Identifier
Created
Classification
Origin
08ISLAMABAD3400
2008-10-28 11:56:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:  

SUPPORT FOR OPIC-BACKED FUNDS AND INTERGEN POWER PROJECT

Tags:  ECON EAID EFIN EINV ENRG PREL PK 
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UNCLAS SECTION 01 OF 02 ISLAMABAD 003400 

SENSITIVE
SIPDIS

REFS: A) SECSTATE 103210 B) OPIC Press Release 9/19/08

E.O. 12958: N/A
TAGS: ECON EAID EFIN EINV ENRG PREL PK
SUBJECT: SUPPORT FOR OPIC-BACKED FUNDS AND INTERGEN POWER PROJECT

ISLAMABAD 00003400 001.2 OF 002


UNCLAS SECTION 01 OF 02 ISLAMABAD 003400

SENSITIVE
SIPDIS

REFS: A) SECSTATE 103210 B) OPIC Press Release 9/19/08

E.O. 12958: N/A
TAGS: ECON EAID EFIN EINV ENRG PREL PK
SUBJECT: SUPPORT FOR OPIC-BACKED FUNDS AND INTERGEN POWER PROJECT

ISLAMABAD 00003400 001.2 OF 002



1. ( SBU) Summary. Post expresses its support to OPIC-backed funds
investing in renewable energy in Pakistan. In addition, Post
received updates from OPIC and Intergen regarding the proposed 158
MW power plant in Laachi. Post understands that OPIC has decided to
hold off financing the deal until the Pakistani business climate for
power projects improves or until the government of Pakistan's
financial situation recovers. Intergen is looking for other methods
of finance, including Chinese investors and alternatively is
considering moving the project site to 40 km south of Islamabad.
End Summary.

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PAKISTAN'S ENERGY SHORTAGE
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2. (SBU) Pakistan is currently experiencing a significant power
shortage. Government of Pakistan (GOP) officials have reported that
the power supply shortfall in Pakistan has increased to an all time
high of 6000 megawatts (MW) from previous highs of 4500 MW. The
increase stems from a 34 percent domestic water shortage which has
further reduced hydropower generation while maintenance activities
in several major gas fields have resulted in a suspension of natural
gas deliveries. This shortage has led to prolonged electricity
blackouts, which are known locally as load shedding, and occur in
every region of the country and effect every demographic. Some
cities currently experience 18 to 20 hours per day on the extreme
end of the domestic spectrum and others such as privileged Islamabad
"only" suffer from 8 hours per day. Energy experts predict that
power outages will further increase in the upcoming winter months as
water levels drop.

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POST SUPPORTS PRIVATE EQUITY INVESTMENT IN PAKISTAN
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3. (SBU) In response to Reftel A, Post welcomes OPIC's efforts to
encourage investments in private equity in the renewable energy,
resource efficiency and water sectors in emerging market countries.

There is a definite need and desire for investment in these sectors
in Pakistan due to domestic shortfalls. Post would welcome and
support any investment in renewable energy such as hydro, wind, or
solar power.


4. (SBU) Post will also support any investment in Pakistan by the
recent OPIC-backed funds, which include Middle East & Asia Capital
Partners Clean Energy Fund II, South Asia Clean Energy Fund, and FE
Global Clean Energy Services Fund IV (Reftel B). OPIC is financing
a combined USD 205 million in these funds to promote renewable
energy. This will provide a significant pool of capital which Post
would like to see invested in the Pakistani energy sector.

- - - - - - - - -
INTERGEN PROJECT
- - - - - - - - -

5. (SBU) INTERGEN, a Pakistani company composed of investors from
Interconstruct, a large Pakistani construction company, has been
working to develop a 158 MW power plant in Laahi, in the Kohat
district of the North-West Frontier Province (NWFP). US investors
are providing 25 percent of the equity of the project, allowing them
to qualify for OPIC financing. Total capital costs were estimated
at USD 196 million and it was initially intended to be fueled by
natural gas, but was later switched to heavy fuel oil because of
insufficient natural gas supplies. The power plant would supply
electricity to a particularly energy starved region of Pakistan.


6. (SBU) Post received a copy of the letter that OPIC will be
sending to Intergen Private Ltd. OPIC has decided to delay moving
forward with the power plant in Laachi due to "serious issues"
facing the power sector in Pakistan. OPIC has said, however, that
they would be willing to approve the project if either of the
following two provisions are met: 1) the government credit enhances
its payment obligations in the implementation agreement with hard
currency off-shore deposits or 2) the government's financial
situation improves significantly and the market conditions for
Independent Power Producers (IPP) become more sustainable due to an
improvement in the long-term prospects of the IPP contractual
arrangements being met by the power offtakers. Post still feels

ISLAMABAD 00003400 002 OF 002


strongly that this project is worth pursuing and will contribute to
the overall USG efforts to stabilize this region.


7. (SBU) EconOff spoke with Ermeena Asad Malik from Intergen
regarding the project. Malik has not received official notification
from OPIC yet but says they have been pursuing alternative means of
financing the project. Intergen has pursued several promising leads
but Malik says that potential investors are waiting for
international markets to settle and recover from recent downturns.
They are also waiting to see how the security situation in Pakistan
plays out. Malik expects to have the financing settled by March
2009, though they had originally anticipated end of calendar year

2008. Malik hopes to attract US investors for the project but has
recently been aggressively courted by Chinese investors. She prefers
US or Western investors because they are "easier to work with" and
their processes are more "streamlined." In addition, the project
site may be moved from Laachi to Chakri, 40 km south of Islamabad
due to security concerns.


8. (SBU) Comment: Based on preliminary conversations with OPIC
officials, Post believes that support for Intergen is exactly the
type of project the USG should promote. It encourages economic
development and supports US foreign policy in an emerging market.
Post will continue to support any OPIC-backed private equity funds
and projects, especially those investing in the renewable energy
sector. Pakistan's energy deficit is so extreme that any investment
in the energy sector, especially by US investors, is welcomed and
actively courted by senior GOP leadership. End Comment.

PATTERSON