$557m corruption found in five rental power projects in Pakistan

BY KASWAR KLASRA

PAKISTAN, ISLAMABAD: At a time when the Pakistan is facing acute shortage of electricity, investigators have found massive irregularities in five rental/independent power projects causing a huge loss to the national exchequer to the tune of $557 million.

According to a fresh audit report compiled by Auditor General of Pakistan ( original copy is available with Gaea Times ) , the auditors have found massive irregularities in five multimillion dollar projects of rental and independent power projects initiated by PEPCO including 150 MW Rental Power Project at 220 KV Grid Station Sumandri Road, Faisalabad, 150 MW RPP at Sahuwal, Sialkot, 192 MW RPP at TPS Piran Ghaib, Multan, 200 MW RPP at Satiana Road, Faisalabad, 136 MW RPP at Bhikkhi, Sheikhupura, 150 MW RPP at Sharqpur, Sheikhupura.
According to the findings of the audit report, irregular award of contract of 150 MW Rental Power Plant at 220 KV Grid Station Nishatabad, Faisalabad, on October 10, 2007 resulted into a loss of $37.824 as the authorities did not follow rules and regulations while awarding this contract.
Again to the shock of many, auditor found that authorities concerned were responsible for the loss amounting to US $63.832 million equivalent to Pak Rs 5,425.72 million while awarding of rental power contract without competitive bidding. According to Rule 12(2) of the Public Procurement Rules, 2004, all procurement opportunities over two million rupees should be advertised on the authority’s website as well as in the other print media or newspapers having wide circulation. The advertisement in the newspapers shall principally appear in at least two national dailies, one each in English and Urdu.
Again to the shock and surprise of many, the auditors found irregular award of another rental contract to MIs Young Gen limited US $111 million.

PEPCO awarded a rental power contract to MIs Young Gen Limited at a contract price of US $111 million. MIs Young Gen Limited Company was incorporated under the Companies Ordinance 1984 in March, 2008 and started its business on April 15, 2008. Audit found the award of this contract irregular due to following reasons:
The Chief Executive Officer Northern Power Generation Company Limited invited proposal on March 21, 2008 for 200 MW Power facility at Satiana Road, Faisalabad, in which the criteria of the financial position of the company was required to have a turnover of Rs 200 million during the last three years. In response twenty-five bidders purchased tenders. Later on, the management vide its corrigendum dated April 15, 2008 changed the criteria and increased it to US $20 million net worth of the company instead of turnover. After the change only three bidders participated in the tender.

Auditors were of the view that the change of criteria was made to disqualify bidders who had already purchased the bidding documents but did not meet the changed eligibility criteria of net worth of US $20 million. Further more it did not seem to be a coincidence that the eligibility criteria of the bid was changed on the exact date of the commencement of the business of Mis Young Gen Limited.
As the auditors go ahead, they found loss on account of rental charges due to less / non-supply of gas amounting to Rs 5,749.492 million.
While non-recovery of gas pipeline cost from the Sui Northern Gas Pipelines Limited caused a loss of Rs 83.12 million.
Imprudent expenditure caused a huge loss to national exchequer amounting to US $250 million. According to Canons of Financial Propriety Para 10 of General Financial Rules, every public officer is expected to exercise same vigilance in respect of expenditure incurred form public money as a person of ordinary prudence would exercise in respect of expenditure of his own money.
In order to meet energy shortage, three rental contracts named 110 MW rental power plant at Guddu, 51 MW Naudero-I at Larkana and 50 MW Naudero-ll at Larkana were signed at contract price of US $300 million approximately by the Central Power Generation Company with the approval of PEPCO for supply of 211 MW energy. Contractually US $35.750 million was required to be made as advance to the seller of this rental power plant as per terms & conditions of the agreement.
Audit is of the view that this amount could have been better used to increase the de-rated capacity of 600 MW combined cycle and 415 MW combined cycle Thermal Power Station, Guddu, to the level of installed capacity of these power plants by way of replacement of parts and overhauling of the machines. Such a course of action would have saved approximately US $250 million, besides adding to the generation capacity of PEPCO’s system. Losses on account of commission charges stood at Rs 38.686 million.
It is pertinent to mention here that Pakistan’s Federal Cabinet, last year in August approved 2250 megawatt rental power projects, instead of 1500MW projects as earlier approved by ECC, after the refusal of the Ministry of Petroleum to supply gas for the remaining 750 megawatt projects.
The Economic Coordination Committee (ECC) had suggested to the Ministry of Water and Power to install rental power plants of 1500MW capacity against the ministry’s proposal of 2250MW rental power projects. The ECC had advised the Ministry of Water and Power to ask the Ministry of Petroleum for supplying 200 mmcft gas for the remaining 750MW projects.
The decision was taken in the Cabinet meeting at the PM Secretariat under the chairmanship of Prime Minister Syed Yousuf Raza Gilani. The meeting discussed and ratified decisions of the ECC meetings held on 11th, 18th and 21st August 2009.
The meeting discussed the demand and supply situation of electricity in depth and decided fast track installation of rental power plants to bridge the gap before the end of this year. The meeting also accorded approval to 2250MW of power rental projects.
The Prime Minister said that all resources would be utilised to end loadshedding in the country by December 2009 as it had severely affected the country’s economy. He said that the nation could afford more losses due to energy shortage, therefore, the government had to act fast to keep the economic wheel moving.Meanwhile, a spokesman of Water and Power Ministry told Gaea Times that all the rental projects were given on merit and after following the set procedures and rules. He said, it was Pakistan Peoples Party government initiative in the 90s which brought forward the private generation through the IPPs. There emerged a storm of reaction against IPPs then. In fact, the word IPPs became blasphemous, and the media let the nation to believe that all investment in this context would be detrimental to the country. Today after a decade plus, the IPPs have established credibility and have become successful partners to the government in the power generation. The IPPs not only brought billions of dollars but also proved their professional expertise over and above the government system. Today, the Ministry of Water and Power is opening a new chapter of the Rental Power Projects (RPPs).

This again is the only choice for the immediate, short-term solution to meet the crises of power shortages. It is, perhaps, only with time that RPPs would fully establish their credentials as partners in power generation with the Government. But then we should not deny them the opportunity to provide the service to the public at their cost. The government has already notified the inauguration schedule for the new power plants, hence anxieties and worries need to be put to rest, the spokesman concluded.