LAHORE: Federal Law Minister Babar Awan may have caused a loss of over Rs26 billion to the national exchequer by delaying legal opinion for close to one year on sovereign guarantees for 425MW Nandipur power plant.
According to a summary sent by the ministry of water and power and the Pakistan Electric Power Company to President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani last month, the financial impact of the delay is mounting because the minister is still not giving his opinion.
Independent experts calculate the cost at over Rs100 billion if indirect losses are included. Citing a recent report by former finance minister Sartaj Aziz, they said that a shortage of 425MW for a year could cause Rs62 billion losses to the industry.
In his report, Mr Aziz had calculated a loss of Rs219 billion to the industry during 2009 when the country suffered a 1,500MW electricity shortage.
The Nandipur plant could have generated 425MW -28.33 per cent of the shortfall. If 28.33 per cent of Rs219 billion is taken as benchmark, the actual loss will be Rs62 billion. If the legal opinion by the law minister is delayed further, the loss would go up to Rs88 billion.
The Nandipur plant, being one of the cheapest ($0.7 million per megawatt against $1.2 million to $1.4 million of independent power producers and rental power plants), could have brought the tariff down by two to three per cent across the board.
The Economic Coordination Committee of the Cabinet had approved on Dec 27, 2007, the 425MW combined cycle power plant to be set up at Nandipur at a cost of $329 million. Since international loan had to be raised, it offered sovereign guarantees on behalf of the government of Pakistan.
Pepco hired a Chinese firm -Dong Fang Electric Corporation -for the project.
The finance ministry mandated NBP Paribas and HSBC Consortium to arrange foreign loans. Locally, NBP and HBL syndicate opened LCs worth Rs19.15 billion, which were to be retired once foreign loan was arranged, for starting the project.
Contracts for foreign loan were signed with a French financial institution (COFACE Facility) for 68.967 million Euros and SINOSURE (Chinese) for $150.151 million.
The finance ministry offered sovereign guarantees. The Chinese lender, however, asked for legal opinion by the Federal Law Division, confirming that sovereign guarantee offered by the finance ministry was binding on the government of Pakistan.
It was at that time, in March last year, that the federal law minister was required to play a role. On Aug 20, the Chinese firm requested Prime Minister Gilani and the Pakistan`s ambassador to China on Sept 30, 2010, to intervene but the law minister remained unmoved.
As far as the financial cost of the delay is concerned, local loans (NBP-HBL syndicate) are much more expensive and Pepco has already paid Rs1.356 billion up to June 2010. It would have to bear an additional burden of Rs15.237 billion if foreign loans are not released.
Pepco has already paid the foreign loan arrangement fee of Rs161.186 million and has to pay another Rs90.387 million. SINOSURE and COFACE insurance premium of Rs2.213 billion has been paid. Around 17,000 tons of machinery has been lying at the Karachi port and Pepco has paid Rs152.869 million as demurrage.
Potential loss to the machinery lying exposed to weather and environmental hazards at the plant site for the past one year go up to Rs6.5 billion to Rs7 billion.
The Chinese are planning to demobilise their 400 workers and it could cost another $5 to $6 million to bring them back.
Attempts to contact the law minister on his cellphone and landline phones for over a week for his side of the story have failed.