Sunday, January 2, 2011

Minister favours struggling rental power plant

Minister favours struggling rental power plant

LAHORE: In a bold bid to favour a rental plant, Water and Power Minister Raja Pervez Ashraf on Saturday inaugurated a plant near Lahore, ignoring that the company had failed to meet the deadline by a year and hence “it is a ripe case for slapping penalties, renegotiating tariff, reducing the rental terms and even cancellation of the contract”.

The 201MW Reshma Power plant is the second most expensive plant after Karachi’s ship-mounted Karkey Elek Trik Uretim of Turkey (5.98 cents per unit) and will cost the country 4.97 cent per unit, excluding oil price.

According to calculations by independent experts, each unit will cost around Rs16, possibly leading to a rise in tariff by 2.30 per cent throughout the country.
The contractual terms between the Pakistan Electric Power Company (Pepco) and the Reshma Power clearly provide all four options — slapping liquidated damages (LDs), reducing term of rental contract by a year (corresponding to the delay), renegotiating the tariff and even cancelling the entire contract.
With the minister sanctifying the plant by inaugurating it, Pepco seems to have lost an opportunity to renegotiate the rental service agreement (RSA) and possibly reduce the extremely high tariff rates.

The plant had to be online by the end of 2009, the deadline given by the minister to end loadshedding in the country, but it is not fully operational as yet. According to the contract, Pepco can now take the charge of the situation.

The haste with which the minister went to inaugurate the 201MW plant can be gauged from the fact that it has only one of four machines (50MW each) up and that too on a test run. The plant has still not achieved even 10 per cent of generation capacity.

The inauguration also flies in the face of the cabinet decision of Jan 27 last year, which requires strict enforcement of contract time lines as formalised in the rental service agreements.
Reshma Power came out of the bidding in late 2008 and the PPIB board approved it on April 9, 2009.

According to details available on the PPIB’s website and the copy of the RSA available with Dawn, the plant was to be provided seven per cent mobilisation advance. Instead, the ministry of water and power directed Pepco to change the terms and double (14 per cent) the advance payment — amounting to $55.26 million (Rs4.576bn) — and it was done accordingly.

According to the RSA signed in September 2009: “In case the seller (RPP) fails to complete the project within cure (stipulated) period of 30 days after the
targeted COD and thereafter, the seller will be charged at the rate of $191 per day per megawatt up to a maximum amount equivalent to $17,190 per megawatt for a delay of up to three months after cure period.
Such amount will be charged from first rental payment of the monthly rental service fee. If achievement of commercial operations date (COD) is further delayed due to the seller, the buyer shall have the right to renegotiate the contract.”

Now instead of renegotiating the project which has failed to achieve COD for nearly a year, and still counting, the ministry and Pepco looked to be in an “accommodating mode.”

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