1,100mw Kohala hydel project: Wapda, AJK Prime Minister lock horns

The Water and Power Development Authority (Wapda) and Azad Kashmir Prime Minister have reportedly locked horns over the 1100 mw Kohala hydropower project, sources told Business Recorder here on Sunday.
Wapda and the Public Procurement Regulatory Authority (PPRA) are of the view that the project should be awarded on ICB, whereas the PPIB, the AJK Prime Minister and the Law Ministry argue that PPRA Rules are not applied in AJK. Hence, the project should be awarded to China International Water and Electric Corporation (CWE), the sources added.
The issue was placed before the Economic Co-ordination Committee of the Cabinet on May 7, 2011, but the decision was deferred because Prime Minister Yousaf Raza Gilani wanted to go through the details of the entire issue.
Sources said that the ECC on October 15, 2010, had considered a summary submitted by the Ministry of Water & Power in relation to development of 1100 mw Kohala Hydropower Project in Azad Jammu & Kashmir.
After due deliberation, the ECC constituted a committee comprising of Minister for Water and Power, Minister for Petroleum and Natural Resources, Secretary Finance, Secretary Economic Affairs Division, Secretary Water & Power and Managing Director of PPIB with the following Terms of Reference (ToRs): (i) to examine all matters related to 1100 mw Kohala Hydro Power Project and submit a way forward for its further implementation keeping in view the commitments of Chinese firm; (ii) for streamlining the development and implementation of the much-needed hydropower projects in private sector, and to attract foreign investment and; (iii) suggest a simplified mechanism for fast track induction of cheaper hydropower in the national grid.
Accordingly, two meetings of the committee were held on November 23, 2010 and January 15, 2011, wherein legal issues pertaining to development of the project in the light of the commitments made by the Government of Pakistan (GoP) with CWE under the Memorandum of Understanding (MoU) of October 17, 2008 and legal framework applicable to the project were discussed threadbare. It was decided in the meeting that a reference be sent to Ministry of Finance regarding applicability of Public Procurement Regulatory Authority (PPRA) Rules to the Project; and
PPIB to solicit feedback from the sponsor regarding option of first right of refusal in International Competitive Bidding (ICB).
Pursuant to the directions of the committee, a reference regarding applicability of PPRA Rules was sent to Cabinet as custodian of Public Procurement Regulatory Authority/PPRA) and Law Justice and Human Rights Divisions.
The Law Division found correct the viewpoint of PPIB and concurred with the opinion that the project is not hit by the PPRA Rules 2004. However, the Cabinet Division (PPRA), contrary to the viewpoint of Law Division, said that PPRA rules 2004 are applicable on the subject matter.
PPIB also requested the sponsor for its views on 'first right of refusal'. In response, the sponsor through its letter of January 22, 2011 stated that;
(i) the MoU, enabling foreign private sector investment in the project, has een duly approved by the Cabinet; (ii) due recognition and acknowledgement has been accorded by GoP to CWE as the sponsor of the project; and (iii) in the event of any re-determination of sponsors for the project through ICB, the sponsor is likely to be aggrieved and suffer consequential loss.
Therefore, the sponsor strongly insists that in light of the commitments made by the GoP under the MoU, the project is approved for further implementation at the earliest through CWE.
Wapda through its letters of June 8 and November 18, 2010, conveyed that in December 2005, on Wapda 's request for development of the project in public sector was approved by the GoAJK and subsequently approved by the Executive Committee of National Economic Council (Ecnec) on August 23, 2006. Accordingly, Wapda had completed feasibility studies of the project and, detailed engineering design and tender documents by November 2009.
Wapda further contended that approval of Ecnec was based on approval of Government of AJK permitting it to develop the project in public sector and there was a legal requirement for de novo approval from the Government of AJK. Moreover, PPRA Rules were applicable since the feasibility studies and detailed engineering design and tender documents were fully financed out of public funds. In addition to that, Wapda had also assessed that the cost of the project worked out by the sponsor was higher by $ 344.32 million than cost estimations by Wapda. Therefore, awarding of project to CWE was a violation of PPRA act; so the project be offered through International competitive bidding (ICB).
Conversely, the PPIB is of the view that since the project is being implemented on 'Build, Own, Operate and Transfer' (BOOT) mode in the private sector within the territorial jurisdiction of AJK, pursuant to the AJK interim Constitution 1974, the AJK Council has the exclusive competence, powers and jurisdiction to exercise 'Executive Authority' in relation to the subject of electricity. Accordingly, the AJK Council through its letter dated 31st July 2009 approved the development of the Project through PPIB in accordance with the terms of the MoU. As far as the applicability of PPRA Rules is concerned, PPIB is of the opinion that such Rules are not applicable on the following grounds; (i) project is being implemented in the territories of AJK under the laws of AJK wherein the AJK Council has exclusive territorial, constitutional and legal rights, competence and jurisdiction; (ii) project is not financed either wholly or partly out of 'public funds' (as such term is defined in PPRA Ordinance 2002) and therefore PPRA Rules are not applicable as no taxpayers' money or guarantees are involved for its financing and any costs incurred by Wapda in carrying out the feasibility studies and the detailed engineering, design and tender documents shall be reimbursed by the sponsor; (iii) project is to be entirely funded (after financial and technical due diligence of project costs carried out by Nepra on touchstone of economic procurement and prudence of costs) through project financing/private capital on non-recourse basis by project company with the participation of international investors and lenders; and or (iv) implementation of the project through CWE is pursuant to a binding and enforceable MoU and being an international obligation or commitment of the GoP provides primacy to such obligations or commitments if in conflict with the PPRA Rules as recognised by Section 5 thereunder.
It is pertinent to add here that the former Prime Minister of AJ&K in a letter addressed to the Prime Minister of Pakistan on July 5, 2010 had conveyed that :- "In light of the above situation, it is proposed that the subject project may be withdrawn from private sector as it was handed over to private sector in contravention of Power Policy 2002 and Wapda should be authorised to develop this project with the collaboration of Government of Azad Jammu and Kashmir." Most recently, the Prime Minister of AJ&K wrote another letter to Prime Minister Gilani, saying that keeping in view the supreme national interests, the Go AJ&K is issuing letter of support (LoS) to CWE, who have given firm commitment to bring $2.5 billion to development 1100 MW Kohala hydropower project in the soonest possible time to meet energy shortfalls in the country".
The Ministry of Water and Power has submitted two options to the ECC, as follows: (i) the decision of the AJ&K Council may be concurred for development of 1100 MW Kohala Hydropower Project under policy for power generation 2002 as per opinion given by Ministry of Law Justice and Human Rights and; (ii) or the project may be awarded as per PPRA rules 2004.