The issue is not simple. It is not always easy to determine the right price without competition. In fact, in quite a few cases, competition is employed only to discover price. Cost can be determined if expertise is available, which is usually not available in the borrower country. One may not need to borrow, if one was developed enough. Third party advice is either expensive or is not timely. Tendering requirements consume a lot of time, militating against hiring of third-party advice. Vested interest also works against it and manages to pervert the process.
However, it is possible to minimise the losses or inadequacies by installing a rigorous examination and scrutiny system for single bid projects. Partly, the system has worked due to the presence of regulatory agencies which attempt to act as neutral Umpires in determining costs and tariffs. But all sectors are not covered by NEPRA and OGRA. Also, regulatory agencies are obstructed, or to put it lightly, are disliked.
Planning Commission could fill in the gap and provide third party role but it has lost credibility over the years. Planning Commission can serve as a third-party institution as it is not the one which originates proposals. Over the years, its role has been systematically or otherwise, curtailed. May be in its current state, it may not be able to do this efficiently and adequately. Necessary organisational changes can be brought in as some proposals are reportedly on the cards or in the mind of the leadership of the Planning Commission. Planning Commission needs to have induction of several scores if not hundreds of qualified professionals with at least one-third of those being PhDs to be able to do a good job. It has to spend up to 1 % of the project cost in project evaluation hiring external and independent consultants as opposed to under-staffed and under-paid situation that it is in. Instead of opposing the Planning Commission or proposing its closure, steps should be taken to institutionally strengthen it and remove its inadequacies that are there. Unfortunately, it has been reduced to PC-1 processor only. It can serve as a Think Tank and as a third party evaluator of proposals, not necessarily limited to CPEX approval.
We have been arguing for indigenization in this space. Indigenization or co-production in the form of JVs or otherwise could reduce and control costs and develop references for contracts in other countries. pipelines are not built every day and precious opportunities have been wasted in this respect. Lender's interest can be taken care of through buying inputs like pipes, electrodes and other consumables and electronic packages that form normally 65-70% of the real costs. Easier said than done, as lenders would not like to develop potential competitors' credentials. The easiest thing in the energy sector is laying pipelines. There is a considerable local know-how and expertise. A local pipeline company could be floated for these projects which could handle these projects in a JV approach. After all MPNR is floating all kinds of sundry companies like Pakistan LNG Terminals Ltd. But that would perhaps be a client company for lording over and not the kind of company that we are proposing here which requires hard work.
To be fair, all is not that bad. RLNG based power plants are being built with very low CAPEX, however, there was stiff competition, and it was not a single bid. Coal power plants are being built under a reasonable tariff developed and scrutinised by NEPRA. Upfront tariff, independently arrived at by the regulator eliminates the need of competition to a very large extent. However, this was made possible by involving NEPRA and not avoiding it. Unfortunately, MNPR does not like its regulator Ogra and tries to avoid it. It has not yet taken the pipeline cases to the scrutiny of Ogra which could have enabled it to get a better deal from the suppliers. MoWP could not have successfully negotiated its HVDC agreement without the regulatory role of Nepra. But MPNR does not like to go to OGRA and prefers to have a decision made by ECC in haste. Had Ogra got some teeth or brain, it could have announced upfront tariff (indicative at-least if not mandatory and final) to guide and discipline the process. In competitive bids as has happened in the case of LNG terminals, regulatory process may not be required. However, in case of single bids, it is highly objectionable to avoid regulatory processes. It should have been done and could have been done much in advance to save time. There ought to be a difference between running a company and a ministry. Even in case of public listed companies in the West, quite some compliance is required these days in procurement processes. Negotiating Committees comprising of government officials are no substitute for regulatory process. In fact negotiations have to take place after a verdict has been received from the regulator. As per Planning Commission guidelines, a feasibility study is to be done by a third party. The problem is that if the feasibility study is done by the single bidder and the cost estimates also done by him, how can there be fair pricing and on what basis an objective price negotiation can take place?
We have provided the data in the above on India, which indicates how the regulatory process drastically cuts the demands and comes up with realistic tariff. Institutional controls and third-party involvement is an asset not a liability. If the suppliers know that they have to only convince only one agency, they build in more cream in their demands. So let the institutions prevail and whatever institutional arrangements are there may be allowed to work so that such conundrums are handled at least partially. Let us work together creatively and innovatively to eliminate the inadequacies that happen to be there. If investment has to come from China only, as it appears, some bilateral institutional arrangement (eg, bilateral oversight, competition among Chinese companies) may have to be made to prevent possibilities of excessive profiteering by the suppliers.
(Concluded) (The writer was member Energy Planning Commission until recently)
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