Auditor General of Pakistan (AGP) has detected massive irregularities, embezzlements, losses and mismanagement amounting to more than Rs 26.52 billion and US $591.5 million in Rental Power Projects (RPPs) initiated by PEPCO and PPIB. According to AGP''s Report 2010-11 available with Business Recorder, a total of 19 projects were launched out of which four were dropped due to non-signing of agreements.
A total of 15 contracts were signed out of which only one contract could become effective and achieved Commercial Operation Date (COD). After contract assignment, as many as six were dropped due to non-fulfilment of contractual conditions and 8 contracts which became effective could not achieve COD.
The RPPs were initiated when Raja Pervez Ashraf held the portfolio of Water and Power and in his often repeated claims these projects had the capacity to end load shedding by end 2009. However they became controversial and the then Finance Minister Shaukat Tarin initiated a third party audit to appease general concerns that the RPPs were not violating bidding processes. The third party audit supported the claims of RPP detractors.
The Audit Report itemised the range of irregularities as under: (i) AGPs access was limited; (ii) the cost of rental charges per KWH was not worked out before approval of contracts; (iii) prequalification of the sellers was not carried out; (iv) minimum thermal efficiency of the power plants was not fixed; (v) frequent extension in COD was granted to the sellers; (vi) ECC decisions was not implemented; and (vii) PPRA''s Rules were not followed.
The Audit Report says that the national exchequer suffered a loss of Rs 8.3 billion due to non-achievement of commercial operation. The report says that the ECC approved the summary on August 21, 2009 wherein additional 7 percent advance payment was allowed to all the remaining potential sponsors with the understanding that their RPPs should be commissioned during the financial year 2009-10.
Against the spirit of above decision another additional 7 percent advance payment was made to all RPPs, despite the fact that these RPPs did not achieve their COD during the 2009-10. This had defeated the very objective for which second 7 percent advance payment was made. The amount of advance payment of Rs 8.3 billion needs to be recovered besides an interest of Rs 1.1 billion as per prevailing bank rate, the audit report maintains.
The matter was discussed in DAC meeting held on February 8, 2011. The management explained that the progress regarding recovery of advance from non-performed RPPs was as under:- i) Rs 1.26 billion had been recovered from Young Gen Power Ltd ii) Rs 1.82 billion had been recovered from Techno Energy (Pvt) Ltd, under Supreme Court''s decision dated February 13, 2010.
The matter pertaining to all RPPs was being heard in the Supreme Court. The DAC also directed the management to provide the record of recovery and expedite the remaining action under contract provision against the sellers. In another case, the Audit Report-2010-11 revealed that the nation faced loss of Rs 7 billion due to irregular mediation instead of arbitration.
The report says that a rental contract was signed on February 23, 2008 between Pakistan Power Resources and Central Power Generation Company limited (GENCO-II) for installation of 110MW Rental Power Plant Station Guddu. The report says that the seller failed to install the RPP and preferred to sign off the rental contract on December 4, 2010. In response the Company lodged the claim of Rs 7 billion on account of loss to a mediator instead of an arbitrator in contravention to the Rental Contract.
The matter was taken up with the management in September 2010. The response was that an amount of Rs 826.890 million including interest of rupees of Rs 120 million subject to final calculation was recovered. However claim of rupees seven billion was lodged against him before the mediator. As soon as decision of mediator was received it would be implemented. Reply was not tenable as there was no provision of mediation in the rental contract.
The matter was referred to the Ministry on December 31, 2010 and was discussed in DAC meeting on February 8, 2011. The management explained that on the advice of the Counsel the proceedings of the mediation were stopped due to the reason that the issue of RPPs was sub judice in the Supreme Court of Pakistan. The DAC directed that clauses of the contract must be adhered to. The management needs to adhere to the clauses of the contract.
The Audit Report further exposed irregularities and loss of US $490 million due to irregular rental terms of RPPs for a period of five years instead of 3+1 years. The ECC had decided on February 15, 2008 that RPPs would be arranged for a period of 3+1 years.
But the directions of the ECC were not followed; as many as five RPPs were signed for rental terms of five years instead of 3+1 years. This would cause irregular payment of US $490 million. The case for reduction in rental term of these RPPs is required to be taken up with ECC.
The matter was brought in DAC meeting held on February 8, 2011. The management explained that contract period was allowed by the competent authority ie GoP, PEPCO and Gencos being the subordinate entities bound to obey the GoP polices. However the matter of all RPPs was sub judice in the SC. Similarly, the nation faced the loss of Rs 5.15 billion due to non-recovery of L.D and non-encashment of advance payment guarantee and non-termination of contract.
The Genco-III a Rental Contract was signed between Northern Power Generation Company and M/s Reshma Power Generation Company for installation of 220MW RPP. As per contract agreement the seller was required to achieve COD up to December 31, 2009. He did not achieve COD up to June 30, 2010. Performance Guarantee valued at Rs 92.467 million was encashed. The remaining contractual penalties ie imposition of L.D and encashment of advance payment guarantee were not resorted to. This resulted in loss of Rs 565.794 million on account of non-recovery of liquidated damages and Rs 4.6 billion on account of non-encashment of advance payment guarantee. Instead of fulfilling the contractual obligation an amendment was signed to re-negotiate the contract which had no legal and contractual cover.
The matter was discussed in DAC meeting held on February 8, 2011. The matter regarding RPP''s was sub judice in SC and next date of hearing was fixed at February 15, 2011. The DAC directed the management to adhere to the clauses of contract in letter and sprit. The Supreme Court of Pakistan in its decision has directed the related RPPs'' to reimburse amount received as advance payment from the government along with mark-up. Most of the companies reimbursed the amount but amount of some companies is pending.
In the Audit Report-2010-11 also exposed others cases where the nation faced losses of 1.49 billion, Rs 1.34 billion, Rs 1.47, US $63.75 million due to award of rental contract without competitive bidding, non-encashment of advance payment guarantees, non-supply of gas and non-reduction in contract price.
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