The loan will fund construction of 404MW gross capacity Uch-II, located on surplus land at the existing Uch-I site. — File Photo

The loan will fund construction of 404MW gross capacity Uch-II. Located on surplus land at the existing Uch-I site, the project would be developed by a British power company. The plant is expected to take 30 months and would be completed in September 2013.

An ADB report related to the project states that the project will address the country's growing energy deficit by adding net 375.2 MW or 8.9 per cent of the energy shortfall and promote higher energy efficiency in the country's power generation mix by commissioning a combined cycle power plant fueled by a low BTU gas.

The project by using domestic gas decreases reliance on imported oil and diesel fuel for power generation, thereby relieving pressure on precarious foreign exchange reserves. In addition, the project stimulates employment and economic growth in Balochistan, it says.

The project will tap gas from the Uch field about 47km from the site, with electricity supplied to the National Transmission and Dispatch Company (NTDC) under a 25-year take-or-pay power purchase agreement.

The tariff structure will ensure that electricity is both affordable, and that the project is financially viable, with the operator able to recover costs. The facility will also lead to new jobs in a remote and economically deprived area of Balochistan, with up to 800 jobs created during construction.

“Along with helping to address the current power shortfall, the project will tap an underused indigenous energy source to provide affordable electricity, which will help reduce expensive oil imports, relieve stress on Pakistan's foreign exchange reserves, and support overall energy security,” said Michael Barrow, Director in ADB's Private Sector Operations Department.

Pakistan currently faces a shortfall of power which is expected to continue. Brisk pace of economic activity, rising levels of income of people, the double digit growth of large scale manufacturing, higher agricultural production and village electrification programme have all resulted in higher demand of power in Pakistan.

Regular outages affect all major urban centers, with shops and factories often closing early as a result of energy rationing. The shortfall in supply has reached over 22 per cent of the country's peak demand and the problem is set to worsen without new generating capacity.

Industry debt, which has undermined revenues for distribution firms and forced generating companies to halt, delay, or reduce payments to fuel suppliers to balance cash flows, has deterred private investment and hampered development of the power sector.