rs 1 = US$ 0.065 FISCAL YEAR Government and WAPDA : July I-June 30 ABBREVIATIONS ADB Asian Development Bank CIDA Canadian International Development Agency KESC Karachi Electric Supply Corporation km kilometer kV kilovolt (1000 volts) kWh kilowatt hour (1000 watt-hours) mW megawatt (1000 kilowatts) NESPAK National Engineering Services of Pakistan SAL Structural Adiustment Loan toe Tons of Oil Equivalent UNDP United Nations Development Program USAID United States Agency for-International Development WAPDA Water and Power Development Authority INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE WATER AND POWER DEVELOPMENT AUTHORITY WITH THE GUARANTEE OF THE ISLAMIC REPUBLIC OF PAKISTAN FOR A FIFTH WAPDA POWER PROJECT 1. I submit the following report and recommendation on a proposed loan to the Water and Power Development Authority (WAPDA) with the guarantee of the Islamic Republic of Pakistan for the equivalent of US$100 million to help finance a Fifth UAPDA Power Project. The loan would have a term of 20 years, including five years of grace, at the standard 7jariable interest rate. PART I - THE ECONOMY 2. The most recent economic report "Pakistan: Recent Economic Developments and Structural Adjustment" (No. 5347-PAK, dated March 20, 1985) was distributed to the Executive Directors on April 4, 1985. 3. The steadily improving performance of recent years was interrupted in FY84 due to an unexpected downturn in agriculture and migrant remittances, and the carry-over of inflationary pressures from FY83. GDP growth slowed to 3.5% as a result of a 6.2% fall in agriculture value added caused by adverse weather and pest attacks. Manufacturing grew by 8.3Z and services by 6.2Z. Fixed investment rose by 6.5%, while private investment increased by 11.5Z. National savings fell to 12.1% of GNP as a result of a drop in private savings. Public savings remained low reflecting reduced Federal and Provincial budget surpluses. Excess liquidity from FY83 (generated largely by foreign exchange inflows), increases in world prices and reduced agricul- tural output, contributed to inflation above 9Z, as against 5.2% in FY83. Budgetary policies continued to be prudent. Current revenues increased by 20%, largely through improved tax administration, but current expenditures also increased reflecting higher allocations for economic and social services. Considering the economic importance of agriculture, the achieve- ment of creditable growth in FY84 points to a considerable resilience of Pakistan's underlying economic structure, which is partly the result of recent Government efforts to begin removing structural imbalances in the economy. 4. The balance of payments deteriorated in FY84, relative to the marked improvement in FY83. The current account deficit at US$1 billion was almost double that in FY83. Stagnant exports and lower remittances were the main contributiag factors. With cotton and yarn exports much reduced by the poor cotton crop, exports rose by only 1.6%, while imports increased by 6.9%. Remittances, which declined for the first time in FY84, fell by 5.1%. Moreover, recent projections suggest a decline in net migration, which is -2- likely to lead to lower remittances over the medium term. The higher current deficit, together with low net capital flows, led to a reserve drawdown of US$113 million. Gross official gold and foreign exchange reserves were US$2.4 billion at end FY84, equivalent to 3.8 months of imports of goods and services. 5. Since 1980, the Government has moved gradually to eliminate interest from the economy and has announced that the process will be completed by July 1985. AlL transactions will be based on new financing modes consistent with Islamic principles. Existing interest-based commitments will be honored and transactions with foreign governments and financial institutions will not be affected. At this stage, it is difficult to determine with any certainty the potential costs of Islamization. Undoubtedly, there wilL be some costs in converting the system, but whether long-run efficiency is affected will depend on how the systemr is applied. To date, the Government has proceeded cautiously and, while fulLy committed to the elimination of interest, has stressed that new financing modes will, be applied flexibly and developments monitored closely. 6. The slowdown in economic growth in FY84 marked a departure from the improved performance achieved during the Fifth Plan period (FY79-83). Growth in national output (6.5Z), agriculture (4.2%), manufacturing (10.4Z), exports (liZ) and private investment (6.7%), though below Plan targets, was well above rates achieved during FY70-78 and very respectable compared to other LDCs. Growth during this period - coupled with increased remittances - benefited large segments of the population. Improved performance took place, despite a number of adverse factors: (a) a world recession; (b) a 30% decline in the external terms of trade after 1979; and (c) the Afghanistan crisis with its attendant requirements for increased defense and refugee assistance expenditures. 7. Fiscal performance and the balance of payments improved significantly during the Fifth Plan. The overall budget deficit and Government bank borrowing, which stood at 8.8% and 4.3Z of GDP in FY79, fell to 6.4% and 1.7%, respectively by FY83. Reduced levels of Government borrowing from banks, together with overall credit restraint, led to lower money supply growth and lessened inflationary pressures; inflation dropped from 8% to 5% by the end of the Plan period. The improved fiscal performance was largely the result of expenditure restraint rather than better revenue performance. Real expansion in current expenditures on economic and social services barely kept pace with population growth and development expenditures declined rela- tive to GDP. Government revenues rpmained constant at 16% of GDP and public savings, having risen in the first half of the Plan period from 1% to 3.8% of GNP, dropped to 1.6% by FY83. Assisted by remittances, but also strong export growth, the current account deficit fell from 5% of CNP to 2% by the end of the Plan Period. Gross reserves increased from 3.5 to 4.5 months of imports of goods and services. -3- X. In addition to improving economic management through fiscal and monetary policies, the Government took measures to improve performance in the commodity-producing sectors. In agriculture, all major crops reached record output levels, with wheat and sugar achieving self-sufficiency. Subsidies on pesticides were virtually eliminated, while fertilizer prices were raised to reduce the subsidy burden. Crop procurement prices were adjusted to bring them closer to world prices. Provincial allocations for operations and maintenance in irrigation were increased, along with water charates. Encouraged by improved policies and incentives, private manufacturing invest- ment grew by lO.9Z p.a. Areas open to the private sector were widened, most agricultural processing units were denationalized and sanctioning limits increased. A flexible exchange rate policy adopted in 1982 was instrumental in encouraging manufactured exports, while import liberalization increased the availability of raw materials and capital goods. In energy, measures were taken to accelerate the development of domestic resources, rationalize prices, and improve policy formulation and energy plAnning capabilities. 9. The developments in Pakistan's economy since FY78 represent welcome steps toward the solution of problems which are essentially structural and long-term in nature. Notwithstanding these improvements, further wide- ranging measures to address structural issues are necessary. Two issues are critical to Pakistan's long-term growth prospects: (a) the need to increase the level and efficiency of public investment; and (b) the need to encourage export expansion and efficient import substitution. To sustain high economic growth, Pakistan is faced with the urgent need to make major infrastructure investments, upgrade existing facilities and strengthen its neglected social base. The latter has fared badly as a result of resource constraints and is reflected in Pakistan's social indicators which lag seriously behind those of other developing countries at comparable levels of development. Increases in public investment and recurrent allocations will not be possible without a major domestic resource mobilization effort. Although reform of indirect taxation through the introduction of a broad-based sales tax should receive priority, greater reliance on user charges, curtailment of subsidies and increased self-financing by public enterprises will also be required. Given the more constrained outlook for official assistance and the likelihood of lower remittance flows, sustained improvements in both export expansion and efficient import substitution will be necessary to support high growth with sustainable external capital requirements. Improved trade performance will require a continuation and strengthening of the structural adjustment process in the key sectors of agriculture, industry and energy. Both agriculture and industry have considerable potential for increased exports and some degree of efficient import substitution. In energy, the accelerated development of Pakistan's under-exploited resources can make a major contribution to the reduction of energy imports. 10. In agriculture, high growth has been largely the result of increased acreage; average yields remain low by world standards and those of progres- sive farmers within Pakistan. Increasing agricultural productivity and diversification will require strengthened institutional support, appropriate -4- pricing policies, and the identification and implementation of the core investment program. More effective institutional support should be sought through improvements in the quality and quantity of services to farmers. In particular, strengthening the seed program requires more efficient seed multiplication and dissemination, increased efficiency in public sector plants and a greater role for the private sector. The delivery of agricul- tural credit needs to be improved to ensure it actually reaches small farmers and tenants, whose credit needs are greatest. Marketing costs need to be reduced together with a strengthening of research and extension services. Agricultural pricing policies should ensure appropriate incentives to farmers, while minimizing subsidies. Multi-crop approaches to pricing should complement the single crops, cost-of-production approach currently used. Finally, a core investment program in agriculture and water is needed to reduce the possibility of distortions in investment priorities. Programs that are low-cost and yield quick returns should be emphasized along with critical infrastructure investments that raise farm productivity. Greater emphasis on the complementarity of investment programs, especially between agriculture and water, would ensure that priority is accorded to programs that increase agricultural productivity rather than merely augment the supply of physical infrastructure. 11. Increasing and diversifying Pakistan's manufactured export base and encouraging efficient import substitution will depend, to a large extent, on a rationalization of industrial incentives to reduce both the level and dispersion of effective protection rates. Thne objective should be to increase the efficiency of the industrial sector by exposing protected producers to greater foreign competition and to reduce the anti-export bias inherent in the present incentives system. In addition, reform of Government regulations affecting investment sanctioning and cost-plus pricing is also required. The Government should limit sanctioning to a few cases of strategic importance, leaving most investment decisions to the private sector, which is better able to assess investment opportunities. Cost-plus pricing arrangements, which provide insufficient incentives to minimize costs or allocate capital efficiency, should be replaced by market-oriented approaches which better reflect supply/demand conditions and provide adequate incentives for reinvestment and operational efficiency. 12. In the energy sector issues need to be addressed in three broad areas: (a) investment and development; (b) pricing; (c) institutional strengthening. To date, the Government's power generation program, as well as other investments in the sector, have not been based on a long-term least- cost development plan. Given the likelihood of domestic resource constraints and persistent power shortages, the Gove.nment should ensure that future investments conform to such a plan and that a core investment program is insulated from uncertainties inherent in the budgeting process. The present gas producer pricing formula for new discoveries should be adjusted to provide adequate incentives to attract private sector exploration. Consumer gas prices, which were maintained artificially low to encourage the substitu- tion of gas for imported oil, have resulted in a considerable distortion of -5- relative prices and uneconomic use of gas. The Government's policy is to increase gas prices to reach two-thirds of fuel oil parity by FY88 and since 1982, price increases have averaged 15Z p.a. in dollar terms. The Government needs to meet its FY88 objective and move to full parity as soon thereafter as possible. Electricity tariffs, which are currently below long-run mar- ginal cost, should be adjusted to reflect this cost, not only to ensure efficient use of electricity and encourage energy conservation, but also to mobilize additional funds to meet the substantial resources required by the power investment program. Finally, the Government should consider increasing autonomy of public enterprises in the energy sector to improve their efficiency and should continue efforts to strengthen energy planning and policy coordination. 13. The Sixth Five-Year Plan (FY83-88) articulated a pragmatic strategy for Pakistan's continued rapid development which included an expanded role for the private sector, increased public development expenditures and increased allocations for energy, agriculture, irrigation and the social sectors. Although the size and composition of the Plan are appropriate, development expenditures during the first two years of the Plan will be 9% lower than the amounts projected because of insufficient domestic resource mobilization. Although this would not appear overly large, the way in which sectoral shortfalls have been distributed contradicts Plan priorities. Education, energy, health and agriculture, received considerably lower allocations than called for in the Plan. Furthermore, without a pre-defined core investment program, there is a tendency to distribute shortfalls evenly over a large number of projects within a sector; too many projects are initiated and projects that should receive priority are underfunded. In order to address this issue, Government has announced the re-introduction of a Three-Year Priority Investment Program (FY86-88). The Government has emphasized that the adoption of a roLling medium-term program does not mean plan strategies and priorities are being revised, or that shortfalls are considered inevitable. The Program will identify sectoral core investment programs which will be given priority in formulating annual plans. By protecting priority investments, especially in key areas, the effectiveness of the public investment program would be enhanced and priorities sharpened. 14. Despite the temporary setback in FY84, the improved performance and policy framework set in motion during the Fifth Plan, which the Government intends to continue during the Sixth Plan, have improved Pakistan's credit- worthiness for a blend of Bank and IDA borrowing and commercial borrowing. At the end of calendar year 1983, Pakistan's external public debt (excluding the undisbursed pipeline) stood at US$9.8 billion, of which US$4.7 billion was owed to biLateral members of the Pakistan consortium, US$1.3 billion to OPEC, US$2 billion to multilateral agencies, and the balance, to other bilateral and private lenders. In 1983, the Bank Group's share in Pakistan's external public indebtedness was 15.3% and in external debt service was 7.0Z. Bank projections indicate that, provided recent policy improvements are sustained and structural issues addressed, Pakistan's debt service would -6- remain below 15Z during the remainder of the 1980s, even with somewhat higher levels of commercial borrowing. PART II - BAII GROUP OPERAIIONS IN PAKISTAN I/ 15. The cumulative total of Bank/IDA commitments to Pakistan (exclusive of Loans and Credits or portions thereof which were disbursed in the former East Pakistan) now amounts to approximately US$3.2 billion. During its long association with Pakistan, the Bank Group has been involved in most sectors of the economy. This has included its involvement with other donors, over a 20-year period, in the major program of works to develop the water resources of the Indus Basin. Approximately 30X of total Bank/IDA commitments to Pakistan have been for agriculture and irrigation; 282 for industry including import program credits; 187 for transport, telecommunications and public utility services; 14% for energy including power, gas pipelines and petroleum; 5% for social programs in education, population and urban development; and 5X for structural adjustment lending and technical assistance. 16. In the current period, the Bank's assistance strategy is to support the Government of Pakistan's efforts to formulate and implement policy reforms in three sectors--energy, industry, agriculture--which shape the structural adjustment process in the economy. At the same time and in order to ensure that the gains from adjustment are sustained in the long term and shared more broadly, the strategy also includes investments in physical infrastructure and the social sectors (education, population etc.) which have been neglected in Pakistan's development efforts. To succeed, this strategy requires a flexible deployment of the full range of traditional instruments of Bank support - sector work and active policy dialogue, policy and project based lending, technical assistance and aid co-ordination. The Bank Group's lending program comprises two components. The larger project-based component supports specific high priority investments in productive sectors and physi- cal and social infrastructure. The smaller but strategic component focusses on policy reforms in the key sectors of agriculture, industry and energy, relying heavily on high quality economic and sector work. The strategy includes a series of technical assistance credits to finance studies and formulate action programs for policy reform. The experience with the first of these has been extremely positive. Through the annual Country Economic Memorandum, we aim to foster a greater understanding among Consortium members of the Government's structural adjustment program and aid requirements, which coupled with increased co-financing should enhance the policy relevance and 1/ Part II is substantially the same as that in the President's Report P-3940-PAK (Fourth WAPDA Power Project) dated February 13, 1985. -7- effectiveness of other official aid and help attract additional resources to Pakistan from non-concessional sources. 17. Historically, the Bank Group has placed special emphasis on lending for agriculture which is the mainstay of the Pakistan economy. The Bank and the Government are in agreement on the main elements of a strategy which underpins lending in the sector. In recent years, the objective has been to increase agricultural productivity through improvements in the efficiency of the irrigation system and supporting agricultural services. Among the issues being addressed are: the balance between short-gestation projects and longer term expenditures, rationalization of input and output prices, marketing, improvements in operation and maintenance, cost recovery, and a wider role for the private sector. Projects in the sector have ranged from irrigation/drainage to agricultural inpu's, research and extension and have included institution building components. Overall, prog-ess in agriculture has been satisfactory. 18. In industry, the strategy has two complementary aspects: to strengthen and broaden the process of structural adjustment in Pakistan's industrial sector and to support the Government's efforts to revitalize the private sector through the provision of industrial finance. The industrial reform program is designed to improve the competitiveness of the sector in order to promote export expansion and import substitution. Issues being addressed include trade and industrial incentives; deregulation; efficiency of public enterprises; pricing decontrol; and improvements in the credit delivery system. Projects have included lines of credits to DFCs and other financial intermediaries which has been mainly for the private sector, total- ing US$488.5 million. Direct lending for industry has also included assis- tance to three large fertilizer plants and a refinery engineering loan. As of March 31, 1985, IFC has made investments in 16 Pakistan enterprises total- ing US$191.24 million of which US$179.91 million was by way of loans and US$11.33 million by equity participation (these are shown in Annex II). While individual operations have generally achieved their objectives, the agenda for overall reform in industry remains formidable. 19. Following progress on a number of major sector issues as a result of the Structural Adjustment Loan (SAL) process in 1981/82, our lending program in energy is expanding rapidly. The overall objective is to expand domestic supply from all energy subsectors while simultaneously increasing the efficiency of energy use through appropriate pricing, conservation and other demand management measures. No less central have been efforts to strengthen key institutions in the sector. In power the Bank has assisted both the Karachi Electric Supply Corporation (KESC) and the Water and Power Development Authority (WAPDA) in both power generation and transmission; the sector has also been assisted by the construction under the Indus Basin Development Program of Mangla and Tarbela Dams. In oil and gas, the Bank has financed operations which support a sound exploration and development program and has assisted in the development of the extensive gas transmission system. Smaller operations, mostly of an engineering and technical assis- -8- tance nature, have supported coal exploration, energy audits and oil refining. Despite much progress, however, the Bank will need to continue its participation in institution building in concert with efforts to assist the Government mobilize adequate funds for energy investments through tariffs, co-financing, and greater private sector participation. 20. Bank Group lending for transport and communications has focussed both on new capital investments and on improving the efficiency of existing assests. Operations have also focussed on strengthening the institutions responsible for these services, especially the Karachi Port Trust, Pakistan Railways, the Telephone and Telegraph Department and federal and provincial highways agencies. However, recent analysis has identified transport infrastructure as a critical constraint to over-all growth, due in large measure to a running down of infrastructure stock. In the future the balance between new investments and operation and maintenance and among various modes will need to receive greater attention. 21. With an over-all literacy rate of only 25Z, a population growth rate of about 3%, and rapid urbanization, Pakistan faces a formidable development agenda in the social sectors. The Bank has supported the Government's programs in education through five credits totaling some 'S$62.5 million designed to upgrade primary, post secondary and higher technical and agricul- tural education, middle-level training of primary teachers and agricultural extension agents. The focus has and will continue to be on the lower end of the education system (primary, secondary, technical and non-formal education including literacv) A first population project designed to expand demand for population control services was approved in FY83. In the urban and water supply sector, the Bank has financed four projects. Besides providing urban services, these operations are addressing, among other issues, improved local resource mobilization and cost recovery, improved planning and efficiency of resource utilization; and urban management especially at the ProvinciaL and Municipal levels. 22. With respect to policy-based lending, a SAL operation was approved in June 1982. The SAL program consisted of a number of significant reforms in government development planning and in policies and programs in the agriculture, energy and industrial sectors. The loan was fully disbursed at the end cf FY83 and achieved significant progress in the above areas. In the next few years, continuing support to the structural adjustment process is envisioned under sector loans. 23. Annex II contains a sumiary statement of Bank Loans ane IDA Credits as of March 31, 1985. Credit and loan disbursements have been generally satisfactory. Some projects have experienced initial delays due to protracted government procedures for project approval, which are being addressed, and to slowness in the procurerent of goods and services. Rtapid turnover of managerial and technical staff, in part due to migration to the Middle East, and budgetary constraints have been problems in the case of some projects. -9- 24. A number of operations are currently under preparation or are being appraised. These include projects for power transmission and generation; coal development; lines of credit for industrial finance for the private sector, industrial subsector restructuring, balancing and modernization; irrigation/drainage, agricultural inputs and services; primary and informal education; telecommunications; urban development and water supply. In addi- tion to a recently approved energy sector loan, sectoral loans which would support further structural adjustment in industry and agriculture are being discussed with the Government. Where successful, these sector loans would provide a policy umbrella for projects in those sectors. To assist the Government to finance agricultural and other high-priority projects which have a low foreign exchange component, financing of some local expenditures in specific cases is justified. 25. In addition to lending, economic and sector work provides the basis for continuing dialogue between the Bank Group and the Government of Pakistan on development strategy, the sector loans now being prepared, and for the co-ordination of external assistance within the Pakistan Consortium. The work program emphasizes resource mobilization, structural adjustment in the three key sectors, and physical and social infrastructure. PART III - THE ENERGY SECTOR AND POWER SUBSECTOR Energy Sector 26. Sustained high economic growth over the long run depends critically on both accelerated development of the substantial domestic energy resources, and measures to limit the growth of energy demand. On the supply side, development of domestic resources has been held back by inadequate producer prices and internal cash generation, ineffective planning and resource allocation, and institutional weaknesses including arrangements for mobi- lizing private capital and management. Further development of domestic energy resources will require further adjustments in sectoral pricing, plan- ning and institutions. On the demand side, Government buffered consumers from the higher cost of imported energy during the 1970s, and priced domestic gas and electricity at levels substantially below their economic cost. Adjustments in the prices of petroleum products were initiated in 1978 and by early 1983 the weighted average price was about 150% of the border price. Consumer prices of gas and electricity, however, were not increased until 1980 and even then at a substantially slower pace than for petroleum products. Little progress has been made in improving the efficiency of gas and electricity users. The net effect has been that acute shortages of both gas and electricity emerged during the last two years of the Fifth Plan (FY79-83) and have continued under the Sixth Plan. 27. In recognition of these problems, Government accorded high priority in the Sixth Plan to restructuring the energy sector; the allocation to public sector energy programs increased by 120% in real terms over the Fifth -10- Plan, and amounted to fuily 38% of total planned public sector outlays. More important still, Government has continued the pricing adjustments initiated in the Fifth Plan and has taken several important policy initiatives to p-omote the achievement of the Sixth Plan objectives. Beginning with the design of the Structural Adjustment Loan, approved in June 1982, the Bank has had an increasingly fruitful dialogue with Government on the energy sector and project lending has accelerated, in petroleum and power through pipelines, refineries and coal. Most recently, the results of the continuing dialogue have led to an Energy Sector Loan, which is being processed concur- rently with the proposed project. This Sector Loan provides the policy framework within which energy projects are being and will be designed; it enables project conditionality (and the documentation) to be focussed on implementation matters and thereby simplified, as is the case with the proposed project. Power Subsector 28. Public electricity supplies about 20% of the commercial energy con- sumption of industries and households, and over 50% in agriculture. The installed generating capacity nationwide is about 5,000 MW, of which 1,000 MW (all thermal) in the Karachi area managed by KESC, and 4,000 MW elsewhere (two-thirds hydro and one-third thermal) manageJ by WAPDA. The planning of power generation in Pakistan is complicated both by the diversity of possible modes, and by the fact that the major hydro resources are located in the north whereas the electricity loads and thermal facilities are concentrated in the center and south. An interim least-cost program for the development of generation facilities has been worked out, under a Bank-executed UNDP project, and the WASP III model for system planning was installed on WAPDA's computer in January 1985. WAPDA's capability to update and refine the least- cost program requires, however, a system for the collection, storage and retrieval of data on power; the design and implementation of such a system would be part of the proposed project. Given the role that imported coal can be expected to play in power generation, the proposed project would also include a feasibility study and detailed engineering for a power generation complex at Karachi based mainly on imported coal. The geographical disper- sion of resources, faciliLies and loads requires bulk transmission of elec- tricity over distances up to 1,600 km. In order to ensure efficient power transmission, WAPDA's plans call for 4,400 km of extra high voltage (500-kV) lines by 1991, of which 2,550 km are in operation, 350 km under construction and the remaining 1,500 km, including the 1,100 km included in the proposed project, are planned for 1985-1991. The 220-kV network and sub-transmission systems would also be expanded during the period 1986-89 under the Fourth WAPDA Power Project, which would ensure coordinated development with the extra high voltage grid. 29. The institutional framework of the power subsector is straightforward, with the main operational agencies, WAPDA and KESC, coming directly under the jurisdiction of the Ministry of Water and Power. Pricing decisions, however, are subject to the approval of the Ministry of Finance -1l- and are under the ultimate jurisdiction of the Economic Coordination Committee of the Federal Cabinet. Major investment decisions, too, are subject to the approval of the Ministries of Finance, and Planning and Development. WAPDA is not therefore a fully autonomous agency, despite its size and importance. Set up in 1958, WAPDA is divided into two largely independent "wings", one for power and the other for water. The Power Wing is responsible for the construction and operation of generation, transmission and distribution facilities throughout the country except for the Karachi area. The Power Wing has 88,000 employees and 3.7 million customers, with a turnover of Rs 8.2 billion (US$600 million) in FY84. The Distribution Department alone has 62,000 employees, including the staff of the eight Area Electricity Boards responsible for local electricity service. Government intends to review the organization of the power subsector. The possibility of relieving WAPDA of distribution and limiting its responsibility to gener- ation and transmission of electricity for the entire country will be examined. This would include ascertaining the feasibility of taking over the generation and the primary transmission of KESC by WAPDA and restricting the KESC operation to bulk purchase from WAPDA and distribution in the Karachi area. Additionally, the possibility of transfering distribution to the private sector/provinces in the rest of the country would be considered along with the possibility of creating a separate authority for power distribution. In order to assist the Government in formulating a plan for the reorganiza- tion of WAPDA's distribution department, consultants have been recruited under USAID financing to outline a plan for decentralizing power distribution. 30. Losses in transmission and distribution, which amounted to 35% of gross generation in FY77, had been reduced to 27% by FY84, a noteworthy achievement but still short of the FY84 target of 21Z that had been set under the Third WAPDA Power project. While transmission losses have been reduced from 13% to 10%, further reductions are expected from completion of the high voltage network, particularly the extension of the 500-kV link. Distribution losses have been reduced from 22Z to 17%, and further work to reduce dis- tribution losses was started in May 1984 under the USAID-financed Rural Electrification Project. In addition, under a loan from the ADB, WAPDA is impLementing a load despatch project including a National Control Center for most of the generating plants and the main transmission network, and two Regional Control Centers for the sub-transmission network and some smaller plants; this project is expected to be completed in 1987. WAPDA is still targetting a loss factor of 21X, by 1988, but this would be reviewed and possibly revised once ongoing studies on further possible loss reductions become available. 31. Average revenue in FY84 was 63 paisa/kWh, of which 53 from tariffs and 10 from a fuel adjustment surcharge that allows WAPDA to recover part of the cost of fuel from its customers. WAPDA thereby recovered 63% of the long-run marginal cost of about 100 paisa/kWh; in comparison, the weighted average consumer price of natural gas was only 40% of the border price of fuel oil in January 1985. WAPDA has nonetheless been able to finance more -12- than 40% of its investment program from internally-generated funds, because actual investmert has consistently fallen short of planned investment. In order to ensure that actual and planned investments do not diverge, Government has agreed to a minimum investment program for WAPDA of Rs 30 billion (US$2 billion) for FY86-FY88, and that all necessary measures, including tariff increases, will be taken to ensure that the program is financed. This investment program will require tariff increases, net of fuel surcharge, of 11% for FY86, 15% for FY87, and 18% for FY88 in order to real- ize the targetted 40% level of internal cash generation. The introduction of a tariff increase that would enable WAPDA to finance in FY86 at least 40% of its investment program from internally-generated funds would be a condi- tion of effectiveness of the proposed loan (Section 7.01(b) of the Loan Agreement). In addition, WAPDA is presently reviewing the structure of electricity tariffs in compliance with an agreement with the ADB. The results, expected by June 1985, would be reviewed by both the Bank and ADB, and an action program and timetable for restructuring tariffs would be agreed with Government and WAPDA. Further work is required, moreover, to gain a better understanding of the patterns of electricity consumption by different users; accordingly, a load research and demand management study would be part of the proposed project. 32. The Bank Group's involvement in the power subsector started in 1955, with the first of four loans to KESC for generation facilities. The Bank has participated in the Indus Basin Development Projects, including the hydro plants at Mangla and Tarbela which, together, account for 83% of the country's total hydro generation capacity. Since 1970, the Bank's involve- ment has been more directly in support of Government's program to upgrade the power transmission and distribution network, for which four credits/loans were made to WAPDA. First, Credit 213-PAK was made in 1910 to finance a project to augment the transmission stbstation capacity of the power system. The project faced implementation delays as fund limitations required scaling down the physical components of the project; high losses impacted unfavorably on WAPDA's finances and major financial covenants were not met; and opera- tional improvements within WAPDA were slow and major targets were met much later than anticipated. The main finding of the Project Performance Auditl/ was that where institutional change is a prime objective, careful planning and realistic targets are of the utmost importance. Second, Loan 1208T-PAK was made in 1975 to finance part of a 500-kV transmission system which would eventually create the backbone of a national high voltage grid. The start of the project was delayed by about nine months due to late employment of con- sultants and slow award of contracts. Despite this delay, the project has been satisfactorily implemented. Third, Credit 968-PAK was made in 1980 to cover a four-year time-slice of WAPDA's secondary transmission program. Implementation, though somewhat delayed, has been satisfactory and the project is expected to be fully implemented by the end of calendar year 1985. I/ "Project Performance Audit Report", April 6, 1981 (SecM81-291). -13- Fourth, Loan 2499-PAK was made in 1985 to cover a five-year time-slice of WAPDA's program for the reinforcement and expansion of the secondary trans- mission system. 33. The main objectives of the Bank and Government in the power subsector are in harmony, namely: (a) to assist in the establishment of a least-cost power development program in the long run; (b) to establish close coordination between the primary energy development policies (production, imports, pricing, etc.) and the power generation program; (c) to promote the use of local energy resources, especially hydro, for power generation in the medium and long term; (d) to support in the short run projects aimed at improving the use of existing generation facilities, reduction of energy losses, implementation of load management programs, etc., to alleviate the power shortage; and (e) to strengthen the institutional arrangements and the managerial capabilities of the subsector to handle planning, execution and operation needs. The proposed project has been designed within this context and is seen as one of a series of projects and sectoral operations designed to pursue the above objectives in progressively greater depth. PART IV - THE PROJECT 34. The proposed project was prepared by WAPDA. It was appraised in November/December, 1984. Negotiations took place in Washington, D.C. from April 15-18, 1985; the delegation from Pakistan was led by Mr. Ejaz A. Naik, Secretary General, Economic Affairs Division, Government of Pakistan. A Staff Appraisal Report, entitled "Pakistan: Fifth WAPDA Power Project" (Report No. 5568-PAK, dated Hay 3, 1985) is being circulated separately to the executive Directors. A supplementary data sheet is attached as Annex III. 35. Background and Objectives. In the early 1970s, WAPDA started the implementation of a least-cost national program for development of a 500-kV network involving the connection of the major generating plants to the main load centers in the country. The first phase, from Tarbela to Faisalabad, was comissioned in 1977. Further sections were successively built southward with Bank assistance (Loan 1208T-PAK) from Faisalabad to Guddu and Jamshoro. -14- A second 500-kV line is being built between Tarbela and Faisalabad, with completion expected in September 1985. WAPDA has recently updated its least- cost program for the development of the 500-kV network to take into account the forecast expansion of its generating capacity. It calls for the con- struction of a second 500-kV line from Jamshoro to Multan, with an extension to Lahore, and associated substations, to interconnect generation facilities expected to come on stream by 1988 (Map IBRD 18732). This line is the focus of the proposed project. The main project objectives are therefore (i) to permit, together with the load despatch center (para. 30), the optimal opera- tion of interconnected generation facilities, and (ii) to contribute to reduction of losses in the transmission system. A secondary project objec- tive is to improve WAPDA's planning capabilities. 36. Description. The project would consist of: (a) the installation of about 1,100 km of 500-kV transmission line between Lahore and Jamshoro via Sahiwal, Multan, Guddu and Dadu; (b) the installation of new 500-kV substations at Lahore and Sahiwal and the extension and reinforcement of existing 500-kV substa- tions at Multan, Guddu, Dadu and Jamshoro; and (c) consulting services for: (i) implementing a system for the collection, storage and retrieval of data on power; (ii) a load research and demand management study; and (iii) a feasibility study and detailed engineering for a power generation complex at Karachi based mainly on imported coal. 37. Implementation. The project would be executed by WAPDA which is successfully implementing through contractors the ongoing second 500-kV line and associated substations, as well as upgrading existing substations from 220-kV to 500-kV. The same approach would be followed for the construction of the facilities included under the proposed project. The design and engineering of the 500-kV grid were prepared by WAPDA with the assistance of local consultants, the National Engineering Services of Pakistan (NESPAK), and foreign consultants. The experience gained through this involvement has enabled WAPDA and NESPAK to prepare the project design. In addition, equip- ment and materials have been standardized in accordance with criteria estab- lished during the construction of the earlier phases of the 500-kV network. Accordingly, WAPDA has recruited NESPAK for the preparation of detailed design, specifications and bidding documents, as well as engineering supervision, for the proposed project. WAPDA would also retain the consult- ants for the three studies, under terms of reference and with qualifications and experience acceptable to the Bank (Schedule 4, Section II of the draft LEc'-i Agreement). WAPDA would recruit the consultants and complete and review the studies with the Bank within an agreed timetable (Schedule 5, Parts 1, 2, and 3 of the draft Loan Agreement). The training of staff to operate and maintain the 500-kV system is being assured by WAPDA with assistance from -15- CIDA; the proposed project does not therefore include any provision for training. 38. Cost. The total project cost is estimated at US$288 million. Including interest during construction, the total financing resuired is estimated at US$301 million, with US$157 million (52Z) in foreign exchange. These estimates are based on December 1984 prices. Escalation of foreign costs was assumed to be 6.25Z for FY86, 7.75Z for FY87 and 8% thereafter. Escalation of local costs was taken at 6.5X for FY86 and FY87, and 6Z thereafter. The total price escalation amounts to 12% of the base cost plus physical contingencies. Physical contingencies were taken at only 5Z in view of the similarity between the works under the proposed project and ongoing projects. Duties and taxes amount to US$52 million. The total net-of-tax project cost is estimated at US$236 million. 39. Financing. Of the total foreign exchange requirement of US$157 million equiv7alent, US$100 million (63%) would be financed by the Bank, by a Government-guaranteed loan to WAPDA, and US$40 million (25%) through co- financing. The Government would provide the remaining 12Z of the foreign exchange requirements. Of the total local currency requirement of US$144 million, US$120 million representing 40% of the total financing required would be financed by WAPDA from its own resources, and the balance would be covered by loans from the Gove.acrnt, at an interest rate of 11%. Government and WAPDA would make available all the financing resources needed for the project in a timely manner (Section 3.01(a) of the draft Loan Agreement and Section 2.02 of the draft Guarantee Agreement). 40. Procurement and Disbursement. With the exceptions noted below, contracts financed under the proposed loan for the supply of equipment and materials would be awarded in accordance with Bank guidelines for interna- tional competitive bidding (ICB); domestically-manufactured goods would be allowed a 15% preference or the applicable import duty whichever is lower. Small quantities of equipment and materials and tools, also financed under the proposed loan, not exceeding US$50,000 each and in the aggregate not exceeding the equivalent of US$3.3 million, would be procured through limited international bidding (LIB) by inviting quotations from at least three sup- pliers from eligible countries. Bidding documents and recommendations for the award of contracts exceeding the equivalent of US$1,000,000 to be financed by the Bank would be subject to prior approval by the Bank. Consultants would be selected in accordance with Bank guidelines. The proposed procurement arrangements are sumarized below, where the figures in parentheses are amounts financed out of the loan. -16- Procurement Arrangements (US$ million) I/ Component ICB LIB OTHER LCB 2/ N.A. 3/ TOTaL Land and Rights of Way 3.2 3.2 Transmission Lines' 77.8 77.8 Equipment and Materials (77.8) (77.8) Substations Equipment 30.4 16.7 47.1 (12.4) (12.4) Capacitors and Control Equipment 10.8 10.8 Miscellaneous Equipment 4.5 3.3 7.8 (Transport, Tools and (4.5) (3.3) (7.8) Workshop) Civil Works, Transport and Erection 62.8 4.5 67.3 Engineering and Adminis- tation 16.8 16.8 Consultants' Services 5.1 5.1 ______ ______ ______ (2.0) (2.0) TOTAL 3/ 123.5 3.3 16.7 62.8 29.6 235.9 (BANK) (94.7) (3.3) (2.0) (100.0) 1/ Net of duties and taxes. -/ LCB: Local Competitive Bidding. 31 N.A.: Not Applicable (negotiated contract, consultants, etc.). Disbursements from the proposed loan would be made against 10OZ of the CIF cost of directly-imported goods, 1001 of the ex-factory price of locally- manufactured goods, and 100% of the foreign costs of consultants" services. Based on a project implementation period of four years, disbursements are estimated to be completed in five and one-half years, the same as the pre- vious two Bank WAPDA power projects are expected to take. This is about one and one-half years less than the Bank-wide average for transmission and distribution projects and in view of the similarity with ongoing works in Pakistan, the shorter period of implementation appears achievable. 41. WAPDA's Financial Position. The accounts of WAPDA's Power Wing for the last five fiscal years (FY80-FY84) show a generally satisfactory finan- cial performance and position. Both the ratio of current assets to current liabilities and the coverage of debt service from internally generated cash are satisfactory. As of June 30, 1984, WAPDA's capitalization showed a debt/equity ratio of 48152, in contrast to 61/39 for FY79. During this five-year period, WAPDA has been able to finance between 53Z and 76% of its capital investments from internal sources corresponding to a rate of return of between 15% and 18% on historically-valued net assets in operation, or -17- between 8% and 10% on proforma revalued assets. These exceptionally high levels of internal cash generation have arisen mainly from the fact that actual investment has consistently fallen short of planned investment. To address this shortcoming, in addition to the agreed FY86-88 minimum invest- ment program (para. 31), the basis for determining the internal cash gener- ation would be changed from the current retrospective basis to a prospective basis, starting in FY89 (Section 5.02 of the draft Loan Agreement). Projections of WAPDA's financial position over the next seven-year period show a substantial growth in gross fixed assets, from Rs 29 billion in FY84 to Rs 104 billion at the end of FY91 and a threefold increase in equity from Rs 17 billion in FY84 to Rs 46 billion by FY91. Retained earnings would account for 80% of this increase. Over the same period, long-term debt is forecast to increase fourfold to Rs 66 billion resulting in a debt/equity ratio of 59141, which is reasonable for an electric utility. The coverage of debt service by internal cash generation would be satisfactory during this period, as would the ratio of current assets to current liabilities. Nevertheless, the debt servicing position of WAPDA would be monitored, to ensure a coverage of at least 1.5 (Section 5.03 of the draft Loan Agreement). 42. Financial/Commercial Operations. WAPDA has made good progress in streamlining its comm ercial operations and in establishing modern accounting and commercial systems with the assistance of consultants. Ne-wertheless, additional steps will need to be undertaken in areas such as materials management, asset valuation and accounting. This additional work requires substantial outside assistance, which will be furnished by USAID under its recently-approved rural electrification project. A limiting factor in con- tinuing the development of WAPDA is the shortage of qualified staff for key posts in the accounting and commercial departments. WAPDA is currently evaluating its recruitment practices, job grading and compensations for the financial staff to facilitate the recruitment of experienced financial staff outside the Authority. In order to improve its accounting capabilitAes, WAPDA agreed under the Fourth WAPDA Project to review from time to time with the Bank the qualifications and adequacy in number of the accountants in its power wing, and thereafter establish, as necessary, a plan satisfactory to the Bank for recruitment of professionally qualified accountants. 43. Government Arrears. Private consumers have been settling their electricity bills satisfactorily, while Government has been delinquent in settling its accounts. Though there has been improvement, the position is still not satisfactory. Government arrears are now estimated at the equiv- alent of about four months' Government billings. The Government has agreed under the Fourth WAPDA Project to settle all arrears owing to WAPDA as of June 30, 1985, by not later than December 31, 1985, and that all future electricity bills would be paid by all government agencies and departments within three months after the receipt of the bills. 44. Audit and Insurance. WAPDA is taking action, under the Fourth Power Project, to improve the system of internal audit with the objective of enhancing its role and influence within the Authority. The external audit is -18- performed by Government's Auditor General. The Bank is monitoring the present audit arrangements and has reserved the right to request, if necessary, an audit consistent with Bank guidelines. The existing audit arrangements would continue until the new internal audit system is in place and the new accounting system is fully implemented so that a judgement may be made on the quality of the Government audit. With respect to insurance, WAPDA operates a self-insurance scheme that is administered independently by a Board of Management with the assistance of actuarial consultants. The Bank has reviewed these insurance arrangements and found them acceptable. 45. Sales. Electricity sales by WAPDA increased between 1973 and 1983 at an average annual rate of 10. The growth of sales accelerated over the decade, averaging 72 between 1973 and 1978, and 12% between 1978 and 1983. Between 1983 and 1993, sales are forecast to increase at an average annual rate of 9Z, with a deceleration from 10% between 1983 and 1988 to 8X between 1988 and 1993. This sales forecast provides the basis for assessing project benefits. 46. Benefits. Although essentially a transmission project, the project's benefits cannot be isolated from those of generation and distribution. Consequently, the return on WAPDA's investment program, covering generation, transmission and distribution, for the period 1984-1990 is used as a measure for the return on the project. With the costs of the investment program expressed in their equivalent border values, and with incremental benefits valued at WAPDA's average revenue of 63 paisalkWh, the internal rate of return is 6Z. This valuation of benefits understates the economic return since WAPDA's average revenue is only 63% of the long run marginal cost of supply. In the absence of a demand curve that would permit the surplus currently enjoyed by WAPDA's consumers to be quantified, one proxy is to take KESC's average revenue of 98 paisa/kWh as a measure for WAPDA's consumers' willingness to pay. With benefits valued on this basis, no change in the valuation of costs, and incremental sales reduced by 5%, the internal rate of return is 14%. Another proxy is to value benefits at the projected increase in WAPDA's average revenue that is required to meet the 40% internal cash generation target. On this basis, and with costs unchanged and incremental sales reduced by 3%, the internal rate of return is 15%. This is the best measure for the economic return on the project, although it does not capture the unquantifiable cost-savings expected from improved power plant efficiencies, reduced overall fuel costs, and reduced transmission and dis- tribution losses. 47. Risks. The project consists of normal electric utility work entail- ing no unusual risks, and no particular difficulty is foreseen in its execution. The implementation schedule and cost estimates are based on similar work currently in progress in the country, and reasonable provision has been made for contingencies. No ecological problems are anticipated. -19- PART V - LEGAL INSTRUMENTS AND AUTHORITY 48. The draft Loan Agreement between the Bank and the Water and Power Development Authority of Pakistan, the draft Guarantee Agreement between the Islamic Republic of Pakistan and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement. are being distributed to the Executive Directors separately. Additional con.L- tions of effectiveness would be approval by the Executive Committee of the National Economic Council (ECNEC) of the PC-1 document for the projectll; and introduction of a tariff increase that would enable WAPDA to finance in FY86 at least 40X of its investmpnt program from internally-generated funds. The project has no special conditions. 49. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - ECO ON 50. I recommend that the Executive Directors approve the proposed loan. A.W. Clausen President Attachments May 8, 1985 Washington. D.C. 1/ A PC-1 (Planning Commission Proforma No. 1) is an internal government project appraisal document necessary for the Government of Pakistan's approval procedures. -20- ANEX I TA2 LF 31 FAR I PArITA - SOCrAL DIDCAIGES DAT Se PAKISTA RzFlUUCt GUPS (EZOD ARASES) L. MOST OIOST RCUT SDIAE) lb RRM b C XNCD Z i DICO 1960t 1i7ioikb STj ASIA PACII ASAL & PACIFIC AL C SA1 SQ. X) TOrAL 803.9 .039 _0. 227.5 243.3 253.3 i PER cAio Cos) 70.0 130.0 380.0 27M6 1091.2 -00 CinSria FM CAPITA C tELOURANS OF OML EUlIVAIMI) 98.0 139.0 179.0 272.0 567.3 --m mD SO P0PULATIONNID-!EA (CNDOUSAIDS) *5851.0 60,49.0 671Z5.0 RIm PoPULAIO C: or TUML) 22.1 24.9 29.1 21.7 34.7 POPULnTIO rPRWECILS POPULATIO IN EAlt 2000 CILL) 139.6 STATIONARY POPMLATgIO (tXLL) 377.3 POPULATIO Nts 19 POPULATION DEmIT PER SQ. IN. 57.0 752 105.1 166.6 261.9 Pm SQ. D ACIl D 201.5 248B4 333.6 345.5 1735.1 POPULATIOW AGE STWRTURE (C) 0-14 IRS '3.8 46.3 86.1 33.8 39.0 15-1 TIS 51.8 50.5 50.9 59.8 57.6 65 AND AOVE 4.I 3.2 2.7 4.3 3.3 POPULATION GROH RATE CZ) TOrAL 2 3 2.8 3.0 1.9 2.3 URBAN 4.6 4.0 4.3 4.1 4.3 CRUDE ATn RATE (PER THOUS) 48.6 46_6 42.0 27.7 30.1 CRUDE D52 LATE CPU T8W0S) 23.4 19.3 15.4 10.1 9.S CROSS REPROODCTIN RATE 3.4 3.4 10 1_8 2.0 FAJtILY PLAMNING ACPIIIS. AFIIAL C(rW) 1908.1 1244.0 Ic u3SE (: OF mI>RIED IU) . 6.0 id . .. S27 FOD AID NEIrTI T=EX OF FOOD PROD. PER CAPrrA (1969-71-1DD) 89.0 10L0 105.0 112.8 1730 PUL CAPITA SUPPLY OF CACItIES C: OF EEQUZIREIIS) 68.0 106.0 106.0 97.7 114.4 PROEINS (CRAMS PFE DAT) 58.0 65.0 65.0 56.8 57.0 OF WHICH ANIMAL AND PULSE 23.0 22.0 20.0 I 14.9 14.1 CHILD (AGS 1-4) DEATH RATE 25.1 Zl1O 16.8 9.8 7.2 LIF: EXPECT. AT BRTH tEARS) 43.1 46.0 49.8 60.0 60.4 INFAST MORT. RIATE (PElt TIM5) 161.5 143.0 120.9 83.8 66_3 ACCESS TO SAFE WATFR (IFOP) TOTAL .. 21.0 29.0 /f 32.9 37.0 UAN 77.0 60.0 if 70.9 54.8 RURAL .. 4.0 17.0 if 22.1 26.4 ACCeSS TO EXCRETA DISPOSAL CZ OF POPULATION) TOTAL .. 3.0 6.0 la 18.1 41.3 URBAN .. 12.0 21.0 J 72.6 47.4 RURAL .. .. .. 4.6 33.3 POPULATION Pm PsICrAI S'400.0 4300.0/h 3460.0 3484.2 7749.4 POP. PU NURSINC PEltSON 16960.0 180m.0 5820O 4793.1 2460.4 POP. PER HOSPrTAL BED TOTAL 1790.0 1860.0 1560.0 Ic 1066.5 10".2 URBAN 510.0 650.0 710.0 i. 298.0 651.2 RURAL 22650.0 12480.0 1160.0 -. 5993.4 2594.6 A1SSleOS PUER HOSPIL RED .. .. .. 27.0 AVERACE SIZE OF HOUSEILD TOTAL 5.4 5.3 6.1 /c URBAN 5.6 5.5 6.4 i.. RURAL 5.4 5.2 6.0 /c AVERArE NO. OF PEISOIIS/ROOI TOTAL 3.1 2. /t uRBt 3.1 2.7 riT RURAL 3.1 2.8 /. ACCESS TO ELECT. CZ Or DIILLXNGS) TOTAL 17.9 ti uAN .. 54.4 A. RURAL ,,9 4. .. -21- ANNEX I TAULK 3A, PA 2 PAISTAN -SOCIAL IUDDCATORS DkTA SUET PAKISTAN RUZRE GlOWS CREIGKTED AVERA) /a OT CIMT RESE ESTMIDIE) /b ri,EoI LOW D INCiM IL DbcO ISGO& 1970&! Z ~ZSTIAT ASIA & FACIPTC ASIA & PACIFIC AD3USUD EUDUHET RAIO PKDIAMXS TrAL 30.0 40.0 56.0 97.4 102.0 tAsZ 46.0 57.0 78.0 110.5 105.9 FDLl LlO. 22.0 31.0 83.7 9S.2 SEmARYZ TOMTL ILO 13.0 17.0 35.9 46.0 ILUC IS.0 20.0 27.0 44.6 48.7 FUIAIE 0 5.0 7.0 26.8 43.1 1OCA1IDIA. CZ OF SECOEDART) LO 1.5 1.0 Ic 2.2 17.5 PUPL-TEACM RAMo PR1cAZY 39.0 41.0 48.0 38.5 31.8 SECNAI 24.0 20.0 23.0 Ic 18.7 23.5 ADULT LITEACI RVAE (x) 15.4 20.7 ij 24.0 Ic 53.4 72.9 PASSEDR CARS/ZIISANSO POP 1.5 2.6 3.4 0.9 10.1 RAOM RECEHIVE3lDIUSA POP 6.0 17.1 67.0 112.1 113.6 TV UEOEIMESIlSA DOP .. t.6 9.7 15.7 50.1 NExSPAPU CDIY GENERAL IrLEST) CIRCtLAT20 PER DIDISAI POPULATIS 13.2 .. 13.7 /c 16.2 53.9 CIEA A MMDAL ATrENDANC/CAPA 1.7 3.0 l1 2.2 Cc 3.6 3.4 TOTAL uABO FOEc CTHO) 14448.0 17364.0 25240.0 FEMALE (PERET) 8.6 9.3 10.5 33.3 33.5 AGRICULTURE CPERCEST) 61.0 59.0 57.0 69.6 52.2 IDUSTR (PECE3T) 18.0 19.0 20.0 15.6 17.9 PARTICIPATION RATE C(PECET) TOTAL 31.5 28.7 29.0 42.6 38.7 tUZ 55.2 50.4 49.3 54.7 50.9 FEUZ 5.7 5.5 6.0 29.8 26.6 EC0ID*aC DEPENEY RAMO 1.5 1.7 1.8 1.0 1.1 PERM= or PRIVATE INN*D RECEIED AT HIGHES 52 OF HOU1ENLDS 20.3 ALk 17.8 .. ., 22.2 HIGMS 202 OF HOUSEOLDS 45.3 k 1.8 .. .. 48.0 LWEST 20 OF HIOSEHOLSM L.4 IT 8.0 .. . 6.4 LOWIiS 402 OF OUSEOLDS 17.5 JE 20.2 .. 15.5 POIUMT mt Wz COW ESTDIATED ABSOLUSE POVER nEONE LEVEL (USS PEIR CAPITA) URB"A *- 68.0 I1 176.0 Ic 133.9 18S.6 RURAL .. 1.7.0 122.0 Ic 111.6 152.0 ESDIATEO RELATIVE POVErT XllE LEVEL (CSS PER CAPIT) ,,AI 36,0 {1 s s. URBAN .. 34~~~~~~~~~~~~.0 ( 88.0 I .177.9 RMUAL .. 22.0 I1 58.0 tc .. 164.6 ESTISATF POP. BEID1 AB501U1 L POVERTY Tm C LEVEL CZ) URBAN .. 42.0 /1 32.0 fe 3.8 23.4 RAL .. 3.0 fj 29.0 re 51.7 37.7 Or AVAILABLE Mar APPLICABLE N OT E S la The gop awerages for each ldicAtor are popuLetlo-welgbted aritbeeStc some. 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O 60 00 M 500000 4.M~ -0.01 0000. et.490. . 00000 60.31 tI5 -_n... ..2(30. 00. o 0oooo.00K S5 02 00-6 V- R.600.0'040 4l.00 -0 1030W40,-4004at -t100 0 43000S. -ip00.00-00 0.-0I00 071.b6 -9..'o 0.4003 000 tMIl 040100- 000 900..000 .0604 .3 01.0200.90.700 0-01 060. , r So=4 054I0-.0'00-0.0000 p960.00 0 in4000040 06060000 00?9.0000001-0004. 00530000o4 -~i1~L.0.96 000.04. - 04. 100 -7t010. N-f.t&-.404 M p- -1- y 0 ::004 7000 ,,'00) Zoo-l 01 ., 10OO . =0 %3. .. - -r7002000 0.03 0. 00h0.. .900 p0001. . .1 0.8 -00.,...W 60061d 0 .000.0-4 M - -050 0-.0 op-.010. -010.09 P-034 oM oel-0 000001 ..tf.. o-Oo .4.. 0400 -MI 00oSoOlO-o,07.1o.oOI0300 00.004044 0501% 95040M 00.. MI L-00 RI1043 4-0r=s0F.o00 P .036000 -0 -.O is 000660-0.MI.MI40 0 -0000000. 000 66601 090 w36 _,_I00.6P_0 00.01000 - - .0404 39~i 90 .00.4 .044R.= 4004. 97 - 10 00,0t-0000 [v0 10070 e- 0004 4t.0 M --n. .- 9. -06 W01 -60 007 ost C-60 04 *02.. 3. 96t.1. 4-9led t w.1o. -d (....0 00..000..... 90000 01 l 4300-t.000000.z 0.0 . dMI 00=0200 tote- 00064000.140*0040= 0000010. .0000010. 07 pt 0040* 00' 60505000of 0..5. 43. MI 0.02.00603004. 0 4004406 o040005.1P 00 M - 400.0-04 L 0100.24041 MI 1.004 30I 60006 00 R.Mnod0.3 230.01 M 040.0 120000 RS . e..0.bg0w 4064000 0600 . 0 I2 1=0 .. 00. M 000.6401. 010 0 1= 304.MI0 -~ .O .olo o=6 1 .067100I.M 00110om.000 004.0009 601.o1poo.0. O 13ZJoloO0. 0400 t %.&. .0 o-sO 10.60. nS- . 0.0.dOy t000 &-I. 000 .0000 40 4od10 40 oo1400 0. 0oSuo 0 dg 0.3900 04 .0. 400.40000- 7410f0tl.0..? 94 C1600l-.100Mo1tO 60' 00600000.00 9. .001MI.0. -.6e1.*ly.10000..00.0?(00P"0*0- OP.&420.0600 0-140. 400 9.003 M 90.0 000747 030.213 I39 .60000O 400.410p. o004 091000*40 -23- ANNEX I Page 4 of 5 ucogn ic unVOnnnwr DATA GNP PER CAPXTA IN 1982: USS380 LE CRnn Ln&TIOAL PRDDIr m 1983184 lb ANUAL RATE OF CROu (Z. constnt orices) USS Sillion - 196917e-1974175 1975176-1980/81 1981/2 1982183 1983/84 W GNP at market prices 33_68 100.0 3_5 7.1 4.3 7.4 4.2 Gross domestic investmt 5.23 15.5 -5.5 4.1 10.5 9.6 3.4 Gross national saving 4.20 12.5 -..1 6.7 6.9 24.9 -6.5 Current account balance -1.00 -3.0 .. Exports of goods. NFS 3.44 10.2 -3.5 7.3 -5 6 n 5 -3.2 Imports of goods, IIS 7.06 21.0 -7.1 5_5 0.7 1.1 22.0 OUTPUT, LABOR FORCE AND PRODUCrIVrTT IN 1983/84 Value Added Labor Porce /c V. A. Per iorker S Million X -Million S2 5S Agriculture 6.652 24 14.1 51 472 47 Industry ld 8.096 29 5.2 19 1.557 155 Services 12.931 47 8.3 30 1,558 155 Total/Average 27.679 100 27.6 100 190O3 too -OENE FINANCE Central Government If Federal Governmeat (Re billion) X of CDP (Rs billion) : of GDP 1983186 Lf 1983184 1978179-1983/84 1983184 ft 1983184 1978179-1983184 Current receipts 73.2 17.4 16.6 58.2 13.9 12.4 Current expendiures 803 19.1 Z3 5 62.8 15.0 13.2 Current surplus -7.2 -1.7 -6.3 -4.6 -1.1 -0.4 capital expitr 34.2 8.1 9.4 34.2 7.0 8.0 External assistance (net) 6.0 14 2.1 6.0 1.4 2.1 MWNEY- CR1D1T AND PRICB 1974/75 1975176 197617l 1977/78 1978/79 1979/80 1980/81 1981/82 1982M83 1983/84 lb (Ra billion) oney and qa-si nay Li 33.1 41.6 51.7 63.7 76.5 90.7 103.5 113.6 146.0 162.5 Dank credit to public sector 21.2 28.1 36.6 43.5 54.9 61.8 70.9 79.7 95.5 105.6 Dank credit to private sector 16.0 17.8 23.0 26.5 30.9 36.9 41.9 51.3 62.8 77.8 (percentages or index mashers) Honey ad quasi mey as X of GDO 29.5 31.5 34.6 36.7 39.0 38.3 37.0 35.1 40.1 38.7 Consumr price index (1969170-100) 211.3 229.4 256.7 277.0 295.6 331.9 375.4 403.9 418.1 462.0 Annual percentage chnges in: Consumr price index 23.6 8.6 11.9 7.9 6.7 12.3 13.1 7.6 3.5 10.5 BDnk credit to public sector . 32.5 30.2 18.8 26.Z 12.6 14.7 12.4 19.8 10.6 Dak credit to private sector 11.2 29.2 15.2 16.6 19.4 13.5 22.6 22.4 23.9 /a Based an Porld Dank Atlas methodology and calculated at - average of 1980-82 prices ad exchange rates. All other conversions to dollars in this table are at the averge ecbage rate prevailing daring the period covered. lb Provisional. /c Projection for 1983/84. Does not include unemployed labor force. Id Includes namufacurig. mining, constrtion and electricity and gas. /e Conaolidated revenuea and expenditures of Federal and Provincial Governments (excluding Federal-Provincial Government transfers). If Reevised budget data- ft Excluding principal repayments of fareign loan. Capital expenditures me defined in goverant budget include certain curreLt expenditures also. fh Provisioal. fi Metary statistics of Pakistan blv be fully adjuted for desonetized notes, devaluation and revaluation of the rupee, etc. as from Jsne 30, 1975. Data for 1974/15 from State Bank sources are not strictly comparable vitb UT estimates for earlier years. Not applicable. Not aailable. March 1985 -24- Al= I Page S of 5 _ALA_ _ OF PAYMENTS lICECUDISE EXPORTS (AVERAG 197T9180-1983184) 1979180 1980181 M98UM82 1982/13 1983184 US millio n CUSS million) Exports of goods. NFS 2.955 3,461 3.0,52 3.416 3.439 Raw cotton 315.3 11.9 Imports of goods. WFS 5.709 6.466 6.679 6.5BB 7.058 Cotton yarn 214.7 8.1 Resource gap (deficit - -) -2,754 -3.005 -3.627 -3.172 -3.619 Cotton cloth 281.1 10.6 Rice 417.9 15.8 Interest paymeant -285 -357 -453 -421 -477 All other comodities 1.422.4 53.6 Workers reuittances 1.748 2.097 2,224 2,887 2.737 Total 2,651.4 100.0 Other faetor payments (net) 151 274 321 195 359 Met trxnsfers -- Balance on current account -1,140 -991 -1,535 -511 -1.000 EKTEZNAL DEBT. JE 1984 Direct foreign investment _ . _ _ Set MLT borrowing uS$ iilien Disbur semnts 1.134 956 1,102 1,301 1.248 Amortization -310 -516 -49Z -386 -569 Public debt, including guaranteed 9.890.4 Sub-total 824 440 610 915 679 Nan-guaranteed private debt le Trausactions with TKF j- 78 315 358 413 -1 Total outstandisg and disbursed 9,890.4 Other items n.e.i. lb 600 546 315 285 142 Increase in reserves C-) -362 -310 249 -1,102 180 DEBr SERVICE RATIO FOR 1983M84 If Cross reserves (end year) IC 748 1,058 809 1.911 1,731 Petroleum imports Id 1.079 1.535 1,71D 1.610 1,423 Public debt, includinz guaranteed 15.6 Petroleum exports Id 178 126 194 77 40 Non-guaranteed private debt _, Total 15.6 RATE OF ErCAZNE rRlD/TDA LENDING (December 1983) CUSS millioun Throueh Nay 11. 1972 From May 12. 1972-Feb. 15. 1973 IBaD ID USSI - Rs 4.7619 US$1 - Rs 1.00 Outstanding and disbursed 350.7 1,144.7 Rs I - U1 S0.21 rs I - USS0.09 Undisbursed 197.0 617.2 Outstnding including undisbursed 547.7 1.761.9 From Feb. 16. 1973-Jan_ 7. 1982 From July 1981-Jone 1982 1 From Jul- 1982-Jene 1983 Fg From July 1983-June 19B4 kL US$ I - Rs 9.90 US1 - s 10.55 USSI - Rs 12.75 US$1 - Rs 13.50 rs I - US$0.10 Rs 1 - USSO.095 Rs I - DSSO.078 Rs 1 - USSO.074 la Including Trust Fund. Ib Including net short-term borrowing aed errors and emissions. lc Excluding gold reserves of abaut 1.8 million troy ounces. fd Crude and derivatives. le Nan-guaranteed private debt service is n gligible. IE Ratio of actual debt service to exports of goods, factor and non-factor services; debt service includes DIE charges. fg Effective January 8, 1982, the rupee is to be managed with reference to a weighted basket of currencies. The *verage exceange rate shown is vis-a-vis USS for the period sbown. Nat available. March 1985 -25- AUNNEX TI Page 1 STATUS OF BANK GROUP OPERATnonS IN PAnISTAN A. STATEMENT OF BADK LOANS AIND TDA CEDmITS (as of Marcb 31. 1985) 1- C (USS million) Loan/ (Amoent net of cancellations) Credit Fiscal . Undi-- Samber Tear Purpose DAnk TM IDA burued L Ninety-eight loans and credits fully disbursed Lb 761.4 32.0 1,00l.6fL 648 1976 Irrigatica A Drainage (Khairpur) - 14.0 3.5 1366T 1977 Punjab Livestock Development - 10.0 - 3_5 754 1978 Salinity Control & Reclamation - 70.0 66.8 813 1978 Punjab Ext. & Agric. Dev. - 12.5 4.2 877 1979 Salinity Control & Recl. (Nardan) - 60.0 53.6 892 1979 Primary Education - 10.0 3.9 922 1979 Sind Agricultural Extension - 9.0 4.6 968 1980 Third KAPDA Power - 45.0 6.4 974 19W0 Third Higbway - 50.0 20.7 1019 1980 PICIC Industrial Development - 40.0 3.7 1109Le 1981 Vocational Training - 25.0 8.4 11131e 1981 Small Industries - 30.0 0.4 1157/e 1981 Grain Storage - 32.0 16.7 1158/e 1981 Agricultural Research - 24.0 15.1 1163& 1981 On-Farm Water Management - 41.0 13.0 118b/e 1982 Industrial Development (IDBP 'I) - 30.0 4.8 2122 1982 Fourtb Telecommunication 40.0 - 13.8 2172 1982 Fertilizer Industry Rebabilitation 38.5 - 26.5 2247 1983 Reservoir Maintenance Facilities 10.2 _ 10.0 2305 1983 Agricultural Dey. (ADSP V) 10.0 - 5.9 2324 1983 Fifth Shi Northern Gas Pipelines 43.0 - 42.2 1239/e 1982 Irrigation Systems Rehabilitation - 40.0 25.2 1243/e 1982 Baluchistan Minor Irrig. & Agr. - 14.0 10.6 1256ke 1982 Technical Assistance - 7.0 4-7 1278/e 1982 Eleventh Railway Project - 50.0 39.5 134U/e 1983 Lahore urban Development - 16.0 14.0 1350ke 1983 Population - 18.0 14.1 1355k 1983 Coal Engineering - 7.0 6.3 1374/e 1983 Karachi Water Supply - Z5.0 22.0 1375ke 1983 Fourth Drainage - 65.0 58.8 13EO/e 1983 Agricultural Development (.R'P V) - 47.8 17.2 2218 1983 Refinery Engineering Projer 12.0 - 9.0 2351 1984 Petroleum Exploration 51.5 - 48.5 2374 1984 Second Toot Oil and Gas Development 30.0 - 24.2 2380 1984 Industrial Investment Credit 50.0 - 49.9 1439le 1984 Industrial Investment Credit - 50.0 44.6 14611e 1984 Integrated Hill Farming Development - 21.0 19.9 1480ke 1984 Second Technical Assistance - 7.0 6.5 1487 1984 Command Water Management - 46.5 43.3 1499 1984 Second Smll Industries - 50.0 44.0 15321c 19B5 Left Bank Outfall Drain - Stage 1 - 150.0 150.0 1533 i 1985 Baluchistan Agricultural Extension - 8.3 8.3 2499kc 1985 Fourth lAPU Power 100.0 - - 100.0 Total 1,166.6 42.0 2115.9 1,088.3 of vhich hBas been repaid 490.2 3.8 39f 8 Total now outstaneing 676.4 38.2 2.076.1 Amount sold 23.9 of which bas been repaid 23.9 Total now held by Bank rnd IDA/d 676.4 38.2 2.076.1 Total undisbureed 330.0 3.5 754.8 1.088.3 /a The status of the projects listed in Part A is described in a separate report on all Bank/IDA financial projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and October 31. lb Excludes the disbursed -ortion of loans and credits wholly or partly for projects in the former East Pakistan which bave now been taken over by Jangladesh. Ic Not yet effective. Id Prior to exchange adjustment. ke IDA Credits under the 6th Replenishment denominated in SDUR. The principal is shown in US$ equivalent at the time of nego'iation. Disbursed amunts are computed at the market rate on dates of disbursements. LI By using the market rate on dates of disbursements, the current principal for Credit 1066-PAK and Credit 1255-PAZ (both ftlly disbursed) is $42.5 and sU.5. respectively. -26- ANNEX II Page 2 B. STATEMENT OF IFC INVESTMENTS (as of March 31. 1985) Fiscal Auouut In USS Million Year Obligor Tvpe of Business Loan Equity Total 1958 Steel Corp of Rolled Steel Pakistan Ltd. Products 0.63 - 0.63 1959 Adamjee Industries Ltd. Textiles 0.75 - 0.75 1962- Gharibwal Cement 1965 Industries Ltd. Cement 5.25 0.42 5.67 1963- PICIC Development 1969- Financing - 0.52 0.52 1975 1965 Crescert Jute Products Textiles 1.84 0.11 1.95 1965- 1980- Packages Ltd. Paper Products 19.25 0.84 20.09 1982 1967- Pakistan Paper 1976 Corp Ltd. Paper 5.38 2.02 7.40 1969 Davood Hercules Chemicals Ltd. Fertilizers 1.00 2.92 3.92 1979 Milkpak Ltd. Food and Food Processing 2.40 0.36 2.76 1979 Pakistan Oilfields Ltd. and Attock Chemicals and Refinery Ltd. Petrochemicals 29.00 2.04 31.04 1980 Fauji Foundation Woven Polypropy- lene bags 1.78 - 1.78 1980 Premier Board Mills Ltd. Particle Board 2.70 - 2.70 1981 Habib Arkady Food and Food Processing 3.15 0.16 3.31 1982 Asbestos Cement 4.02 - 4.02 1983 Pakistan Petroleum Chemical and Ltd. Petrochemicals 99.32 1.56 100.88 1985 National Dev. Money and Leasing Corp. Capital Market. 3.44 0.38 3.82 Total Gross Commitments 179.91 11.33 191.24 Less: Cancellations, Terminations, Repayments and Sales 131.59 0.38 131.97 Total Commitments Now Held by IPC 48.32 10.95 59.27 Undisbursed (including participants) 68.70 0.70 69.40 -27- Annex III PAKISTAN e. sFIFTH uAPDA POWER PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare project: Six months. (b) Agency which prepared project: WAPDA. (c) Date of first presentation to the Bank and date of first Bank mission to consider project: April 1984; September 1984. (d) Date of departure of appraisal mission: November 5, 1984 ge) Date of completion of negotiations: April 18, 1985. (f) Planned date of effectiveness: September 1985. Section II: Special Bank implementation Actions: None I Section III: Special Conditions: None. The following would be additional conditions of effectiveness (paragraph 48): (i) approval by ECNEC of the PC-1 document for the project; and (ii) introduction of a tariff increase that would enable WAPDA tc finance in FY86 at least 40Z of its investment program from internally-generated funds. LAHORE RING us ss It D---a-p- <>^~~~SHM KAf KU-_ AGAKNISTAtd ' _- INDIA A ~~~~IDO \ 70' / ,i VI 0- I-. . \ tX H N ,1 P {/ ~~~~~~~~P A K I S T A N ° # 7 g .L ~~~~~FIFTH WAPDA POWER PROJECT ,,- ",, , a j .............. _ /MAIN POWER STATIONS AND 6 (d' ^ ;;/Zy,$Y Xr °/ ~~~TRANSMISSION LINES FAISALABAD RING ~~~~~~~~~~~~~~EXSTG LANE FROECrPROEC s) "-&£ < ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RNINISSI55 tI>IES S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~WL 04*)* \ & ' E EJW ttX~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~6,3 2 *°° 0 _ w151.A?aD 's 1. 4E S N 0 4D r bXTEN ES * . r . , FIT WAD POWE PROJEC | _ 4 o IllO 2o1DIUtES ' . D~~~~~~~~~~~~0 So MAIN POWR ST 'ATION A UN3F TRASMSSONLEINES C, A~~~~~~~~~~~~~O 4 PIER !IhUNE - -- - ~~~gTENAIDON"SIDA 4rabi an~~~~~~~~~~~~~~~~~~ 12I l NUCLEAR LE or, 74