An OM of the Cabinet Division on 'Cabinet decision in case number 27/2/2010 dated January 2010- ADB audit report on RPPs issued on August 11, 2010' by a Section Officer has the following wording " the undersigned is directed to refer to the Water and Power Division's OM No 5(37)/89-P-II dated July 19, 2010 on the subject and to say that the decision in case no 27/02/2010(iv) envisages removal of inconsistencies in the contracts.
The implementation status reported vide OM referred above states that the signed RPPs are at various stages of implementation and it may, therefore, not be realistic to re-open the signed agreements for removal of inconsistencies without harming/delaying the projects." It is unclear who directed the Section Officer to issue such an OM, which indicates departure from the Cabinet decision's policy.
The Cabinet in its meeting on September 1, 2010 reviewed the decisions taken in previous meetings. According to the OM, the implementation status seems to be a departure from the Cabinet Division, therefore, Ministry of Water and Power has been requested to refer the matter to the Prime Minister under Rule 15(1)(a) of the Rules of Business 1973, under intimation to the Cabinet Division.
RPPs are considered inefficient in terms of power generation with slightly over 22 per cent efficiency. Federal Cabinet in its meeting on January 27, 2010 discussed the "ADB audit report on RPPs" in detail and endorsed the conclusions and recommendations suggested by the Bank.
The decisions taken by the Cabinet are also follows:
(i) Eight RPPs of 1257 MW including the 101 MW for Larkana and Naudero are at an advanced stage of implementation and should be vigorously pursued; (ii) Six RPPs (836 MW) agreements signed but not yet effective be reviewed in context of legal terms before taking any further action; (iii) Five RPPs not yet approved/signed should be discontinued; (iv) the inconsistencies in contracts be removed; (v) the contract timelines should be strictly adhered to; (vi) Commercial operations tests should be witnessed and certified by an internationally acceptable independent engineer; (vii) elimination of 100 percent loadshedding during peak demand period is not a viable option from the affordability perspective; (viii) integrated analysis for optimum use of available gas and new sources should be aggressively pursued for affordable power; (ix) new IPPs in pipeline particularly gas based should not be delayed; (x) RPPs should be dispatched as ' must run' plants till 2012; and (xi) import trade policy should include the quality control for old and used plants.
The ADB in its third-party audit report had recommended that inconsistencies in rental power contracts should be removed - considered by analysts as a polite way of stating that public procurement regulatory rules were neither followed nor was there any transparency in the process of awarding contracts.
The audit report indicated that from the customer's perspective the increase in tariff without RPPs during 2009 and 2010 would be a hefty 67 percent; with 8 RPPs the rise in tariff would be 73 percent; and with 14 RPPs originally proposed by the Ministry of Water and Power the rate rise would be 77 percent.
The ADB stated that the GoP has to decide the trade-off between affordability and load shedding. However, the Bank has proposed that elimination of 100 percent loadshedding during peak period is not a viable option from affordability perspective.
When contacted, an official of the Water and Power Ministry confirmed that the Cabinet Division has written a letter which indicates that the implementation status seems to be a departure from the decision taken by the Cabinet. According to the official, Pepco has been requested to clarify the matter or prepare a draft summary for the Prime Minister under Rule 15 (1) (a) of the Rules of Business 1973 and submit to the Ministry of Water and Power for onward submission to the Cabinet Division. The Supreme Court has already taken suo motu notice of the awarding of RPP contracts.