AGP smells rat in rental power plant deal

Shahbaz Rana May 17, 2010

ISLAMABAD: Massive irregularities have been unearthed by the Auditor General of Pakistan in the award of a rental power plant contract worth $72 million to an influential business group.

At a meeting of the Public Accounts Committee, the office of the Auditor General of Pakistan presented the audit report of the Ministry of Water and Power and pointed out five main irregularities. These irregularities, the report shows, have been committed right from the stage of the invitation of proposals till the signing of the rental power plant contract. “The eligibility criterion of the bidder – net worth of $30 million – was relaxed at the time of the bid evaluation,” revealed Wapda’s director general audit. “As a result, the objective of the tendering was defeated and the contract was awarded to the contractor of choice.”

Pakistan Electric Power Company (Pepco) managing director Tahir Basharat Cheema said the contract was awarded to Pakistan Power Resources, owned by Iqbal Z. Ahmad and a Mr Walters of USA. At this point, PAC chairman Chaudhry Nisar Ali Khan noted the foreigner was a “controversial” person. The auditor general’s report is the second blow to the government’s RPPs plan in less than five months. Earlier, the Asian Development Bank had also conducted an audit of 19 rental power plants on the request of the government of Pakistan and recommended the installation of just eight, asked the government to reconsider another six and completely abandon five projects.

Even the eight given the goahead were selected on the basis of the fact that the projects were at advanced stages of completion, the ADB stated in its report. (The bank specifically mentioned in its report that the contracts were in favor of sellers instead of buyers.) Secretary Water and Power Shahid Rafi told the committee that the project was among these eight. However, he did not inform the PAC that the ADB has recommended scrapping another project of the same company, which was at an intial stage. According to the ADB report, the government will pay $72 million in rent to the company in three years and paid 14 per cent down payment before even the commissioning of the project.

With such calculations, the ADB says, the cost of electricity from this power plant will be more than the cost of electricity being generated by the Independent Power Producers. But this was not the only discrepancy the AGP found. Cheema told the PAC that according to the contract, in case of gas shortages, gas would be provided to the rental power plant at the cost of government- owned plants. Further, in an inexplicable act of generosity, the government also took on the tax liability of Pakistan Power Resources.

The contract document states that if the tax rate goes over six per cent, the buyer (government) will foot the extra. However, there is no provision dealing with a possible decrease in tax rate. The DG Audit WAPDA also pointed out the discrepancies in the dispute settlement mechanism. In the contract, the government promised that all disputes would be referred to the London Court of International Arbitration, something PML-Q’s Riaz Hussain Peerzada insisted made a mockey of domestic laws.

The AGP also pointed out the fact that the federal government suffered a loss of $213,387 due to what he called wrong fixation of per kilowatt tariff. “In the contract, 2.717 cents per kilowatt tariff was written but the government paid at a rate of 2.725 cents,” said the DG AGP. The PAC has asked the secretary Water and Power to review the contract in light of the Auditor General’s observations and submit a report in seven days.

Published in the Express Tribune, May 18th, 2010.

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