Nandipur Power Project

Crisis during inception of project

In January 2008, under provision of 18th amendment Government of Punjab, Pakistan signed a Rs. 23 billion ($329 million) contract with Dong Fang Electric Corporation of China to construct the Nandipur Power Project and paid its 10 per cent down payment.^[9] A conflict between Ministry of Water and Power and Ministry of Law and Justice (Pakistan) delayed the project execution for 2 years between March 2010 to March 2012. Ministry of law raised objection over violation of Public Procurement Regulatory Authority (PPRA) rules and award of contract to black listed company China Dongfang Electric Corporation^[10] and refused to vet the permissions before explanation of procedures followed. As a result, machinery worth $85 million remained stuck at the Karachi Port for over two years.^[11] In September 2012, the president of Dongfang Electric Corporation, Zhang Guorong, terminated the contract for the construction of the Nandipur power project, saying his company had suffered losses because machinery worth $85 million had been awaiting clearance at the Karachi Port.^[12]

Inauguration of project

In June 2013, Pakistan's Ministry of Water and Power started renegotiating the contract with Dongfang Electric Corporation to resume work on the Nandipur Power Project.^[11] After successful negotiations, the firm agreed to resume work on the power station.^[13] On July 8, 2013, engineers of Dongfang Electric Corporation arrived in Karachi to inspect the machinery lying at the Karachi Port and secure its release.^[14][15] Later, work on the project was restarted,^[16] with escalated cost of Rs. 57.4 bn. After several delays project was finally inaugurated by Prime Minister Nawaz Sharif, on 31 May 2014.^[17] However, the plant remained operational for only five days after the inauguration and had to be shut down due to mismanagement, conflicts with National Electric Power Regulatory Authority NEPRA over high production cost and use of inappropriate fuel.^[18] Since then plant faced serval controversies and operational failures, yielding inquiries and probes into misappropriation in the project.

Inquiries over Failure of project

Nandipur produced most expensive Rs. 42 per unit, and was shut down after five days of its operations.^[18] Besides ineffective cost, the plant had less than 42% efficiency, even less than decades-old power plant in the country, for example, Hub power company plants set up in 1990 produce at Rs. 7.65 per unit(kwh).^[6] After failure of plant to operate after few days of its inauguration, prime minister of Pakistan, Nawaz Sharif ordered two separate audits; one by an audit firm of international repute and the other by the auditor general of Pakistan.^[5] The handpicked audit firm Ferguson & Co refused to become part of controversy , restricting itself to financial audit only.^[19] It was revealed after audit : ^{[20] [21]}

• The position of M.D. was created by chief minister of Punjab on his personal choice, while no such position in provision.
• A grade 19 officer of Parks Horticulture Authority (PHA), Cap. (R) Muhammad Mehmood was appointed as M.D. at high salary without any professional experience for the post.
• M.D. commissioned low capacity furnace oil treatment plant (FOTP), without consulting technical staff and engineers in the plant. This resulted in total collapse of furnace operated plant.
• The initial startup of plant was done with wrong choices to fuel damaging plant and requiring invocation of O & M contract.
• To cover up mistake, wrong contracts were awarded for O & M to incompetent firms on long-term basis, resulting finally in halt of the project.

Administrative changes in Project

Since the inauguration of the project, the plant became the highlight of media criticism and opposition parties raised questions on it; causing political damage to incumbent regime. After the revelation of an audit report and inquiry outcomes on October, 2015 p.m. Nawaz Shareef took immediate action and changed the administration of project. The control of project was handed over from the government of Punjab to Federal Ministry of Water and Power and controversial Managing director Cap. (R) Muhammad Mehmood was replaced by Tariq Bhatti and Shahzad Akbar was appointed project director.^[22][23] Minister of water and power Khawaja Asif admitted failure project publicly due to lapse of administration and mismanagement.^[24]

Conflicts with NEPRA

The plant produced most expensive i.e Rs. 42 per unit with less than 40% efficiency, however, NEPRA fixed the cost on April 2015 to Rs 11.63 per unit.^[25] Government appealed to increase this cost to Rs. 15.63 per unit, demanding total of Rs. 23 billion to be recovered from consumers. The Ministry of Water and Power plead that the plant will go bankrupt with annual losses and production cost much higher than tariff. NEPRA heard the appeal on Jan 29, 2016 and rejected to pass any further load to consumer.^[26] After NEPRA refused to increase the tariff in second review,^[25] govt. decided to take the case to court on September 2016.^[27] Nepra referred to already presented report of inefficiency ^[28] of plant and refused to pass any additional fuel cost and inefficiency to consumer.^[29] The annual loses and high production cost resulted in closure of plant on June 2016. NEPRA raised question mark over losses of billion of rupees against plant closure after June 2016 .^[30] The plant was made with Rs. 58 billion, however, it produced electricity at Rs. 42 per unit. Since NEPRA fixed the tariff at Rs. 11.63 per unit, it incurred recurring losses of Rs. 12.3 billion. Therefore, the loans of Rs. 34 billion taken for the project remained unpaid, on top of it the project needed continued subsidy to sustain the project, this also added to circular debt. ^[31] To understand the scale of problem NTDC reported that Nandipur is incurring losses beyond recovery including interests at loans taken for commissioning, and interests on loans taken each month due to costly operational cost. For example only, June 2016 incurred Rs. 4.46 billion losses to national exchequer generating costly electricity and not recovering its generation cost.^[32] Despite the huge circular debt. incurred by Nandipur and warning of economic collapse due its high operational per unit cost,^[33] NEPRA refused to move the tariff and to shift burden of costly production to consumer, maintaining that the tariff is already extended multiple times. NEPRA told that oil prices in international market have declined and it cannot shift the entire burden of costly production on the consumer.^[34] Another conflict surfaced on February 2017, when Hydro Electric Power System Engineering Company (HEPSEC) of China was awarded O & M contract on 85 paisa per unit, 80 per cent higher than allowed rate of 48 paisa per unit by NEPRA. The allowed rate on planned gas conversion of plant were even less i.e. 34 paisa per unit.^[35]

Conversion of Plant on Regasified liquefied Natural gas(RLNG)

Even after getting operational, Nandipur produced unsustainable per unit power, with average capacity of around 40 percent utilisation.^[36] Secretary of water and power, Younus Dagha admitted that gas fired plant in Punjab with gas shortage in 2008 was a bad idea at first place, and running it with regular losses is adding further insult to injury.^[37] He suggested, with adequate Liquefied natural gas available it should be converted to gas. In late 2016, Economic Coordination Committee (ECC), finally approved loan of Rs 30.6 bn to convert Nandipur to gas operations.^[38] On April 23, 2017, Nandipur started 525 MW test run on Regasified liquefied Natural gas(RLNG) with 30MMCFD gas supply from Sui Northern Gas Pipelines limited (SNGPL).^[39] However, even after conversation the plant was unable to sustain its balance between generation cost and recoveries from its production. For example, in April 2018, Sui Northern Gas Pipelines Limited (SNGPL) disconnected gas supply to it for defaulting on dues of around Rs. 900 million.^[40] Along side with conversation to RLNG, the operation and maintenance (O&M) was signed for 10 years between Northern Power Generation Company Limited (NPGCL) and the Hydro Electric Power System Engineering Company (HEPSEC) of China.^[35] However, commencement of operation and maintenance were delayed due to several bureaucratic issues .^[41] Despite its production costs and other scandals, the plant produced 460 MW to 480 MW with its four turbines operational on gas and another one on stream before its one month scheduled closure on 6 March 2018.^[35]

Initial inquires

Initial inquires were launched against plant failure, just after 5 days of its operations.^[4] The inquires were ordered by Prime minister Nawaz Shareef, amid political embarrassment caused due to failure.^[5] The investigations mostly revolved around following questions :^[42][43]

• How Furnace oil treatment plant(FOTP) of smaller capacity was installed at the site? Role of MD Nandipur and NESPAK in the aforesaid?
• Who mislead prime minister Nawaz Shareef in earlier inauguration of plant causing embarrassment for government?
• Who conveyed general electric GE, incorrect quantum of furnace oil information and it’s filtration requirements?
• The plant was run with wrong fuel, damaging the plant while its new parts took further 3 months to arrive.
• Why MD Captain(R) Muhammad Mehmood tried to sublet operation and maintenance(O&M ) to Malaysian firm and then the same to US firm despite the fact that fully computerised plant hardly need outsourcing of such?
• The MD himself went to training to US while the technical staff was restricted from it. Even, the staff sent to China for training was not engaged into any work, and was sidelined without having any affiliation in technical operations.

The question was also raised on Shehbaz Sharif including:^[44]

• Appointment of controversial, 19 officer of Parks and Horticulture Authority (PHA) Capt. (R) Muhammad Mehmood as *M.D. Nandipur despite lack of technical experience or qualification?
• Award of 1600% higher allowance and latter decorating him with Tamgha e Imtiaz despite Nandipur fiasco.
• Violation of Public Procurement Regulatory Authority (PPRA) rules in purchases and misappropriation of funds.
• Award of contract to blacklisted company China Dongfang Electric Corporation .^[10]

The escalation of cost during PPP regime raised question marks over ex-minister for water and power Raja Pervaiz Ashraf ex-law minister Dr. Babar Awan and former law secretary Pir Masood Chishti. The allegedly played role in the delay of the project by impeding approval of the project and causing loss to taxpayers.

Fire torched critical project records

On September, 2016 most critical record of fuel payments and other multi-million rupees embezzlements were torched despite tight security arrangements.^[45] Besides important computerised import records were deleted from computer systems and backup disks.^[46] This happened when opposition was already raising voice on burning of records on high profile cases in Punjab.^[47] Two guards were arrested on the complaint of chief security officer (CSO) Rana Mahtab Alam. But latter , he himself, was found guilty and was dismissed from job.^[48] In the same month PEPCO team dug into the damages done to the record , and found that most of the alleged corruption proves were eliminated.^[49] The guards arrested in the case accepted that they burned and tore record on the orders of CSO.^[50] CSO Rana Mahtab was given pre arrest bail and several extensions afterwards,^[51][52] nevertheless, he was unable to explain his position. On November 2016, ex-CSO fled the court, after his bale was cancelled , crippling further progress in the case.^[53]

NAB inquiry over alleged Corruption in project

Nandipur lodged against several alleged corruption and misappropriations stories, after the appearance of an AGP report in October 2015, Senator Aiteraz Ahsan demanded NAB to probe over multi billion scandal and regular losses caused to national exchequer by the project.^[54][55] NAB started inquiry amid voice echoed after AGP report accounting escalation in cost, allegations of corruption and irregularities and violation of procedures in the project.^[56] However, the inquiry faced serious hurdles after critical record was destroyed by security apparatus inside plant on unknown directives.^[45] The inquiry stalled for two years before public accounts committee(PAC) directed NAB in October 2017, to complete the pending reference on Nandipur project and to expedite its investigation over multi-million corruption scam.^[57] On December, 2017 , NAB filed reference of Nandipur corruption and alleged misappropriations along with illegal construction of road to Shareef family residence.^[58] NAB also extended the scope by nominating PPP’s former water and power minister Raja Pervez Ashraf, ex-law minister Dr. Baber Awan. former law secretary Pir Masood Chishti and other bureaucrats for causing a loss due to delay in the project.