The construction of the 426 megawatt power plant in public sector at Nandipur, Gujranwala at a cost of $329 million has hit snags after billions of rupees have been spent on it, as Ministry of Law and Parliamentary Affairs has not yet given its legal opinion to facilitate the loan agreement between PEPCO and banks.
It may be recalled that a contract for the construction of the 426 megawatt Nandipur Power Plant was awarded to the Chinese Dongfang Electric Corporation in 2008, which was to be completed within two years to provide much needed electricity to the country. The Ministry of Finance had mandated BNP Paribas and HSBC Consortium to arrange foreign loan for the project against Sovereign Guarantees of Government of Pakistan.
Though the Finance Division had issued the Sovereign Guarantees in favour of Foreign Lenders but the consortium which agreed to lend the foreign exchange had called for legal opinion from the Ministry of Law, Justice and Parliamentary Affairs that the sovereign guarantees already issued by the Finance Division are binding on the government of Pakistan.
The Law Ministry has refused to give its opinion, which has stalled the entire project of great importance.
According to documents available with Business Recorder, Law Division says, "PEPCO /NPGCL is seeking legal opinion on a document, which was never cleared by this Division and so legal opinion could not be issued by this division as communicated time and again."
However PEPCO / NPGCL's point of view is, "the Law Division's refusal does not seem to be based on correct premises. The factual position is that the initial draft of the agreement was submitted to Law Division. It was vetted by Law division with minor changes, which were incorporated.
The second draft was submitted to Law Division along with the format of the sovereign guarantees to be issued by the Finance Division in favour of the foreign banks. It was cleared by the Finance Division with minor changes which were duly incorporated." "After submission of the third draft, the Law Division, on March 4, 2009 authorised the Ministry of Water and Power and the Finance Division to jointly approve the draft agreements. The final agreements consequently stood executed," the documents said.
According to documents, the Ministry of Water and Power/PEPCO has sought Prime Minister's intervention to remove the hindrances in completion of this project at the earliest to augment the power generation in the country. However, for unknown reasons, the Prime Minister's secretariat did not seem to be moved.
According to the documents the present status of the project is as under; (a) All the three Gas Tubine Generator sets have been received at the site and placed on their fuoundations.4000 packages are held up since April 2010 at Karachi Port causing demurrages charges in million on daily basis.
(b) Huge demurrage charges accumulated up to Rs152.869 million due to non release of original B/Ls by HBL AND NBP Syndicate. The Chinese Electric Co claims for the idle human resources and equipment are like to be many times of the demurrage and detention changes.
(c) "There is a great likelihood of potential loss to the plant and machinery valuing Rs6.50 to Rs7 billion lying exposed to the weather and whole responsibility is on PEPCO/ NPGCL."
(d) "If some vital portion of plant and machinery is damaged, there may be an extraordinary delay in the implementation of the project".
The documents said that Custom Authorities have served auction notice on 16.07. 2010 for the consignment lying at the port.
The DEC China is now planning for demobilisation of 400 Chinese workers and the inactive machines from Nandipur site at the risk and cost of PEPCO.
Sources in PEPCO say that an early issuance of legal opinion can help the project to be commissioned by the mid of next year (first gas tribune was scheduled to be commissioned by October 2010 as per original schedule provided in the contract had there been no delays and cost overruns).
They said that due to legal wrangling and tussle among the ministries of water and power, finance and law and justice, the nation was facing financial implication, which is as follow.
HBL and NBP Syndicate made payment under LC up to 14.820 Billion through their own sources instead of reimbursement form foreign banks as envisaged.
NPGCL/PEPCO paid FPAD mark up Rs1.356 billion to HBL Syndicate up to June 2010, as against interest on foreign loan which would be equivalent to Rs292.293 millions.
"Foreign Loans are cheaper source of finance as compared with Domestic loans, so PEPCO will have to bear extra financial charges of RS15.237 billion over the terms of the loans in case " ECA facilitates are not eventually made effective.
However, NBP and HBL Syndicates commitment to provide Rs5.3 billion against local component will not be available in case they have to take exposure of foreign loans under L/Cs ie 85 per cent of EPC price (Foreign component) envisaged to be financed by Foreign Banks Consortium .