The Economic Co-ordination Committee (ECC) of the Cabinet has failed in resolving the controversy between the Ministry of Law and Ministry of Water and Power over altering of financial documents pertaining to 425 mw Nandipur hydropower project without formal approval of the Law Ministry.
Official documents obtained from the Finance Ministry show that the ECC meeting was informed on July 20, 2011 that for installation of the 425 mw Combined Cycle Power Plant at Nandipur, Gujranwala, at an agreed EPC price of $ 329 million, to be executed by Dong Fang Electric Corporation (DEC) Ltd, China, the Ministry of Finance was required to provide GoP guarantee for the loan amounting to $ 329 million (EPC contract price) consisting foreign currency component of $ 164.9 million and € 78 million and local component of Rs 3.0 billion.
According to documents, project L/Cs for Rs 19.150 billion (equivalent of $ 148 million and € 70 million being 90 percent of EPC price) were opened on September 15, 2008 by HBL and NBP syndicate in favour of DEC China, along with a loan of Rs 5.3 billion for the local currency requirement, with the support of Ministry of Finance.
-- Documents further suggest that Ministry of Finance mandated BNP Paribas and HSBC consortium on June 4, 2008 to arrange foreign loans (eligible up to 85 percent of EPC price), namely, COFACE facility for French portion and SINOSURE facility for Chinese portion, to retire shipping documents against the security of GoP sovereign guarantee.
-- ECC was further informed that the officers of Northern Power Generation Company Limited (NPGC) went to Beijing (China) for signing of the financial documents, duly vetted by the Law & Justice Division and approved by the Finance Division and Ministry of Water and Power. However, the foreign lenders proposed some last-minute changes in the finance documents.
The Ministry of Water and Power claims that the proposed charges were not significant. That's why these were incorporated and accordingly the documents were singed. Upon return, the changes were approved by the Ministry of Water and Power and the Finance Division. However, when the documents were sent to Law and Justice Division for legal opinion as Condition Precedent (CP), that Division returned the documents on the ground that the credit agreements and GoP guarantee had already been signed and the Rules of Business 1973 did not provide for ex post facto approval in such matters.
-- It was also informed that the first shipment carrying plant equipment arrived at Karachi Port in January 2009. The HBL and NBP Syndicate refused to allow clearance in the absence of guarantee and securities, which could become effective only on the basis of Law and Justice Division's clearance while the correspondence between the Ministry of Water and Power and Law Division continued, the plant equipment could not be transferred to the site, which resulted in demurrage charges of Rs 873 million.
-- The Ministry of Water and Power opined that the signed documents were not yet effective and did not materially or adversely affect the rights and obligation of the Government of Pakistan. While this issue could be resolved between the two Ministries at a later stage, presently, there was a need to clear the plant's equipment and get it transported to the construction site to save it from rusting and damage caused by weather and also to commission it by December 2011 deadline.
After clarifying the position, the Ministry of Water and Power sought approval of ECC for waiver of the demurrage charges amounting to Rs 873 million, accrued on the plant equipment and the financing documents signed in Beijing, China with the last-minute changes.
-- During the ensuing discussion, the Ministry of Ports and Shipping, in the larger national interests, supported the waiver of demurrage charges and suggested that the Karachi Port should be compensated to some extent.
Regarding approval of the financial documents, it was observed that the last-minute changes made therein by the foreign lenders were not significant. However, the Law and Justice Division, which was not represented in the ECC meeting, might have some valid reasons for not approving them ex post facto. Besides, no record of correspondence exchanged between the Ministry of Water and Power and Law Division was presented before the ECC. Thus, it would not be advisable to over-rule that Division, without hearing them. It was proposed that the matter could be better resolved by mutual consultation between the Minister for Water & Power and the Minister for Law.
The ECC observed that prior to signing of the documents, opinion of the Law Division should have been obtained. This could have been done by the sponsoring Ministry by approaching that Division at an appropriate level, which in the instant case appears to have been ignored.
One view was that this issue may be placed before the Cabinet, seeking approval. However, it was considered appropriate to sort out this matter in consultation with Law Division.
The ECC waived demurrage and detention charges of Rs 873 million on 425 mw Combined Cycle Power Project at Nandipur being implemented by NPGC.
The ECC decided that the matter concerning approval of financial documents for the project should be resolved by mutual consultation between the Minister for Finance/ Chairman ECC, Minister for Water and Power and the Minister for Law. In case of disagreement, the matter would be placed before the Cabinet for decision.
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