Govt moves to raise funds via sustainable investment Sukuk

April 22, 2025 (MLN):The government has decided to raise debt from the domestic capital market by issuing Pakistan's first sustainable investment asset-backed Sukuk bonds to fund three clean energy projects.

The bonds will be issued under the newly approved Sustainable Investment Sukuk Framework, which received federal cabinet approval this month.

The framework aims to support the financing of sustainable and social sector projects through domestic capital market instruments.

According to finance ministry officials, the size of the first Sukuk issuance may be around Rs30 billion.

Initially, the finance ministry plans to fund the construction of the Garuk storage dam in Balochistan, the Nai Gaj dam in Sindh, and the Shagarthang hydropower project in Skardu.

These projects are already under construction, as per the press release.

It will be the first green Sukuk to be issued by the government. Previously, the Water and Power Development Authority (WAPDA) issued a Sukuk in 2021 to raise Rs6.4bn for the Tarbela dam extension project.

The cost of the Garuk Dam, located in District Kharan of Balochistan, has increased to around Rs28bn due to delays in execution and an expanded scope of work.

Likewise, the cost of the Nai Gaj Dam project in Khairpur Nathan Shah, Sindh, has also risen significantly.

The government has also approved the Shagarthang hydropower project, which aims to generate 26 MW of electricity to supply Skardu city and surrounding areas.

Finance ministry officials stated that the asset-backed nature of the Sukuk will allow for the financing of tangible projects with measurable Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG) impacts.

The government plans to issue a series of sustainable investment Sukuk, including Green Sukuk, Social Sukuk, and Sustainability Sukuk, to fund environmentally friendly and social projects.

These projects will align with the National Adaptation Plan, National Climate Change Policy, Nationally Determined Contributions, and the National Climate Finance Strategy.

Eligible projects include solar, wind, hydroelectric, and biomass energy initiatives that reduce carbon emissions, enhance energy storage and grid integration, and upgrade infrastructure in industrial, commercial, and residential sectors.

Projects that aim to reduce waste and emissions, improve air and water quality, and support cleaner transportation can also be financed through these instruments.

Sukuk proceeds can also fund clean energy vehicles such as electric, hybrid, and public transport, as well as low-cost housing and essential infrastructure like roads and schools in underserved areas.

According to the framework, the Planning Commission will propose projects that fall within green, sustainable, and social categories.

These projects must align with the framework's criteria and have completion timelines that fall within the Sukuk's tenor. Projects can also be refinanced through Sukuk even if there is no outstanding funding requirement.

A joint committee comprising the Ministry of Finance, Ministry of Planning, Ministry of Climate Change & Environmental Coordination, Ministry of Economic Affairs, and the State Bank of Pakistan will evaluate and select the proposed projects.

The committee will assess projects based on approved terms of reference and may develop internal criteria to quantify the expected benefits.

The government aims to attract both domestic and international investors, enabling the funding of projects that promote renewable energy, public health, and infrastructure development in underserved communities.

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