Although it is not known whether or not the government is seeking to steer clear of different brewing scams in various economic areas, it is quite clear that it has in fact encouraged a fraudulent scheme in wind power energy sector to swindle the national exchequer. According to sources, the 'Letter of Intent (LoI)' game, which is strongly characterised by conceit, deceit and intrigues, has become a convenient tool to inflict huge financial losses on nation's kitty for the benefit of a few individuals.
Inquiries carried out by Business Recorder in the country and as well as abroad show how a wind power project works: an LoI is given by Government of Pakistan for interested parties to setup a wind project. Once the LoI is arranged, back door deals allow for some of the projects to get government land to the projects at few rupees per acre (cents per acre). Currently over 100 LoI are given whereas some 20-25 projects have been allocated government land. Only a couple of projects have acquired their own land.
"Once the land is available, a technical feasibility is done which involves 5 individual studies and total cost for doing these plus setting up the wind measurement equipment plus legal and Technical consultant comes to half million ($500,000) dollars and this is the total cost for the sponsor," the sources said.
The following is a typical breakdown of a wind project in Pakistan, according to sources:
Construction Contract or EPC (Engineering Procurement and Construction - 'turnkey' project) is a buzzword in energy circles these days.
EPC Contract involves procurement of Energy Equipment (wind turbines), setting it up on Site then commissioning of the project. Individually turbines cost around $47-$50 million, civil costs are around $8-$9 million and another $8 million are for setting up the electrical substation and transmission lines inside the site. These add up to $63-$67 million. EPC contractors charge another few million to cover their risks but the total Final "fully loaded" EPC cost should come to around $75 million.
However, as shown in the Table 1, the projects show their total EPC cost as $105-$111 million. The difference between the actual cost and the submitted cost is typically recouped. Project Company and the EPC contractor have a Contract that is submitted to the regulators and bankers and creditors that shows the amount shown in the Table 1.
However, there is a second contract - a typical side letter arrangement that provides the split of the recoup back to the Project Company and tech contractor, the sources added.
As EPC companies are part of the structure they realize that project company is taking cash out into their pockets, they ask for higher prices to $85-$95 million dollars (depending on the negotiations and allocation of risks) to share in the loot, the sources said and added that all international companies have local partners that help set up the arrangement.
Table 1 - submitted fictitious contract
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EPC Cost 111,300,000
Non-EPC Cost 1,855,000
Project Development Cost 3,930,000
Land Cost 103,389
Taxes and Custom Duty 715,700
Insurance During Construction 1,502,550
Financing Costs 3,106,112
IDC 9,602,871
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Total Project Cost 132,115,622
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Table 2 - the real contract
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EPC Cost 80,000,000
Non-EPC Cost 500,000
Project Development Cost 900,000
Land Cost 100,000
Taxes and Custom Duty 715,000
Insurance During Construction 1,500,000
Financing Costs 3,000,000
IDC 9,000,000
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Total Project Cost 85,715,000
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According UAE and foreign-based sources, people in Pakistan are bribing their way, violating US foreign corrupt practices Act often involving bribes to regulators, government officials and bankers. They are not putting any equity in the company, on the contrary taking money out at the time of financing approval ($132-$85 million, which is fifty percent over the total project cost). Another way they hit the projects viability is shorting on the needed spare parts and other risks are left alone to be borne by the lender they also hire their own cronies and relatives at high salaries to show as project development costs. Prospective investors say that this is beginning to ruin the renewable market in Pakistan and the goodwill of the US Government who is trying to help the people of Pakistan is laid waste by the greed and corruption of a few individuals.
An average person in Pakistan thinks that corrupt rich are getting richer while their lives have not seen any change, according to the sources.
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