When Shahid Afridis apple eating (read ball tampering) was caught by the vigilant eyes of TV cameras, he accepted his mistake, apologized to the whole nation and deservedly received a ban. Afridi confessed that his action was illegal and shameful but that he did so only in desperation to bring cricketing glory to the people of Pakistan.
Just a day prior to the ball tampering issue, the Asian Development Bank made public its audit report on rental power projects. In a nutshell, the report suggested that the actions of Ministry of Power were unfair, wrong, weak and faulty on most occasions.
Much like the ball tampering case, the setting up of RPPs was also an act done in desperation meant to bring a hasty end to power woes - a move closely watched by the vigilant eyes of the media, which forced the government to get the whole deal audited by a third party i.e. the ADB.
Unlike Afridi, however, there were no apologies, no confessions and certainly no penalties in this case of you-rent-me-electricity. In fact all what came out was a quick, ambiguous clarification from the government that largely failed to address the concerns raised by the Asian lender.
Among many inconsistencies in the RPPs bidding process is the introduction of state-owned power generation companies as buyers of rental electricity. This is in complete defiance to the Power Policy 2002, which states in most certain terms that the buyer should be NTDC/CCPA and not the Gencos.
Aside from exposing Gencos to project risks, the violation will also hurt their efficiencies due to their unnecessary involvement in the cash flows between RPPs and NTDC. It also brings back the memories of delays in the implementation of the power purchase structure in the case of IPPs - as this will drag Gencos into contractual and performance issues with rental projects.
ADBs report also highlights bad procurement practice adopted by the government, which revised down-payment requirements from 14 percent to 7 percent after the bids were received. The controversial amendment drastically changed the cost and risk profile, particularly equity risk, in the favour of RPPs.
The inclusion of unsolicited proposals, especially those based on gas, did not miss ADBs radar and came under heavy scrutiny. It is indeed absurd that the bidders were free to offer plants based on different fuels, which raises concerns over the credibility of the agreement.
The report is also critical of the ill-formulated risk mitigation measures that are heavily tilted in the favour of RPP contractors. The fact that RPPs, as per the contract, will enjoy government cover on their LCs for fuel payments, places them at an advantageous position over the IPPs.
What is more worrisome is the fear that the preferred status of RPPs over IPPs in terms of sector cash flows could affect the structure of IPPs contracts besides diverting investments away from the IPPs towards rental projects.
The case against RPPs as highlighted by ADBs report is long and complex. But due to space constraints, lets limit the discussion to this point for now. More on cost differences, affordability issues, impact on customer tariffs etc - later in these columns.