Corruption in rental power projects in Pakistan
Today the world more than anything else needs energy resources and energy shapes out inform of electricity that runs almost everything in our households. Electricity is the epicenter of everything today If its flow is disrupted everything grinds to a halt.
The very first time the word rental power peeps into our minds the first thing that we affiliate with it is the word “corruption” as we all probably have heard it often in the news, but let’s skim the surface and delve a bit deep to understand what it is and why do we actually need rental power plants in Pakistan? Before I dissect the issue for the benefit of our readers, I would like to shed some light on the ways through which electricity can be generated in Pakistan.
It should be recalled that Sind is the most feasible region for wind power, having the production capacity for setting up wind mills and generating up to 35000 MW which is more than sufficient for upcoming 25 year needs for our growing economy. If we talk about solar energy, Pakistan is a sunlight feasible solar region. Rivers and water are abundant too but we haven’t capitalized on them to construct dams. As far as fossil fuel, we have one of the largest coal reserves at Thar to produce cheap electricity. 2 % of our energy is produced from nuclear which can be raised 3 to 4 times. Yet what our government opted for was rental power projects which make it quite ambiguous to start with. Now, the question that arises is, what are rental power plants and how they generate electricity other than these resources mentioned above and why do we even need them?
Rental power plants are set up to meet short-term and emergency requirements of a country and are typically commissioned within 4-6 months based on available technology. Rental periods are normally installed for 5-7 years depending on a country’s requirements. Rental power plants have been set up in the US, UK, India, Bangladesh, Kuwait, Sri Lanka, Turkey, UAE, Saudi Arabia, Iraq and Palestine, but their respective scenarios and energy sector positions are different to that of Pakistan as Pakistan utilizes gas, furnace oil fuel to run the turbines and generate electricity and for oil and gas producing countries it is not much of an issue whereas a country like Pakistan has to import it. The concept was introduced in Pakistan in 2007 when two projects were awarded to GE and PPR, both from the US, for 150MW and 136MW each. RPP’s are basically installed to meet short term energy requirements.
In Pakistan’s case, the last decade saw 0 MW of electricity added to the national grid. The housing schemes and electricity needs kept on rising over the years and as a result the short fall increased to 7500 MW approx. All this lead to an excuse by the current government to indulge in the rental power plan which, as the word plan is interlinked quite in the same way to government officials who had some plan for their own benefit. Of the 19 rental power projects (RPPs) that the government has committed to, only one has become operational as scheduled, adding only 62 megawatts of electricity to the national grid compared to the planned 2,700MW, according to a report by the Auditor-General of Pakistan. The government’s financial watchdog noted in its annual audit report for the fiscal year ending June 30, 2011, that the government had paid Rs16.6 billion to RPPs in advance payments and had created a liability of $1.7 billion for itself through the contracts that it had signed with several rental power companies.
The auditor-general recommended cancelling the contracts of power companies that had failed to achieve their commercial operation date – the contracts obligated date by which the RPPs were required to begin supplying power to the grid. Four contracts were never signed and six were dropped due to violations of contracts by power companies. Eight contracts are currently active but have yet to achieve commercial operation status. The auditor’s report recommended finding out who in the government was responsible for awarding rental power contracts without screening the capabilities and track records of companies bidding for the projects. According to the report, many power projects have installed old equipment that has a very low efficiency rate when it comes to power production. The technological differences account for much of the delay in achieving commercial operations targeted by most RPPs. Auditors also said that no technical feasibility study was carried out before the rental power project policy was approved, noting that the policy was adopted ‘in haste’.The government had decided to allow RPPs under the Musharraf administration. The Economic Coordination Committee of the cabinet had approved a plan to introduce rental power into the national electricity grid during a meeting on August 12, 2006, and approved two unsolicited projects: the 136MW plant at Bhiki and a 150MW plant at Sharqpur in Sheikhupura district of Punjab. The caretaker government prior to the Zardari administration decided on February 15, 2008, to allow the Pakistan Electric Power Company (Pepco) to install rental power plans with higher capacities of between 800MW and 1,200MW. The current administration continued the policy and awarded contracts for even bigger rental power projects at an ECC meeting on September 10, 2008, bringing the government’s total commitment to buy rental power to 2,700MW. The auditors expressed concerns about financial liabilities that the government has taken on for itself, having paid Rs16.6 billion already in advance payments. While contracts that specify advance payment requirements are common in the global power industry, the auditors worried about the size of the government’s liabilities.
“The government has created a liability of $1.7 billion which will be payable as rental charges to the RPPs on delivery of energy,” said the audit report.
This table depicts the various rental power plants and their liabilities acquired from the ministry of finance.
As the case of corruption over the rental power projects is in the Supreme Court and the decision is about to come, panic has been seen in the government quarters. During case proceedings, Chief justice of Pakistan Iftikhar Muhammad Chaudhry sought details of how much electricity the rental power plants were supposed to provide, how much they were producing and what the government has paid them so far. PML-Q leader Faisal Saleh Hayat accused the government of running the rental power projects for the sole purpose of money making. Hayat said that the auditor General’s report has revealed corruption worth Rs 50 billion in the rental power projects. He said that the Asian Development Bank (ADB) had also pointed out corruption in the scheme, adding that the bank’s report is a charge sheet against the water and power minister Raja Pervez Ashraf.The Chief Justice enquired as to why no action was taken if the ADB report mentioned those responsible.The Supreme Court has constituted a one-man commission to investigate high-level corruption and government negligence vis-à-vis Rental Power Projects (RPPs), and directed it to submit a report within four weeks. A division bench headed by Chief Justice Iftikhar Muhammad Chaudhry nominated Justice (retd) Rehmat Hussain Jaffri as head of the commission.
Rental Power Projects on the whole depict that the political elite is least interested in making decisions in the favor of publics long term interest and all they care about is their commissions in terms of making the contracts if we go through the contracts undertaken with the companies, we will come across a number of irregularities in the terms and conditions for example, after operations start, all the payment has to be made if not, the machinery and equipment will have to be returned and the government will have to pay penalties over it.
The greed for many and commissions worth billions of rupees blinded the eyes of those in power. The plan was simple, first to portray RPPs as a solution to load shedding, sign contracts, get the commissions and later leave the public to pay the high pay cost of the electricity and hope they no one will remember the fraud after a few years. But this time electronic and print media has highlighted the corrupt hands and Supreme Court has taken matters into its own hands. This should be a wakeup call for the public and they should emphasize and pressurize governments in future not to let them make decisions which are against the public interest.
A very easy alternative was to provide furnace oil to the already installed plants. It seems absurd that the government at one place claimed to have no funds for buying the furnace oil but was willing to pay extra by renting plants and then supplying them with the same furnace oil for which there were insufficient funds. The logic seems beyond understanding.
In any case, renewable resources of energy like solar energy and wind energy should be explored. Neighboring China is rapidly moving towards alternative energy. Lack of transparency is the biggest hurdle in development of alternative energy. In one report, Nepra did not allow setting up of wind mills in Sind as the power companies demanded 8 cents per unit and Nepra was adamant to pay Rs 7.5. This was back in 2007. Now in 2011, Nepra is willing to pay 16 cents per unit, to the same companies, how ironical?
RPPs are one of those few projects which have had an adverse effect on each and every individual as we are the ones footing the high bills. The Supreme Court should not only cancel the contracts but also determine the culprits because there was no apparent need for installing rented power plants.