Saturday, March 31, 2012

Daily Times Editorial April 1, 2012

Rental power debacle

The Supreme Court (SC) has struck down all the Rental Power Projects (RPPs) as non-transparent, illegal and void ab initio, and ordered all those responsible to be taken to task according to the law. It may be recalled that the idea of RPPs as an immediate measure for electricity generation and supply was mooted in the last days of the Musharraf government, which otherwise failed to add even a single MW of electricity to the system in almost a decade of Musharraf’s rule. The concept was part of a three-tiered solution to the energy crisis: short, medium and long term. In the immediate or short term the increasing energy deficit was sought to be alleviated if not met by inducting RPPs that could start functioning in a matter of months as opposed to Independent Power Producers (IPPs) that often take years to come on line. The IPPs were considered part of the medium term tier, which included enhancement of hydel electricity through small dams and run-of-the-river projects. In the long term, large dams and an increase in renewable energy for local distribution were considered most feasible, although work on renewable energy could overlap the first two tiers. As it has turned out however, of the 19 RPP projects envisaged, only six were allowed to be set up by a review initiated with the Asian Development Bank (ADB) after the issue generated controversy. None of the RPPs, in the ADB view, were cost-effective, but if the government was determined to go ahead nevertheless, the number should be curtailed. Advances of first seven percent of the cost, later raised to 14 percent, were paid up front. No proper monitoring appears to have taken place after that, resulting in the anomalous situation that the country was getting merely 120 MW from all the RPPs put together, and none from some. Since the case has been in the SC, some money advanced has been recovered, while the court has now advised NAB to pursue the matter to ascertain civil and criminal liability of all those involved in approving and funding the RPPs.
While there is no quibbling with the SC’s judgement that the whole affair stinks of corruption and kickbacks as the explanation why the authorities were so ‘generous’ with the RPPs, there may be a danger that the SC’s verdict ends up throwing the baby out with the bathwater. Conceptually, the three-tier scheme outlined above makes eminent sense. However, the irreducible condition for it to be successful involved a transparent, competitive process of awarding such contracts, on terms mutually beneficial to both parties and not, as in the said instance, one-sided in favour of the RPPs, and proper monitoring to ensure the terms of the contract were being complied with, especially where agreed generation is concerned.
The SC is absolutely right in insisting that pilferage and the circular debt problem that bedevils the power sector be addressed since, on paper at least, installed capacity is sufficient if all the plants run at maximum capacity. In the ordinary course of things, that is seldom the case since breakdowns, maintenance shutdowns, etc, quite apart from the current conundrum of insufficient funds to run at full capacity because of the circular debt mean that installed capacity is seldom fully available on any given day. What is required is a cushion to take account of such shortfalls. Inadvertently, the SC verdict may now make investment in the power sector even more difficult since the cancellation of the RPP contracts will willy nilly send a negative message to potential investors. The verdict appears not only to have shut the door on any RPPs in future (even provided the conditions outlined above are met), it could also make IPPs difficult to set up. Wrongdoers who have played around irresponsibly or in a corrupt manner with public money must be brought to book of course. But the country may now face fresh problems in meeting growing energy demands in the future if the energy mix can no longer rely on fresh IPPs.

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