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Saturday, March 31, 2012
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Islamabad

 

Thee following is a summary of the Supreme Court judgement on Rental Power Plants announced on Friday:

 

Today Supreme Court of Pakistan announced the reserved judgment in Human Rights Case No. 7734-G/2009 & 1003-G/2010 (Alleged Corruption in Rental Power Plants) and other connected Human Rights Case No. 56712/2010 (Fraud in payment of Rental Power Plants detected by NEPRA). The case was heard by two member bench headed by Hon’ble Chief Justice of Pakistan and comprising of Hon’ble Mr. Justice Khilji Arif Hussain on various dates and the judgment was reserved on 14.12.2011 which has been announced today i.e. 30.03.2012. Further, this 90 paged judgment has been authored by the Hon’ble Chief Justice of Pakistan Mr. Justice Iftikhar Muhammad Chaudhry. The same has also been uploaded on our official website www.supremecourt.govt.pk.

 

In this case, the applicants namely Makhdoom Syed Faisal Saleh Hayat, Federal Minister for Housing and Works and Khawaja Muhammad Asif, MNA had appeared in person while the Govt/WAPDA/PEPCO/GENCOs and sponsors/owners of the Rental Power Plants were represented by their counsel.

 

The main crux of the judgment is as under:-

 

“The Constitution of the Islamic Republic of Pakistan mandates that State shall exercise its powers and authority through chosen representatives of the people. A democratic order in place, through the representatives of people, being the members of Parliament, obligates the elected representatives to fulfill their commitments bestowed upon them under the Constitution, and in their representative capacity, they are bound to perform their functions honestly, to the best of their ability, faithfully, in accordance with the Constitution and the law as well as the Rules of the Assembly, and always in the interest of sovereignty, integrity, solidarity, well being and prosperity of Pakistan. Such a binding force of the Constitution commands them to ensure well being and prosperity of Pakistan, so whenever they feel threat to the well being of the people of Pakistan for any reason, they are bound to preserve the same.

 

2. Makhdoom Syed Faisal Saleh Hayat, one of the Parliamentarians of PML(Q) and its parliamentary leader in the National Assembly, now holding the office of Federal Minister for Housing & Works, through a press statement published in Daily “Nation” dated 8.9.2009, urged this Court to take action in respect of Rental Power Projects (RPPs) which, according to him, was just another name of corruption. He said that he had raised the issue of corruption in the award of RPPs before every forum, including the National Assembly of Pakistan, but his voice was not attended to, therefore, he had approached the Supreme Court for initiating suo motu proceedings against all those who were involved in this massive scam of US$ 5 billion, which was being skimmed from the pockets of innocent people of this country. Makhdoom Syed Faisal Hayat was asked to furnish evidence in support of allegations for further examination of the matter. He submitted a detailed application dated 26.9.2009, wherein reiterating the allegations of corruption, he relied upon certain documents of the PEPCO, GENCOs, WAPDA and Ministry of Water & Power to prove his assertions. Thereafter, para-wise comments were called from WAPDA, which were submitted by M.D. PEPCO, denying the allegations/charges of corruption. However, it was emphasized that due to acute shortage of electric power in the country, short term measures in the shape of RPPs for three to five years were adopted pursuant to Rental Power Policy approved by Economic Coordination Committee (ECC) of the Cabinet, Government of Pakistan from time to time, inter alia, vide case No.ECC 135/9/2006 dated 16.8.2006. Similarly, the other stakeholders denied the allegations of corruption.

 

3. When the petition was pending for hearing, another eminent Member of the National Assembly, namely, Khawaja Muhammad Asif belonging to PML(N), vide CMA No.3100/2010, joined the proceedings w.e.f. 21.10.2010.

 

LAW RELATING TO

 

GENERATION AND TRANSMISSION OF ELECTRICITY

 

4. In 1994, the Private Power and Infrastructure Board (PPIB) was created as “One Window Facilitator”, inter alia, with a view to promote private sector participation in the power sector of Pakistan and to facilitate investors in establishing private power projects and related infrastructure, execute implementation agreements with project sponsors and issue sovereign guarantees on behalf of Government of Pakistan. On 16.12.1997, to provide for the regulation of generation, transmission and distribution of electric power and matters connected therewith and incidental thereto, the Regulation of Generation, Transmission and Distribution of Power Act, 1997 (hereinafter referred to as the “the Act, 1997”) was promulgated. Subsections (vi), (xi) and (xxvi) of section 2 of the Act, 1997, respectively, define “Distribution”, “Generation” and “Transmission” Companies. In 1998, Pakistan Electric Power Company (PEPCO) was incorporated under the Companies Ordinance, 1984 with a view to improve the efficiency of the power sector, to meet customers’ electric energy requirements on a sustainable and environmental friendly basis, to stop load shedding, to construct new grid stations, to reduce line losses, to minimize tripping and theft control, to revamp generation units and to improve customer services, and develop an integrated automated power planning system for generation, transmission and distribution to ensure system stability, fault isolation and upgrade relying, metering and tripping system at the level of National Transmission and Distribution Company (NTDC) as well as Distribution Companies (DISCOs).

 

78. Next question for consideration is that how much amount was paid to sponsors by way of 7% + 7% = 14%. Since there were a lot of complaints of corruption in awarding contracts of RPPs against all concerned, individually and collectively, therefore, Ministry of Finance went for 3rd Party Evaluation/Audit and to achieve the object, ADB was appointed to do the needful. The ADB report reveals that enhancement of down payment from 7% to 14% could not be allowed without inviting fresh biddings and changing the terms of the contract with a view to ensuring fair competition amongst the bidders. We have already emphasized on this aspect of the case, and we see no reason to differ with the submission made by the petitioners that there were illegalities committed by Government in making payment of 14% advance to the bidders, particularly, when there was no commitment/agreement at the time of notifying the bids/issuing RFPs. Admittedly, this report was accepted and in pursuance thereof, 9 RPPs were allowed to continue.

 

79. It is to be seen that 14% advance amount paid to the bidders on the basis of reference value runs into billions of rupees, details whereof are as under: - (See Table 1)

 

80. The petitioners have contended that a meagre amount of electricity is being generated through the medium of RPPs, although billions of rupees have been spent on these projects. The learned counsel appearing for the Government/WAPDA/PEPCO/GENCOs have not been able to rebut the contention raised by the petitioners. It is an admitted position that after spending billions of rupees in the shape of 7% to 14% down payment and exemption from payment of customs duty as well as 6% withholding tax, against average cost of Rs.24/- per unit kWh [Karkey: Rs.35/- to Rs.50/-; Gulf: Rs.18/- to Rs.19/- and Naudero-I: Rs.12/- to Rs.19/-], only 120 MW electricity is being generated by the RPPs and its cost is on a very high side and is not in accordance with the provisions of section 7 of the Act, 1997 whereby NEPRA is required to protect the interests of the consumers. Therefore, RPPs’ mode of electricity generation has proved a total failure and incapable of filling the gap in the demand and supply on a short term basis. Further, this cost is not final, rather it is subject to fuel cost component and other charges of overhead transmission payable to NTDC, whereas it is the constitutional requirement that every action of Governmental authorities should be aimed at socio-economic development of the country. In this behalf, a chart showing average production of electricity vis-à-vis the maximum capacity and the advance payment is given below: - (See Table 2)

 

81. Thus, all the Government functionaries, including the Ministers for Water & Power holding charge from 2006 and onward up to 2008 during whose tenure the RPPs were approved/set up, prima facie, violated the principle of transparency, therefore, their involvement in getting financial benefits out of the same by indulging in corruption and corrupt practices cannot be overruled in view of the discussion made hereinabove. Consequently, they are liable to be dealt with under the National Accountability Ordinance, 1999 by the NAB. Similarly, all the functionaries of PEPCO, GENCOs and NEPRA along with sponsors who had derived financial benefits from the RPPs contracts are, prima facie, involved in corruption and corrupt practices, therefore, they are liable both for the civil and criminal action.

 

82. In conclusion, it may be mentioned that Bhikki RPP was paid Rs.8,698.46 million against 811.605 mkWh electricity whereas Sharaqpur RPP was paid Rs.13,941.82 million against 1520.420 mkWh electricity. As regards the RPPs set up since 2008, out of nine RPPs to whom advance payments were made, six RPPs, namely, Techno Sahuwal, Guddu, Reshma, Young Gen, Naudero-II and Techno Sammundri have returned the advance payments in pursuance of orders passed by this Court from time to time, whereas the advance payments made to Karkey, Gulf and Naudero-I have not so far been returned. Despite down payment of billions of rupees to the RPPs, Karkey is generating 48.33 MW against capacity of 231 MW and Naudero-I is generating 9.16 MW against capacity of 51 MW; whereas, Gulf is generating 50.08 MW against capacity of 62 MW. Pakistan Power Resources (Piranghaib, Multan) did not generate electricity at all although down payment of US$ 14.58 million was made to it, which has not been returned. Though Reshma has returned the down payment, according to learned counsel, yet it is still functioning and generating 15 MW only against capacity of 201.3 MW. Per unit cost of electricity produced by the RPPs is on very high side, e.g., Karkey is ranging from Rs.35/- to Rs.50/-; Gulf from Rs.18/- to Rs.19/- and Naudero-I from Rs.12/- to Rs.19/- whereas as per decision of the ECC dated 10.09.2008, efforts were to be made that the tariff of the RPPs is lower than that of the IPPs based on similar technology for their first 10 years. Thus, in this manner, the decisions of the ECC have also been violated blatantly. All the RPPs are collectively generating just 120 MW of electricity. Huge amount has been paid to Karkey, Gulf and Naudero-I and if they are allowed to continue for the left over term, further huge amounts would be paid to them at the expense of the public exchequer with no corresponding benefit to the consumers. As already discussed in detail, while awarding contracts to RPPs, particularly Gulf, Karkey, Reshma, Naudero-I, Naudero-II, Bhikki and Sharaqpur grave illegalities and irregularities were committed, and procedural lapses and deviations were made from mandatory legal requirements and the same were entered in a non-transparent manner.

 

83. In pursuance of the orders passed by this Court from time to time, a sum of Rs.8,689,224,000/- (rupees 8 billion 689 million 224 thousand) has been recovered from the RPPs on account of advance payments and interest, whereas, proceedings for recovery of interest amounting to Rs.445,496,000/- (rupees 445 million 496 thousand) from Young Gen and the interest from Reshma, are still pending, details whereof are given as under:- (See Table 3)

 

84. Thus, in the light of the above facts and circumstances, we hold as under: -

 

(i) Prior to the introduction of RPPs, the system of generation of electricity under the control and management of Ministry of Water & Power, WAPDA, PEPCO, GENCOs, etc., had sufficient potential to produce more electricity, but instead of taking curative steps for its improvement, including clearance of circular debt of the IPPs or resorting to other means of generation of electricity, billions of rupees were spent on BHIKKI and SHARAQPUR RPPs, which proved complete failure because the object could not be achieved as the shortage of electricity persistently continued, and yet more RPPs were installed;

 

(ii) The Federal Government/WAPDA/PEPCO/GENCOs had failed to control pilferage of electricity from the system because of bad governance and failure of the relevant authorities to enforce the writ of the Government. Therefore, the Government is required to improve the existing system of generation and transmission of electricity, by taking all necessary steps, including clearing of circular debt, etc., so that electricity can be generated to the maximum capacity;

 

(iii) The contracts of all the RPPs - solicited and unsolicited, signed off or operational, right from BHIKKI & SHARAQPUR upto PIRANGHAIB, NAUDERO-I & NAUDERO-II were entered into in contravention of law/PPRA Rules, which, besides suffering from other irregularities, violated the principle of transparency and fair and open competition, therefore, the same are declared to be non-transparent, illegal and void ab initio. Consequently, the contracts of RPPs are ordered to be rescinded forthwith and all the persons responsible for the same are liable to be dealt with for civil and criminal action in accordance with law;

 

(iv) On accepting the ADB’s report, 9 out of 19 RPPs were allowed to operate, details whereof have been mentioned hereinbefore. Subsequently, 6 out of 9 RPPs were discontinued either having been signed off or having failed to achieve the target COD whereas remaining RPPs, i.e., KARKEY, NAUDERO-I and GULF are functioning, but they are producing electricity much less than their generation capacity, except GULF which is producing electricity close to the agreed capacity. PPR (Piranghaib, Multan) has not generated electricity at all, although down payment was made to it, which has not been returned. As far as RESHMA is concerned, though it achieved partial COD, but the same was not accepted by NEPRA. BHIKKI and SHARAQPUR were paid exorbitant rentals in billions of rupees, but generation of electricity was much below the agreed capacity;

 

(v) The production from the RPPs is far below the maximum capacity agreed between the parties as per the terms of the RSCs, which is evident from the above charts. The cost per unit kWh is also on the very high side. These RPPs have not achieved target COD. The contracts of all these RPPs are not transparent, as it has been discussed hereinabove, therefore, the same are hereby ordered to be rescinded forthwith;

 

(vi) The Ministry of Finance, WAPDA, PEPCO as well as GENCOs are responsible for causing huge losses to the public exchequer, which run into billions of rupees by making 7% to 14% down payments to, and purchasing electricity on higher rates, from RPPs, therefore, steps are required to be taken to effect recovery of the amounts with mark up outstanding against the RPPs whose contracts have been signed off or who had failed to achieve COD within the stipulated time in terms of the performance guarantees;

 

(vii) The RPPs mode of generation of electricity has proved a total failure and incapable of meeting the demand of electricity on a short term basis. The cost of electricity so produced is on very high side and is not commensurate with the provisions of section 7 of the Act, 1997. As per latest report, KARKEY and GULF are producing only 31 to 81 MW and 51 to 61 MW at an average cost per unit kWh of Rs.35/- to Rs.52/- and Rs.18/- to Rs.19/- rupees respectively, as per information supplied in October/November, 2011, which also are subject to adjustment of fuel cost component and NTDC overhead transmission charges on account of which prices are likely to increase enormously. Thus, it is clear violation of the rights guaranteed to the citizens in terms of Articles 9 & 24 of Constitution and the Regulation of Generation, Transmission and Distribution of Power Act, 1997;

 

(viii) It is the constitutional requirement that every action of Governmental authorities should be aimed at socio-economic development of the country. In terms of Constitution and Act, 1997, the NEPRA is mandated to safeguard the interests of the consumers, but the concerned officials of NEPRA failed to perform their duties diligently;

 

(ix) All the Government functionaries, including the Ministers for Water & Power holding charge in 2006 and onward and from 2008 to onward, during whose tenure the RPPs were approved/set up and Minister as well as Secretary Finance holding the charge when the down payment was increased from 7% to 14%, prima facie, violated the principle of transparency under Articles 9 & 24 of the Constitution and section 7 of the Act, 1997, therefore, their involvement in getting financial benefits out of the same by indulging in corruption and corrupt practices cannot be overruled in view of the discussion made hereinabove. Consequently, they are liable to be dealt with under the National Accountability Ordinance, 1999 by the NAB;

 

(x) All the functionaries of PEPCO, GENCOs, PPIB and NEPRA along with sponsors (successful bidders) who had derived financial benefits from the RPPs contracts are, prima facie, involved in corruption and corrupt practices, therefore, they are also liable both for the civil and criminal action; and

 

(xi) The Chairman NAB is directed to proceed against all the persons referred to in subparagraphs (iii), (ix) & (x) above forthwith in accordance with law and submit fortnightly progress report to Registrar for our perusal in Chambers.

 

85. Before parting with the judgment, we would like to place on record our appreciation of the valuable assistance provided during the hearing of the case by the learned counsel appearing for the parties and learned Amicus Curiae.

 

The role of the petitioners, Makhdoom Syed Faisal Saleh Hayat, Federal Minister for Housing & Works and Khwaja Muhammad Asif, MNA is also laudable; they being the holders of public offices, highlighted the instant scam of corruption and corrupt practices and fulfilled their commitment to the Constitution as well as the general public whose rights enshrined in Articles 9 and 24 of the Constitution were being violated.