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Ministry of Water and Power has identified three major problems with the 525MW Nandipur power

17 September, 2015

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ISLAMABAD: The Ministry of Water and Power has identified three major technical and procedural problems with the 525MW Nandipur power project and sought action against people responsible for the shortcomings.

Highly placed sources in the ministry told reporters that the selection of a low capacity furnace oil treatment plant (FOTP) for such a big project, flaws in the long-term outsourcing of operation and maintenance (O&M) contract and awarding the contract to engineering, procurement and construction (EPC) contractors on a short-term basis were key shortcomings leading to failure of the project.

Moreover, the poor quality fuel believed to have been adulterated on its way to Nandipur from Karachi caused initial problems.

According to Petroleum Minister Shahid Khaqan Abbasi, the 525MW power plant will not have any technical problem if it is run on natural gas. He is reported to have opposed last year the selection of dual fuel combined cycle technology for the project on technical grounds but was overruled when a high-level meeting was informed that banks were not ready to extend funds unless the plant had alternative fuel.

Prime Minister Nawaz Sharif has ordered three separate investigations into the project. These are a probe by a team of the ministry and its attached departments on technical aspects, another by an audit firm of international repute and third by the Auditor General of Pakistan to look into procedural lapses, irregularities and misappropriations.

Petroleum Minister Khaqan Abbasi says the power unit will not have any technical problem if run on natural gas
The sources said the ministry had completed its inquiry and blamed the management of the project and the Punjab chief minister without directly naming him. The sources pointed out Shahbaz Sharif’s all-out support for the Nandipur project management, even going to the extent of recommending conferment of a civil award on the managing director.

The sources said it was an unusual move to appoint a bureaucrat as head of a crucial project whose machinery had been rusting at ports for years. According to them, usually engineers are made project directors till commercial operation is achieved and only after test trials these could be handed over to management experts appointed as managing directors.

The ministry has concluded that the FOTP installed at the plant is of inadequate capacity. It is capable of treating only 24 tons of furnace oil per hour against the required capacity of 32 tons. Due to the inadequate treating capacity of FOTP, the plant could not be operated on the total capacity of 425MW which otherwise has a designed capacity to touch 525MW on natural gas.

“The Nandipur management did not bring this serious issue to the knowledge of the board of directors as well as the ministry,” said the report seen by Dawn. The management has remained unable to resolve the issue till to date.

The report also pointed out that post-bid changes had been made in the contract documents and agreed with the bidder in violation of Public Procurement Regulatory Authority rules. Secondly, the O&M contract was being outsourced for 10 years. The bidder quoted one year on furnace oil and for the next nine years the price had been left open and was subject to revision after conversion of the plant into natural gas. “Therefore, the bid price is inconclusive and not final,” said the report.

Moreover, the National Electric Power Regulatory Authority (Nepra) “has not yet given tariff on gas because gas is not yet available at the plant site and has directed for submission of tariff request after conversion of the plant into gas”.

It has been noted that the prices quoted in the O&M bid were not in line with Nepra’s determined tariff. The calculations in original bid evaluation report are based on 90 per cent plant factor which was highly unrealistic for thermal power plants.

“The O&M cost per kilowatt hour based on these calculations has been substantially reduced and is misleading because normally 60pc plant factor is used,” the report added.

Against a Nepra allowed O&M cost of about 30 paisa per unit (kwh), the cost quoted for O&M contract in this case was 25 paisa per unit higher (about 55 paisa per unit) with an annual financial impact of more than Rs80 million per year.

In case of profit-sharing for efficiency factor, the 50pc better efficiency was to be shared, 70pc by the government and 30pc by the contractor in original bid, but this was later changed to a 50:50pc basis, which was “highly questionable”, the report said.

On top of that, the pricing mechanism quoted by the bidder contained too many variables due to which it was difficult to assess the exact pricing of the O&M proposal. It has also been reported that a trained team of 40 to 50 engineers and technical staff was posted at the Nandipur project, but it was not allowed to get conversant with the plant’s operations during installation and testing. “Due to this reason, the plant is not able to operate even after completion of reliability test run (RTR),” the report said.

It said the award of the O&M contract to the EPC contractor on a short-term basis was also mishandled. The board of Genco-III allowed the project management to enter into a time-gap arrangement with Dongfang Electric Corporation Ltd (DECL) for a period of six months.

The project management pointed out risks in giving the O&M contract to the EPC contractor (DECL). “The O&M cost negotiated with DECL for three months is $3.5 million, which is very high, compared to other similar contracts. Moreover, the management did not submit proper agenda to the board for consideration,” the report concluded.

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