Whenever someone not part of the government, or not belonging to any political dispensation, raises an issue of public importance, a lot of people start questioning his motives or reasons for doing so. Many friends and acquaintances are skeptical of the outcome of such an exercise as they term it to be an exercise in futility for umpteen reasons. Such is the case with my taking up the issue of Nandipur Power Project. I am neither doing so to merely criticize the Sharifs, nor to support any of their political foes, as that is secondary to the purpose of writing this article, which is to make the public, especially the educated ones, aware regarding the possibility of serious damage to the national economy and polity due to the crass incompetence of the political and bureaucratic elite or simply the negligence cum corruption and manipulation of national resources by those charged with the management of the country’s financial and material wealth for the betterment of the general public.
Nandipur Power Project is a mega development project started by the Government of Punjab following the passage of the 18th Amendment in April 2010. It can be rightly termed as an unprecedented model of incompetence, corruption and mismanagement by a political government which has a history of going overboard in calling its predecessors corrupt, incompetent and whatnot! Just going through the history of Nandipur Power Project, right from its inception till completion and commissioning, is enough to leave any neutral observer simply aghast at the magnitude of cost overruns and the resultant horrendous loss to the national exchequer caused by the incumbent PML-N government including its bureaucratic functionaries and minions in the Federal Ministry of Water and Power. How the government has tried to knit a web of deceit and lies to hoodwink this nation about the operational and financial viability of this most expensive and technically flawed project is a masterpiece of disinformation and misinformation. Moreover, how the government and public audit and investigation entities including the private audit firm namely Fergusons, the NAB, Auditor General of Pakistan and the Transparency International have been used to gloss over the technical and criminal negligence, violation of PPRA Rules and astronomical costs is simply unbelievable and is surely a tragedy of the highest order for this cash strapped country. So much so that even the Supreme Court of Pakistan has been taken for a ride! The most alarming aspect of this whole affair is the way the PM and the CM Punjab have tried to shirk responsibility for their negligence and questionable conduct in this whole affair! The most alarming aspect of this project is the astronomical increase in the cost estimates of this project in a short period of just three years, from the self-declared actual cost estimate of rupees 22 or 23 billion to the latest government figures of over Rs 58 or even 65 billion which is approximately three times the initial estimates! The two main reasons advanced for this increase are as follows. Firstly, the three year delay in its completion due to the inaction on behalf of the previous federal government of the PPP, which resulted in damage to the machinery worth $85 million while lying at the Karachi Port, inviting $40 million (or about Rs3.6 billion) compensation cum depreciation charges to be paid to the company. Secondly, the addition of an additional gas turbine of 100 MW to the four furnace oil turbines having a cumulative output of 425 MW and the laying of the CNG pipeline to the plant.
Interestingly, and ostensibly in order to mask the inordinate and unbelievable increase in the cost of the plant, the CM Punjab and Federal Minister for Power Khawaja Asif have expressed their consternation at what they say is more than one hundred billion loss to the national exchequer due to various reasons for which they wholly and very conveniently, but falsely, blame the previous PPP government, which actually amounts to shedding of crocodile tears and nothing else.
The most significant aspect of this deception of gigantic proportions is that nobody worth his name has tried to point out to the fact that the planning, cost estimation, bidding process and the implementation of this project has been carried out in complete violation of the requirements of due diligence, which assume maximum importance when a colossal amount of public money is involved. And the project entails the risk of failing to function as projected, is rendered uneconomical on account of it not being cost effective and also entailing billions of rupees recurring costs in the form of subsidies by the government to absorb the extremely costly production of electricity. In simple words a technical project which should be productive turns out to be a white elephant or a total loss. Here, the most disturbing fact is that despite spending a mindboggling sum of more than Rs 60 billion (with maximum expenditure in foreign exchange), the project if allowed to function would most likely cause a perpetual monthly loss of more than Rs 3 billion to the public exchequer, besides making the public bear an exorbitant amount of money in the shape of enhanced electricity rates.
The most alarming aspect of this sordid episode, which will sadly remain alive, is that it will continue to bleed the national exchequer even if it is completely converted to run on gas! Thus, eventually, this project would most likely have to be shut down completely and disposed of as scrap, which seems to be its logical end. Yet, the financial and economic loss caused to the country cannot be forgotten and the perpetrators of this monstrous crime should, in no case, be allowed to go scot free if this country has to survive as a progressive and developing state and not join the ranks of failed states or basket case economies.
It goes without saying that such colossal and criminal squandering of national wealth and resources cannot have taken place without the connivance, active participation or simply the willful ignorance of national interests by all those at the helm of state institutions including WAPDA, State Audit Institutions, FIA etc, besides the Federal Ministries of Water and Power, Finance, Planning, Economic Affairs as well as the Government of Punjab led by the CM. It is indeed ironic, and rather ridiculous, that the CM Punjab and the Federal Minister for Water and Power have been crying wolf by blaming and threatening the previous government ministers for causing hundreds of billions worth of loss to the nation by delaying this project, when actually the onus is on themselves, as this project is actually the baby of the Punjab Government and not PEPCO as falsely portrayed on the Wikipedia website. The actual financial loss is due to the grossly exaggerated cost increase of this project attributed to the delay and the way technical changes were made without carrying required due diligence in the planning, execution and project modification from oil to gas etc. Moreover, the project construction has been managed/overseen by the Nandipur Power Company established by the Government of Punjab under the direct supervision of CM Shahbaz Sharif. Further, the entire project is owned and managed by the province and not Wapda or PEPCO as is being bandied about.
Now, let us have a look at the facts as presented by the government itself, as well as in the light of the highly exaggerated and palpably false claims of success in saving money. This is a classic case of avoidance of responsibility, indeed throwing away blame for their own follies on others.
Brief history as per Wikipedia
In January 2008, Pakistan Electric Power Company (PEPCO) signed a Rs. 23 billion ($329 million) contract with Dong Fang Electric Corporation of China to construct the Nandipur Power Project and paid it a 10 per cent down payment. By mid-2010, much of the work was complete (This was said to be 95% of the construction work) and expected to finish on schedule in April 2011. However, the project suffered delays as the summary, sent by the Ministry of Water and Power for legal opinion of the Ministry of Law & Justice, remained pending with the latter for two years from March 2010 to March 2012. As a result, machinery worth $85 million remained stuck at the Karachi Port for over two years. In September 2012, the president of Dongfang Electric Corporation, Zhang Guorong, terminated the contract for the construction of the Nandipur power project, saying his company had suffered colossal losses because machinery worth $85 million had been awaiting clearance at the Karachi Port. The company also demanded $40 million as compensation for losses suffered because of depreciation and damages on machinery stranded at the port.
In June 2013, Pakistan's Ministry of Water and Power started renegotiating the contract with Dongfang Electric Corporation to resume work on the Nandipur Power Project. After days of negotiations, the firm agreed to resume work on the power station. On July 8, 2013, engineers of Dongfang Electric Corporation arrived in Karachi to inspect the machinery lying at the Karachi Port and secure its release. Later, work on the project was restarted.
Prime Minister Nawaz Sharif inaugurated the first turbine of the project on 31 May 2014. But the plant remained operational for only five days after the inauguration and had to be shut down due to mismanagement and use of inappropriate fuel. Later in July 2015 it was reported that the plant was once again functional and producing the contractual output of 425 MW.
Factual discrepancies and comments
Now let us point out the major factual discrepancies in the story on the Ministry of Water and Power’s purported website given out by Wikipedia and also comment on the likely reasons for the misinformation by the Punjab Government.
Ownership of the project
In the Wikipedia Website, the Nandipur Power Project is said to be owned by Pakistan Electric Power Company (PEPCO) and operated by the Nandipur Thermal Power Generation Company Limited, which was incorporated on 2 January 2014 with its head Office located in Lahore.
Comment: The factual position is that the ownership of the project rests with the Government of Punjab and not PEPCO or WAPDA, and the Nandipur Thermal Power Generation Company was established by the Government of Punjab and is therefore a provincial entity. This masking of a factual position about its ownership appears to be designed to deflect responsibility for awarding of the contract, its exorbitant costs and failures to WAPDA i.e., PEPCO.
Actual cost estimate and unnatural escalation in cost due to delay in execution
The estimated cost of the project was said to be Rs23 billion ($329 million) when it was announced, which according to the government (PML-N), escalated to Rs57.38 billion.
Comment: How did the cost escalate by more than Rs.34.38 billion i.e., approx 250%, when 95% of construction work had been completed by mid-2010? Further, when the actual contract with Dongfang Company for Rs23 billion included $85 million worth of machinery allegedly stuck up at Karachi Port for 2 years due to alleged delay by (PPP) Federal Ministry of Law , and the amount of compensation paid to the Chinese Company for damages to the stuck up machinery amounted to only $40 million or approximately only Rs3.84 billion (at an Exchange Rate of Rs.96/- to a US $), this appears plainly ridiculous!
Who awarded the contract for the project?
As per the website of Ministry of Water and Power: In January 2008, Pakistan Electric Power Company (PEPCO) signed a Rs23 billion ($329 million) contract with Dong Fang Electric Corporation of China to construct the Nandipur Power Project.
Comment: This is also factually incorrect, as this project was initiated by the Government of Punjab following the passage of the 18th Amendment to the Constitution under the directions of the then and current CM Punjab, Mr. Shahbaz Sharif and thus the contract was actually awarded by the Government of Punjab and not PEPCO. The other possibility is that since the contract agreement was signed by the representative of PEPCO, on the prompting of the Prime Minister. There is so much double speak in the statements of the PM and CM Punjab, and bureaucratic manipulation as well as exploitation of media that it is extremely difficult to obtain factual data about various mega development contracts and the actual costs!
Reason for delay in completion of the project
As per Government website the project suffered delays as the summary, sent by the Federal Ministry of Water and Power for legal opinion of the Ministry of Law & Justice, remained pending March 2010 to March 2012.
Comment: This was the reason advanced by the Government of Punjab (GOP) on the website for her failure to complete the project. However, as the then Federal Government was run by PPP and not PML-N, actually the summary of the project would have been sent to the Federal Ministry of Water and Power by the Punjab Government and then to the Ministry of Law & Justice where it was said to have been kept pending approval/clearance. A pertinent question which arises is that why did the GOP allow the Chinese firm to begin work on the project prior to its clearance by the Federal Government? And, if so, why was the case not pursued for expeditious clearance keeping in view the likely financial loss to state due likely physical damage to the expensive machinery if it kept lying at the Karachi Port for so long i.e., more than two years?
Renegotiation of contract with Dongfang Electric Corporation
Again, as per the website: In June 2013, with the installation of the PML-N Federal Government, Pakistan's Ministry of Water and Power started renegotiating the contract with Dongfang Electric Corporation to resume work on the Nandipur Power Project. The firm agreed to resume work on the power station.
Comment: The factual position is that, if the Ministry of Water and Power renegotiated the contract, this time it was the PML-N which was running the federal government and not the PPP. Moreover, the project was, and still is, owned by the Government of Punjab. Further, it has never been clarified as to how much payment had been made to the Dongfang Company until October 2010 when the work on the project had come to a standstill!
As per the website: On July 8, 2013, engineers of Dongfang Electric Corporation arrived in Karachi to inspect the machinery lying at the Karachi Port and secure its release. Later, work on the project was restarted.
Comment: When the project was restarted and the cost rose to Rs57.38 billion, as mentioned earlier, it must have included the compensation amount of $40 billion or Rs3.84 billion (at the rate of Rs.96/- to a US $). And, only the machinery was the main item which was to be installed at the site when the construction was 95% complete, i.e., when the work was held up, so how did the cost jump to more than two and half times the whole project cost?
Inauguration of first turbine at Nandipur Plant on May 31, 2014
As per the website Prime Minister Nawaz Sharif inaugurated the first turbine of the project on 31 May 2014. But the plant remained operational for only five days after the inauguration and had to be shut down due to mismanagement and use of inappropriate fuel. Later in July 2015 it was reported that the plant was once again functional and producing the contractual output of 425 MW.
Comment: Although the website mentions that the plant had to be shut off after five days due to use of inappropriate fuel and mismanagement, the real reason as revealed later by WAPDA was that the plant had to be shut down after only six hours of operation as WAPDA had refused to buy the electricity, as the cost of production/sale to WAPDA came to Rs44.00 per unit which was more than double the highest rate of Rs15 per unit which WAPDA was charging consumers! Conversely, even if the shutdown was due to mismanagement and use of inappropriate fuel the onus falls on the PML-N Government which has to accept responsibility for this failure. But, that was not to be so.
To be continued...