The press has carried extensive reporting and evaluation of the ADB report on the RPPs. In order to clarify the GoP position, an issue-wise account has been developed which is as under:
UNUTILIZED CAPACITY It has been alleged that GoP is not utilising the available generation capacity to the maximum and artificial shortfall has been attributed. Factually, there is no idle or unutilised capacity with Wapda/Pepco Thermal Plants.
The statement that 2000 MW was available does not hold water because two different activities viz use of so-called unutilised capacity and induction of CFLs have been merged to form one activity. Actually, the 997 MW of plants are not permanently closed.
These instead remain inoperative for short period and thus cannot be considered towards any permanent solution in this regard. Southern Electric Power (119 MW) is being dispatched regularly while issues with Japan Power have been settled and the plant shall be available by 10th February, 2010. M/s. Tapal and Gul Ahmad (IPPs) are already available in KESC system.
Indeed, 486 MW of gas based capacity remains compromised for 2-3 months at GE Rental Plant Sheikhupura (150 MW), Alstom Renal Plant Bhikki (136 MW) and GTPS Faisalabad (200 MW) due to non-availability of gas in SNGPL system. The first two of these plants were inducted in the system as RPPs by the previous government in 2006 against unsolicited proposals and with unconfirmed gas supply contracts.
These plants are to retire on 22.02.2010 and 23.06.2010 respectively. The government has no intention of extending their RSAs. Conservation measures are already afoot, but the induction of 30 million CFLs under PM's national CFL replacement plan is yet to start.
Considering the above 2000 MW as potential available capacity which could be tapped to reduce the present deficit is simply incorrect. However, availability of additional gas combined with provision of CFLs would surely help in reducing demand. It may, however, be contended that 4500 MW deficit during 2009 summer is bound to increase to at least 5000 - 5500 MW in 2010 summer if new capacities are not added. Therefore, the government is doing its best to add more power to national grid from a combination of generation sources - be it IPPs, RPPs, hydel or others.
WEAK LEGAL & CONTRACTUAL STRUCTURE
a. It again has been incorrectly reported that GoP made recourse to weak legal and contractual structure while negotiating RPPs contracts. The factual position is that GoP financial difficulties constrained it to substitute Standby Letter of Credit (SBLC) with GoP guarantee and higher down payment. Moreover, annual fee payable to the banks (7-10 percent) for confirmation of SBLC is a non-recoverable expense while increases in advance payment has reduced the subsequent contractual payment liabilities of the buyer and, as such, payments are recovered through monthly rental charges. Confirmed SBLC of Rental Charges in US$ over a period of 5 years is a very strong financial instrument equivalent to cash in hand of RPPs against which it could raise (100 percent) debt financing as opposed to the offered GoP guarantee along with (14 percent) down payment.
b. SBLC is encashable over the counter without any contestation by the buyer and also without any time delays. Whereas in case of GoP guarantee, at least 45 days are required for the payments or upon full and final determination by arbitral tribunal in case dispute is raised by the GoP.
c. Actually, higher upfront payment to the seller were secured through an advance payment guarantee of higher equivalent amount in favour of the buyer and therefore there were no change in the net financial position of the parties and that is why higher upfront payments were not considered even by the ADB in their financial model. Change in down payments after receipt of bids is considered material or adverse only if it impacted the financial, equity, or project risk profile which is not the case. The changed conditions were in favour of the buyer rather then the seller and did not impact either the selection criteria or award criteria that could have obligated re-tendering.
d. The upfront payments actually are mobilisation advances for development, engineering, procurement and construction stages of the contract, which are common placed in all standard EPC contracts for the IPPs. In case of abandonment of the project, buyer has the right to terminate the contract and recover outstanding amounts due to it as a secured party from the sale of plant and machinery. Different contracts are signed pursuant to different Request for Proposals and governed by varying terms and conditions contained therein. Each successive round of bidding process was an attempt to overcome impediments faced in previous biddings and was designed to bring about improvements.
e. Bids floated by Pepco for PPR Guddu, Young Gen, and Techno Extension were site specific with fixed capacities and specific Performance Guarantee amount was specified. Bids floated by PPIB included Performance Guarantee (@US $5000/MW). Assumption that penalties for late commissioning are equivalent to one month rental charges is not true in the RPPs cases. Penalties specified in such contracts were in accordance with the terms of respective RFPs.
f. Reasons for post-bid variations are logical as monthly rental charges vary from project to project based on the tariffs quoted in the bids. Actually, 3 types of securities are available with buyer to ensure commercial operations on target date. Firstly, prime security is Advance Payment Guarantee which is encashable to recover the advance payments made in case the Target Commercial Operations Date is not achieved by the Seller. Secondly, Performance Guarantee is encashable in full amount upon delay in the achievement of Target Commercial Operations Date. Thirdly, penalties are imposed in specified amounts recoverable from monthly rental charges.
TRANSPARENCY ISSUES
a. Power acquisition programme for the RPP was duly authorised by the ECC and the Cabinet, whereas Nepra was consulted for terms and conditions of the rental contracts, which were ultimately derived from the RFP that was again approved by the ECC. Requirement of an ICB as preferred mode for acquisition of the RPPs was recommended by Nepra and implemented accordingly.
b. Different contracts were signed pursuant to different Request for Proposals and thus were governed by terms and conditions contained therein. Each successive round of bidding process was an attempt to overcome impediments faced in previous biddings and improvements were brought about.
c. Moreover, rental contracts are governed by the laws of Pakistan including Import Policy Order 2009. Import Policy Order incorporates implementation of specialised third party pre-shipment inspection regime for specified old and used plant and machinery with adequate safeguards for ensuring serviceability and significant residual value. These have been taken care of during all processing stages.
TARIFF
a. Most of the reports and analysis carried in the press about possible increase in tariff on account of 08 or 14 RPPs induction are incorrect. The ADB's calculation and prognosis regarding possible increase of power tariff on account of withdrawal of tariff differential subsidies during FY 2010-2011 and Nepra determined monthly fuel prices adjustments due to possible increase in international oil price has been clubbed together as being on account of induction of RPPs - all of which is inherently incorrect. The truth is that induction of 08 RPPs in a higher demand growth scenario will result in tariff increase of only 6.1 percent and possible induction of 14 RPPs will increase the tariff by 9.99 percent. The tariff increase in case of low demand scenario would only be 3.7 percent and 7.4 percent respectively during 2010-2011. As such, any other increase in tariff due to withdrawal of subsidies or increase in fuel/gas prices or any negative change generation-mix due to drought condition cannot be considered as being on account of induction of rental power.
LOAD SHEDDING
a. The ADB's contention that loadshedding will not end even with induction of 14 RPPs in 2011-2012 is a qualified statement since induction of additional new generation capacities for 2012 and onwards would be needed - otherwise power deficit would again surface. It is also a fact that relegation or reduction in the RPP program would add on the present power deficit and mitigation thereof will take more time at a great cost to the economy. Thus, understanding this logic does not need any rocket science because demand in Pakistan is fast growing and can only be serviced through new additions. It is because of this fact that the government has gone for short term, mid term and long term solutions to the problem. As the ADB required information/data for 2010 only, it was not provided details of mid term power generation plans. Moreover, when no RPPs or very few with generation capacities would start in 2010, RPP program will not have any impact on possible mitigation of power deficits.
LOW GAS SUPPLY
a. The Ministry of Water and Power is in the process of negotiations with Ministry of Petroleum to enhance gas supply for thermal plants in order to optimise their full capacity generation. During peak winter season there are gas provision fluctuations in consideration of maximum domestic and industrial consumption patterns which have to be taken into account while addressing power generation issues during peak consumption season.
CONCLUSION In conclusion, it is stated that all the recommendations of the ADB report have already been approved by the GoP in its Cabinet meeting on Wednesday, 27th January 2010. The government's perspective on various aspects of the ADB report are also explicitly stated in the comments attached to the ADB report placed on the website of Pepco & PPIB.-PR
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