The Minister for Water and Power, Pervez Ashraf, is reported to have failed to get approval for four new rental power projects of 473 MW from the Economic Co-ordination Committee (ECC) of the Cabinet on August 18, 2009, sources in PPIB told Business Recorder.
The Water and Power Ministry did not wait for comments of Ministries of Finance, Petroleum, and Planning Division, and Nepra over the hurriedly prepared proposal for new rental power plants, sources said. Presided over by Finance Minister Shaukat Tarin, the ECC meeting asked the Ministry of Water and Power to provide a detailed power demand and supply position along with justification for the new rental power projects.
This was before the projects in the pipeline had been provided 14 percent mobilisation advance. The newly proposed rental power projects are to be established in Naudero, Sammundri extension and for Karkey upgradation. Sources said that when the proposal was placed before the ECC, harsh questions were asked of the Ministry of Water and Power, which were not answered to the satisfaction of some of the ECC members.
According to the summary presented by the Water and Power Ministry, the current gap between demand and supply is about 3500 to 4000 MW. Besides, a bare minimum spinning reserve of 700 MW (5 percent) is required to be maintained in the system to cater for forced outages and reliability in power supply through upcoming independent power producers (IPPs) and rental power projects.
The ECC in its meeting on February 15, 2008 had approved installation of 800-1200 MW of rental power plants by Pepco, subject to certain policy guidelines. Besides, ECC had also allowed on September 10, 2008, 1500 MW rentals/fast track IPPs to be established through the Private Power Infrastructure Board (PPIB). This implied that go-ahead signal was for a total 2700 MW.
ECC, in its meeting on September 10, 2009 had also decided that "in case any of the approved projects fails to achieve crucial milestones as per agreements towards timely project implementation, then the project be immediately cancelled with penalties and that the deficit power generation capacity be then expeditiously arranged through addition of IPPs/rentals both solicited and unsolicited on fast track basis".
Sources said in compliance with the ECC decisions, rental power plants are being installed through Pepco and PPIB, which are likely to be commissioned by December 2009. These are 1002 MW and 1214 MW respectively, totalling 2216 MW, thereby leaving an unfilled gap of 484 MW due to likely slippages of certain projects on account of financial constraints.
It is relevant to point out the original terms and conditions for the rental plants envisaged 7 percent mobilisation advance with a confirmed Standby Letter of Credit (SBLC). However, since there were difficulties in procuring SLBCs, the terms and conditions were later revised with the concurrence of Finance Ministry to 14 percent advance against bank guarantee to be furnished by the sponsor and adjustable in monthly rental payment accruing after commissioning of the plant and GoP sovereign guarantee in lieu of SBLC.
The banks are demanding charges to the extent of 7 percent of the contract value for issuance of SLBC. This dispensation was later made available to all the remaining potential sponsors with the understanding that the rental power plants should be commissioned during the current financial year.
Meanwhile, the Ministry of Water and Power received a few unsolicited proposals which offered reasonable tariff compatible with the average rental tariffs received through ICB and compliant to the ECC guidelines. The anticipated tariff for new unsolicited projects ranges from 4 cents to 5.60 cents.
The Ministry of Water and Power, in its proposal has sought go-ahead signal to install four new rental power plants to fill the gap of 484 MW without getting approval of Nepra with the commitment that tariffs for the unsolicited projects will also be duly submitted to Nepra for scrutiny and vetting. However, the ECC did not agree with the controversial proposal of the Water and Power Ministry.
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