Pepco accused of hurting investors'' confidence

Pakistan Power Resources (PPR) has accused Pakistan Electric Power Company (Pepco) of hurting investors'' confidence by dishonouring its agreements already signed with them for setting up rental power projects, official sources told Business Recorder here on Friday.
"We are surprised to hear that the government is inviting fresh offers for rental power projects in spite of failure to meet commitments against previously signed contracts," the firm said, in a letter written to the Minister for Water and Power, Pervez Ashraf. PPR is to establish Piranghaib Multan rental power plant, but a longstanding dispute between the company and Pepco is hindering progress.
According to the firm, a contract for rental power project at Guddu was signed on February 23, 2008, and Pepco established a Stand By Letter of Credit (SBLC) within 30 days of that date. Despite a lapse of over 10 months, Pepco has still not been able to establish SLBC, due to which its credibility with the investors is next to zero, and it is dampening further investment in power sector and eroding the government''s commitment in this regard.
Sources said that Pepco had signed a contract on June 4, 2008 for rental power project in Multan, and received bank guarantee from the company against mobilisation advance the next day. However, despite a lapse of six months Pepco has neither paid the firm mobilisation advance against which a bank guarantee had been received by Pepco, nor SLBC has been established under the contract. This may imply that the company may not be able to access the original equipment earmarked for the project with resultant change in project cost and increase in tariff.
Earlier, the firm had threatened to re-negotiate tariff if payments were not cleared immediately. "Despite a lapse of 6 months, Pepco continues to be in default on its contractual commitments with regard to Multan rental power project," the company''s Managing Director said in a letter written a couple of months ago.
Sources said that the award of this project has been disputed as the incumbent Wapda Chairman did not want to give the project to PPR due to several reasons. Iqbal Z Ahmad, the firm''s chief, is of the view that despite submission of a bank guarantee on June 4, 2008 and a lapse of over 6 months, neither mobilisation amount has been paid nor mobilisation bank guarantee has been returned.
The company had also threatened re-negotiate tariff, and also to claim interest on delayed mobilisation advance payment and damages and reimbursement of costs incurred if Pepco failed to deliver by December 20.
"We are a little disturbed, and exploring different options to deal with Pepco for violation of the contract," said Fasih Ahmad, a spokesman of the company on Friday. PPR had proposed an alternative arrangement ie to extend the validity of the contract for 5 years, instead of 3 years, on existing terms and conditions with the following exceptions: (i) SBLC will be for 50 percent of the rental value for 3 years; and (ii) the securitisation/escrow arrangements between BankIslami Consortium will be for 5 years, instead of 3 years; and (iii) additional cost of interest will he borne by PPR. Ahmad had further stated that the project has already been delayed and its economics is affected.