Questionable strategy: US report finds holes in Jamshoro plant funding

Office of US Inspector General says the plant will remain unfeasible .

ISLAMABAD:

The US strategy to spread its $7.5 billion assistance over small projects in Pakistan seems unlikely to make a big difference as the US Office of Inspector General has found that Jamshoro power plant will remain financially unviable despite a $19.3 million US investment.

The observation of the US’s inspector general, given in a report, proves Pakistan authorities right who had earlier questioned the strategy of dividing the assistance into bits and pieces, fearing it would dampen the impact of such a big injection.

The findings of the Office of Inspector General also highlighted that the US was not following its own policy of linking assistance with the outcome.

Over three years ago when the US approved the $7.5 billion Kerry-Lugar assistance package, to be disbursed over five years, it had to make a choice between giving money for big projects to make the impact visible or divide it into bits and pieces.



During an interview to The Express Tribune in mid-June 2010, then senior adviser to the US president David Lipton did show interest in seeing visible impact of the US assistance, but defended the decision to give grants for small projects. His candid reply was that the US administration had to take into account aspirations of Congressmen for seeking their votes, who would like to make appropriation for certain projects of their choice.

In the same year, USAID provided $19.3 million for increasing capacity of Jamshoro Thermal Power Stations by 150 megawatts through equipment upgrade. The Office of the Inspector General has conducted an audit to determine whether USAID and Pakistan focused on sustainability in the design of the plan.

The US made the decision to enhance efficiency at a time when the then government initiated paperwork to convert the Jamshoro plant into coal-based, which required assistance of about $1 billion. The Asian Development Bank will finance the plant conversion through an expensive loan.

“In my capacity as caretaker water and power minister, I had questioned the policy of increase in efficiency of power plants by making small investments,” said Dr Musadaq Malik, who is currently serving as special assistant to the prime minister.

Musadaq said had the US helped install new plants, it would have made things better. Most of the public sector power plants were working at very low efficiency that required installation of new plants.

The inspector general’s report stated that lack of policy reforms relating to energy subsidies and purchase of furnace oil instead of a less expensive energy supply will affect financial sustainability of the project.

The report highlighted the rules that linked US assistance with actions needed to ensure financial sustainability of a US-funded project. It said despite increasing capacity, the power station would need additional funds from other donors to cover the increased operating cost.

In addition to that, the plant will need more equipment and a $76 million loan from the Asian Development Bank.

When contacted, a senior USAID official also said the Jamshoro project would not be profitable unless the planned policy and pricing reforms being undertaken by Pakistan were completed.

He pointed out that investment in equipment upgrades undertaken by USAID was critically needed that helped to improve the plant’s output by 270MW.

For instance, USAID had hired Advanced Engineering Associated International for the Jamshoro plant, which the inspector general said was engaged to implement the project.

The contractor failed to ensure achievement of the interim target of adding 50MW by September last year, it said.

But USAID did not hold the contractor responsible, saying the contractor was not responsible for project implementation but was only monitoring the project on behalf of USAID.

Published in The Express Tribune, October 31^st, 2013.

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