ISLAMABAD: The Asian Development Bank (ADB) has declined to approve water and power ministrys plans for 2250MW capacity addition through 14 rental power projects saying it would need 31 to 45 per cent increase in consumer tariff and consume more than $5 billion (Rs420 billion) of nations foreign exchange in five years.
The ADB was assigned the job of third party evaluation under a decision of the federal cabinet to examine agreements with rental power projects sponsored by the water and power ministry to end electricity shortage, following public criticism over RPPs for being too expensive. In its report, according to sources in the finance ministry, the ADB said the RPP agreements had been signed in haste and without examining in detail the fiscal and contractual obligations of the government.
The bank shared findings of its report a few days ago with a government committee headed by Finance Minister Shaukat Tarin and comprising secretaries of finance, petroleum, water and power and economic affairs. The report has been submitted to the prime minister for a final decision whether or not to go ahead with the installation of eight RPPs. Even if the eight RPPs were completed, there will still be an unmet electricity shortfall of about 600MW, the ADB is reported to have told the committee.
The ADB, the sources told this correspondent, proposed that the government should take in hand only eight RPPs with a total generation capacity of about 1200MW. This, too, would entail about 24 per cent increase in power tariff, in addition to about 30 per cent increase in electricity rates already committed by the government with multilateral lenders under the IMF programme. About 18 per cent tariff increase has already been notified by the government under the IMF programme.
The sources said that even if the government allowed the setting up of eight RPPs of 1200MW generation capacity, the principle of minimum tariff on first come basis should be adopted to minimise the economic shock. A water and power ministry official told Dawn that some RPPs with generation capacity of about 800MW capacity were at an advanced stage of implementation, which would start commercial operations between April and June this year.
The ADB also did not accept to the water and power ministrys claims that rental tariff ranged 13 to 18 cent per unit and noted that effective tariff would remain between 14-22 cents per unit. According to the ADB findings, zero loadshedding in three to six months as claimed by relevant agencies was not possible. It said if the government provided natural gas to all the 14 RPPs, even then the required tariff increase would be 31 per cent but if full gas supply was not possible and capacity utilisation was based on furnace oil, the required tariff increase would be no less than 45 per cent.
The report said that given the declining gas flows and uncertainty surrounding installation of compression facilities at Qadirpur gas field, full utilisation of RPPs capacity and additional power generation on natural gas could not be relied upon. The report said if planned RPPs did not materialise and planned independent power projects (IPPs) were pursued wholeheartedly, the electricity shortfall could be overcome in 18 to 24 months. It said the RPPs tariff was generally 3-5 cents higher than IPPs tariff.
The ADB has noted that in some cases, the RPP agreements were signed in haste and were changed by the private power and infrastructure board (PPIB) in favour of sellers (RPPs). It said in most of the cases the RPP contracts contained a lot of weaknesses. One of the weaknesses pointed out by the ADB team led by its country director Rune Streom was that even if the contractor ran away after signing the agreement, the government would still have to pay for the capacity charges.
Moreover, the project efficiency committed by the sponsors of RPPs was for only 32-35 per cent but the government would be legally bound to make payments for 90 per cent capacity utilisation. Also, the ADB pointed out, the contracts lacked sound clauses in case of non-performance by the RPPs, the sources said.
The bank also pointed out that existing logistic infrastructure did not match transportation requirements of the additional fuel oil needed for new RPPs. Although the RPPs were estimated to increase furnace oil consumption by more than 30 per cent when compared with countrys existing fuel oil consumption, no supply arrangements had been put in place with Pakistan Railways or other relevant agencies.
Meanwhile, an official spokesman for the water and power ministry said the ministry had not yet received the ADB report on RPPs third party audit. He said the government had already requested the ADB for a third party audit of RPP contracts in public interest to ensure transparency. The final report was still awaited, said the spokesman, adding that perhaps some internal discussion papers had reached the media which did not factually reflect the official position of either the government of Pakistan or that of the ADB.
He said the government would be pleased to share information on RPPs with the media as and when finalised.
Tags: ADB,RPPs,RPP,rental power plants,tariff,oil,gas,import,loadshedding
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