Myth & reality of Rental Power Plants
By Shakeel Ahmad
THE ON-GOING energy crisis has demonstrated the inability of the sitting government to recognize that Pakistan needs energy for its security and sustained development. This failure afflicts the lives of the citizen and economic growth of the country substantially.
Even various state organs are afflicted with a strange lethargy where even basic tasks are becoming increasingly difficult to perform. For example, behold the failure of key ministries to bring out demand and supply options of electricity and affordability of each option by the industrial, agricultural, commercial and domestic consumers. This failure can be simply demonstrated by the pathetic submission of the government to the IMF requirement that power tariff be raised by 17.7 per cent by June, 2011. On the other hand, little attention has been paid to the development and exploitation of the country’s primary energy sources leading to gas load-shedding and the disruption of all industrial activities in major towns of the country.
As a result of the energy crisis and lack of consistent policies, Pakistan is currently passing through economic stagnation with decline in both industrial and agriculture output, affecting the GDP growth rate. The stagnating economic situation has been worsened by the recent floods besides, which has given tough time to economy to recover from crisis in next couple of years.
In the meanwhile, the government borrowing from the central Bank continues unabated which is fuelling inflation and worsening inflationary pressures. The economic slowdown combined with the projected increase in tariffs would lead to a slow down in the demand for electricity. Any decline in the demand for electricity from the industrial sector is likely to affect employment and the GDP. The impressive growth being maintained by India and the poor economic performance by Pakistan could jeopardize the country’s ability to meet the security and defense needs of the country.
The Rental Power Plants (RPPs) would be a contributing factor in the slowing down of economic growth, unemployment and inflation because the unusually high cost of these plants is supposed to be borne by the hapless consumers. There is no earthly reason to justify the provision of a guarantee by the government once the bids had been opened. This did not create a level playing field for all the competitors who may have wished to participate in the bidding process. The availability of a government guarantee should have been announced before the bids were opened and also incorporated in the bidding documents. It is a fact and not a myth that a high down payment was committed in favour of the successful bidder after the bids had been opened. This is a gross violation of the basic law of the land. The commitment violates all prudent procurement guidelines most prominently contained in the Pakistan Public Procurement Regulatory Authority Act which is required to be followed by all Federal Ministries and Divisions and Organizations under their administrative control.
Transparency and compliance to the provisions of law should have been a paramount concern of the Ministry of Water & Power. The bureaucracy in GENCOS dealing with the rental power bids should have acted in public interest. After all it was the masses that would pay the cost of the government guarantee in case of default in payment.
A more caring and law observing bureaucracy would have known that the provision of a government guarantee and a high down payment provision change the financial equity and projected risk profile in favour of the seller. It is not publicly known if the bureaucracy in the Ministry of Finance that otherwise raises petty objections on slight deviation from rules, resisted the provisioning of government guarantee or conveyed written advice to the Ministry of Water and Power to re-advertise the bids after incorporating the revised terms. There is much more here than meets the eye.
It is a fact and not a myth that unsolicited bids were accepted after the bid opening date. This made a mockery of the principles of transparency, competition and equal treatment that an international competitive bidding process is intended to ensure. In a grievous blow to public interest, GENCOS signed the contracts with the Rental Power Plants without the approval of the National Electric Regulatory Authority (NEPRA). It was within the knowledge of these GENCOS that their action was without lawful authority.
And now about some myths vigorously pedaled by Minister Raja Pervez Ashraf and other dignitaries. It is a myth that with the installation of the RPPs load-shedding will end by the time the next elections are held. The probability of this event occurring is next to zero. It is a myth that there will be no increase in cost of electricity due to these power plants.. From the customer perspective, if there were no rental plants, in 2011 tariff will amount to Rs. 9.23 per unit. With 14 rental power plants the tariff would increase by 80%. In case of non-supply of gas to these units, the tariff will increase by 87%. It is a myth that no favours have been extended and Government interests have been fully protected. The fact is that the owners of the RPPs have been provided with a high level of security against the Government’s non performance. However, there is no financial instrument or any collateral to cover the obligations of those owners who have benefited from the deal.
By Shakeel AhmadTHE ON-GOING energy crisis has demonstrated the inability of the sitting government to recognize that Pakistan needs energy for its security and sustained development. This failure afflicts the lives of the citizen and economic growth of the country substantially.
Even various state organs are afflicted with a strange lethargy where even basic tasks are becoming increasingly difficult to perform. For example, behold the failure of key ministries to bring out demand and supply options of electricity and affordability of each option by the industrial, agricultural, commercial and domestic consumers. This failure can be simply demonstrated by the pathetic submission of the government to the IMF requirement that power tariff be raised by 17.7 per cent by June, 2011. On the other hand, little attention has been paid to the development and exploitation of the country’s primary energy sources leading to gas load-shedding and the disruption of all industrial activities in major towns of the country.
As a result of the energy crisis and lack of consistent policies, Pakistan is currently passing through economic stagnation with decline in both industrial and agriculture output, affecting the GDP growth rate. The stagnating economic situation has been worsened by the recent floods besides, which has given tough time to economy to recover from crisis in next couple of years.
In the meanwhile, the government borrowing from the central Bank continues unabated which is fuelling inflation and worsening inflationary pressures. The economic slowdown combined with the projected increase in tariffs would lead to a slow down in the demand for electricity. Any decline in the demand for electricity from the industrial sector is likely to affect employment and the GDP. The impressive growth being maintained by India and the poor economic performance by Pakistan could jeopardize the country’s ability to meet the security and defense needs of the country.
The Rental Power Plants (RPPs) would be a contributing factor in the slowing down of economic growth, unemployment and inflation because the unusually high cost of these plants is supposed to be borne by the hapless consumers. There is no earthly reason to justify the provision of a guarantee by the government once the bids had been opened. This did not create a level playing field for all the competitors who may have wished to participate in the bidding process. The availability of a government guarantee should have been announced before the bids were opened and also incorporated in the bidding documents. It is a fact and not a myth that a high down payment was committed in favour of the successful bidder after the bids had been opened. This is a gross violation of the basic law of the land. The commitment violates all prudent procurement guidelines most prominently contained in the Pakistan Public Procurement Regulatory Authority Act which is required to be followed by all Federal Ministries and Divisions and Organizations under their administrative control.
Transparency and compliance to the provisions of law should have been a paramount concern of the Ministry of Water & Power. The bureaucracy in GENCOS dealing with the rental power bids should have acted in public interest. After all it was the masses that would pay the cost of the government guarantee in case of default in payment.
A more caring and law observing bureaucracy would have known that the provision of a government guarantee and a high down payment provision change the financial equity and projected risk profile in favour of the seller. It is not publicly known if the bureaucracy in the Ministry of Finance that otherwise raises petty objections on slight deviation from rules, resisted the provisioning of government guarantee or conveyed written advice to the Ministry of Water and Power to re-advertise the bids after incorporating the revised terms. There is much more here than meets the eye.
It is a fact and not a myth that unsolicited bids were accepted after the bid opening date. This made a mockery of the principles of transparency, competition and equal treatment that an international competitive bidding process is intended to ensure. In a grievous blow to public interest, GENCOS signed the contracts with the Rental Power Plants without the approval of the National Electric Regulatory Authority (NEPRA). It was within the knowledge of these GENCOS that their action was without lawful authority.
And now about some myths vigorously pedaled by Minister Raja Pervez Ashraf and other dignitaries. It is a myth that with the installation of the RPPs load-shedding will end by the time the next elections are held. The probability of this event occurring is next to zero. It is a myth that there will be no increase in cost of electricity due to these power plants.. From the customer perspective, if there were no rental plants, in 2011 tariff will amount to Rs. 9.23 per unit. With 14 rental power plants the tariff would increase by 80%. In case of non-supply of gas to these units, the tariff will increase by 87%. It is a myth that no favours have been extended and Government interests have been fully protected. The fact is that the owners of the RPPs have been provided with a high level of security against the Government’s non performance. However, there is no financial instrument or any collateral to cover the obligations of those owners who have benefited from the deal.
