The sad saga of rental power plants

Pakistan has been plagued with power generation problems since decades. Due to the continuing power deficit, our industries have been brought to the brink of collapse and the common people suffer non-stop. Energy is the driving force behind national development but sadly Pakistan lags far behind on this front. The country has, for years, not been able to crack the electricity riddle and the situation has gone from bad to worse over the years. The country’s leaders have never grasped the idea of sustainable development in its true spirit and the people have been led to unending anguish due to their lack of vision.
One intelligent scheme that seemed perfect in theory was the introduction of rental power plants (RPPs) that was considered feasible to bridge the demand-supply gap. It was near the end of the Musharraf era when RPPs emerged as a viable option as opposed to further investment in IPPs. However, the actual implementation of the scheme took place under the present PPP-led government. Many experts had pointed out in the beginning, when RPP licences were in the process of being issued, that the RPPs would turn to be just another way of taking corruption to the next level. As it turns out, they were absolutely right.
On March 30, 2011, the Supreme Court declared the Rental Power Plants as illegal and all functioning RPPs were ordered to be immediately shut down. The decision was historic in the sense that it will now discourage corruption through such means and also force the government to invest in long-term solutions to cap the energy crisis.
In principle, if they had been implemented correctly, RPPs would have helped Pakistan in meeting the energy shortfall. Rental power plants are typically installed within 4 to six months and are ideal for meeting short-term electricity needs. They utilize resources in the optimum manner while involving little or no land. Local employment generation is another positive aspect of RPPs. However, plant costs keep on increasing when expensive fuel is used to run these plants. Pakistan stood to benefit from these projects as technically only the amount of electricity supplied would be liable for payment. But bad decision-making and gross mismanagement on the government’s part made the whole scheme a complete mess.
In 2008, a committee headed by Prime Minister Yousuf Raza Gilani agreed to the installation of 14 rental power plants that would produce 1,500 MW of electricity. A year later in September 2009, RPPs with a collective production capacity of 2,250 MW were approved by the cabinet. Unsolicited offers were also entertained which led to the acceptance of 5 more projects by the Economic Coordination Council (ECC). In the end, a total of 19 RPPs with a collective capacity of 2,734 MW were sanctioned.
Renowned banker Shaukat Tarin, who assumed charge as Finance Minister in October 2008, had strongly opposed the government’s idea of installing RPPs at such high cost. Though the federal cabinet had already approved issue of RPP licences in August 2008, it was on his insistence that the Prime Minister asked the Asian Development Bank to conduct an audit of the entire RPP scheme. As a result of the audit, it emerged that out of a collective capacity of the almost 2,800 MW that had been sanctioned only 800 MW offered operational feasibility.
It is quite distressful to know, however, that while it was Shaukat Tarin who tried to wean away the government from issuing licences to RPPs as it spelt disaster from day one, he now seems to have been ‘punished’ for his good advice and put on ECL in wake of the probe that the Supreme Court has ordered NAB to conduct in the RPP scam.
According to news reports, the Government of Pakistan ended up paying Rs. 21.8 billion to the RPPs in mobilisation advance with bank loans taken against assets of the National Transmission and Dispatch Company (NTDC). Even after such huge sums were transferred to the RPPs, none of these power plants functioned at their full capacity and only produced 120 MW of electricity in total. Karkey was producing an average of 48 MW compared to its actual capacity of 231 MW and that too at an expensive rate of Rs.35 to 50/unit. Another RPP, Gulf had a capacity of 62 MW but was generating only 50 MW while Reshma Power Plant was producing a measly 14 MW compared to its actual 201 MW capacity.
What had started as a promising project simply drowned in a sea of corruption. The electricity they produced was purchased by the government at exorbitant rates. The country spent billions of rupees on the RPPs but ended up getting literally nothing in return. A few megawatts of electricity were not worth the huge and unreasonable amount spent from an already overburdened treasury.
Time and again a huge hue and cry was raised over the inefficient production of these RPPs. Along with the lacunae pointed out by Finance Minister Shaukat Tarin, other quarters also described the whole scheme was rife with corruption but the Government of Pakistan failed to take notice and the high cost of the plants was passed on to the unfortunate consumers. With increasing electricity shortfall, protests against load shedding became commonplace. The current violent protests in Punjab are witness to the poor state of affairs. RPPs were a continuing burden on the national exchequer and because of them, production of the existing Independent Power Plants (IPPs) suffered. It is certainly unfortunate that instead of using Pakistan’s rich hydel resources as well as gas and coal reserves to produce electricity, we use the most expensive fuel – furnace oil. According to experts, the government should have focused more on providing gas to the independent power producers (IPPs) rather than investing in quixotic projects. There would also be hope in future energy production if new projects had been established by the present government when it assumed power. The government instead spent precious resources on the failed RPPs while high ranking officials managed to steal billions of rupees for their personal gain.
The Supreme Court has declared all Rental Power Projects (RPPs) in the country illegal in its verdict. In the court’s learned view, the agreements between the Pakistan government and the owners of RPPs were ‘non-transparent’, ‘illegal’ and ‘ultra vires of the Constitution’. The Supreme Court has observed that there was massive corruption taking place and it was never the purpose of those indulging in this corruption to bridge the demand-and-supply. The Chief Justice especially noted that Genco, Pepco, Wapda, Nepra and the federal government were responsible for the corruption of billions of rupees.
The Supreme Court in its ruling has directed the government to take effective measures to arrest corruption and pilferage in the power sector. If properly implemented, this landmark decision will surely benefit Pakistan for years to come. Whether or not the implementation is carried out remains to be seen but one does hope that our government will now wake up and, for once, will think about the future of Pakistan.