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Rental power plants scam

November 11, 2012

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THE rental power plants case, which took another ugly turn last week over Turkish firm’s repayment of dues, has some bitter lessons for the policy-makers’ future dealings with foreign firms.

The approach has resulted in squandering away of precious foreign exchange on futile schemes, subjecting citizens to loadshedding and promoting unethical business practices.

The Supreme Court had on March 30 scrapped all deals made by the government with rental power plants set up since 2006 by declaring them illegal, non-transparent and invalid, and ordered that advance payments made to nine RPPs along with interest be recovered from them.

The Turkish firm Karkay Karadeniz Electrik, which claims to have invested $350 million in its world’s biggest ship-mounted rental power plant, could not produce the agreed 232 megawatt power because, as it says, it was not provided gas, was first allowed to leave the Pakistani waters for home after paying Rs1.65 billion under an agreement with National Accountability Bureau.

The agreement said Karkay will not pursue its claim for damages amounting to $291 million in an arbitration court.

But a few days later it was stopped from leaving by NAB until its cheques were cleared. A section of the media and Transparency International had a different story to tell.

They said that the Turkish firm had in fact recoverable dues amounting to Rs21 billion or $220 million. The Karkey became controversial when media reports said the government was paying millions of dollars to the firm despite the fact that it was producing only 30 megawatts.

Whatever be the end-result of this episode, one should not ignore the fact that Turkey happens to be one of the few close and trusted friends of Pakistan. Any mishandling of a Turkish business entity may affect the sensitivities of the relationship.

Turkey’s economy minister Zafer Caglyan visited Pakistan in May to seek relief for Karkey, whose accounts were frozen.

He asked for an amicable resolution of the dispute when he met Commerce Minister Makhdoom Amin Fahim but the latter showed his government’s inability to do anything since the apex court had given its judgment against all rental power plant projects.

The Turkish minister expressed concerns of his country over high taxes, custom duties and matters relating to port and shipping.

Authored by Chief Justice Iftikhar Mohammad Chaudhry, the 90-page verdict was expected to have a sobering effect on the attitude of the government and lead to a positive approach in resolving the power crisis.

But it remains business as usual. Raja Pervez Ashraf, the most ardent advocate of RPPs as a minister for water and power, who was among the functionaries named by the court to be proceeded against on serious charges, was not only spared of any punishment but also chosen to be the country’s prime minister.

In fact, no corruption references against those who were at the helm of affairs when the contracts were signed, as directed by the court, have been filed. The Supreme Court judgment has evoked both positive and negative reactions.

There is a growing opinion that the judgment is a move to curb the rampant, unfair and corrupt practices on the part of the bureaucracy and the business community. This could lead to create an environment for fair business practices.

The court was informed during one of the hearings that though rental power plants remained idle in most of the 36 months of the contract period, they were regularly paid $216 million as rent, even after being aware that the gas is not available and no electricity could be produced.

In another case, the period of two RPP contracts, which ended in August 2009, was extended by the ministry of water and power and were paid $6 million per month without producing electricity. Critics talked of an outright plunder.

However, the radical judgment is also seen sending wrong signal to foreign investors when they are reluctant to come to Pakistan because of both, the domestic and the global environment.

Saleem Mandviwalla, chairman, Board of Investment in Pakistan, said he was ‘bewildered’ by the Supreme Court order. “This will not only affect the power business, but every business,” he said. “All it has done has created more problems.”

The International Commission of Jurists said, in a recent report, that Pakistan’s Supreme Court was using “suo motu” investigations excessively, and that “when they are inappropriately applied, they may upset the balance of power and interfere with the ordinary course of justice.”

Supporters of the regime consider the SC judgment ‘a political decision’. David Walters, a former governor of Oklahoma state in the United States and owner of a rental power plant, says his losses run into millions.

“Every company that will consider making an investment in Pakistan will now have a lump in their throat,” he said. He saw an opportunity and joined hands with a Pakistani businessman to produce and sell power.

But the mismanagement in the power sector is of the worst kind and, as a result, it is unable to produce enough electricity to meet domestic demand.

But since the government has utterly failed to provide good governance and control corruption, for most citizens the Supreme Court is the only hope.

They say its decision was a much needed action, keeping in view the rise in power outages.

Besides, the SC is the only institution in Pakistan which is willing to act boldly against excessive wrongdoings by the ruling elite.