DHA looks to borrow billions to buy majority stake in sinking cogen plant

The project has not worked for more than five months in total since 2008.

KARACHI: Defence Housing Authority (DHA) has decided to spend billions of rupees buying a majority stake in the faulty DHA Cogen power plant, officials have told The Express Tribune.

“We are taking over the Cogen plant,” said spokesman Rafat Naqvi. “Our consultants have completed the study, which says it can be fixed and run. We will start negotiations with the banks this month to raise the funds.” Right now, DHA has a minority stake of 14%.

He did not say how much debt the estate developing authority will take on. But a controlling stake of 51% means that DHA needs in excess of Rs5 billion, say officials close to the development.

DHA Cogen was inaugurated in February 2008 amid much fanfare by the then president Pervez Musharaf. It was supposed to generate 80 megawatts (MW) of electricity in addition to making seawater drinkable. At 3 million gallons per day, the desalination facility would have helped meet the growing water needs of Defence and Clifton that receive around seven million gallons currently.

But in over three years, the project has actually worked for only about five months and that too in fits and starts.

The original owners of DHA Cogen Company sold their 60% stake to the US-based AEI Energy soon after the plant was inaugurated. Now there is bitterness as the plant has not worked according to expectation. “We were cheated,” said Khalid Nazir, a Pakistani representative of AEI. “The sellers wanted a fast-track transaction. Since the plant was brand new, we didn’t think a detailed technical study was needed.”

The first owners did not disclose to AEI the extent of the technical damage at the plant, he said. “I know the public feels that it is our job to run it. But DHA, the other shareholders and the lenders (banks) should help us pay for the repairs.”

AEI’s Nazir confirmed that DHA is in talks with his company for the acquisition. “We are still waiting for a response. It makes sense for DHA to take it over. It is their land, the gas for the power plant has been allocated to them and it needs power.” DHA Cogen is the only project that was part of a once grand scheme to develop the coastal belt that has since fizzled out. Housing projects along the strip are stuck in litigation or suffering from a lack of investor interest.

Behind the scenes

DHA Cogen cost over $115 million. Siemens AG Germany supplied the main plant and machinery for the power generation component and Alfa Laval A/S Copenhagen was contracted for the supply of water desalination plant. According to the DHA Cogen website, the board of directors included Yap Kong Hwee, Robert Kheng, Haseeb Khan FCA and Muhammad Waqas Mohsin, representing Sacoden Investment Pte Limited. Col. (retd) Ather Ali Khan and Lt. Col. (retd) Najam-ul Islam Rishi were nominated by DHA. But it is not clear exactly who should be blamed for the plant never actually ever taking off as it was supposed to. Is it the company that installed the machinery? Or is it AEI that is a majority stakeholder right now?

Siemens Pakistan spokesman Zia Zuberi said a number of Siemens power plants of same make are running in other countries. He did not share details of where. “The operations and maintenance of the DHA Cogen plant has never been with Siemens,” he said. “However, Siemens has always supported DHA Cogen whenever it asked for technical help in order to keep the plant in operation.”

But the local arm of German engineering giant has started to feel the heat. United Bank Limited, which is one of the lenders, has sued the project sponsors and refused to do anything with the contractors - Siemens. Convener of the National Assembly’s Standing Committee of Defense, Nawab Ghani Talpur, told The Express Tribune that in a meeting a few months back they had noted that DHA Administrator Brig. Amir Raza had not informed them about the plan to buy the power plant. “The administrator asked us to give him time to come up with a plan to get the thing started. We are still waiting.”

Repeated attempts were made to contact Brig. Raza.

For many experts, the question is how a brand new project failed to work. Ahmed Zubair, a member of the Institute of Electronic and Electrical Engineers Pakistan, said, for example, that such power plants are designed to have a life of 25 years. “I don’t know the technical details. But even a layman knows power plants are a good investment venture. They run on gas, the tariff is guaranteed and returns are good. So why isn’t this running?”

The desalinated water could have been a source of income for the plant. But AEI says that DHA has signed a deal with the Cantonment Board Clifton that does meet the desalination cost.

Published in The Express Tribune, December 6^th, 2011.