The power sector regulator’s decision backed findings of the Asian Development Bank, which had found Rental Power Plants’ (RPPs) deals shady. Besides, it came as a major blow to the government that wanted to set up the Naudero-II plant, said to be owned by a friend of President Zardari, despite the donor agency’s clear opposition to it.
The plant is co-owned by the Associated Group and the US-based Walters Power International. It is one of the five RPPs which the ADB opposed and was denied clearance by the then finance minister, Shaukat Tarin.
At an open hearing, the RPP informed Nepra that the plant was 25 years old, whereas the authority’s established criteria only allows for plants up to 10 years old. The hearing was held on the petition of Walters Power for determination of tariff. The management of the power plant sought a tariff of 9.74 cents per unit.
Earlier, the Central Power Purchase Agency (CPPA) had informed Nepra that the plant was 10 years old. Khalid Saeed, Chairman Nepra, grilled the representative of CPPA and decided to issue a show-cause notice to the agency and slap a fine on it for misleading the regulator.
The Walters Company representative informed the regulator that the plant’s total life span was 30 years, against the claim of 50 years, and it had already run for 25 years. He added, however, that the company had spent $4 million on its overhauling, enabling it to meet the energy generation needs for the next five years, the contractual period.
The government is expected to pay a rent of $80 million in five years, of which,14 per cent has already been paid as mobilisation advance. The ADB in its audit report of the RPPs found that the contractual agreements were in favour of the sellers instead of the buyers. It observed that the government’s decision to pay 14 per cent mobilisation advance along with Standby Letter of Credit would weaken the value of sovereign guarantees.
Of the 19 RPP deals that the ADB scrutinised in its audit report, it outright opposed five, asked for reconsideration of another six capable of generating 738 megawatts and cleared only eight plants having capacity of 1,156MW, because their deals were at an advanced stage and the government had already paid the 14 per cent advance.
The agency had also noted that the RPPs would not have a significant impact on reducing power outages since none would be commissioned before December 2009.
The second plant owned by the same group, Naudero-I rental power plant, was commissioned in April 2010 but failed to add even a single unit to the national grid, informed Saeed.
He warned that the government could add only 100MW in the system through the RPPs.
According to a CCPA official, the mobilisation advance paid by the government to the RPPs was withheld by banks on account of cash guarantees, which caused fiscal constraints. The RPPs had informed Raja Pervez Ashraf, Minister for Water and Power, of this issue at a meeting convened by him.
Meanwhile, a top official of the government-owned Power Generation Company, the buyer of electricity from the RPPs on behalf of the government, informed Nepra that the Water and Power Ministry had pressured him to clear the Naudero-II project.
Published in The Express Tribune, September 8th, 2010.
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