The Economic Coordination Committee (ECC) of the Cabinet's decisions of February 15, 2008, on rental power plants (RPPs), have not been implemented in letter and spirit. The Asian Development Bank (ADB), under the third party validation mechanism, has begun evaluating rental plant contracts reportedly aimed at investigating allegations of kickbacks.
Official documents available with Business Recorder show that the ECC in its meeting on February 15, 2008 had directed the Ministry of Water and Power to negotiate tariff for RPPs lower than allowed to the independent power producers (IPPs), based on similar technology, for their first 10 years.
This direction has not been followed by the tariff negotiators i.e. the Private Power and Infrastructure Board (PPIB) and Pakistan Electric Power Company (Pepco) as, according to Minister for Water and Power Pervez Ashraf, average RPP tariff would be 13.5 cents per Kwh--one cent per Kwh higher than IPPs.
The documents further say that the ECC had also directed that Secretaries of Finance and Water and Power along with Managing Director of Public Procurement Regulatory Authority (PPRA) will review the mechanism of procurement to ensure that further delay is avoided and PPRA Rules are strictly observed in letter and spirit. These instructions of the ECC were also violated by the Ministry of Water and Power which forced PPRA to seek details of the contract agreement signed between the GoP and RPP sponsors.
On July 30, Deputy Director PPRA, Naeem Ahmad wrote a letter to the Ministry of Water and Power seeking a complete record of rental power contracts for evaluation. It is still unclear whether the government provided the contracts to the PPRA for evaluation.
Under the Shaukat Aziz and Mohammadmian Soomro governments, following conditions were laid down in the tender documents and subsequent contracts awarded through ICB process: (i) 7 percent mobilisation advance, adjustable against dues, to RPPs after Commercial Operation Date (COD); and (ii) SBLC for 93 percent of the contract value confirmed by an A-rated bank to cover event of default of power buyer.
In most cases of RPPs, the signed contracts have been amended in writing and new contracts awarded through ICB process contain the following: (i) 14 percent mobilisation advance, adjustable against dues to RPPs after COD; and (ii) sovereign guarantee to cover any events of default on part of power buyer.
The government also made amendments in the conditions for RPPs, according to which non-recoverable cost of SBLC borne by GoP was 8 percent which was a sunk cost going neither to GoP nor to RPP, claimed one of the analysts requesting anonymity.
According to him, if the GoP had abided by its original commitments the following outlays would have been made: (1) mobilisation advance of 7 percent secured against bank guarantee and adjustable from rental dues; (2) SBLC commission of 2 percent per annum on declining balance for typical 3-year RPP contract. This would cost GoP almost 5 percent of the contract value as non-recoverable, non-refundable cost of transaction/earning by bank.
SBLC's confirmation charges of 6-8 percent in the first year, subsequently on reducing balance on annual renewals. Total non-recoverable, non-refundable cost of transaction/earning by banks would be 12 percent.
Under the original contracts, GoP would have incurred a non-recoverable, non-refundable cost of 17 percent of the total contract value on account of SBLC charges and annual renewals. The GOP, went back to the RPP sponsors and offered them 14 percent of the contract value as mobilisation advance to be adjusted against rental dues, the analyst said.
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