Rental power plants: ECC decision puts Ministry in a difficult position

[Naveed Yaseen]

ISLAMABAD (August 24 2009): The Economic Co-ordination Committee (ECC) of the cabinet has put the Ministry of Water and Power in a difficult position, with regard to selection of 1500 MW Rental Power Plants (RPPs) out of the 14 plants having total capacity of 2250 MW, well-informed sources told Business Recorder.

In the light of the ECC decision, Water and Power Ministry has to slash rental power plants of 750 MW if 200 mmcfd gas is to be made available by the Petroleum Ministry. "Those parties which have already signed agreements may approach the courts against the government for violation of contracts," said a power sector analyst.

However, public posture on rental power plants being attributed to Finance Minister Shaukat Tarin is far from reality, and there is harmony between the Minister's position and that taken by the Prime Minister, who has already asked the Ministers to defend rentals plants' project, sources added.

"The minister has been at the forefront in supporting the implementation of RPPs," said the sources on condition of anonymity. "Tarin has politely questioned the requirement of awarding additional rental contracts of 473MW, because his ministry is still trying to get hold of the nation's financial and economic affairs."

Sources said, as far as Tarin is concerned the country will be unable to afford the higher fuel import bill because upcoming independent power plants (IPPs) and RPPs will all be depending on imported furnace oil.

Sources said Tarin is not at odds with the position the Ministry of Water & Power and the Prime Minister have taken on RPPs. In his first speech in parliament, Yousuf Raza Gilani announced the coalition government would generate 2,200MW through fast-track RPPs. The PM reiterated his support for RPPs in his Independence Day speech. The Ministry of Water & Power's last summary for the Economic Co-ordination Committee (ECC) has been seen by this scribe to confirm efforts being made by the Ministry of Finance.

"It may be relevant to point out that the original terms and conditions for these rental plants envisaged 7 percent mobilisation advance with a confirmed SBLC," reads the summary from the federal secretary. "Since there were difficulties in procuring SBLCs, terms and conditions were later revised with the concurrence of Finance Division to 14 percent advance (against bank guarantee to be furnished by the sponsor and adjustable in monthly rental payments accruing after commissioning) and GoP sovereign guarantee in lieu of SBLCs (banks were demanding charges to the extent of 7 percent of the contract value for issuance of SBLCs)."

Ministry sources said 2,216MW rental power was expected to come online by December 2009 but this target was likely to slip on account of "financial constraints." As a contingency, it is necessary to look at adding another 484MW through fast-track IPPs or RPPs, they said.

"The problem with IPPs is that they take too long to set up and if we don't remove load shedding, it will prove embarrassing for the federal government," they added.

To counter these financial constraints, the US government is now looking to support Pakistan's energy sector. In Business Recorder's exclusive report on the sensitive but unclassified proposal from the US, Washington will shore up American investment in RPPs for a quick fix solution. The funding vehicle will be the Overseas Private Investment Corporation (OPIC) which will finance gas-based RPPs at low interest rates.

http://www.brecorder.com/index.php?id=952317