Nandipur power project: Govt decides to outsource operations to Chinese firm

Source:  Tribune Published in Current Affairs on Friday, September 18, 2015

ISLAMABAD: As controversy over the 425-megawatt Nandipur power project intensifies, the government has found a way out and decided to outsource operations of the plant to the Chinese engineering, procurement and construction (EPC) contractor, Dongfang Electric Corporation, for a period of six months.

“It has been decided to give the operation and maintenance contract to Chinese EPC contractor Dongfang as an interim arrangement before the award of international competitive bids,” a senior government official said while talking to The Express Tribune.

Last week, the board of directors of Nandipur Power Company Limited scrapped the bid submitted by a Malaysian firm for operation and maintenance work at the Nandipur plant. Now, the board has decided to invite international competitive bids again.

According to the official, the EPC contractor is bound to provide all equipment related to the power plant. It has submitted a $35-million guarantee and if it is found irresponsible, the guarantee may be encashed.

The Nandipur power plant has failed to run at full capacity, prompting Prime Minister Nawaz Sharif to order an investigation.

The main problem was the low capacity of the furnace oil treatment plant that created hurdles in the way of operating the power plant at full capacity, the official said.

“The Nandipur power plant requires a furnace oil treatment plant with an annual capacity of 30 million tons, but the treatment plant has the capacity to process 19 million tons only.”

The National Engineering Services of Pakistan (Nespak) was the project consultant and it should have noticed and informed the authorities about the low-capacity treatment plant.

According to the official, the government has now asked the EPC contractor to enhance capacity of the treatment plant and has given it six months. It may install another plant to take the combined capacity to the required level.

“This is the reason why the government has decided to give the operation and maintenance contract to Dongfang for six months,” he said.

Earlier, Nandipur Power Company invited bids in which a Malaysian firm emerged as the successful bidder because it was the single party that made the offer. However, the board of Nandipur company was concerned over the rates quoted by the Malaysian company, which forced it to scrap the tender.

The official pointed out that Dongfang had also given operation and maintenance rates that had been submitted to the National Electric Power Regulatory Authority (Nepra).

The Nandipur plant could produce 321 megawatts of electricity, which could be generated for six months before enhancing the capacity of furnace oil treatment plant. At present, the only option for the government is to run the plant at full capacity through gas.

The country faced a loss of $1.64 billion in the wake of delay in the Nandipur project by the previous government. In order to make the project operational, the current government paid $80 million in loan mark-up to banks on the seized plant equipment at the Karachi Port, $7 million in demurrages, $50 million for replacing defective parts and $19 million as escalation cost.

Earlier, the Chinese contractor had pulled out of the project and the loan offer expired in the absence of sovereign guarantees. However, the PML-N government persuaded the contractor to resume work and re-negotiated loan deals with banks.

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