The PPIB has served notices to RPPs for violating different clauses of their contract, but cannot force them to pay back the 14 percent mobilisation advance, or the interest. Pakistan Power Resources (PPR) on December 7, 2010, submitted an agreement, dated December 4, 2010, to sign off Guddu rental power project contract of February 23, 2008 along with amendments (agreement). PPR had paid to the Central Power Generation Company (CPGCL) Rs 405,992,246 and had agreed to pay the balance amount of Rs 301,058,766 on or by December 11, 2010. However, PPR has tendered the balance amount of Rs 301,058,766 on December 8, 2010 after the Supreme Court directed the party to deposit the remaining amount within 24 hours.
The record shows that the recently installed 232 MW Karkey barge-mounted RPP was to achieve full COD in May 2010, subsequent to two extensions granted to it. Initially, it was to achieve COD on November 8, 2009. "The delay in achievement of COD for this plant is more than six months. Therefore, the rental power plant was due for both renegotiations of tariff and for reduction in rental period of 5 years," sources said.
Karkey is the most expensive plant, with a rental rate of 5.98 cents per unit, and at today's oil prices of plus Rs 60,000 per ton it would cost the Pakistani energy users upward of 19 cents per unit. In comparison, the average cost per unit, as propagated by Pepco, is around Rs 9.50 per unit.
The 201 MW Reshma rental power plant was to achieve COD on December 31, 2009, and is unlikely to do so before January 2011. Consequently, this plant is also due for renegotiations of tariff and for reduction of rental period by one year.
"Reluctance on the part of the Ministry of Water and Power to renegotiate the Rental Service Agreements (RSAs) is a blatant departure from the Federal Cabinet's decision of January 27, 2010, which directed that contract timelines should be strictly enforced," sources said.
The Cabinet in its meeting of January 27 had discussed the Asian Development Bank (ADB) audit report on RPPs in detail and had endorsed the conclusions and recommendations suggested by the Bank. After detailed discussion, the Cabinet directed vigorous pursuing of 8 RPPs (1257 MW), which included the 101 MW for Larkana and Naudero package, which were at an advanced stage of implementation. According to the decision, 6 RPPs' (838 MW) contracts, that were signed but not yet effective, were to be reviewed in the legal context, before taking any further action. Other decisions of the Federal Cabinet were as follows:
(i) 5 RPPs, not yet approved/signed, should be discontinued; (ii) the inconsistencies in contracts to be removed; (iii) the contract timelines should be strictly enforced; (iv) commercial operations tests should be witnessed and certified by an internally acceptable independent engineer; (v) elimination of 100 percent load shedding during peak demand period is not a viable option from the affordability perspective; (vi) integrated analysis of optimum use of available gas and new sources should be aggressively pursued for affordable power; (vii) new IPPs in pipeline, particularly gas-based, should not be delayed; (viii) RPPs should be dispatched as "must run" plants till 2012; and (ix) import trade policy should include quality control for old and used plants.
(ii) According to the documents available with this scribe and those posted on the Ministry of Water and Power and Pepco websites, the Rental Service Agreements (RSAs) state that in case the seller fails to achieve the COD within the stipulated period of 30 days after the target COD and thereafter, the seller will be charged @ $40,000 per day up to a maximum amount equivalent to $1.2 million for a delay up to one month (30 days). Such amount will be charged from first rental payment of the seller. If achievement of COD is further delayed, solely due to the seller, the buyer shall have the right to renegotiate the contract and the rental term shall be reduced by that period of delay which occurs after the first two months (60 days) delay, covered by the guarantee and penalty mentioned and lump sum contract amount that would be reduced by the corresponding number of monthly rental service fees or part thereof accordingly.
(iii) "GoP and Pepco both have the right to renegotiate contracts and to also reduce rental terms for RPPs which have been delayed beyond the COD targeted period," commented one official.
(iv) According to the record, 150 mw Techno E Power RPP at Samundri Road, Faisalabad, was to achieve partial COD with 60 mw of generation on June 30, 2009, while COD was to be achieved on July 31, 2009, ie after one month. This project achieved partial COD four months ago, while COD is not in sight. According to unconfirmed reports, the plant is not running because of fuel problems. Consequently, the plant is delayed by more than 15 months and thus fit for both re-negotiation of tariff and reduction in rental periods.
Recently, the National Electric Power Regulatory Authority (Nepra) unearthed massive irregularities in 150 MW Sahulwal (Sialkot) rental power plant, and 150 MW Summandri Road Faisalabad.
"GoP and Pepco have not initiated renegotiations and may lose the option to reduce tariffs and improve rental terms in accordance with the rental service agreements. This is bound to cause great hardship for the Pakistani power customers. According to experts, the induction of the RPPs is going to increase the power tariff by 10 percent," sources said.
With regard to 200 MW Reshma rental power project, sources said, the Ministry of Water and Power is allegedly pressurising Northern Power Generation Company Limited (Genco-III), through Pepco, to arrange special and illegal facility for partial COD.