Imran Ahmad Additional Director Infrastructure, Housing & SME Finance Department State Bank of Pakistan

Energy Crisis - Energy Demand & Supply Position  Total primary energy supply for year was MTOE  More than 99% of use through conventional energy sources  Heavy reliance on expensive sources of energy, as 80 % from petroleum products  12.7% from large hydro and nuclear power  6.0% from coal  Less than 1% through micro/mini renewable energy (RE) sources  Pakistan's total energy savings potential: 418,807 TJ (11.16 MTOE)  In FY , this amounted to 17.25% of primary energy use!!!  Insufficient Installed power generation capacity ~ 24,375 MW of which 67% is thermal  Electricity shortfall of around 5000 MW during peak hours (Source: NEPRA’s State of Energy Report 2014) 2

Electricity Shortfall –Costs to Society (Examples) Total primary energy supply for year was MTOE More than 99 % of use through conventional energy sources Heavy reliance on expensive sources of energy, as 80 % from petroleum products 12.7 % from large hydro and nuclear power 6.0 % from coal Less than 1 % through micro/mini renewable energy (RE) sources Pakistan's total energy savings potential: 418,807 TJ (11.16 MTOE) In FY , this amounted to 17.25% of primary energy use!!! Insufficient Installed power generation capacity ~ 24,375 MW of which 67% is thermal Electricity shortfall of around 5000 MW during peak hours (Source: NEPRA’s State of Energy Report 2014) 3

Electricity Shortfall –Costs to Society (Examples) Citizens’ Quality of Life: wasted prime work hours, mental agony, sleep deprivation, and other health issues Businesses: Idle capacity, reduced productivity, labor wages, expensive self- power generation. Exports: Reduced Competiveness, Difficulty in meeting production/ delivery targets. Agriculture: Reduced productivity Consumers: Inflation due to high production costs of consumable goods. GDP Growth: Electricity Shortfall costs 2% in GDP growth (Source Vision 2025). 4

Renewable Energy Potential Alternative Energy SourcePotential Solar2,900 GW Wind340 GW Large Hydro40 GW Small Hydro3.1 GW Bagasse /Biomass1.8 GW Waste500 MW Huge Potential: Potential of More than 3,200 GW. Low Exploitation: Only 7,116 MW of Hydro Potential is exploited. 5

Renewable Energy Potential Investment Matrix The industrial sector in Pakistan has long been suffering owing to unavailability of energy (load shedding for gas and electricity):  Part of this energy deficiency could be met by Renewable Energy (“RE”)  Potential for private sector involvement: about USD 2.0 billion for 800 MW of installed capacity Sector \ TechPhotovoltaic SWH (Solar Water Heater) Wind Energy Cement Leather Paper Sugar Textile Processing Textile Spinning Fertilizer Others Source: IFC’s Market Study on Sustainable Energy Finance 6

Investment Potential RE and EE Projects The investment potential in energy efficiency and renewable energy is estimated to be 1.75 trillion PKR. The split by sectors: Agriculture 46% Industrial 38% Residential and commercial 16% Demand and supply are not converging into substantial levels of energy related financing portfolios for the banks/DFIs … a challenge for banks/ DFIs Source: IFC’s Market Study on Sustainable Energy Finance 7

Alternative Energy Financing – Challenges for Banks  Engineers are not in underwriting teams: Technical skills required to evaluate energy related financing application  Technology Apprehensions: Efficiency and reliability of alternate energy technologies is not demonstrated  Vendor Issues: Unavailability of performance guarantees and/or after-sale service from vendors  Energy Equipment Supply Market: Small sales market and underdeveloped secondary market for energy equipment  Support Networks: Underdeveloped support networks  Legal Court Issues: Slow arbitration of banking disputes  Security/Collateral issues: SMEs lack collaterals and Small energy equipment can be moved. Source: Market Interactions 8

SBP Initiatives….. Promotion of Green Banking - Focus on low carbon emissions and resource efficiency Future Plans – Green Banking Guidelines – Leading by Example – Greening SBP premises Joining IFC’s Sustainable banking Network Facilitation to IFC for ESRM Baseline Survey Measures for Environmental and Social Risk Management Future Plans – Guidelines for ESRM Trainings / Awareness sessions for banks/ DFIs Plans for next year - 4 Awareness Sessions and - 2 Trainings on Credit Evaluation and Risk assessments Refinancing Scheme for Financing Power Plants (Continues….). 9

Scheme for Financing Power Plants Facility was introduced in December 01, Objectives:  Meeting growing electricity demand through renewable energy projects in the country  To resolve liquidity issue for Financing Renewable Energy Projects  Affordability of Cost of Borrowing 10

Scheme for Financing Power Plants…………………Cont’d Eligibility:  New Projects upto a maximum capacity of 20MW.  Subject to Fulfilling of Requirements of:  AEDB  Government Regulatory authorities  New imported/local Machinery for establishment of power plants using Renewable Energy. (e.g. wind, hydel, biogas, solar power, geo thermal etc) 11

Scheme for Financing Power Plants …………………Cont’d Scheme for Financing Power Plants …………………Cont’d … Financing Maximum Financing Limit: Rs. 3 billion Validity: June 30, Period of Financing: Maximum tenor is 10 years Grace period of max. 2 years 12

Banks to evaluate request with in their lending policies and terms and conditions of SBP Facility 100% refinance by SBP for banks’ financing against: Purchase of new imported and locally manufactured machinery and equipment. LCs established from December 1, 2009 to June 30, Scheme for Financing Power Plants………………….Cont’d Scheme for Financing Power Plants………………….Cont’d … 13

14 Tenor Rate of Refinance Banks’/ DFIs’ Spread End Users’ Rate Up-to 5 years 5.0%2.50% 7.50% Over 5 years and up-to 10 years 4.5%3.00% Tenor & Pricing: Scheme for Financing Power Plants

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