If lowest bidder ignored: WB to nix $450m loan for KP hydropower project

PESHAWAR: The conflict between the Khyber Pakhtunkhwa government and the World Bank over the Gabral Kalam hydropower project has intensified.

The PTI government has decided to cancel the bidding of the 88 MW project and initiate a re-bidding process. The World Bank has warned that failing to award the contract to the lowest bidder will lead to misprocurement, potentially resulting in a $450 million loan cancellation.

The bank has also indicated it may downgrade the project rating from moderately satisfactory to moderately unsatisfactory.

Additional Chief Secretary Imtiaz Hussain Shah told this correspondent that the contract process was completed by PEDO and approved by the World Bank, but the second-lowest bidder had raised some reservations, which were addressed by the World Bank.

“The bank has already issued a no objection letter to award the contract, and now the newly established executive committee will approve the project, and PEDO will issue a letter of award to the lowest bidder,” he said.

The policy board meeting of PEDO was held on May 1, 2024, under the chairmanship of the chief minister. The minutes issued on May 21 state that the board was informed that the lowest bidder (GKHP P, a consortium) does not fulfil the eligibility criteria outlined in the bidding document, particularly concerning similar construction experience, tunnel length and excavation amount. Moreover, there is a significant discrepancy involving the alteration of project cost figures from $32 million to $124 million, a 380% increase from the original cost of previous work done by the company. The project director explained that it was mistakenly filled out by the bidder, whereas the attached reference documents along with the submitted bid showed the approximate cost of the project was Rs2 billion.

The chief minister expressed his concern about how the bidder could make such a big mistake, raising serious concerns. However, the policy board recommended cancelling the current bidding process and initiating bidding afresh by informing the World Bank and seeking their input. The forum also agreed that the ACS would take up the matter with the World Bank and discuss the issue. However, after meeting with the ACS and other officials, the World Bank disagreed with the decision and expressed its displeasure.

World Bank Operation Manager Gailus J. Draugelis had sent a letter to the provincial government on May 23, 2024. The letter stated that the bank considered the contract to be procured under the relevant financing agreement provisions based on the information provided.

He stated that the project is now in its fourth year of implementation and has fallen short of meeting most of the key performance indicators, with a very low disbursement rate of less than two percent. Given these delays and missed milestones, the implementation performance of the project is being downgraded from moderately satisfactory to moderately unsatisfactory. This delay may cause significant cost increases.

Another email from the World Bank team leader of the project stated that if the contract cannot be awarded at this stage after the second round of bidding, it is clear that the project cannot be implemented. Therefore, this could lead to the cancellation of the entire loan and the project.

“It casts doubts on the capacity of PEDO and the KP government to carry out the implementation of such large-scale projects financed by international organisations,” he said.

An official told this correspondent on condition of anonymity that misprocurement of this level casts serious doubts on the KP government’s ability to implement projects funded by the World Bank. It raises concerns about whether the timely completion of these projects is possible given the sluggish and unprofessional attitude of PEDO. It also poses questions about whether the KP government can avoid penalties such as the substantial commitment fees that have already cost the government millions of rupees.