Nandipur power plant: TI Pakistan highlights discrepancies in project

Gas station may be scrapped from project under new power policy.

LAHORE:

Transparency International (TI) Pakistan, while highlighting inconsistencies in the Nandipur power project, has asked the government to fix responsibility on the people behind unsolicited award of contracts and the delay, which has caused a loss of over Rs13.87 billion to the public purse.

The suggestion came in the wake of a letter sent by the Ministry of Water and Power on September 9, 2013, which requested TI Pakistan to “review critically the contents of revised PC-1, contract agreement and Amendments 1 & 2 to highlight discrepancies and make suggestions, if any, to save taxpayers’ money.”

In its letter addressed to the prime minister and the minister of water and power, TI Pakistan said the Ministry of Water and Power awarded the engineering, procurement and construction (EPC) contract to Dongfang Electric Corporation, without inviting tenders, in violation of Public Procurement Regulatory Authority (PPRA) rules.

This was also against the decision of the Economic Coordination Committee (ECC), which said provisions of Public Procurement Rules 2004 should be kept in view in the bidding process, it said.



In its report, TI Pakistan has critically reviewed the contents of revised PC-1, contract agreement and Amendments 1 & 2 to the provisions. It has not carried out any cost audit.

TI Pakistan, however, reviewed the process adopted by the Ministry of Water and Power in determining cost variation in the revised PC-1 amounting to Rs58.416 billion, which was proposed in January 2013.

The process was in line with the terms of the contract agreement reached with the contractors and also complied with government rules.

An increase of Rs21.208 billion in the cost in the revised PC-I had to be paid even if the project would have been completed on time.

According to the revised PC-I, additional payments of Rs12.325 billion are being made to the contractors, of which compensation for the delay is Rs6.538 billion and the cost of additional work items is Rs5.787 billion.

The exchequer has suffered a loss of Rs13.837 billion because of the delay caused by the Ministry of Law and Justice.

Project cost estimated at Rs58.416 billion is based on the rupee-dollar parity of Rs96 and the final cost after completion of works is likely to cross Rs60 billion on the back of currency fluctuation, said TI Pakistan.

According to Amendments 1 & 2, the capacity of the project – a combined cycle power plant – is 425MW, and not 525MW.

Enhancement of gross capacity by 25% from 425MW to 525MW with gas fuel is very ambitious. Expert opinion taken by TI Pakistan indicates the capacity increase may not be over 10% due to the use of gas fuel.

As the revised PC-I was prepared in December 2012, the gas station was added under the previous government policy. But as the policy has shifted under the present government to “new power plants based on hydel, coal, wind and solar only”, the gas station may be deleted to save public money.

Lessons should have been learnt from the case of two gas-based Rental Power Plants’ (RPP) contracts awarded in 2006, TI Pakistan suggested. Both the plants did not operate for a single day and the government ended up paying billions of rupees in rent for five years (about $8 million per month), as gas wwwas never made available.

It also asked the government to exercise strict controls in finalising the cost of tentative provisions amounting to Rs13.336 billion in the revised PC-I of 2013.

Amendment 2 does not include handling of fuel and ash, waste water treatment and equipment of Rs1.372 billion, neither any civil work structure enhancement at a cost of Rs1.647 billion. Owing to non-inclusion of foregoing costs, the interest during construction will be substantially reduced.

All insurance guarantees and policies should be placed with National Insurance Company of Pakistan to safeguard public money.

In order to save taxpayers money sunk in the project, work on it should be completed expeditiously in spite of the faulty award process.

Published in The Express Tribune, January 11^th, 2014.

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