VZCZCXRO6515
RR RUEHLH RUEHPW
DE RUEHIL #3400/01 3021156
ZNR UUUUU ZZH        ZDK  REF UR SERVICE 0009
R 281156Z OCT 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 9512
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHML/AMEMBASSY MANILA 3055
RUEHBUL/AMEMBASSY KABUL 9314
RUEHNE/AMEMBASSY NEW DELHI 3948
RUEHLO/AMEMBASSY LONDON 8968
RUEHKP/AMCONSUL KARACHI 0525
RUEHLH/AMCONSUL LAHORE 6261
RUEHPW/AMCONSUL PESHAWAR 5097
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHINGTON DC

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. 
 
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INTERGEN PROJECT 
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¶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