Of the 19 rental power projects (RPPs) that the government has committed to, only one has come online as scheduled, adding only 62 megawatts of electricity to the national grid compared to the planned 2,700MW, according to a report by the Auditor-General of Pakistan.
The government’s financial watchdog noted in its annual audit report for the fiscal year ending June 30, 2011, that the government had paid Rs16.6 billion to RPPs in advance payments and had created a liability of $1.7 billion for itself through the contracts that it had signed with several rental power companies.
The auditor-general recommended cancelling the contracts of power companies that had failed to achieve their commercial operation date – the contractually obligated date by which the RPPs are required to begin supplying power to the grid.
Of the 19 proposed RPPs in the country, only one has begun commercial operations. Four contracts were never signed and six were dropped due to violations of contracts by power companies. Eight contracts are currently active but have yet to achieve commercial operation status.
The auditor’s report recommended finding out who in the government was responsible for awarding rental power contracts without screening the capabilities and track records of companies bidding for the projects.
According to the report, many power projects have installed old equipment that have a very low efficiency rate when it comes to power production. The technological differences account for much of the delay in achieving commercial operations targets by most RPPs.
Auditors also said that no technical feasibility study was carried out before the rental power project policy was approved, noting that the policy was adopted ‘in haste’.
The government had decided to allow RPPs under the Musharraf administration. The Economic Coordination Committee of the cabinet had approved a plan to introduce rental power into the national electricity grid during a meeting on August 12, 2006, and approved two unsolicited projects: the 136MW plant at Bhiki and a 150MW plant at Sharqpur in Sheikhupura district of Punjab.
The caretaker government prior to the Zardari administration decided on February 15, 2008, to allow the Pakistan Electric Power Company (Pepco) to install rental power plans with higher capacities of between 800MW and 1,200MW.
The current administration continued the policy and awarded contracts for even bigger rental power projects at an ECC meeting on September 10, 2008, bringing the government’s total commitment to buy rental power to 2,700MW.
The auditors expressed concerns about financial liabilities that the government has taken on for itself, having paid Rs16.6 billion already in advance payments. While contracts that specify advance payment requirements are common in the global power industry, the auditors worried about the size of the government’s liabilities.
“The government has created a liability of $1.7 billion which will be payable as rental charges to the RPPs on delivery of energy,” said the audit report.
Published in The Express Tribune, June 6th, 2011.