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ISLAMABAD: Prime Minister Yousuf Raza Gilani has cleared a bailout package for reviving the Rs29 billion Nandipur Thermal Power Project of 425MW whose machinery has been rusting at the Karachi port for 18 months because of legal wrangling between the federal ministries of law, and water and power.
The project has been allowed to suffer a delay of more than two years despite the fact that the country is going through prolonged loadshedding.
A senior government official told Dawn that the prime minister had cleared the bailout package during a special meeting on Oct 24 after the opposition PML-N accused the government of delaying the project intentionally to cause power shortfalls in Punjab because the province is under its rule.
About 65 per cent of the construction work had been completed when the project came to a halt two years ago after the Chinese contractor demobilised workers and machines from the site.
The official said the prime minister directed the ministry of water and power to submit a financial plan before the forthcoming meeting of the cabinet for formal approval to remove hindrances that had blocked the project implementation and was threatening to affect friendly relations with China.
The prime minister wants the ministry of finance to advise the banking syndicate led by Habib Bank Ltd and National Bank to extend the validity of the letter of credit up to Sept 1, 2012 and release the withheld amount of Rs7 billion ($80 million) so that the project work could be restarted.
Some of the leading banks providing financing to the project include BNP Paribas (a leading European bank), Hongkong Shanghai Bank Corporation and China Exim Bank.
The plant and machinery valuing $80 million have been lying at Karachi port and the Chinese contractor (DEC) has claimed $20 million for inspecting, testing, repairing and re-purchase of the damaged plants.
The ministry of water and power has taken the position that an independent engineer should determine the claim after consultations with Wapda’s Northern Power Generation Company and the contractor.
Accordingly, the commissioning date for the first gas-based unit of 95MW has been rescheduled to Oct 2012 from the contractual commissioning of Oct 2010 committed by the Chinese firm Dongfang Electric Corporation (DEC).
Dates for the second and third (gas) turbine of 95.4MW each have also been extended from Dec 2010 to Dec 2012 and from Feb 2011 to Feb 2013, respectively. The fourth combined cycle turbine of 139MW will now come into operation in April 2013, instead of the contractual obligation of April 2011.
The project came to a halt even though three gas turbines and generators had been placed on their foundations and major portion of civil works for the plant and equipment had been completed, taking the total progress to 65 per cent.
The Economic Coordination Committee of the cabinet had approved the 425MW ($329 million) project in May 2007 and then cleared DEC as the contractor of the project in December 2007.
The finance ministry approved the banking consortium and financial documents in January 2008 that were cleared by the law ministry in March 2009.
However, certain subsequent changes in the language of sovereign guarantees irked the law ministry who declined to clear them although the contract had already been signed.
The project plant and machinery arrived at the Karachi port in April 2010 which could not be cleared owing to legal hitches and hence started incurring demurrages.
The ECC allowed waiver of the Rs873 million demurrages in July 2011 but the law division continued to oppose legal documents as it was not in favour of accepting English law as the governing law and London as the arbitration place.
On the federal cabinet’s directive, the law division finally cleared the legal papers on Oct 19 but project remains non-starter owing to expiry of letters of credit and bank liabilities.
