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Shahbaz scrambles to bring 2,000MW on line in nine months

Even before their formal takeover, top PML-N leaders, including Shahbaz Sharif, have concluded talks with relevant quarters to bring at least 2,000MW electricity into the national grid in the next nine months.

“This is just one part of the hectic efforts to meet the power shortage to get rid of the excruciating electricity outages,” a senior PML-N leader said.“As I speak to you, Shahbaz Sharif is engaged in negotiations with a Chinese company to resume work on the two abandoned power generation projects in Nandipur and Chicho-ki-Malian to produce a total of 950MW.”

He said the senior PML-N leadership has already spoken to the Punjab sugar mills owners to produce some 900MW electricity by using bagass. The PML-N leader said that the sugar mills owners have been assured that the necessary amendments would be made to the regulatory framework with the condition that they have to quickly put in place the necessary machinery and other paraphernalia to generate electricity. He said these owners have stated that they would do the job on an emergency basis.

Shahbaz Sharif told the Chinese contractor that the government would take every step to facilitate them only if the two projects are completed without any further delay.

While prolonged power outages kept choking industrial and economic growth, causing losses of billions, and made the life of the common man unbearable in the sweltering season, the execution of two power projects at Nandipur and Chicho-ki-Malian remain at a standstill due to the criminal negligence of the federal law ministry on frivolous technical grounds. It did not clear the issuance of the sovereign guarantee by the finance ministry to the contractor, resulting in the termination of work.

Some time ago, the PML-N took the matter to the Supreme Court, which constituted a commission of inquiry, which held the law ministry responsible and ruled that a loss of Rs120 billion was caused because of non-completion of the two projects.

The apex court ordered stern action against those named as guilty in the commission’s report, but due to official apathy the inaction continued. As a result, the report became just a useless piece of paper.

On completion, the Nandipur power project (originally costing $329 million) and Chicho-ki-Malian Combined Cycle Power Plant (costing $354.5 million) was to add to the national grid 425MW and 525MW respectively. The Nandipur project was forecast to be completed by April 2011.

Officials fear that the cost of the projects will certainly go up because of the delay for trivial reasons. The sorry state of the project left no doubt that it was treated by the Law Ministry as an orphan.

The Water & Power Ministry and the Generation Company, Pakistan, (Genco) did their best to shake the Law Ministry but in vain. In November 2010, the project was suspended due to lack of payments emanating from a stalemate resulting from the refusal of the Law Ministry to concur with the contract ex-post facto. As a result, six consignments were stranded at the Karachi and Bin Qasim ports.

The foreign currency loans through the export credit agreements (ECAs) became ineffective. Notice for suspension of work was served by Dongfang Electric Corporation Limited China (DEC) and General Electric (GE) on Pakistan Electric Power Company (Pepco), and they demobilised themselves from the site in Nov 2010.

Almost 400 workers sat idle, waiting for the equipment’s customs clearance. Material was kept in the open air at the port and was thus vulnerable to damage. Its ramifications included non-fulfilments of contractual obligations, prolonged delay in commissioning of the project and accrual of additional financial claims from the contractor for idle charges, demurrage charges and loss sustained by determination and damages occurred at the port.

At the instance of the foreign banks, the Water and Power Ministry advocated the case of Pepco to secure ex-post facto approval of the contractual arrangement from the Law Ministry to confirm the mandate of the Finance Ministry to issue sovereign guarantee in the names of the Engineering Procurement Contractor (EPC) to obtain the loan.

Significantly, the initial draft of the agreement was submitted to the Law Ministry and was duly vetted with minor changes. The second draft was then sent to the Law Ministry, along with the format of the sovereign guarantees, to be issued by the finance ministry. This was also cleared.

After submission of the third draft, the Law Ministry, on March 4, 2009, authorized the finance and water and power ministries to jointly approve the agreement, and this was done. At this point, the Law Ministry took the position that the final documents were not put through a back referral procedure and refused to issue ex-post facto approval.

The project agreement relating to Chicho-ki-Malian also hit snags and was delayed as Nandipur project was not materialising. Both the Nandipur and Chicho-ki-Maliann projects received the approval of the Economic Coordination Council (ECC), Cabinet Division and all other relevant approvals prior to signing of the contract advance payments and start of project implementation (10 % advance payment for Chicho-Ki-Malian was made in 2008 as well).

The contract for the Nandipur project was signed on Jan 28, 2008, between Dongfang Electric Corporation Limited China (DEC) and Pepco. The project was implemented by Genco-III under the overall management of Pepco at an agreed cost of $329 million (0.7 million dollar per megawatt). GE was awarded contract as the gas turbine supplier from its manufacturing facility in Belfort, France. For foreign currency financing Pepco signed export credit agreements (ECAs) with Coface France (for financing GE’s portion) and China Exim/Sinosure (for financing Chinese portion). The ECAs were signed on Oct 3, 2008, and 10% advance payment was also released in the same year.

Nandipur project’s letter of credit was established on Oct 16, 2008, as an interim arrangement through a syndicate of local banks. The gas turbine and major equipment has already been shipped and is at the site.

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