The loan, scheduled to be issued in April, was delayed due to government's failure to implement key conditions imposed by the bank.
After the government fulfilled over half a dozen conditions, including setting up an independent entity to purchase electricity from producers, the loan was finally approved by the World Bank (WB). Finance ministry confirmed in a statement yesterday that " USD 500 million loan was approved".
The loan will be utilised for budget financing, unlike project loans that are used for creating assets, it said. Among the conditions met included giving an application to the power sector regulator for determining multi-year electricity tariffs to make power distribution companies attractive for privatisation.
The government also agreed to submit the Energy Efficiency and Conservation Bill to the parliament. It also agreed to set up the Central Power Purchasing Agency (CPPA) Guarantee Limited.
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The WB and the Asian Development Bank (ADB) had decided to give USD 2 billion to Pakistan for energy sector reforms under a medium-term programme. The programme was part of USD 10 billion that the international lenders had agreed to provide over a period of three years.
The amount included USD 6.6 billion bailout package of the International Monetary Fund. In May last year, Pakistan received USD 1 billion as first tranche from both the international financial institutions.
The second tranche of roughly the same amount was scheduled to be approved in June this year, which the WB and the ADB delayed due to the federal government's inability to implement the promised reforms. Long hours of power outages has been haunting Pakistan for about a decade.
The Pakistan government is working on several projects and has announced to include more than 10,500 MW in the national grid by the end of 2018, when the first phase of the ambitious USD 46 billion China-Pakistan Economic Corridor is expected to be completed. Pakistan will also produce 40,000 MW of electricity through nuclear power plants by 2050 to overcome frequent outages.