Nandipur power plant: Country’s cheapest power plant suffers another setback

Chinese firm asks for increased payments to resume construction process.

KARACHI:

Stalled for almost two years, construction of Nandipur power plant – potentially the country’s cheapest power production plant – has once again been delayed. The incomplete project has not only deprived the national grid of 425MW but also resulted in losses worth millions.

Despite the law ministry’s clearance of sovereign guarantee that halted its completion for almost two years, construction work of the combined-cycle power plant in Nandipur near Gujranwala has failed to resume.

According to an officials, Dongfang Electric Corporation (DEC) – the Chinese firm tasked with installation of the state-owned power plant – asked for increased charges to reactivate the construction process. They are waiting for government’s assurance on payment to resume work on the plant, official said.

However, the Ministry of Water and Power spokesperson denied any such claim. He, however, added that DEC had taken several loans to complete the project and will certainly claim for the remobilization amount that also includes the interest on loans.

Once the company claims for a revised escalation cost, he said, a consultant from the ministry will evaluate the same for ministry’s approval.

The $329 million project stalled in April 2010 after the Ministry of Law and Ministry of Water and Power engaged in a controversy over changes in financial documents pertaining to the state-owned project – the former refused to clear the sovereign guarantee issued by the latter.

Since the controversy, equipment imported from France has been stranded and gathering rust at the Karachi Port for around 20 months now. More than 60% of the project is complete, a source at the plant – who wished not to be named – said. The accessories of the steam turbine have been stuck at the East and West wharf of Karachi for the last two years, he added.

Work has remained suspended for two years while 400 people working on the state-owned project returned to China, official said. The contractor has to remobilise them and reactivate the entire process, he said. The cost of material and expenses to erect the plant has increased during last two years, he said, therefore DEC will not resume work without government’s assurance to pay revised escalation charges.

Dawn reported on September 28, 2011 that Pakistan Electric Power Company – the owner of the thermal generation plant – would release mobilisation advance to the Chinese firm to resume work in October.

However, no funds have been released so far as the equipment is still lying at the port, the official said. If it isn’t waived, the official said, Rs1 billion demurrage for the last two years will have to be paid using taxpayers’ money.

Given the law ministry had cleared the sovereign guarantee issued by the finance ministry in September last year, the source said, it should not have taken more than a week to resolve the matter. “It is sheer negligence on part of the government,” the source said.

A judicial commission is also probing the matter and conducted several hearings on the issue – another reason causing the delay – he said.

The stalled project is resulting in public money being used for paying interests on the sovereign guarantee issued by the government and advance payments already made, the source said.

More than 50% of the project is complete, the source said, with three turbines already installed. The last and fourth steam turbine – whose machinery is lying at the port – needs to be installed.

Even if DEC gets the go-ahead now, the official said, it will still take them about six to nine months to complete the installation of the plant, he added.

The plant comprises three combine-cycle units – all of them already installed – and a stream turbine to be imported from China. If completed, the unit cost of electricity produced by the plant will be the cheapest compared to all the other independent power producers, official said. The project – which was supposed to be operational in 2010 – would produce electricity at about Rs8 per unit against existing power plants which produce the same at Rs12 per unit, he said.

The government’s failure to ensure timely construction of the much needed power plant has been disappointing what is even worse is the fact that relevant authorities are not willing to speak on the matter.

“This is a sensitive matter and commenting on it would jeopardize my position,” said an official from Pepco who was familiar with the matter.

Following the private sector’s failure to meet the growing electricity demand, the government came up with the idea to construct state-owned projects for large scale power generation. Proposed in 2008 and sponsored by the now dissolved Pepco, Nandipur power was the first public sector project after 1,350MW Muzaffargarh plant established in 1994.

Published in The Express Tribune, January 30^th, 2012