Green Sukuk: The government has made the decision to tap into the domestic capital market by launching Pakistan’s very first sustainable investment asset-backed Sukuk bonds. This move aims to secure funding for three clean energy projects that require an additional Rs52 billion to reach completion.
These bonds will be issued under the newly approved Sustainable Investment Sukuk Framework, which the federal cabinet greenlit this month to help raise more funds for sustainable and social initiatives.
Finance ministry officials suggest that the initial Sukuk could be around Rs30 billion in size.
To start, the finance ministry plans to finance the construction of the Garuk storage dam in Balochistan, the Naigaj dam in Sindh, and the Shagarthang hydropower project in Skardu. While these projects are already underway, the government still needs that extra Rs52 billion to finish the job, according to the officials.
This will mark the first green Sukuk issued by the government. Back in 2021, the Water and Power Development Authority (WAPDA) also launched a Sukuk to raise Rs6.4 billion for the Tarbela dam extension project.
The cost of the Garuk Dam, situated in District Kharan of Balochistan, has seen a significant jump to about Rs28 billion, mainly due to delays in the project and an expanded scope of work. The government now needs nearly Rs5 billion more to wrap things up.
Similarly, the Nai Gaj Dam project in Khairpur Nathan Shah, Sindh, has also faced a steep rise in costs since it was first inaugurated in 2005. To finish the remaining work, the government is looking for Rs22 billion.
Additionally, the government has given the green light to the Shagarthang hydropower project, which requires Rs25 billion in funding to generate 26 MW of electricity, aimed at electrifying Skardu city and its surrounding areas.
Finance ministry officials have pointed out that the asset-backed nature of Sukuk will allow for the financing of tangible projects that align with measurable Sustainable Development Goals (SDGs) and have a positive Environmental, Social, and Governance (ESG) impact.
The government is gearing up to issue a range of sustainable investment Sukuk, such as Green Sukuk, Social Sukuk, and Sustainability Sukuk, all aimed at funding eco-friendly and socially beneficial projects. These initiatives will need to align with the National Adaptation Plan, National Climate Change Policy, Nationally Determined Contributions, and the National Climate Finance Strategy of the Government of Pakistan.
The types of projects eligible for funding include solar, wind, hydroelectric, and biomass energy initiatives that can significantly cut down carbon emissions. Additionally, these projects should focus on improving energy storage capabilities, enhancing grid integration, and upgrading infrastructure across industrial, commercial, and residential sectors to help lower energy consumption.
Projects that focus on cutting down waste and emissions, enhancing air and water quality, and funding cleaner transportation options to lower carbon emissions can be supported by raising debt through these financial instruments.
According to officials from the finance ministry, the introduction of Green Sukuk, Social Sukuk, and Sustainability Sukuk presents a distinctive and effective way to finance initiatives that adhere to Islamic finance principles while also gathering the essential capital for meaningful projects.
The government has the opportunity to tap into the capital market to fund clean energy vehicles, which include electric, hybrid, and public transport options. Additionally, these bonds can be used to finance affordable housing projects and vital infrastructure like roads and schools in areas that need them the most.
According to the framework, the Planning Commission is set to suggest various green, sustainable, and social projects that could be funded through sustainable investment Sukuk. Any project put forward needs to fit into the broad categories of green, sustainable, and social initiatives. Additionally, the potential benefits of the project should align with the approved framework. It’s important that the timeline for completing the project falls within the duration of the relevant Sukuk.
As per the framework, the total funding needed—after accounting for any internal or external financing already secured for the project—should be at least equal to or greater than the value of the proposed Sukuk issuance.
If there’s no outstanding funding requirement for the project, the bond can still be issued against the asset. However, the government plans to refinance the project by paying off the current funding from any other internal or external creditors.
The proposed projects will be reviewed and chosen by a collaborative committee. This committee will include representatives from the Ministry of Finance, Ministry of Planning, Ministry of Climate Change & Environmental Coordination, Ministry of Economic Affairs, and the State Bank of Pakistan.
The project evaluation and selection committee will assess the proposed projects based on its established guidelines. They might create their own criteria and measure the potential benefits of the projects to ensure a thorough evaluation.
The government has the opportunity to draw in both local and international investors, making it easier to fund initiatives that support renewable energy, enhance public health, and improve infrastructure in communities that need it the most.
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Q1.What is a Green Sukuk?
A Green Sukuk is an Islamic financial instrument used to raise funds specifically for environmentally sustainable projects. It complies with Shariah principles while focusing on green initiatives like renewable energy, climate resilience, and eco-friendly infrastructure.
Q2.Why is the Government of Pakistan issuing Green Sukuk?
The Government of Pakistan is issuing Green Sukuk to raise Rs52 billion for three clean energy projects: Garuk Dam in Balochistan, Nai Gaj Dam in Sindh, and the Shagarthang Hydropower Project in Skardu. These bonds aim to close funding gaps and support the country’s transition to renewable energy.
Q3.How much will the first Green Sukuk issuance be worth?
According to the Ministry of Finance, the initial issuance is expected to be around Rs30 billion, with future issuances planned under the broader Sustainable Investment Sukuk Framework.
Q4.What projects will be funded through this Green Sukuk?
The initial projects include:
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Garuk Storage Dam (Balochistan) – Rs28 billion project
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Nai Gaj Dam (Sindh) – Rs22 billion needed
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Shagarthang Hydropower Project (Skardu) – Rs25 billion required for 26 MW power generation
Q5.What is the Sustainable Investment Sukuk Framework?
Approved by the federal cabinet, this framework provides guidelines for issuing asset-backed Sukuk to fund green, social, and sustainability projects aligned with the Sustainable Development Goals (SDGs) and Pakistan’s national climate policies.
Q6.Who will oversee project selection for Sukuk financing?
A joint committee comprising members from the Ministry of Finance, Planning Commission, Ministry of Climate Change, Economic Affairs Division, and the State Bank of Pakistan will evaluate and approve eligible projects.
