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RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
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RUEKJCS/SECDEF WASHINGTON DC

UNCLAS SECTION 01 OF 03 ISLAMABAD 000306 
 
SENSITIVE 
SIPDIS 
 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR EINV ENRG PK
SUBJ: OPIC TO BRING MUCH NEEDED CREDIT TO PAKISTAN 
 
¶1.  (SBU) Summary and Introduction:  Given Pakistan's tight credit 
markets, OPIC Vice President for Structured Finance Robert 
Drumheller's second visit in as many months was enthusiastically 
received by the Pakistani business community.  The January 27 to 29 
trip focused primarily on the energy sector.  Petroleum Minister 
Naveed Qamar thanked OPIC for its support of the 4Gas LNG import and 
re-gasification terminal, which had led to the GOP formally 
approving the project on January 26.  OPIC, General Electric (GE), 
and Pakistan's Alternative Energy Development Board (AEDB) presented 
a joint brief on opportunities in the wind sector to 15 prospective 
energy investors.  OPIC VP held preliminary meetings with a number 
of firms interested in investing in thermal, hydroelectric, and 
solar power generation.  In addition, OPIC VP identified potential 
projects in telecommunications, hospitality and Small and Medium 
Enterprise (SME) lending.  Drumheller will return to Pakistan in 
March to follow up on these potential projects.  End Introduction 
and Summary. 
 
GOP Approves OPIC-financed LNG Re-gasification Terminal 
--------------------------------------------- ---------- 
 
¶2.  (SBU) In a meeting with OPIC VP and Ambassador, Minister of 
Petroleum and Natural Resources Naveed Qamar said that Pakistan's 
cabinet-level Economic Coordination Committee (ECC) had given the 
green light to American-owned 4Gas to build a floating LNG 
re-gasification terminal in Port Qasim, near Karachi, with the 
decision to proceed, based in large part on OPIC financing.  The 
$170 million project (phase I) would process 3.5 million tons of LNG 
a year by early 2011, helping to reduce Pakistan's natural gas 
shortages by 500 mcf/d.  Qamar said that the GOP could absorb 
additional gas supplies and requested that OPIC support other LNG 
re-gasification projects by Vitol-Fauji and the Associated Group. 
Qamar added that the ECC has yet to approve the second $500-$600 
million phase of 4Gas project for a landed re-gasification facility. 
 OPIC would consider funding this phase jointly with the World 
Bank's International Finance Corporation (IFC)and other commercial 
lenders. 
 
¶3.  (SBU) Qamar said the ECC had yet to finalize a gas supply 
contract for the 4Gas facility, but that this would not impact on 
the 4Gas award.  He added that he would meet with the two leading 
gas suppliers, GDF-Suez and Shell, to discuss supply terms on 
January 28.  (Note:  According to Petroleum Ministry sources the 
January 28 meeting did not lead to a final decision.  The Ministry 
is split between supporting the GDF-Suez supplies, which are cheaper 
but on a shorter term contract, and Shell supplies, which are more 
costly but longer term.  End note.) 
 
OPIC and GE Make Pitch for Wind Energy 
-------------------------------------- 
 
¶4.  (SBU) In 2004 Pakistan's Alternative Energy Development Board 
(AEDB) designated a wind corridor in Sindh and since then has 
awarded 102 letters of intent (LOIs) to potential investors to build 
50 Mw wind farms in the corridor; of these, 49 LOIs remain active. 
The AEDB has placed a guarantee on wind availability, and Pakistan's 
energy regulator NEPRA has set tariffs for wind power at an average 
of 12 cents a kw/h, less than the tariff for most thermal plants. 
However, only one firm, Zorlu, has put up a wind farm, and its farm 
only produces 6 Mw.  Tight credit markets combined with the lack of 
successful model projects have inhibited investment in the sector, a 
gap OPIC is looking to fill. 
 
¶5.  (SBU) OPIC and GE, under the auspices of the AEDB, presented a 
scheme that would allow for OPIC financing to wind energy projects 
without significant U.S. equity investment to 15  potential 
investors.  GE currently only provides operation and maintenance 
(O&M) for up to 2 years for its wind turbines, but is actively 
investigating the possibility of extending O&M up to 10 years, which 
could provide enough U.S. participation to allow non-U.S. equity 
investors using GE equipment to secure OPIC financing.  (Note:  OPIC 
needs to review this approach with the incoming OPIC President.  End 
note.)  Potential investors were concerned that the GE product would 
not be able to operate in the high temperatures (often exceeding 110 
 
ISLAMABAD 00000306  002 OF 003 
 
 
degrees) during the high wind summer season. A number of investors 
said they would try to attract U.S. investors to meet the OPIC U.S. 
equity threshold, and would contact OPIC if they were successful in 
doing so. 
 
 
Other Energy Opportunities 
-------------------------- 
 
¶6.  (SBU) The Associated Group is seeking OPIC financing for its 
$155 million Star Thermal Power Project, a 134 Mw plant in Daharki, 
Sindh, which would burn captive low btu natural gas from a dedicated 
field not connected to the national gas grid.  OPIC will confirm 
whether there is a sufficient U.S. equity stake in the project in 
follow-up meetings with Associated Group's U.S. partner, Walter's 
Power, and if so will issue the U.S. investor a letter of interest 
with a copy sent to Pakistan's Private Power and Infrastructure 
Board (PPIB). 
 
¶8.  (SBU) Orient Power, which has a U.S. equity stake, is planning 
to build a number of 25 Mw thermal power plants in various locations 
that would run on natural gas from small, isolated gas fields off 
the national gas grid.  Orient is also looking to put up a number of 
2 Mw solar power projects at roughly $8 million each.  Orient 
believes that, though the initial capital outlay for solar is high, 
solar plants can provide power at a lower cost than plants running 
on refined fuel oil.  Orient Power and OPIC will investigate a means 
to bundle the small thermal and solar projects into a larger 
facility to fund a number of them at one time. 
 
¶9.  (SBU) Asian Energy Ventures Limited (AEVL) is pursuing an $84 
million hydroelectric power project on the Chashma Jhelum Link Canal 
in Punjab that would produce 44 Mw.  AEVL has identified interested 
U.S. investors but their project could be blocked by Sindh 
provincial authorities concerned about the projects effect on 
potential water flows from Punjab to Sindh.  OPIC is meeting with 
the investors in Washington, DC to clarify the status of the 
project. 
 
¶10.  (SBU) Azur Solar, a German company with a joint venture with a 
U.S. company, is considering building a pilot solar project in 
Pakistan to demonstrate the viability of solar power.  OPIC 
encouraged Azur Solar to have its U.S. partner contact OPIC to 
discuss possible projects. 
 
Other Investment Opportunities 
------------------------------ 
 
¶11.  (SBU) Telecommunications.  Tower Share, a UAE firm in the 
process of obtaining U.S. investors wants $40-60 million in OPIC 
financing to purchase existing towers and build additional ones for 
the Pakistani cell phone market.  Currently, there are 5 mobile 
telecom providers in Pakistan with huge inefficiencies of scale, as 
each has built competing transmission towers.  Tower Share would 
reduce operating costs across the sector by leasing shared towers to 
multiple providers.  They have an existing pilot contract from Ufone 
and are seeking to expand the number of towers in a phase two 
contract. 
 
¶12.  (SBU) Hospitality.  OPIC is in an early stage conversation with 
a local investor who has a contract with Marriott to construct a 34 
story 5-star hotel in Lahore.  The contract with Marriott 
establishes sufficient basis for OPIC to provide financing.  OPIC is 
in the process of obtaining additional details. 
 
¶13.  (SBU) Finance for Small and Medium Enterprises (SMEs).  Large 
banks primarily lend to the public sector and large industrial and 
commercial firms, while micro-finance institutions serve the bottom 
of the credit market, leaving SMEs out of the mix.  Tameer 
Microfinance would like to fill this gap by expanding its business 
from micro-lending to SME lending.  Tameer is preparing a proposal 
for a $4-5 million USAID grant to support the expansion of its 
business to SME lending as well as provide risk capital.  In turn, 
OPIC would provide Tameer a $30 million lending facility. 
 
 
ISLAMABAD 00000306  003 OF 003 
 
 
¶14.  (SBU) Comment:  The global economic downturn combined with 
tight Pakistani credit markets has led to a slowdown in private 
sector investments.  Foreign direct investment fell from $5.4 
billion in FY 07-08 to $3.7 in FY 08-09, with U.S. investment 
falling from $1.31 billion to $870 million in the same period.  The 
overhang of some $4 billion of "circular" inter-corporate and bank 
debt in the energy sector, though it is being serviced by the GOP, 
has further squeezed new investments in the sector.  However, the 
investment climate in Pakistan is generally favorable, with little 
hindrance to movements of human resources, capital and profits. 
Hence, there is a huge thirst for OPIC's credit facilities.  OPIC 
plays a key role in our strategy to bolster Pakistan's private 
sector and economic growth.  End Comment. 
 
¶15. (U) This cable was coordinated and cleared by OPIC. 
 
PATTERSON