Wonder what government officials have to say about ADBs disapproval of Pakistans rental power plants. Although, the final report has not been made public yet, the presentation made by Asian Development Bank to the finance ministry outlines the crux of the detailed report, which is shortly due.
It was criticism of the higher order that forced many in the government to think that media is to be blamed for the continuation of power woes. Many cited that it was medias rebuke that is solely responsible for investors exit from RPP business in the country.
But call it I-invite-trouble-to-my-doorstep if you would like, as it was upon the directives of the Prime Minister that ADB was invited as a third party to carry out independent audit of the rental power projects.
ADB has pointed out on the hastiness in which these rental projects were rushed with - which mirrors the critics views as well. Then there is also a revelation that Private Power Infrastructure Board (PPIB) twisted and amended the RPP agreements in sellers favor than in the favor of buyers.
This assessment makes more sense when the rental agreements contain such seller-friendly clauses. One such clause is that even in the case of contractors withdrawal from the agreement; the government will have to pay for the capacity charges.
The rental contracts lack sound penalty clauses in case of under performance by the contractors - a fact which was earlier pointed out in these columns and also voiced by ADB in its presentation to the Finance Ministry.
A deeper look in the contracts reveal that the government is legally bound to compensate the RPPs for 90 percent capacity utilization - a clause which lacks common and economic sense as almost all of the RPPs have committed to only 36 percent capacity utilization level.
There also remains serious doubt over the logistics arrangements for successfully carrying out the rental power projects. It should be noticed that the RPPs were supposed to spur the furnace oil requirement by 30 percent, but for which no fuel supply arrangements have been made yet with Pakistan Railways or other related parties.
What tops the list of public concerns, however, is the tariff structure, which the ADB fears to increase by as much as 45 percent if the government goes ahead with all the 14 approved rental projects. Even in the case where the government is supplying natural gas, the increase in electricity tariffs would exceed 30 percent.
Bear in mind that Pakistans gas reserves do not provide the luxury of uninterrupted gas supply to the power sector, which would mean that the tariff increase would be nearing the maximum limit of 45 percent feared by the ADB.
To add to the consumers woes, this tariff increase, i.e. if it materializes, would be in addition to the already agreed upon 30 percent rise in power tariff with the IMF. The inefficient rental plants tariffs would be in the range of 14-22 cents, which is in stark contrast to 8-13 cents which the government had been claiming previously.
If all the hastily arranged RPPs start operations as per plans - the government would have to pay a huge amount of $5-6 billion in the next five years to the contractors as inefficiency of plants has not been accounted for in the agreements.
Although, it is a touch early to predict what exactly would ADB final report read like, but if it is anything like this presentation, then it would be really tough for the government to continue with these projects especially when the Finance Minister himself has expressed his satisfaction over ADBs findings. This may, however, turn out to be a blessing in disguise as the focus might shift to more long-term permanent solutions like hydel power rather than short term fixes.
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