Asian Development Bank (ADB) has expressed dismay over mis-procurement in Discos and frequent changes in Board of Directors (BoD), a major reason for the delay in projects. Official documents reveal that ADB fielded a Mission in Pakistan for the above project from April 18 to 30, 2013.
The Mission's objectives were to: (i) assess project implementation progress since last review mission in March 2012 and develop an action plan to expedite the implementation; (ii) review Discos' procurement progress; (iii) discuss schedule of remaining contract awards and revise disbursement projections; (iv) review fund utilisation, identify and agree net loan savings with the stakeholders; and (v) review compliance with loan covenants.
The Mission held meetings with the Pakistan Electric Power Company (Pepco), the Executing Agency (EA), and with the eight power Discos , the Implementing Agencies (IAs) namely Faisalabad Electric Supply Company (Fesco), Gujranwala Electric Power Company (Gepco), Hyderabad Electric Power Company (Hesco), Islamabad Electric Supply Company (Iesco), Lahore Electric Supply Company (Lesco), Multan Electric Power Company (Mepco), Peshawar Electric Supply Company (Pesco), Quetta Electric Supply Company (Qesco). The Mission also met and briefed Ministry of Water and Power (MoWP) on current status and issues. This Aide Memoire (AM) reflects the review outcome, discussions held and agreements reached between Pepco, eight Discos and the Mission. The AM is subject to approval by higher authorities in the Government of Pakistan (the Government) and the ADB.
Documents further disclose that the Government in July 2008 entered into a Framework Financing Agreement (FFA) with ADB for up to $810 million to finance the Power Distribution Enhancement Investment Programme. ADB approved a multi-tranche financing facility for $810 million in September 2008 to finance the investment programme. Subsequently ADB approved the financing of the tranche-I Investment Project (Loan 2438-PAK) for $242 million; tranche -2 investment project (Loan 2727-PAK) for $242 million, from its ordinary capital resources (OCR); Tranche - 3 Investment Project (Loan 2972-PAK) for $245 million; and the support project [Loan 2439-PAK(SF)] for $10 million from its special fund resources.
On 29 November 2008, the Government, Pepco and eight Discos signed the loan and project agreements with ADB for financing and implementing of activities under tanche-1, and on 28 January 2011 for tranche-2. The loans 2438-PAK and 2439-PAK (SF) became effective on January 13, 2009, whereas the loan 2727-PAK became effective on October 5, 2011. The loan 2972-PAK has not yet been signed. The tranche-1 investment project completed on June 30, 2012, tranche-2 by March 31, 2015 and the support project is expected to be completed by June 30, 2018.
Scope of Project - Loan 2727: tranche -2 comprises of approximately 131 subprojects covering mainly STG component. The scope includes: (i) construction of new grid stations, (ii) conversion of 66 KV system to 132 KV system, (iii) extension and augmentation of power transformers at existing grid stations, and (iv) distribution line loss reduction works at Mepco.
Mission Findings- Tranche 2- Loan Review Mission for Loan 2727-PAK: As of April 15, 2013, the cumulative contract awards stood at $121.5 million (56 percent of the net loan amount). In addition to this, packages worth $27.8 million are at different stages of procurement (contract singing stage=$9.2 million, bidding stage=$18.6 million). All the remaining procurements under the project are expected to be completed by 1st quarter of 2014. The target originally set for the current year is $57.2 million.
Disbursements: As of April 15, 2013, the cumulative disbursement stood at $50 million (21 percent of the net loan amount). Disbursement will further increase in the 3rd and 4th quarter of this year. The target originally set for the current year is $43 million. The project will disburse over and above the projections for the current year.
Implementation Progress: The loan became effective on October 5, 2011. Procurements have been completed for most of the sub-projects. Physical works have started on majority of the sub-projects. Out of a total of 131 sub-projects, 27 have been physically completed and commissioned (Qesco=11, Mepco=14, Pesco=2). Design works for almost all the turnkey projects have been completed and civil works started. ABD has expected that physical activities on all sub-projects under the loan will be completed within the loan closing period.
The sub-projects which face uncertainty or major delays pertain to Lesco, where there are serious issues of: i) lack of ownership; ii) lack of decision making at the project level as well as at the management level; and iii) frequent changes at the PMU, CEO and Board level. In the past two years, Lesco has seen two Boards, four CEOs and five Project Directors (Chief Engineer Development). Due to such uncertainties at the management level, the project has suffered badly. Very recently ADB has declared "mis-procurement" of a package of Lesco (worth $9.2 million) for procurement of 12 number power transformers. If re-bidding is not completed within a short period, this may result in cancellation of 12 sub-projects (augmentation and extension of power transformers at different grid stations) from Lesco's scope of work. The mission also noted that Lesco awarded two turnkey contracts (construction of 5 new grid stations in Lahore region) and failed to make them effective even after passage of more than one year, mainly due to delays in opening of LCs and making advance payments to the contractors which are pre-conditions of contract effectivity. The Mission, during meetings with the CEO of Lesco and the Joint Secretary Ministry of Water and Power, showed great concern on the delays in procurement and implementation of sup-projects at Lesco and requested for taking necessary actions to improve situation.
Qesco and Mepco have shown impressive results in terms of project implementation. Both have completed almost 60 percent of their scope of work. The Mission specially appreciated Qesco's efforts in completing 11 out of 17 sub-projects, considering the fact that Qesco's service area covers the whole of Balochistan province which is the most difficult area and a security challenge for the Qesco staff who worked on these sub-projects. Qesco not only completed 11 sub-projects, but has also committed to complete the remaining scope of work within the next two months ie by June 30, 2013.