ISLAMABAD:
The government has decided to raise debt from the domestic capital market by issuing Pakistan’s first sustainable investment asset-backed Sukuk bonds for funding three clean energy projects, which need Rs52 billion more for completion.
The bonds will be issued under the newly approved Sustainable Investment Sukuk Framework, which the federal cabinet approved this month to raise more debt for funding sustainable and social projects.
The size of the first Sukuk might be in the range of Rs30 billion, according to finance ministry officials.
Initially, the finance ministry is planning to fund the construction of the Garuk storage dam in Balochistan, the Naigaj dam in Sindh, and the Shagarthang hydropower project in Skardu, according to the officials. These projects are already under construction; however, the government needs an additional Rs52 billion for completion of the work, they added.
It will be the first green Sukuk to be issued by the government. The Water and Power Development Authority (WAPDA) had also issued a Sukuk in 2021 to raise Rs6.4 billion for the Tarbela dam extension project.
The cost of the Garuk Dam, located in District Kharan of Balochistan, has substantially increased to around Rs28 billion due to delays in the execution of work and an enhanced scope of work. The government needs another nearly Rs5 billion to complete the work.
Likewise, the cost of the Nai Gaj Dam project in Khairpur Nathan Shah, Sindh, has also significantly increased, and it was first inaugurated in 2005. The government requires Rs22 billion for completion of the remaining work.
The government has also approved the Shagarthang hydropower project, and it requires Rs25 billion in funding for generating 26 MW of electricity to electrify Skardu city and its adjoining areas.
Finance ministry officials said that the asset-backed nature of Sukuk will enable the financing of tangible projects with measurable Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG) impact.
The government plans to issue a series of sustainable investment Sukuk, including Green Sukuk, Social Sukuk, and Sustainability Sukuk, to fund environment-friendly and social projects. These projects will have to be in line with the National Adaptation Plan, National Climate Change Policy, Nationally Determined Contributions, and the National Climate Finance Strategy of the Government of Pakistan.
Among the projects that can be funded include solar, wind, hydroelectric, and biomass energy projects that significantly reduce carbon emissions. The projects should enhance energy storage capabilities and grid integration and upgrade infrastructure in industrial, commercial, and residential sectors to reduce energy consumption.
Projects aimed at reducing waste and emissions, improving air and water quality, and financing cleaner transport to reduce carbon emissions can also be funded by raising debt through these instruments.
The issuance of Green Sukuk, Social Sukuk, and Sustainability Sukuk offers a unique and viable financing mechanism that aligns with Islamic finance principles while mobilising necessary capital for impactful projects, said the finance ministry officials.
The government can raise debt from the capital market for clean energy vehicles, including electric, hybrid, and public transport. The development of low-cost housing projects and essential infrastructure such as roads and schools in underserved areas can also be funded by floating these bonds.
According to the framework, the Planning Commission will propose potential green, sustainable, and social projects intended to be financed through sustainable investment Sukuk. The proposed project must fall within the broad categories of green, sustainable, and social projects. The potential benefits to be derived from the project should also be aligned with the approved framework. The project completion timeline should be within the tenor of the applicable Sukuk.
The outstanding funding requirement, net of any internal or external financing already taken for the project, should be at least equal to or higher than the proposed Sukuk issuance value, according to the framework.
The bond can also be floated against the asset in case there is no outstanding funding requirement for the project, but the government intends to refinance the project by settling the currently availed funding from any other internal or external creditor.
The proposed projects will be evaluated and selected by a joint committee. The committee will comprise the Ministry of Finance, Ministry of Planning, Ministry of Climate Change & Environmental Coordination, Ministry of Economic Affairs, and the State Bank of Pakistan.
The project evaluation and selection committee would evaluate the proposed projects in accordance with its approved terms of reference. The committee may develop internal criteria and quantify the assessed benefits of the proposed projects for the purpose of project evaluation.
The government can attract both domestic and international investors, facilitating the funding of projects that promote renewable energy, improve public health, and enhance infrastructure in underserved communities.
