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MoUs have no legal value

Updated July 28, 2013

LAHORE, July 27: As the Punjab government gets into a flurry of signing memorandums of understanding with foreign and local investors for power generation, experts on energy say all these MoUs are designed for media consumption and nothing more.

Ever since the chief minister returned from China, hardly a day passes without some Chinese delegation calling on him and signing MoUs for electricity generation, being it a solar project in Cholistan, coal generation in Gadani (as signed on Saturday) or All Pakistan Textile Mills Association (Aptma) pledging investment in Karachi.

“Such MoUs are of no legal or investment value,” says former managing director of the Pakistan Electric Power Company (Pepco).

According to him, the rules of the Pakistan Public Procurement Authority (PPRA) leave no space for MoUs as everything has to go through the process of competitive bidding. “That is why none of such memorandums materialized which President Asif Ali Zardai had signed during his visits to China,” he pointed out.“In fact, they become embarrassment later on,” says a former secretary (energy) Punjab. These MoUs only raise expectations of potential investors. After six months of signing an MoU, when the investor actually comes back with money and project feasibility, he is told to follow the competitive bidding process along with other competitors. A long list of legalities, checks and counter checks welcomes him in Pakistan, whereas all his planning is based on the MoU – a totally reddened document. The Punjab and federal governments have faced a number of such embarrassments and may face this time too, he fears.

To make the matter worse, the Punjab government is signing these MoUs for investment in Sindh (Karachi in case of Aptma) and Balochistan (Gadani in case of the Chinese).

According to SM Zafar, a noted lawyer, the Punjab government cannot sign such documents that fall outside its geographical boundaries. “It either has to go through the provincial government concerned or at least Council of Common Interest (CCI),” he said talking to Dawn.

He said all these memorandums involved federal sovereign guarantees, which were ruled by Fiscal Responsibility Act. Any MoU exceeding those limits would be null and void.

Punjab Energy Secretary Usman Bajwa said these MoUs were mere understandings; a show of intent, and nothing more. “They are subject to federal and constitutional provisions. Punjab is doing this only to get investment commitments. Since the provincial government also wants to invest in some of the projects, it is trying to get as many investors on board. But these are mere memorandums, which will then be taken through transparent process, be those procedures are federal, provincial and institutional, before formalization.”