ISLAMABAD - Prime Minister Nawaz Sharif has given a green signal to bypass the bidding process and instead adopt “direct contracting” mode as per PPRA rules to secure up to $25billion investment in the power sector from international firms for early resolution of chronic energy shortage.
Well-informed sources privy to the development told The Nation on Friday that the premier has given his go-ahead to spur heavy foreign investments in the power sector from international firms ostensibly for early resolution of chronic energy shortage. However, law ministry and PPRA did not give any answer after passing ten days over a fresh “Draft Framework for Implementation of Power Sector Projects in Pakistan” to the power ministry, which was sent to the ministries of law and finance for their expert input and had already been discussed with the political leadership.
Even, the Law Ministry has put up the matter in the court of PPRA to take a decision in this regard despite the fact that water and power ministry has devised the strategy in the light of concerned necessary rules, they added.
They also told this scribe that Federal Secretary Water and Power Ministry Saif Ullah Chatha on January 27 had met with PM Nawaz Sharif in a one-on-one meeting and briefed the premier about the new model which was being pushed by the power ministry on the ground that increasing shortfalls were raising discomfort level and hitting the economy badly. During the said meeting, Saif also told the premier that international firms were found ready to invest upto $25billion in the power sector projects but through direct contracting mode as international investors were shy of the procedural nitty-gritty and do not want to enter into the practice of lengthy, non-transparent, inefficient and defective system of bidding, evaluation and award.
“These firms had so far refused to invest in the power generation and transmission network projects if a process of tendering and bidding was adopted for the award of power contracts, a senior official at water and power ministry said, adding, that the framework mainly draws its strength from the provisions of Rule 42 C (vi) of PPRA Rules 2004 which enables the public sector to enter into direct contracting. He also said that the proposed framework had already been informally discussed with some of investors who had shown their willingness to accept its terms and conditions.
Officials at the Water & Power Ministry said that since the government was empowered to adopt a direct contracting strategy under PPRA rules so Prime Minister Nawaz Sharif has advised to present the matter of direct contracting of power projects in the concerned forum. And, with this new strategy 8,000mw of power would be added by 2017 into the power system of the country, which was already facing a widening gap between demand and supply for a long time and hours long power cuts worsened the miseries of masses.
They also said that the “direct contracting” would be adopted in cases where the foreign private investor or sovereign lender would take care of 85 per cent of the total project cost while remaining 15pc would be arranged by the government of Pakistan or its designated agency besides the provision of sovereign guarantee for the project financing.
The sources also said that top seated guru at the ministry has approved this strategy of setting aside PPRA rules to attract international investors for power projects. However, approval to this scheme would be sought from the federal cabinet for the implementation of this law and proposed framework.
“In order to address the issue and to expedite implementation of new projects of power generation and High Voltage Transmission Network a framework has been drafted,” according to a summary of ministry of water & power and a draft of frame work available with The Nation.
It is worth mentioning here that Pakistan, for the last one decade, has continually been facing increasing shortfall of energy especially in the form of electric power due to innumerable reasons. Load shedding has become an unavoidable phenomenon. The widening gap between demand and supply has not only led to raise the discomfort level but also has hit the economy of the country badly.
There is no denying the fact that lot of interest has been and being shown by leading international companies and investors to take up projects in the power sector.
Framework to attract foreign investment in power sector projects through direct contracting is consisted on eighteen articles. Following most important articles are:
The proposal covering all financial and technical details of the project with all background calculations, designs and estimates will be submitted for initial review and clearance by the Ministry of Water & Power. The so cleared proposal shall be submitted to Nepra for its final evaluation and approval. Based on the approval of Nepra, MOWP will proceed for award of work to concerned company.
According to the article eight, interested company shall finance at least 85pc of the total cost of the project on agreeable terms & conditions by the Ministry of Water & Power. The Government of Pakistan shall meet 15pc of the total cost.
The government will be responsible for arranging sovereign guaranty to the financier agency as a tool to provide security to the financing facility.
The interested party shall, within seven days of entry into force of this framework, will furnish a Bank Guarantee of $1000/MW in favour of the water and power ministry as a guarantee for undertaking the activities in accordance with the framework.
In the event the company fails, defaults or delays to achieve the timelines, milestones, the water and power ministry shall be entitled to encash the bank guarantee in its favour.
Any modifications or amendments to the framework shall be effected with the mutual agreement of the parties.