Rental power plants: Govt to pay Rs2 billion in rent for ailing plant

Sources in Turkish company blame LPGCL for disrupting fuel supply.

ISLAMABAD:

Karkey Karadeniz Electric has failed to generate the power its capacity allows, but the government sees no reason to investigate the matter before using taxpayers’ money, in this case a whopping Rs2.2 billion, to pay rent for the Turkish power plant.

The startling revelation was disclosed during a meeting of the Economic Coordination Committee (ECC) on January 20. According to sources, the Central Power Purchase Agency (CPPA) is to pay Rs2.2 billion rent to two rental power plants – Karkey Karadeniz Electric (Karachi) and Gulf Rental (Gujranwala).

Documents presented before the ECC revealed that  Rs2.2 billion is to be paid as rent for the two power plants in Karachi and Gujranwala. Rs264 million will be received by Gulf Rental while Karkey is to receive an outstanding Rs2 billion.

Under a signed agreement, Karkey was to produce 436 megawatts of electricity but the plant’s average production has been estimated at 50MW. At present, it is generating 100MW per day. Earlier, Nepra had also observed that no significant power from Karkey had been made available to the national grid.

According to sources in Karkey, the company had been suffering at the hands of the Lakhra Power Generation Company Limited (LPGCL), which had disrupted the flow of fuel supply to the company. Karkey cited the halt on fuel supply as the major reason for the low electricity production.

“The total load of Karachi is 2,000MW and Karkey can contribute a lot if fuel is provided to operate at full capacity,” the source said, adding that the rental charge costs Rs4.35 per unit.

Karkey plant became operational on April 16, 2011, nearly a year after its scheduled date of coming on stream on May 2010.

“It can generate electricity costing Rs17 to Rs18 per unit but now electricity being produced by Karkey is costing Rs 53 per unit due to lower production,” an official of the ministry of water and power said.  The official went on to add that the rent had piled up to Rs2 billion due to the low power generation by Karkey.

“It should have generated 45 million units of electricity so far but it has only generated 40 million units,” the official said.

Contract irregularities

According to a notice served to the LPGCL, a copy of which is available with The Express Tribune, the National Electric Power Regulatory Authority (Nepra) had pointed out several irregularities meted out in signing the concerned rental contracts.

The LPGCL had signed the contract with Karkey on December 6, 2008 which was subsequently amended on April 23, 2009, without seeking a formal approval from Nepra. When the plant failed to meet its deadline to become operational, instead of invoking penalty clauses and a termination of the contract, the LPGCL allowed subsequent amendments and also failed to recover advance payments.

Nepra noted that the LPGCL had also intentionally entered into the fuel supply agreement with Karkey knowing beforehand that it would not be able to arrange the fuel needed to keep the plant operational.

“The result is that Karkey rental plant is not being operated on full load whereas the LPGCL is to pay the rental charges for full capacity which constitutes failure to protect the company’s and consumer’s interests,” Nepra observed.

The LPGCL had signed the fuel supply agreement following the federal government’s revamped policy relating to rental power plants (RPPs).

“Nepra should have raised these questions on November 11, 2008 when it had approved tariff of Karkey plant,” an official of the water and power ministry added.

Published in The Express Tribune, January 29^th, 2012.