Pakistan seeks interest-free loans from Denmark for power, water sectors

Inter-governmental framework agreement signed

Pakistan and Denmark have agreed to an inter-governmental framework whereby the former will receive interest-free loans from the latter for power and water sector projects.

The agreement was signed on Wednesday between the two governments with Economic Affairs Division Secretary Humair Karim and Danish Ambassador Lis Rosenholm. Later, Rosenholm met with Economic Affairs Minister Sardar Ayaz Sadiq.

Sadiq said that Pakistan and Denmark enjoy a friendly and cordial relationship and a lot of potential exists to enhance the relationship between both nations.

He further stated that efforts to revive bilateral economic and development cooperation between the two countries resulted in an economic breakthrough in the form of Denmark agreeing to provide on-budget support to Pakistan through the framework agreement.

He added that even though the two countries were partners in successful development cooperation since 1969, there had been no active on-budget financial support extended by Denmark since 2017.

The federal cabinet in Islamabad, he said, had approved the framework agreement with Denmark on August 4, 2022.

He hoped that the framework agreement would act as an umbrella agreement for potential development sector projects emanating from it, mainly in the sectors of renewable energy, energy efficiency, water supply and wastewater treatment sectors.

Each project under the agreement will have its separate financing agreement, which will be negotiated with the Danish side case by case in consultation with all the stakeholders.

The minister said that the focus on wastewater treatment projects in Faisalabad and Lahore - which are currently in the pipeline - was immensely appreciated.

This framework agreement offers the Danida Sustainable Infrastructure Finance (DSIF) Facility by the Danish side which would provide interest-free but tied loans up to, but not limited to, €100 million and will also facilitate the transfer of technology and know-how from Denmark to Pakistan.

Moreover, interest-free loans after signing this framework agreement will have a 35% concessional element covering the interest on the loan, export premium, bank margin and an upfront grant if these expenses do not arrive at 35% of the contract amount.




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