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Full Name: Ali Syed
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Ex-MD Pepco exposes Rs15 billion Nandipur project scam

Khalid Mustafa
Thursday, July 11, 2013 
From Print Edition


ISLAMABAD: Former Managing Director of Pepco Munawar Baseer has exposed the Rs15 billion scam of the Nandipur Power Project


In a letter sent to the chief justice of Pakistan he states that the PML-N government has revived the 425 MW project with a monumental increase in the cost revised upwards to $570million from $329 million.


“The revised PC-1 of the Nandipur power project is a well thought out, well conceived and white collar scam to cheat the public exchequer of $149 million, the benefit of which will go to a select private sector party,” the former Pepco executive claims.


The reality is that all equipment, machinery is at the site or the port and paid for. The only increase demanded by the Dongfong Electric Corporation (DEC) is $40 million. And there could be an increase in extended insurance for 2-3 years, plus IDC. This could add up to say another $25 million at the most, bringing the cost to $425 million plus $25m which equals $450 million, certainly not $574 million. This means that the hefty amount of $124 million is still unjustified and unaccounted for.


Baseer pleaded in the letter praying that the Honorable Supreme Court might take notice of this new scam of defrauding the people of Pakistan by a well-conceived, white collar scam.When contacted Baseer said that no doubt the project has been delayed because of the then Law Ministry in the PPP government, but the machinery lying at the port is actually outdoor machinery and there is no question of its rusting which may need compensation.


They just need to install the machinery at the site and make the project operational. However, the contractor would have to remobilise its manpower and machinery at the site for which the Chinese company has demanded $40 million. To a question he said that if needed he would submit the petition with the SC seeking the probe into the monumental raise in the cost of the Nandipur project.


However, in the letter he submitted: “As a citizen of Pakistan I am extremely pained to see that corruption in the energy sector continues unabated. Most recently, the now famous case of the 425 MW Nandipur Power Project delays, in which suo moto action has also been taken by the Honorable Supreme Court, is again being used by the mafia to make windfall gains.”


It appears that the Pepco and Ministry of Water and Power, using this pretext, has now conjured up a new scam by submitting a new PC-1 for a monumental increase in the cost of the Nandipur project. Using the cover of the current back-breaking load shedding and the need to expedite the stalled projects of Nandipur and Chicho ki Malian, on order of the Honorable Supreme Court, the MW&P has come up with a new plan to rob the public. “It appears that the mafia has now formulated a unique plan under a white collar arrangement, which may even have gone unnoticed. However, I as the former MD of Pepco who revived this dead project after my takeover as MD Pepco, feel it is my moral, professional and national responsibility to bring the facts to light.


“The Nandipur project has certainly been the lowest cost power project, as under my management, neither commission could be asked for, nor commission could be offered or solicited by any party. The Chinese were amazed at this new favourable position and agreed to undertake the project after the requisite discounts. Full financing arrangements of $329 million were also made under a Co-Face (French) and SinoSure (Chinese) package with BNP-Paribas as the lead Syndicate Bank.


However it has always been the attempt of the mafia, including the private sector IPP sponsors, to stall any project which would demonstrate the real cost of power plants, exposing the inflated costs which have been used by all IPPs as an instrument to make upfront money which is generally transferred overseas. In the sequence of events along with the original cost of the Nandipur power project of $329 million, it can be clearly seen that even allowing for maximum escalation there is still an unprecedented increase of $124 million, which is unaccounted for.


Narrating the summary of Nandipur power project scam in the petition, Mr Baseer told that


i) Provisional Letter of Intent (LOI) issued by MD Pepco and accepted by DEC on 3 December,2007. Discounted EPC cost agreed with DEC was $329 million.


ii) Total Project Cost estimated at $385 million to include Insurance, Interest During Construction (IDC), and miscellaneous civil works (costing sheet attached, Annexure B).


iii) Project levelised Tariff for 25 years was 10.821 cts /kwh vs. equivalent IPPs (Atlas, Nishat Power, Nishat Chunian etc.) at about 12.125 cts /kwh. Net Tariff lower by 1.304 cts /kwh at FO cost of Rs25,597/ton in December 2007.


iv) Nandipur 425 MW Power Project is the lowest cost project as even compared to IPPs set-up in 1995 – 1998 under PPP government. (news report attached, Annexure C)


v) Full contract was signed in January 2008 by Mr Munawar B Ahmad, MD Pepco & Mr Loa Zhigung President DEC, for agreed EPC cost of $329 million.


vi) Financing arranged by Pepco through Co-FACE (French credit), Sino Sure (Chinese), and BOP (Rupees) under overall Syndicate headed by BNP Paribas (French Bank).


vii) DEC mobilization and construction started in October 2008. GE Turbines delivered and installed at site and paid for under financing arrangements.


viii) HRSG; Heat Recovery Steam Generator Steam Turbine, Balance of plant equipment shipped by DEC in seven (7) batches and paid for, and now still lying uncleared at KPT/PQA port since August 2010.


ix) The Chinese Contractor, DEC on August 20 wrote to Yusuf Raza Gilani (letter attached, Annexure D) requesting the GOP’s assistance in issuance of Ministry of Law legal opinion and release of shipment and balance payments.


x) There was apparently no response from PM’s Secretariat or Ministry of Law. Even the Chinese Ambassador wrote to the Prime Minister, Pepco etc, but no affirmative action was taken.


xi) Finally in September 2012, DEC was forced to de-mobilize its crew of about 400 construction and engineering workers and issued letter of contract cancellation.


xii) For past 2 years and 10 months, a simple matter of issuance of a legal opinion by Ministry of Law, re-affirming that the GOP Sovereign Guarantee for the overseas loans (Co-Face and Sino Sure) was valid has not been issued.


xiii) The PPP government clearly and intentionally delayed the matter and issuance of the Ministry of Law letters for want of commission by the concerned. Even when the then Minister of Water & Power, Raja Pervaiz Ashraf was approached on the matter he maintained that there was nothing he could do on the matter.


xiv) The position now is that nearly 100% of plant, machinery and equipment has been shipped and paid for under the financing arrangements, and is either at the Nandipur site or the KPT/PQA ports.


xv) About 50% work at site, including installation of three brand new GE Frame nine (9) turbines has been completed. Balance work, after delivery of equipment from port and re-mobilisation of the Chinese Contractor, DEC, can be completed within one (1) year.


xvi) DEC has only demanded an extra $40 million for re-mobilisation, and increase in construction costs. This would result in the project cost escalating to $425 million or thereof. (news report attached, Annexure F).


xvii) However a new mafia is at work now, and many reports, project escalation estimates have been spread in the media, stating that the project has escalated to an astounding $574 million (news reports attached, Annexure G).


xviii) The question is where did this extra cost of about $149 million come from? There are also reports of plans by PML-N to privatise the Nandipur Power Plant and let the “Chosen” party arrange for the “extra costs”. Since a new revised cost has been “approved” by the ECC.


xix) The revised PC-1 by Pepco/Ministry of Water & Power for Rs57 billion ($570 million) is under a well thought out scam to cheat the public exchequer of $149 million, the benefit of which will go to a “select private sector party”


xx) The reality is that all equipment, machinery etc is at site or at the port and is paid for. The only increase demanded by DEC is $40 million. Plus there could be an increase in extended insurance for 2-3 years, plus IDC. This could add up to say another $25 million at the most, bringing the cost to $425 m + $25m = $450 million, certainly not $574 million.


xxi) The Honorable Supreme Court may take notice of this new scam of defrauding the People of Pakistan by a hefty $124 million under a well conceived, white collar scam, which has indications of being the “Mother of all Scams”.

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