Nandipur power project fails to get sovereign guarantees

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  1. sparklingway

    sparklingway PDF THINK TANK: CONSULTANT

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    I'll advise those who do not understand what sovereign guarantees are to hold their reigns and refrain from commenting.

    Nandipur power project fails to get sovereign guarantees
    Tuesday, June 22, 2010
    By Rauf Klasra

    ISLAMABAD: The federal Law Ministry has refused to issue sovereign guarantees in case of $329 million power project in Gujranwala funded by a consortium of four foreign banks in view of glaring irregularities.

    The ministry, after digging out a series of irregularities in the whole financial deal agreed with the Chinese company, has flatly refused to give “post facto” approval for issuance of sovereign guarantees to the banks which had given loans to the Pakistan Electric Power Company (Pepco) for the project.


    The ministry has brought the issue to the notice of PM Gilani after advisor to the ministry of water and power, Shahid Sattar, in a secret communication to the law ministry dated June 18 admitted that “procedural lapses” were committed in the execution of 425 MW combined cycle power plant at Nandipur in Gujarwala. He pleaded in his letter to ignore these “lapses” and whet the deal, which was signed in 2008, but the law division has rejected his request.

    The foreign banks had asked water and power ministry to get post facto approval of the deal from law ministry “to confirm mandate of finance division to issue sovereign guarantee” in their names to obtain the loan.

    The law ministry has now informed the prime minister through his principal secretary Nargis Sethi “sacrificing law for expediency has tainted Pakistan internationally as such impertinence must be eliminated if we are to become a progressive nation once again. Law ministry is not mandated to issue ex post facto approval to validate breach under the rules and, therefore, this ministry cannot assist in correcting the errors for which Pakistan Electric Power Company (Pepco) is responsible”.

    Law minister Dr Babar Awan has told his ministry officials to follow the rules and the law governing such matters to ensure transparency.

    Now Prime Minister Gilani has been informed about these “procedural lapses” committed by the ministry of water and power via ministry of law and justice vide its letter No 1(297)/08, Law-II June 15.

    The law ministry has informed the prime minister that it would not whet the deal on the grounds that it was not possible to stamp its approval particularly when the deal was struck first and now approval was being sought to legalise irregularities.

    Earlier, Shahid Sattar in his reference to the ministry of law and justice had confessed that “there may have been procedural lapses in the execution of this project but the project is not substantially complete”. He had pointed out that were 400 Chinese workers working at the site. These workers were now sitting idle, as Pepco has been unable to get the funds released for the work to continue. He said some equipment has been lying at the ports for over six months. Mr Sattar said: “we understood that this was not the fault of the law division. Purely in the interest of completing the project without incurring further delays or penalties, it is requested that the law division may consider giving an opinion on the government guarantees and in the format that is acceptable to the law division. We will then try to persuade the lenders to accept the same”.

    The law ministry said: “the reference of Pepco/Wapda is deceptive and derogatory as there are no impediments from this division regarding issuance of legal position.” It says comments and advice was solicited from the law ministry upon the draft credit agreement for determination of the rights and obligation of the parties pertaining to an export credit facility in connection with construction of a 450MW combined power plant at Nandipur. These arrangements were said to be executed between Northern power generation company limited, BNP Paribas as mandated lead arranger, HSCB France, China Exim Bank, Credit Industries Et Commercial, BNP Paribas as agent and the financial institutions listed in the Schedule 1 of the agreement.

    It said law division has not participated in negotiations of the subject agreement or any project agreement. Wapda was requested to provide details of the negotiations history, however, Wapda informed that record of the negotiations history had not been maintained.

    It said export credit facility agreements were not insignificant or petty agreement as they create extremely scrupulous legal and financial obligations and yet internal or external expertise was not considered essential for the process of concluding the negotiations.

    The letter said in consideration of capacity constraints in terms of legal expertise in public sector for such agreements, Wapda should have appointed a law firm for corporate legal whetting. The letter said reservations pertaining to broadly defined provisions were raised by this division. Consequently, water ministry informed that lenders had revised agreement as required by this division but Exim Bank revised the draft as per its standard draft, which was signed on March 19, 2009 when the Pepco team visited China. “This draft was neither referred to or cleared by this division”, the letter revealed.

    It further said: “Ministry of water and power requested this division for ex post facto approval and issuance of the GoP guarantee. Ex post facto approval was not issued as the rules of the business do not permit for this”.

    The ministry of law said it was decided that legal opinion could not be issued on a document which was never cleared by this division and the same was communicated to the referring division again and again.

    The law division said: “it was blatantly evident that there has been a manifest disregard for requisite procedure and such abuses have been the cause of distrust and questioning of the core objectives for establishing such projects. Good governance can only be ensured by observing requisite procedure”.

    Replying to various questions, spokesman of ministry of water and power told The News that Nandipur power project would start operation in October/December 2010. He said M/s Dongfang Electric Corporation China had assumed contractual obligations. He said the ECC approved the project on 27.12.2007 followed by approval of loaning procedures by ministry of finance allowed on 28.01.2008. He said the ADB report of January 2010 on power sector subject relied on said project’s benefits/power generation capacity for its calculations to augment national grid during 2010-11 in order to tide over energy crisis.

    He said the project’s foreign lenders requested for law and justice division’s legal opinion as per Credit Facility Agreements (CFAs) confirming GOP’s sovereign guarantees issued by finance ministry. It is incorrect to assume that law & justice division has refused to whet the said power project’s agreement documents, he claimed.

    He claimed if law & justice division fails to clear/whet the agreements referred to it, such legal instruments shall be deemed to have been cleared by law division.

    He said the Nandipur power project agreement went through multiple transformations as consortium of banks kept changing due to global financial crunch. During these changes, he claimed, the law division was consulted at regular intervals and the ministry of water & power was advised to get loan agreement whetted by the ministry of finance, which was duly implemented. He said the law division’s stance at this point is that the final documents were not put through referral procedures, which by any logical conclusion, constitutes a procedural error that is being addressed in terms of good management.

    The spokesman ruled out involvement of Pepco officials in kickbacks.