TUESDAY JANUARY 04: Failure to take timely decision: power projects not progressing smoothly

ISLAMABAD: Dozens of hydropower projects, independent power producers (IPPs) and controversial rental power plants (RPPs) are not progressing according to schedule due to failure to take timely decisions by the Ministry of Water and Power and its attached organisations, including Water and Power Development Authority (Wapda), Pakistan Electric Power Company (Pepco) and the Private Power Infrastructure Board (PPIB).
Sources told Business Recorder that projects worth billions of dollars-be they IPPs, RPPs or hydropower projects--are not progressing as per original schedule due to lack of ability of incumbent top brass of responsible organisations to take appropriate decisions on time.
"Starting with Diamer Bhasha dam to Neelum-Jehlum, every project is facing delay, which would imply a reasonable escalation in cost," sources said. Bunji (7000 MW installed capacity) run-of-the-river project, is in an advanced stage of detailed engineering. It is almost 120 km upstream of Bhasha.
The government is investing in the project without undertaking any study on transmission of bulk power and energy generated by the project. The installed capacity of the project has been exaggerated to a mythical extent (in all other studies the maximum installed capacity of Bunji is not above 1600 MW).
Dasu hydropower project is also a run-of-the-river project, but its feasibility is dependent on the flow regulation from Bhasha reservoir. The executing agency has almost completed the feasibility as well as advanced detailed engineering, sources said. Without the guarantee of Bhasha's commissioning, Dasu is not a feasible project.
Allae Khawar, Khan Khawar and Dubai Khawar projects are in advanced stages of construction for the last ten years for transportation of power and energy. A 220 kv line has been erected, without any comprehensive planning. Neelum Jehlum hydropower project is a unique project where the main contractors were mobilised before the appointment of design and supervision consultants (at least 01 year delay). The approved PC-1 (approximately Rs 100 billion) is being revised at this early stage (3rd year). Total gestation period is 10 years. Tentative cost increase as envisaged is 50 percent. The PC-1 cost will go to Rs 150 billion. Definitely, there will be another revision in coming 3 to 5 years, sources added.
Wapda is still searching an alternative method for excavation of tunnels through Tunnel Boring Machine (TBM). Sources said that visiting manufacturers failed to take any decision on this matter and if Wapda places order, TBM will take two years. As per original schedule and the conventional tunnel excavation method, the project is delayed by at least two years.
Mangla reservoir level should have been raised to 1210 mark. This was not achieved because of failure to evacuate people from the reservoir area. Delay in construction of colonies for the affectees is one of the major reasons for the delay in the project. An official commented that there is a general perception that Wapda is wasting resources in repeating studies of hydropower projects. In spite of the fact that inventories of all major river basins are available (at least 2 to 3 studies/reports are available) yet pre-feasibility, feasibility and detailed engineering of individual projects are taken up by one of the two organisations in Wapda ie Hepo (Hydro Electric Planning Organisation) and Planning and Investigation Organisation.
Likewise, rental power plants (RPPs), which were cleared by the Asian Development Bank (ADB), are also behind schedule but the responsible organisations are extending undue favour to them instead of imposing penalties as per the agreements. Official documents show that the recently installed 232 MW Karkey barge-mounted RPP has failed to achieve full COD in May 2010, subsequent to two extensions granted to it. Initially, it was to achieve COD on November 8, 2009.
"The delay in achievement of COD for this plant is more than six months. Therefore, the rental power plant was due for both renegotiations of tariff and for reduction in rental period of 5 years," sources said. Karkey is the most expensive plant, with a rental rate of 5.98 cents per unit, and at today's oil prices of plus Rs 60,000 per ton it would cost the Pakistani energy users upward of 19 cents per unit. In comparison, the average cost per unit, as propagated by Pepco, is around Rs 9.50 per unit.
The 201 MW Reshma rental power plant was to achieve COD on December 31, 2009, but was unlikely to do so before January 2011. Consequently, this plant is also due for re-negotiation of tariff and for reduction of rental period by one year. The Ministry of Water and Power is allegedly pressurising Northern Power Generation Company Limited (Genco-III), through Pepco, to arrange special and illegal facility for partial COD.
"Reluctance on the part of the Ministry of Water and Power to renegotiate the Rental Service Agreements (RSAs) is a blatant departure from the Federal Cabinet's decision of January 27, 2010, which directed that contract timelines should be strictly enforced," sources said.
The Cabinet in its meeting of January 27, 2010 had discussed the Asian Development Bank (ADB) audit report on RPPs in detail and had endorsed the conclusions and recommendations suggested by the Bank. After detailed discussion, the Cabinet directed vigorous pursuing of 8 RPPs (1257 MW), which included the 101 MW for Larkana and Naudero package, which were at an advanced stage of implementation. According to the decision, 6 RPPs (838 MW) contracts, that were signed but not yet effective, were to be reviewed in the legal context, before taking any further action. Other decisions of the Federal Cabinet were as follows:
(i) 5 RPPs, not yet approved/signed, should be discontinued; (ii) the inconsistencies in contracts to be removed; (iii) the contract timelines should be strictly enforced; (iv) commercial operations tests should be witnessed and certified by an internally acceptable independent engineer; (v) elimination of 100 percent load shedding during peak demand period is not a viable option from the affordability perspective; (vi) integrated analysis of optimum use of available gas and new sources should be aggressively pursued for affordable power; (vii) new IPPs in pipeline, particularly gas-based, should not be delayed; (viii) RPPs should be dispatched as "must run" plants till 2012; and (ix) import trade policy should include quality control for old and used plants.
According to the documents available with this scribe and those posted on the Ministry of Water and Power and Pepco websites, the Rental Service Agreements (RSAs) state that in case the seller fails to achieve the COD within the stipulated period of 30 days after the target COD and thereafter, the seller will be charged @ $40,000 per day up to a maximum amount equivalent to $1.2 million for a delay up to one month (30 days). Such amount will be charged from first rental payment of the seller. If achievement of COD is further delayed, solely due to the seller, the buyer shall have the right to renegotiate the contract and the rental term shall be reduced by that period of delay which occurs after the first two months (60 days) delay, covered by the guarantee and penalty mentioned and lump sum contract amount that would be reduced by the corresponding number of monthly rental service fees or part thereof accordingly.
"GoP and Pepco both have the right to renegotiate contracts and to also reduce rental terms for RPPs which have been delayed beyond the COD targeted period," commented one official. According to records, 150 mw Techno E Power RPP at Samundri Road, Faisalabad, was to achieve partial COD with 60 mw of generation on June 30, 2009, while COD was to be achieved on July 31, 2009, ie after one month. This project achieved partial COD four months ago, while COD is not in sight. According to unconfirmed reports, the plant is not running because of fuel problems.
Consequently, the plant is delayed by more than 15 months and thus fit for both re-negotiation of tariff and reduction in rental periods. With regard to IPPs, sources said, almost all IPPs including AES- imported coal-fired project 1000-1200 MW have also been delayed because the concerned organisations have failed to facilitate the projects properly.