Despite being a land of immense resources, Pakistan continues to struggle with a large energy deficit due to problems such as political instability and an absence of coordinated policy implementation. Yet with the government now focusing on the energy sector as a cornerstone of the nation’s five-year economic strategy and a key vehicle for economic growth, this looks set to change – and opportunities for Islamic investment are suddenly looking a lot more attractive.
According to a report by Insaf Research Wing, Pakistan last year was faced with a circular debt of approximately PKR600-700 billion (US$5.54-6.47 billion) consisting of loans from local banks to fund the widening power deficit; while the government was paying about PKR40-50 billion (US$369.48-461.85 million) in interest to banks.
“The energy crisis in Pakistan actually presents itself as an attractive investment opportunity for investors, especially Islamic investors,” explained a Pakistan-based banker to Islamic Finance
news. “It’s a win-win situation not only because the power industry is lucrative and demand is high – so it guarantees returns to investors – but also because the government will be able to save on high interest rates.”
This potential has not gone unnoticed by the government, and in London last week a Pakistani delegation led by finance minister Ishaq Dar and Punjab chief minister Shahbaz Sharif presented to the World Islamic Economic Forum on the investment opportunities inherent in the country, particularly in the Punjab power sector. It has been reported that if executed properly, a minimum of US$5 billion could be raised from the global Islamic finance market through energy Sukuk, with the presentation reportedly identifying numerous projects offering a return on equity of 17-20%.
In the last two months, several key Islamic finance markets have already expressed keen interest in investing in Pakistan’s energy sector. In August this year Qatari firm QInvest signed an MoU with the federal and Punjab government and China National Power in a deal worth over US$5 billion to set up power projects generating over 6,600MW over the next five years. In September, a delegation of leading Turkish companies including Nurol Group, LIMAK Group, SANKO and Albayrak Group met with prime minister Nawaz Sharif and Punjab minister Shahbaz to confirm their interest in power projects in the region.
The UK’s senior foreign office minister Baroness Warsi, the co-chair of the UK Islamic Finance Task Force, also recently hosted an event in collaboration with the chief minister of Punjab to boost cooperation in the energy sector between the two countries.
The Pakistani government is clearly making a significant push to attract energy investors into the republic – and has so far met with an enthusiastic initial response. What is now needed is a comprehensive and effective strategy to convert those opportunities into Shariah compliant investments. –
VT