October Issue 2015

The closure of the 525MW Nandipur thermal power station since its inauguration by Prime Minister Nawaz Sharif in May 2014 and its huge cost overruns have made the project a major source of embarrassment for the PML-N government. Only a year ago, it was publicised as a ‘miracle’ of the Sharif administration.

Independent experts contend that the Nandipur power station, costing 84 billion rupees to the national exchequer, is a classic case of mismanagement caused by whimsical decision-making by the rulers of both the PPP and the PML-N.

There are many twists and turns in the story of the Nandipur project that commenced in 2007.

The power station, located near village Nandipur, Gujranwala district, was originally built to generate 425MW of electricity with furnace oil. Later, it was re-designed to produce 525MW with natural gas. The project has three combined cycle turbines, with a production capacity of 95MW each, and a steam turbine with 138MW capacity.

A Chinese company, Dongfang Electric Corporation (DEC), was the project’s engineering, procurement and construction (ECP) contractor, while almost 70 per cent of the machinery installed at the power plant has been procured from one of the world’s most reputed American companies, General Electric (GE).

The Economic Coordination Council (ECC) approved the project in December 2007, at an estimated initial cost of 23 billion rupees that was later revised to 33 billion rupees. Work on the power station started in October 2008 and was scheduled to be completed by April 2011.

Two-thirds of the work on the power station had been completed by June 2010, but then came the first roadblock. PPP’s then federal minister for law, Babar Awan, did not give the project legal clearance for more than a year. Meanwhile, the tenure of the foreign loans expired in August 2011 and the equipment and machinery meant for the power station rusted at the Karachi port.

The federal Minister for Planning and Development, Ahsan Iqbal, alleges that a federal minister in the PPP regime kept the file in his drawer for ulterior motives. The ECP contractor, Dongfang, left the project, or in technical jargon, the contract was de-mobilised.

In October 2011, a probe by a one-member judicial commission, appointed by the Supreme Court, found that the delay and negligence by the federal government caused a total loss of Rs 113 billion to the national exchequer in the power projects Nandipur and Chicho Ki Malian — both in Punjab.

In 2013, soon after being elected, Prime Minister Nawaz Sharif requested the Chinese ECP contractor to resume work on the Nandipur project which the company agreed to do.

This time, the Executive Committee for the National Economic Council (ECNEC) approved the revised PC-1 of the Nandipur project at 57.6 billion rupees — a hike of 24 billion rupees in the project costs in one stroke, without re-tendering.

The revival came at a heavy price as an additional payment of 80 million dollars (eight billion rupees) was made to the contractor. Some believe that the Nawaz Sharif government failed to negotiate the deal properly with the Chinese company.

When the project was revived in 2013, the ‘energetic’ chief minister of the Punjab, Shahbaz Sharif, informally took control of the project, while the Ministry of Water and Power looked the other way. Insiders maintain that Shahbaz Sharif and his son, Salman Shahbaz, have been calling the shots on all energy-related projects while Khawaja Asif has been reduced to a ceremonial head of the water and power ministry.

In July 2013, the Sharif family appointed their loyalist Muhammad Mehmood, a grade-20, captain (retd.) DMG officer, not only as managing director but also a project director of the Nandipur project, instead of a professional engineer suited to this position — a decision that subsequently created several managerial issues.

Shahbaz Sharif’s quirky decision-making caused further delays in the completion of the project and a further hike in its costs. The Nandipur power station was originally built to run on furnace oil. However, in 2014, Shahbaz Sharif directed the management to augment the plant with additional equipment so it could also be run on natural gas.

A surprising decision, considering natural gas was not available for the already-installed gas plants that were expected to produce up to 2,000MW, such as the one in Guddu.

For this purpose, a contract worth 2.5 billion rupees was awarded to the same Chinese company, without fresh tendering. Another additional amount of more than one billion rupees was spent on installing a gas station and gas pipelines for the project.

The deadline for the completion of Nandipur station was set for June 2015. However, always in a haste to show off their ‘achievements,’ the Sharif family inaugurated it with much fanfare one year before its completion.

On May 30, 2014, while formally opening the plant, Prime Minister Nawaz Sharif termed its speedy completion a ‘miracle,’ even though a crucial component of the power station, called Fuel Oil Treatment Plant (FOTP), was not yet installed — in fact, it had not even been ordered — and it was not technically feasible to run the power station without the FOTP.

Insiders say the project management test-fired only one turbine of the project for a few hours at the time of inauguration, as the ECP contractor had refused to run the plant on diesel saying the installed machinery could work on furnace oil alone and would get damaged if it was run with diesel.

The government awarded Nandipur’s managing director, Muhammad Mehmood, a Tamgha-e-Imtiaz for his ‘miraculous work’ and granted three bonuses to other staff.

Embarrassed by the criticism in the media over the non-functioning of the power station even after the stipulated June 2015 deadline, Khawaja Asif, the federal Minister for Water and Power, has now publicly admitted that it was wrong to inaugurate the power station in 2014.

The Nandipur management failed to procure and install the FOTP at Nandipur on time. It also messed up the maintenance and operation plans after the completion of the project in June 2015.

The first treatment plant was installed in September 2014, but it was found to be defective. The second plant that was installed also proved to be of less than the required capacity, thus further setting back the functioning of the jinxed project.

Experts are dumbfounded as to how, in the presence of consultants, National Engineering Services Pakistan (Nespak), and a professional ECP contractor, a treatment plant smaller than required capacity was procured and installed. Now the company has agreed to provide additional parts to enhance the FOTP’s capacity.

Another major issue that stalled the opening of the power station is the underlying tension between Khawaja Asif and Shahbaz Sharif over its operation and maintenance.

Insiders allege that the top management was not keen on hiring local engineers to run the plant; it wanted to sublet the Operation and Management (O&M) to some foreign firm. That is why the management did not get affidavits and guarantee bonds from the 30 engineers who were trained in China. These freshly trained employees soon left the project.

The managing director himself spent one month in the United States, ostensibly for training with GE, instead of sending a professional engineer who could run the plant — just one example of how serious he was in the O&M of the power station.

In November 2014, the management wrote a letter to the Federal Ministry of Water and Power for subletting the O&M to a Malaysian company, but Khawaja Asif refused to oblige.

The Genco (Generation Company) III Board, a part of the federal power ministry and having a supervisory role in the Nandipur project, did not respond to the letter for a year and finally declined.  Later, the Nandipur management asked for granting the project’s O&M to General Electric, which the Genco Board turned down, yet again.

Insiders maintain that Khawaja Asif knew local engineers could run the project and that the subletting of the O&M at exorbitant rates would further push up the already-high cost of electricity generated by the Nandipur station.

The Nandipur project assumed the shape of a scandal in the electronic media and Prime Minister Nawaz Sharif intervened. Genco has recently approved awarding the O&M contract to the Chinese ECP contractor, Dongfang, for six months.

Once the fuel treatment plant gets installed and the Chinese contractor assumes maintenance and operation of the power station, the Nandipur project can start producing electricity — but at a heavy cost to the national exchequer.

In 2007, the idea of the Nandipur project was floated with an estimated cost of 23 billion rupees, but that figure has now risen to 84 billion rupees. And it is expected to go up further, keeping in view the expensive O&M by a foreign company. However, the minister of state for power still insists that the project cost stands at 58 billion rupees.

Experts say if the National Electric Power Regulatory Authority (Nepra) calculates the tariff of the Nandipur plant at its completion cost of 84 billion rupees, electricity from this project would be quite expensive. One way of keeping the tariff low would be for the government to meet the gap of around 26 billion rupees from its own resources.

Apparently, there are three main culprits behind the inordinate delay in the Nandipur power project and the escalation in its cost: Babar Awan, Shahbaz Sharif and Khawaja Asif.

Babar Awan caused demobilisation of the project in 2010 by not giving it legal clearance. Shahbaz Sharif interfered in the management of the project without having any legal authority to do so, causing more delays and an increase in the costs by ordering additions to its original design. On his part, Khawaja Asif did not allow the subletting of the operation and management operations of the power station for a year, thus delaying its commissioning.

The Nandipur mess is a classic example of how our political elite pounce like vultures on mega development projects to line their pockets and pass on the burden of their greed
and mismanagement to the ordinary public.

This article was originally published in Newsline’s October 2015 issue.