RPPs contracts declared void ab initio, SC orders action against Raja

ISLAMABAD: The Supreme Court (SC) has termed the agreements of Rental Power Projects (RPPs) unlawful and held Ministry of Finance, Wapda, Pepco as well as Gencos responsible for inflicting huge losses to the national exchequer. The SC also ordered legal action against former water and power minister Raja Pervez Ashraf during whose tenure these projects were approved/set up. The verdict of corruption in the RPPs was announced by the SC today that was reserved on December 14, 2011. The order asked the legislators to play their role in strengthening the sovereignty of the country. The court said massive embezzlement was found in the affairs of Sharaqpur Power Plant, Reshma Rental Generation Company Limited, Karkey Rental Power Plant and Gulf Rental Power Project. The National Accountability Bureau (NAB) has been directed to proceed against the responsible and submit report fortnightly. On December 14, Chief Justice Iftikhar Muhammad Chaudhry regretted that the government had committed so many blunders just to get 500MW of electricity and paid billions of rupees for a mere 207MW after three years. The two-member bench of the apex court, comprising Chief justice Iftikhar Muhammad Chaudhry and Justice Khilji Arif Hussain, heard a suo moto case, along with two identical petitions, filed by Federal Minister for Housing and Works Faisal Saleh Hayat and PML-N MNA Khawaja Asif, alleging huge corruption in the awarding of RPP contracts.

The verdict

(i) Prior to the introduction of RPPs, the system of generation of electricity under the control and management of Ministry of Water & Power, WAPDA, PEPCO, GENCOs, etc., had sufficient potential to produce more electricity, but instead of taking curative steps for its improvement, including clearance of circular debt of the IPPs or resorting to other means of generation of electricity, billions of rupees were spent on BHIKKI and SHARAQPUR RPPs, which proved complete failure because the object could not be achieved as the shortage of electricity persistently continued, and yet more RPPs were installed;

(ii) The Federal Government/WAPDA/PEPCO/GENCOs had failed to control pilferage of electricity from the system because of bad governance and failure of the relevant authorities to enforce the writ of the Government.

Therefore, the Government is required to improve the existing system of generation and transmission of electricity, by taking all necessary steps, including clearing of circular debt, etc., so that electricity can be generated to the maximum capacity;

(iii) The contracts of all the RPPs – solicited and unsolicited, signed off or operational, right from BHIKKI & SHARAQPUR upto PIRANGHAIB, NAUDERO-I & NAUDERO-II were entered into in contravention of law/PPRA Rules, which, besides suffering from other irregularities, violated the principle of transparency and fair and open competition, therefore, the same are declared to be non-transparent, illegal and void ab initio.

Consequently, the contracts of RPPs are ordered to be rescinded forthwith and all the persons responsible for the same are liable to be dealt with for civil and criminal action in accordance with law;

(iv) On accepting the ADB’s report, 9 out of 19 RPPs were allowed to operate, details whereof have been mentioned hereinbefore. Subsequently, 6 out of 9 RPPs were discontinued either having been signed off or having failed to achieve the target COD whereas remaining RPPs, i.e., KARKEY, NAUDERO-I and GULF are functioning, but they are producing electricity much less than their generation capacity, except GULF which is producing electricity close to the agreed capacity. PPR (Piranghaib, Multan) has not generated electricity at all, although down payment was made to it, which has not been returned. As far as RESHMA is concerned, though it achieved partial COD, but the same was not accepted by NEPRA. BHIKKI and SHARAQPUR were paid exorbitant rentals in billions of rupees, but generation of electricity was much below the agreed capacity;

(v) The production from the RPPs is far below the maximum capacity agreed between the parties as per the terms of the RSCs, which is evident from the above charts. The cost per unit kWh is also on the very high side. These RPPs have not achieved target COD. The contracts of all these RPPs are not transparent, as it has been discussed hereinabove, therefore, the same are hereby ordered to be rescinded forthwith;

(vi) The Ministry of Finance, WAPDA, PEPCO as well as GENCOs are responsible for causing huge losses to the public exchequer, which run into billions of rupees by making 7% to 14% down payments to, and purchasing electricity on higher rates, from RPPs, therefore, steps are required to be taken to effect recovery of the amounts with mark up outstanding against the RPPs whose contracts have been signed off or who had failed to achieve COD within the stipulated time in terms of the performance guarantees;

(vii) The RPPs mode of generation of electricity has proved a total failure and incapable of meeting the demand of electricity on a short term basis. The cost of electricity so produced is on very high side and is not commensurate with the provisions of section 7 of the Act, 1997. As per latest report, KARKEY and GULF are producing only 31 to 81 MW and 51 to 61 MW at an average cost per unit kWh of Rs.35/- to Rs.52/- and Rs.18/- to Rs.19/- rupees respectively, as per information supplied in October/November, 2011, which also are subject to adjustment of fuel cost component and NTDC overhead transmission charges on account of which prices are likely to increase enormously. Thus, it is clear violation of the rights guaranteed to the citizens in terms of Articles 9 & 24 of Constitution and the Regulation of Generation, Transmission and Distribution of Power Act, 1997;

(viii) It is the constitutional requirement that every action of Governmental authorities should be aimed at socioeconomic development of the country. In terms of Constitution and Act, 1997, the NEPRA is mandated to safeguard the interests of the consumers, but the concerned officials of NEPRA failed to perform their duties diligently;

(ix) All the Government functionaries, including the Ministers for Water & Power holding charge in 2006 and onward and from 2008 to onward, during whose tenure the RPPs were approved/set up and Minister as well as Secretary Finance holding the charge when the down payment was increased from 7% to 14%, prima facie, violated the principle of transparency under Articles 9 & 24 of the Constitution and section 7 of the Act, 1997, therefore, their involvement in getting financial benefits out of the same by indulging in corruption and corrupt practices cannot be overruled in view of the discussion made hereinabove. Consequently, they are liable to be dealt with under the National Accountability Ordinance, 1999 by the NAB;

(x) All the functionaries of PEPCO, GENCOs, PPIB and NEPRA along with sponsors (successful bidders) who had derived financial benefits from the RPPs contracts are, prima facie, involved in corruption and corrupt practices, therefore, they are also liable both for the civil and criminal action; and

(xi) The Chairman NAB is directed to proceed against all the persons referred to in subparagraphs (iii), (ix) & (x) above forthwith in accordance with law and submit fortnightly progress report to Registrar for our perusal in Chambers.