Kohala hydro project: panel to examine execution on government-to-government basis

The Ministry of Water and Power has failed to get Economic Co-ordination Committee (ECC) of the Cabinet's concurrence for the 1100 mw Kohala hydropower project, already awarded to a foreign firm in an allegedly non-transparent manner.
The ECC has constituted a ministerial committee to examine whether the project can be set up on government-to-government basis, without tendering and without the government following the PPRA Rules, to ensure transparency. This committee would be headed by the Minister for Water and Power, and would comprise Secretary, Economic Affairs Division (EAD) and Secretary, Finance Division.
The ECC took this decision after Business Recorder broke the story of the project, awarded to a Chinese firm without tendering, and subsequently Transparency International Pakistan (TIP) expressed concern over the alleged illegal award of 1100 mw hydropower project to the Chinese firm on Built-Operate and Transfer (BOT) basis.
The Ministry had sought clearance from the ECC for awarding the project, without solicitation through advertisement. Official documents exclusively made available to this scribe show that a Memorandum of Understanding (MoU) was agreed on October 16, 2008 in Beijing between the Ministry of Water and Power, Government of Pakistan and China International Water and Electric Corporation (CWE) for further implementation of 1100 MW Kohala hydropower project located on River Jehlum in Azad Jammu & Kashmir (AJ&K). Earlier, the project was approved by Ecnec on August 23, 2006, for carrying out feasibility study, detailed engineering, design and tender documents through Wapda.
The Cabinet considered the summary submitted by the Ministry of Water and Power on November 18, 2009 and accorded its ex post facto approval to the MoU. Since the project is located in AJ&K, the AJ&K Council Secretariat on July 31, 2009 conveyed approval of the AJ&K Council for development of the project, in accordance with the terms of the MoU, through PPIB under the Policy for Power Generation 2002.
Sources said that to implement the project on a fast track basis and in order to finalise and execute a formal agreement, PPIB through a Letter of Interest (LoI) to CWE on January 15, 2009 granted, in principle, approval for implementation of the project in the private sector.
It was further provided in the LoI that prior to issuance of Letter of Support (LoS) under Power Policy 2002, the audited cost of the feasibility study shall be reimbursed by CWE to Wapda and that LoS will be issued after approval of the project by the GoP. Pursuant to the terms and conditions of the LoI, CWE successfully updated the feasibility study for the project, to the satisfaction of Panel of Experts (PoEs) drawn from public and private sectors, that was earlier partially carried out by Wapda, within stipulated time of nine months, at no risk and cost to, and without any obligation on the part of GoP.
Power Policy 2002 permits and authorises processing by PPIB of raw site hydropower projects on unsolicited basis. However, the ECC through its decision in Case No 126/8/2005 September 1, 2005 while considering "amendments in the Policy for Power Generation 2002 to meet the accelerated power demand in the country" approved the proposal that 'for raw hydel and coal site projects, expression of interest will be invited through advertisement in the press and the sponsors, who submit the best proposal, as decided by PPIB Board, will be issued LoI for the feasibility study."
However, deterioration of the fuel mix for power generation forced an increase in power tariffs to such a point where affordability became a major issue. The energy produced from hydropower projects is generally in the range of 7-8 cents/kWh and in the present pricing structure, the project would decrease the tariff reasonably; and after completion of the concession period will reduce the tariff drastically.
In addition to this, the project would save the country foreign exchange of about $200 million per month on perpetual basis. It may also be noted that only 10 percent hydel potential (over 60,000 MW hydro generations in total) of Pakistan is currently being utilised. As such, early completion of this project should be a national priority and in public interest.
According to sources, given the financial crunch and situation in the international money market, coupled with the security concerns in Pakistan, it would be very difficult to fund a project of this size in the public sector.
The Ministry, which was under pressure for awarding the project to the Chinese firm, is of the view that Public Sector Development Program (PSDP) is unlikely to be able to support such a large development in the near future despite the fact that it would actually increase resource availability in Pakistan at a quarter of the cost currently being incurred.
"At this juncture, if a Chinese firm is committed to implement the project in the private sector and also is prepared to finance it, the government needs to encourage it," sources quoted the Water and Power Ministry as saying. The Board of PPIB in its meeting held on 9th April 2009 approved the issuance of LoI to CWE and recommended waivers in relation to certain codal formalities of the Power Policy 2002.
Now that review and updating of the feasibility study by CWE is complete, it is in the process of submitting tariff petition to NTDC/Nepra for tariff determination subsequent to which LoS is due to be issued, and the following submissions are made for consideration of the ECC: (i) Wapda to prepare and finalise, through internationally reputable firm of auditors, all audited costs of the feasibility study incurred by it for reimbursement by CWE prior to the issuance of LoS; (ii) authorisation of LoS to CWE for development and implementation of the project under Power Policy 2002 on boot basis; and (iii) waiver to the requirement of solicitation through advertisement as the project was awarded to CWE, pursuant to MoU duly approved by the Cabinet and Ecnec decision to carry out the project in public sector.