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China terminates contract of 425MW Nandipur project

China has decided to terminate the contract for the construction of much-delayed 425MW Nandipur power plant, said sources on Friday.

The reason for the termination of the contract is said to be the fact that delays in the commencement of the project have led to significant cost overruns – from the initially anticipated $329 million to a current estimate of $730 million.

According to a letter from Pakistan’s ambassador in Beijing Masud Khan, sources said, the president of Dongfang Electric Corporation Limited (DECL) Zhang Guorong has terminated the contract, saying his company has suffered colossal losses because machinery worth $85 million has been awaiting clearance at the Karachi Port.

The company, according to the letter, is suffering huge losses on account of demurrages and is also concerned about the rusting of their machinery intended for power plants.The letter, said sources, states that Zhang has clearly intimated that if Pakistan wants the company to continue work on the project, new terms and conditions will have to be negotiated. Further, said sources, China has also stopped shipment of equipment worth $36 million because of the attitude of the authorities concerned in Pakistan.

In July 2011, said an official familiar with the project, the Economic Coordination Committee (ECC) had approved the request made by the minister for water and power to waive demurrages and detention charges for the machinery, which weighs 17,000 tons, subject to the approval of the Law Division. It was decided at the ECC meeting that objections raised by the Law Division would be referred to the cabinet for further discussion.

But matters never came to that. “The machinery is not being cleared from the Karachi Port because of the Law Division,” said the official, adding that the Supreme Court has already taken notice of the inordinate delay in completing the Nandipur project, potentially the country’s cheapest power production plant.

“Now, a big chunk of $80 million is needed to get this vital machinery released from the Karachi Port but the federal government does not have enough money to do so and is trying to raise the money from various banks of the country,” said the official.

According to some estimates, the two-year delay has already caused significant losses to the economy in terms of lost opportunity and the termination of the Nandipur project will aggravate the power woes of Pakistan.

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