Hyundai Engineering and Construction Company Ltd (HECCL), one of the contractors of joint venture for construction of Chashma Power Complex entailing civil works, has suffered a loss of millions of rupees on account of out of court settlement between Wapda and Hyundai/Hidco-Hakas. "We have accepted this settlement just to qualify for tenders of future projects of Wapda. As we have already lost Mangla Raising Project contract, in case of a dispute with Wapda we will not be able to take part in Wapda's tendering process", said Jin Yung Chang, General Manager of Hyundai here on Saturday.
While talking to Business Recorder , Jin said that his company was not responsible for any delay in construction of Chashma Power Complex. Following dispute with Wapda, the arbitrator engineer had recommended compensation of 33.157 million dollars to the company, but Wapda had shown willingness to pay only 20.65 million dollars.
According to investigations carried out by this scribe, the agreement for construction of Chashma Power Complex, entailing civil works, was signed between Wapda and contractor for Rs 3,264.679 million on December 24, 1994. The letter of commencement was, however, issued much earlier on July 05, 1994 with a scheduled completion date of October 06, 1997.
The other two contracts EM-1 (for turbines) and EM-2 for (auxiliary works) were given to Marubeni-Japan and Alsthom France, respectively. The civil work contractor had to complete its works in two stages. All the works to house turbines and works entailing head and tailrace were to be completed within Stage-I. During this period, the EM-1 contractor was to ensure the specifications, necessary for housing of the mechanical components.
The EM-1 contractor was then to import and place eight turbines including all mechanical works for the operation of the turbines. The EM-2 contractor was to finish the works on switch yard and telecommunication components. The three contracts were to be completed on the same day, which meant that the delay in any one would also affect the completion date of the other contract. Due to delay in the financing arrangements by the government of Pakistan, the order to commence EM-1 contract was issued on Feb 01, 1995 with a delay of 212 days.
The civil works contractor was, therefore, given an extension of 212 days. Wapda, because of financial crunch and inadequate local budgetary allocation in fiscal 1995-1996, could not pay the engineer's certified bills of civil works. The contractor therefore, served a slow-down notice in November 1996.
Further, due to inadequate local currency allocations for fiscal year 1996-97, 1997-98 and 1998-99, all the payments owed to the contractors could not be made. Moreover, due to financial crunch, the financial assistance to EM-1 contractor could not be provided.
It is interesting to note that the financial crises in Wapda were so acute that electrical and mechanical equipment, including turbines imported by the EM-1 contractor, could not be cleared at Karachi Port due to non-payment of customs duties. The equipment was lying at Karachi Port from 18.09.1996 to 04.01.1999 (868 days). The Wapda ultimately had to pay Rs 1.10 billion as demurrage charges. It took Wapda 49 days to bring the equipment from Karachi.
The total delay for EM-1 equipment was therefore 917 days. During this period, all the works on the site remained suspended, as Wapda ultimately had to grant extension of time to all the contractors. The final date of completion was extended up to November 08, 2000 (the total extension of time came to be 1,129 days). Of these 1,129 days, Wapda approved extension of 817 days, imposing no conditions, which meant the extension as per the contract agreement clause.
The Wapda, with escalation, approved the extension for additional 312 days, which meant the contractor would not claim any compensation as per contract agreement. Both the engineer and contractor, however, did not agree with Wapda's viewpoint.
Accordingly, the sources claimed that the contractor submitted his compensatory claims amounting to 61 million dollars. The contractor's claims were however, sent back by the engineer due to some clarifications/observations. The contractor resubmitted his claims under eight different heads. After evaluation, the engineer verified the contractor's claims after thorough vetting, and recommended that Wapda should pay 33.157 million dollars to contractor in 2002.
It included Rs 367.157 million in local currency and 26.827 million dollars in foreign currency equivalent to Rs 665.253 million. For any delay in payment, Wapda was to pay compound interest at the rate of 10 percent per annum, vide Contract Agreement Clause 60.5. This meant that Wapda would have to pay about 43 million dollars in 2005, the sources said.
According to the sources, three more claims for 44.647 million dollars, 12.859 million dollars and 29.636 million dollars were under process. The total claims at this stage were therefore for 87.142 million dollars.
Wapda did not agree with the engineer's recommendations. For this, Wapda had to go for arbitration if not agreeing to engineer's decision. Non-reference of the case to arbitrator meant that Wapda had to pay 43 million dollars to the contractor, the sources claimed.
The arbitration proceedings, therefore, commenced on 11.10.2003. The contractor in the meantime requested for an amicable settlement. Accordingly, a committee was formed by the authority, to evaluate all contractors' claims. After thorough deliberations, the committee recommended that 20.65 million dollars might be paid to the contractor. It may be noted that in most of the cases, the arbitrator had awarded full amount to the contractor as per recommendation of the engineers.
If they had gone for arbitration, the Wapda might have ended up paying 50 to 60 million dollars to the contractor. The senior Wapda officials are of the view that the agreement between Wapda and the contractor, therefore, can be termed as an achievement of the present management of Wapda. Besides saving huge amount, this amicable solution will also restore confidence among the foreign investors. The resolution of the issue was also in line with ministry of foreign affairs' directive.
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