Dasu, Mohmand, Neelum-Jhelum Hydropower projects: AGP finds costly missteps, glaring irregularities

ISLAMABAD: The Wapda seems to be stonewalling inquiries ordered by the Auditor General of Pakistan into huge missteps and massive irregularities in procurement for Dasu and Mohmand hydropower projects, TTI (The Truth International) can report.

The AGP report on the Ministry of Water Resources and its entities’ accounts for the financial year 2018-19 reveals that WAPDA blew the deadline for signing of a procurement deal with a vendor for the World Bank-funded Dasu Stage-I hydropower plant by 15 months.

Pushing the commissioning of the project into the future by 15 months caused losses in the form of lost revenues (USD3 million per day) and spending on fuel imports for thermal power production (USD2 million per day). The AGP report calculated the cumulative loss from the misstep to PKR466.95 billion.

The letter of acceptance for the contract for procurement of electro-mechanical works was finally issued to the contractor on 22 October 2019 with delay of more than two months of the World Bank deadline.

The World Bank objected that award of contract had been delayed by more than 15 months due to WAPDA’s failure to finalise its bid evaluation report sooner. The delay in the procurement and signing of the contract have a direct bearing on the commissioning of DHP-I.

The matter was taken up with the management in November 2019 and reported to the Ministry in December 2019. The management replied that there was no delay in award of the contract, which may affect the commissioning of the project as the contractor would commence work in line with the revised consolidated schedule for civil and E&M works.

Maintaining this response was not tenable because the delay in the award of the contract was not justified and the World Bank raised an objection to it, the AGP asked Wapda to investigate the matter to fix the responsibility for the loss.

The DAC in its meeting held on 10-11 January 2020 directed the GM (M&S) Wapda to conduct a fact-finding inquiry and submit its report within two months. However, the AGP had received no word from Wapda in this connection until the finalization of the Audit Report.

The Dasu Hydropower Project is a run-of-river project on the Indus River, seven kilometres upstream of the town of Dasu in District Kohistan in the Khyber-Pakhtunkhwa province.

One of the priority projects under the National Power Policy 2013 and the Vision 2025 of the Government of Pakistan, the 12 generating units of the project will have a total installed capacity of 4,320MWs when completed.

The project is being implemented in two stages. Financing arrangements for the project were completed with the World Bank and several local and foreign commercial banks. The World Bank approved a $588.4 million credit line in 2014 to support the 2,160MW Dasu Stage-I hydropower plant.

The AGP report also reveals glaring omissions in the award of a contract for construction of civil works at the Mohmand Dam Hydropower Project. The report says the contract was awarded “without rate comparison as required under the PPRA and without international public notice”. In response to Wapda’s open invitation for bids for the construction of civil works including design, supply and installation of electrical & mechanical works and hydraulic steel structures advertised on 23 November 2017, two joint ventures – M/s CGGC-DESCON and M/s FWO-Power China – submitted their bids.

The second of these was declared “technically non-responsive” and their financial bid was returned unopened. M/s CGGC-DESCON (JV) was technically qualified and their financial bid was opened and after evaluation and correction, the total bid price was finalized as PKR201,523.48 million against the PC-I estimates of PKR163,680.82 million.

“Audit is of the view that project of such magnitude/value should have been awarded through international competitive bidding. In the absence of such diligence, international firms of the required experience couldn’t participate.

“Resultantly, the work was awarded without adequate and fair competition. However, the single technically qualified bidder with higher bid prices over PC-I estimates was awarded huge quantity of work on lump-sum job basis.

“The Project Management was required to strictly follow the above-mentioned guidelines of the PPRA either to make rate comparison or re-advertise the work to ensure transparency and economy in procurement of the works. However, neither of the two options were adopted.”

The AGP says non-adherence to the aforesaid instructions resulted in award of contract amounting to PKR 183,523.48 million without rate comparison as required under the PPRA and without international public notice.

The matter was taken up with the management in October 2019 and reported to the Ministry in November 2019. The management replied that Wapda widely advertised for open invitation of bids in pursuance to PPRA rules in two national dailies.

The management further maintained that single stage -- two envelope tendering procedure was adopted for the bidding and twenty three (23) firms purchased the tender documents. The bid submission date was extended 3-times by more than five months in total to encourage the bidders to participate in the bid. The AGP report quotes the management as saying: “The Pre-Bid meeting was held on January 24, 2018 wherein 15 international and local bidders participated and 10 international and local bidders joined the site visit to project site which showed the wide advertising/publicity for the bid.

“Two joint venture firms submitted their bids. M/s CGGC-DESCON (JV) was technically responsive and, therefore, invited for opening of Financial Proposal, whereas, Financial Proposal of non-qualified JV of FWO-Power China was returned unopened.

“Since two bids were received under open competitive bidding procedure (single stage-two envelope), therefore, they cannot be categorized as single bid”.

The AGP report dismisses the management response as unacceptable because “neither wide publicity was carried out, as required under WAPDA Procurement & Contract Manual, nor the reasonability of rates was ascertained”.

The DAC in its meeting held on 10-11 January 2020 directed the management to refer the case to Ministry of Water Resources for examination.

Audit recommends the management to implement DAC’s decision and fix responsibility for award of contract without assessing reasonability of rates and without accurate publicity.

The report calls out WAPDA for undue favour to a contractor due to non-renewal of performance guarantees of the additional works to the tune of PKR20,033.53 million.

As per Clause-10.2 of General Conditions of the civil contract agreement, “the performance security shall be valid until the contractor has executed and completed the works and remedied any defects therein in accordance with the contract”.

In Neelum Jhelum Hydropower Project, M/s CGGC-CMEC Consortium submitted performance guarantee amounting to PKR4,126.25 million and US$32.52 million for the original civil work of the contract valid up to December 31, 2019. The performance guarantees amounting to PKR 20,033.53 million for the additional work provided by the contractor expired on February 02, 2018.

As per the contract clause, the contractor was bound to keep the performance guarantees valid up to successful expiration of the defects liability period, which was not done.

Non-adherence to the General Conditions of contract resulted in undue favour to the contractor due to non-renewal of performance guarantees amounting to PKR20,033.53 million for additional works during the Financial Year 2018-19.

The matter was taken up with the management in August, 2019 and reported to the Ministry in September, 2019. The management explained that as per contract Clause-10.2 of GCC, the contractor was bound to submit performance guarantees against original cost of the contract only. Accordingly, performance guarantees for original contract cost was got renewed with validity up to December 31, 2019.

The DAC in its meeting held on November 15, 2019 did not agree with the stance of the management and directed the management to get expired performance guarantees renewed from the contractors and provide record to Audit for verification within one month. No further progress was intimated till finalization of Audit Report.

The AGP recommends the management to implement DAC’s decision besides fixing responsibility for the period remained uncovered.