ISLAMABAD: The government has decided in principle to convert several memorandums of understanding (MoUs) signed with state-run companies of China, into formal agreements for early implementation of energy sector projects.

A senior government official told Dawn that a draft of a legal document was currently being finalised that would require clearance by the board of Public Procurement Regulatory Authority (PPRA) to formally exempt government-to-government deals from bidding.

He said the PPRA’s law already had a provision for direct negotiations on government-to-government level, but the fresh PPRA exemption would enable the MoUs signed between the Pakistani government and Chinese firms to translate into formal agreements without competitive bidding.

“This will be China-specific arrangement under a sovereign guarantee of the federal government, although Section 42(c) of the PPRA rules allows the government to bypass bidding and enter into direct contract with any company or investor,” the official said.

This would require a model MoU spread over four pages prepared by the Private Power and Infrastructure Board (PPIB) for power plants on independent power project (IPP) model. A similar model MoU was also under consideration of the Planning Commission for direct agreements with China in other sectors including railways, roads and petroleum refining, said the official.

Under the arrangement, at least 85 per cent of the investment or financing would have to be arranged by state-run Chinese companies to qualify for the direct contract while the remaining 15pc share would be arranged by the government of Pakistan or its designated agency or company in the shape of provision of land and related infrastructure.

Under Section 42(c) of the PPRA rules, the government can enter into direct contracting when the price of goods, services or work is fixed by the government or any other authority, agency or body duly authorised by the government on its behalf.

The official explained that since the prices of such contracting were determined and fixed by the government or by its authorised body, a blanket clearance would be obtained from PPRA’s board instead of going again and again to the PPRA for each power project.

Since, the role of government’s authorised body in the case of power sector was being played by the National Electric Power Regulatory Authority (Nepra) whose determination would be binding on the sponsor to execute the project.

Therefore, the government would take the project to Nepra to determine project cost that would be acceptable to the foreign investor, enabling speedy determination of tariff at the later stage. Under the agreement, various benchmarks of the project implementation would be locked and failure would lead to contract termination. Disputes would be settled through mutual consultation and negotiation instead of arbitration.

Under the proposed framework, the two sides would keep the project information strictly privileged and confidential and would not disclose it to any third party.

A power ministry official said the increasing shortfalls were raising discomfort level and hitting the economy badly but international investors were shy of the procedural nitty-gritty and reluctant to enter into lengthy, non-transparent, inefficient and defective system of bidding, evaluation and award.

Therefore, no headway was taking place in implementation of mega projects. Foreign investors, companies and even a few sovereign states have come up with an idea to enter into some sort of MoUs which are generally non-binding and do not cover the difficult part of how to assign a specific project to a specific interested company.