The RPP saga continues

The honourable judges of the Supreme Court, while resuming suo motu and Khawaja Mohammad Asif versus Federation of Pakistan hearing on allegations of corruption in the rental power plants (RPPs), observed that not only were they puzzled why billions of rupees worth of generation equipment was never physically inspected in contravention of rules but wondered if there was anybody in the regime to object to this corruption. Faisal Saleh Hayat, who by dint of his party's recent coalition with the PPP has been transformed from a very critical member of the Opposition to a sitting Federal Minister, identified the numerous occasions on which he had raised the issue in parliament and cited former Finance Minister Shaukat Tarin's objections that led to the cabinet agreement to seek third party audit on the RPPs. Hayat did not withdraw his earlier allegations during the hearing and vigorously pursued his earlier accusations. He highlighted major disturbing elements contained in the approved RPP contracts, claims that were supported by the independent third party auditor - Asian Development Bank. He reiterated for the benefit of the court that Nepra as well as public procurement rules were violated in the award of RPP contracts. Specifically, Nepra rules were violated on at least two counts namely by purchasing machinery more than 10 years old and allowing generation companies to seek approval from Nepra post-contract signing. In addition, the audit also revealed that performance guarantees obtained from the RPPs were not uniform, were lower than the international standards, and inadequate to cover penalties as they were charged against future payments. Tariffs were not uniform either and RPPs were allowed a 14 percent down payment instead of the earlier tendered 7 percent down payment (post-contract award) raising concerns that the RPP may abandon the project in the event that the plant runs into difficulties - an assessment contained in the third party audit report: "in case for RPPs with five years contract, the sponsor would have recovered his investment in three years, he would have made a comfortable return and still own the government part of the down payment. The seller could thus abandon the project rather than face penalties and the plant would not offer any collateral. It is noted that neither the request for proposal nor the rental agreement refers to import policy order provisions on used/second-hand power plants." The ADB report also made three suggestions to resolving the energy crisis. First, the government was urged to utilise 2000 MW from the existing system through full capacity utilisation. This has still not been achieved, more than three years down the line, due largely to poor governance associated with the failure of the government to eliminate the inter-circular debt that allows the sector to remain hostage to a liquidity crisis through non-payment of sub-sectors to each other. Second, the government could tap unutilised energy from Independent Power Producers (IPPs) which is outside the system due to 'contractual and administrative reasons' and introduce energy saver bulbs that together would reduce loadshedding by 1133 MW. And finally, the report suggested that the energy-mix needs an urgent revisit given that the ongoing crisis is due to the rising international price of furnace oil, our major source of fuel, and continuing delays in identifying a substitute to the depleting gas reserves. It is unfortunate that few in this country see the light at the end of a dark and long tunnel. The energy policy remains ad hoc and the government makes periodic references to imports through projects that have remained economically viable but fraught with non-economic impediments. Thus our negotiations on the Iran-Pakistan gas pipeline remain a subject to US objections - our major bilateral donor - to supporting Iranian exports as is the US-supported Turkmenistan-Afghanistan-Pakistan-India gas pipeline is to continuing civil war in Afghanistan with the risk factor associated with blowing up the pipeline raising the economic costs of the project to unsustainable levels. As Business Recorder has repeatedly noted the blue print to resolve the energy crisis has been available with the government for the past three years. However, its implementation remains hostage to not only political considerations, which one may understand though not endorse, but also to inefficiency, mismanagement and last but not least corruption. Copyright Business Recorder, 2011