LNG-based power plants: PM dismisses proposal for direct award of contracts

Cabinet members caution this could spark criticism as well as litigation

ISLAMABAD:

Prime Minister Nawaz Sharif and his cabinet members have turned down the proposal that calls for direct award of planned 3,600-megawatt liquefied natural gas (LNG)-based power projects to some selected investors, instead of going for competitive bidding, in order to fend off criticism.

Sindh and Khyber-Pakhtunkhwa have already censured the federal government for planning to set up LNG-fuelled power plants in Punjab only while ignoring other provinces.

The prime minister and his ministers were of the view that the direct award of power plant construction contracts to some investors would spark a strong reaction, hence they opposed the proposal floated by the Ministry of Water and Power in a meeting of the cabinet committee on energy on April 8.



According to officials familiar with the development, it was pointed out in the meeting that under the Public Procurement Regulatory Authority (PPRA) Rules 2004, an emergency clause could be applied for direct contracting, provided there were sufficient reasons that should be recorded in writing.

Participants of the deliberations discussed the matter in detail. Some members suggested that the emergency clause, if invoked, could attract litigation and the time saved by applying the clause would be of no utility.

Moreover, no serious international contractor would participate in bidding as it took three to four months to frame bids after the release of bid documents. Instead of invoking the emergency clause, they said it would be better to give clear timelines to contractors with the offer of premium for early completion of work or possibility of penalties for delay.

Minister of Petroleum and Natural Resources Shahid Khaqan Abbasi, while referring to Rule 42(c) (iii), suggested that clauses other than those related to an emergency could be applied to save time. However, the committee said the process of awarding the contracts had already been initiated and invoking the emergency clause would invite criticism, therefore, it was better to follow the prescribed process.

The process, however, could be expedited by setting clear timelines in the bid documents. “We will have to divide risk appropriately between the government and contractor to make the process successful,” remarked a cabinet member.

The energy committee decided that contracts must be awarded strictly in accordance with the PPRA Rules 2004 without applying the emergency provision. However, the normal process will be completed at a swift pace.

Bid documents would be carefully prepared to ensure shorter timelines and appropriate allocation of risk, it said. The petroleum minister told the meeting that 600 million cubic feet of LNG per day (mmcfd) would be required to run the 3,600MW power projects. An LNG terminal had started working that would handle 200 mmcfd of LNG whereas Sui Southern Gas Company (SSGC) was working on another terminal of 600mmcfd capacity, which would come on stream by December next year, he said.

The two terminals have got no government funding or guarantees. Work on them has been undertaken by Pakistani private companies with an investment of over $1 billion.

Published in The Express Tribune, April 21^st,  2015.

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