Home > Article, Pakistan, Report, SiyasiPakistan, TheNews Int'l > Rental power projects or a multibillion rent-a-scam?

Rental power projects or a multibillion rent-a-scam?

Wednesday, August 12, 2009

By Kamran Khan

KARACHI: The government’s maddening push to project Rs200 billion rental power project as a recipe to end load-shedding in Pakistan by the year end is based on special interest by important government personalities backed by some sponsors of these financially and technically doubtful projects, according to an investigation by this correspondent.

Official figures, senior officials and independent power sector experts agree that independent power projects (IPPs) currently in the finishing stage, reactivation of already installed but now idle power generation capacity, efficient use of gas in KESC and Wapda projects and maximum capacity utilisation and its expansion would easily bridge Pakistan’s electricity supply and demand gap, leaving no room for the country to venture into 14 rental power projects worth about Rs.200 billion.

Official data available at the websites of Pakistan Electric Power Company (Pepco) and Private Power Infrastructure Board (PPIB) detailing an expected electricity demand in Pakistan and projected increase in Pakistan’s power generation capacity through independent power producers IPPs, excluding rental power plants, showed that Pakistan would be producing around 15,900 MW of electricity in December this year against a projected peak demand of around 16,064 megawatts in summer next year.

In summer this year when the worst power riots broke out in the country Wapda was producing around 12,300 MW, against the peak demand of 14,400 megawatt, hence a short fall of 2,147 MW. Pepco has already announced that power projects to be completed by the end of this year would add another 3,500 megawatt to the national grid, about 2,000 megawatt more than domestic consumption.

Pepco’s advertisements published in all national newspapers that show excess power capacity for Pakistan in the next five months had a component of about 500 megawatt assigned to rental power projects, an excess capacity that will burden the nation’s depleting foreign exchange reserves with rents costly fuel import.

The rental power projects look more doubtful when examined in the light of the decision to allow 14 rental power projects with assured purchase of 1,900 megawatts and that too at higher cost.

Power sector analysts said that while the country faced severe power shortages a few months ago, the main backers of the rental power projects in the government, kept from public the gross inefficiencies of power sector like the closure of several installed power projects including 93 megawatt DHA Cogen in Karachi, Japan power and Southern power of 120 megawatt each and under-utilisation of several key IPPs and KESC units.

Fully exploiting the power crisis the influential rental power lobby, backed by important government personalities, went into top gear by billing rental power projects as an answer to the crisis and used strong government backers to add extremely favourable terms to their agreement.

Simultaneously, Pakistan’s private banks were pressured by the ministry of finance and later by Pakistan’s financial institution State Bank that summoned private bankers to to urge them finance the rental power plants. A financial institution, whose senior executive has very close personal and business relations with a prime mover of rental projects, is seen as spearheading a campaign for rental projects.

While the MCB and Allied Bank of Pakistan strongly resisted the government’s pressure to finance rental power projects, the rental power backers in the government used the government muscle to make several banks agree to provide 14 per cent advance payment worth Rs21 billion to rental projects against sovereign guarantees by the government of Pakistan.

The fact that this unprecedented government facility will be available to launch rental projects was not made public when the PPIB had sought letter of interest on these projects. It was in clear violation of government rules and regulations for procurement and tendering. It was also an unexpected gift for the rental power sponsors, as it was not even mentioned in their contract agreement with the government.

Another move was initiated to favour the rental power producers by suggesting a deferment of 6 per cent withholding tax, another unprecedented concession backed by important government personalities.

While the government is showing unprecedented and mysterious haste in buying expensive and excess power through furnace oil-based rental power projects, it has no answer how WAPDA would pay Rs21 billion to PSO for the fuel it bought and never paid for and also how WAPDA will pay Rs60 billion to Hubco power and Kapco for the electricity it bought but never paid for. Similarly KESC is struggling to pay for the electricity it buys from non-WAPDA sources such as private power producers of Karachi.

The issue that bothers economists and financial experts is an expected pressure on Pakistan’s import bill because of increased import of oil to feed new power generators. Muzzamil Aslam, a respected economist, said: “With the addition of new 3,500MW the power generation mix will be changed to 53% on furnace oil from the existing 43%. This should increase the country’s annual demand for furnace oil by 3.2mn tons.”

And this is bad news for Pakistan’s trade balance and economy, as costly imports would further outweigh our exports. “This obviously increases the burden on import bill at least by US $1.2bn for the full 12 months,” said the economist. Thus Pakistan would be forced to pay US $9.6 billion for oil import next year, if oil stays at US $60 per barrel.

With burgeoning oil imports, Pakistan would have to nervously monitor the international oil prices because a $10 per barrel increase would mean another one billion dollars added to Pakistan’s oil import bill, a nightmare scenario for the country whose foreign debts are now touching an all time high level of US $53 billion.

A source close to the government, when contacted, rejected the view that rental power project would burden the national exchequer. He said the rental power is being acquired to provide immediate relief to the people. He said there is no alternative to rental power project for getting rid of the loadshedding in a few months time. He said all other methods would consume several years for removing the power deficiency faced by the country. He said several countries in the world utilised rental power for their people. He also rejected the view that rental power will cost more to the nation.

COURTESY: The News International

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