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| Rental power plants bonanza: ignoring cheaper IPPs is criminal |
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Part II
Friday, September 25, 2009
By Makhdoom Syed Faisal Saleh Hayat
My other serious concern on the rentals is the manner in which they have been doled out to a select few favourites. The minister during the TV debate nearly choked when I challenged him to deny some of these famous names, the actual beneficiaries, and swear on The Holy Verses. Where was the much trumpeted transparency when these lucky few were being gifted these fortunes - who will tell us in detail what processes and procedures were actually followed in a transparent manner while making selections and who all and why were those applications denied who too had made or tried to bid for these projects.
Now, in the same PPIB brochure, on rental projects, we on page 11 find the policy features/incentives, which specifically deal with the financial aspects, a prospective bidder would be awaiting. These are in the form of 5% customs duty, sales tax etc and other contractual obligations of respective stakeholders. On pages 15 and 18 we further find the provisions relating to financing for the projects. Clauses 3.8.5 and 4.8.5 explicitly state that the Govt., PPIB and the power purchaser will not be a party to any financing document or arrangement and that financing for the projects shall be the sole responsibility of the respective sponsors themselves. In simple words it would mean that these rental plant sponsors shall not be asking for or entitled to any financial support of any kind from the Govt.
There is no mention of the 14% mobilisation advance or the cheeky exemption from 6% withholding tax in here as has been given.
My straightforward question, once again to the so called claimants of transparency and fair-play would be; where and when were these huge financial carrots added and why. Transparency and Govt. procurement rules ensure level playing field for all. Nothing in the way of fiscal incentives or favours can be added or taken out once committed till the finalisation of the contract. That these rules were bent and altered midstream, to favour those select few needs no rocket science genius to determine. The worthy minister’s flustered and totally perplexed demeanour on the same TV debate was enough proof of his guilt in the blatant violation having been committed when asked to explain his position by me.
As we proceed ahead on this issue, there are several questions further awaiting proper answers from the relevant authorities.
Why are obsolete almost redundant plants being allowed to be imported under the scheme? This is evident from Nepra’s letter dt 13 Apr 09, wherein, it has tried to put an embargo on plants more than 10 years old or more than 60000 operating hours. How did Nepra determine the upto 10 year lifespan, and on what basis remains an unresolved mystery. Does it possess the technical capability to pronounce any such judgment, too is an issue left to qualified experts to ponder? Further, wasn’t it apparent when Nepra, was putting this cap of 10 years, that they were confronted with situations where more than 10 years old plants were being brought in under this policy and therefore they had to intervene and impose certain restrictions. I would like to remind our readers that the worthy Power Minister has on record made several statements on this. In the National Assembly while winding up the debate on Rentals he categorically stated that we are allowing the import of those plants which would be new or just one model older.
This implied that they could be either 2009 model or 2008 model. To my utter shock, during the TV debate, he once again, when questioned, said that, it was not their concern, of whatever make or model they are, as long as they produce electricity. What nerve to retract on your own given statement. This U-turn in policy for whatever reasons needs to be explained by the Govt. This factor becomes all the more important, when the Govt. Officials, including M.D. of Pepco, have recently in media interviews, stated that they expect an investment of over $2 billion through these rentals coming into Pakistan. They obviously were referring to the price of these 2250mw plants, when talking of the above figures. The figure of $2 billion indicates roughly a price of $1 million per mw which is the price of a brand new plant - Are the plants being imported therefore Brand New is the big question mark.
If we assume that upto 10 years old or maybe even in some cases slightly newer models are to be imported, then the million dollar question would be which qualified body would be responsible to carry out the vitally important checks on these imports and validate them as per international requirements.
Which is that body and where, which would be required to analyse and determine the efficacy and all other technical conditionalities and requirements as laid down by the Govt. We do not see any such credible forum of international repute in place to carry out the vitally important validation procedures. It has been suggested the ADB would be doing it, but where is that mechanism under the ADB, qualified to undertake such a venture. Even the ADB’s charter as reflected in the media is restricted to Energy Audit, alone. Are they going to undertake all those fuctions, pointed out and of concern to ordinary Pakistanis. The PM when questioned on this important aspect, suggested the IMF taking it up. Surely, despite his lack of grasp of the subject, he couldn’t have been serious. Or maybe he surmised, if the UN could be miniatiarised into a police station competent to conduct a murder investigation, the IMF would be only too obliging to us, to convert its huge human and technical resource arsenal into a mini cotecna. So much for our renowned leadership’s, reasoning potentials.
In the absence of a credible, well-reputed, visibly transparent validation and checking system, eyebrows are bound to be raised in respect to the entire process of this policy, howsoever important and urgent the Govt. may maintain its needs to be. No wonder, if there should then be talk of ulterior motives. And why does the Govt. come out with such hollow explanations when under fire from all quarters, as an afterthought. The minister failed to mention any of these validation measures in place during the same National Assembly speech and the ensuing TV debate. Simply put, there were none in place then.
The reason for my insistence on this vital aspect is based on my information which is as follows;
Old second hand used plants even if we take into consideration Nepra’s conditions, are available all over the globe in abundance. China, Hong Kong and Korea are leaders in stocking such stuff. I have quotations with me of similar Chinese plants whose asking prices are between $10-12 million. per 100mw. A serious negotiator would get that asking quote further down. In the US, I have been offered a branded plant, 166mw for $25 million. That equals to $14million per 100mw. Now, we obviously are not aware what type of plants are coming in, but going by the ministers assertions, that any type and make is welcome, one assumes that any investor bringing in his plant would be automatically going for the cheapest option, and therefore setting $12million as base price per 100mw, the total 2250mw of rental plants being imported would have a combined cost of $270million, as against the atrocious figure of $2 Billion mentioned by M. D. Pepco.
Two cases are given below to further illustrate and magnify of what is happening.
Nepra has worked out total rental of two plants as follows;
Karkay keratinize Elektrik Uretim AS 231.80mw for 5 years $564, 640, 044million
Walters Power International, 205mw for 5 years $383,403,300million
Their respective tariffs todate are 16.2122 cents/kwh and 16.9300 cents/kwh.
Simply based on the average rentals of these 2 plants totaling 436.80mw the total 2250mw, accumulated 5 year rental comes to around $4.8 Billion. 14% of the mobilisation advance of that, is to be paid upfront to the sponsors, coming to approx $680 million. Karkay individually is being paid $80 million alone, as 14% advance. Now take out the total purchase, capital cost of $270 million from this and you arrive at a cool neat figure of $410 million. So, in plain words, what one is to be paid by the Govt. immediately on setting these plants here, is more than double the amount spent on their actual purchases. The figure of $410 million is the bonus, these Rental Owners would be benefiting from as per the policy. This is the key to my arguments. When and who would know the real costs involved. This is the actual Bonanza one refers to while articulating on the subject. Now, make a guess where this windfall of approx. $400 million or Rs. 33 billion is going to end up with. One really ought to give the devil its due.-what a crafty scheme engineered by those “minds” lying in official “sleeper cells” to benefit their patrons, in the process totally oblivious to the sentiments and interests of ordinary unsuspecting Pakistanis.
The Govt. sensing this probability quite cleverly, had tried to manoeuvre the rental debate away from this real meaty aspect to the tariff issue, a convenient diversionary tactic. It tried to give several spins to it and at times the media too got caught off guard, because of the varying figures and confusing multiples involved. But professional analysts nevertheless, did zero in on this vital nerve centre of the rental heart, during their analysis and I always kept a tight focus on this major point, right from day one.
What is required of the authorities is to come clean with all the details of these contracts. Answers to all those queries posed and many others, need to be forthcoming. Prices of all imported plants along with all technical and financial details should be made public. I am sure if the Govt. is clean as is claimed and therefore has nothing to hide, it will make all such details available to the public for their scrutiny.
(To be concluded) The author is parliamentary leader of PML-Q in the national assembly and a former federal minister
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ISSN 1563-9479 
