Technical hitch delays Turkish power plant operation

The plant will be formally inducted in the national grid for power generation on November 20. — File photo THE Turkish rental power plant, Kaya Bey, the biggest among the eight RPPs, given contracts early last year, is still unable to start commercial production and supply electricity to the national grid. Although no RPP has yet started producing electricity, much hope was pinned on the Turkish plant, described as the world's largest ship-based power plant, of coming online in time but it incurred a delay of ten months. Last week, the company officials said in Karachi that the rental ship had been facing technical difficulties but was now in a state of readiness. The government was yet to make a payment to the Turkish firm but it was waiting for the company to start commercial operations. In addition to the capacity of producing 232MW electricity, the ship-based rental power plant has a standby arrangement of another 100MW from another ship, a contingency plan to meet possible emergency needs. The first date the company, Karkay Karadeniz Elektrik Uretim A. S., gave for becoming operational in March last year was mid-May, 2010. The firm was notified as a qualified bidder in the award of the contract in September, 2008 for installation, commissioning, maintenance and operation of the ship-mounted power plant at Karachi for five years. After winning the contract, the RPPs take four to six months to start production which is why they are important though being costly. In March, 2010, it acquired NOC from the Port Qasim Authority for the berthing of two ships which were to arrive by mid-April. The ships arrived sometimes in November, 2010, and their arrival was celebrated by holding a ceremony. The then minister for power Raja Pervez Ashraf and Sindh chief minister Qaim Ali Shah jointly inaugurated the ship-mounted plant on November 21. The federal minister of state for shipping Nabeel Gabol, Turkish ambassador and eminent public representatives also attended the ceremony. Turkey was thanked for giving assistance in overcoming energy crisis. It was stated that the ship plant will start commercial power generation sometimes in December, 2010 after the testing process. It did not. There is a widespread impression that the power the Turkish ship will generate will go to the KESC and help mitigate the suffering of the citizens of Karachi. All government functionaries including Raja Ashraf, Qaim Ali Shah and even Salim Mandviwala had been speaking in these terms. However, the KESC in a statement had clarified that under a 5-year power purchase agreement signed with the NTDC/Pepco last year, it would continue to receive up to 650 megawatts during the term of this agreement. The arrival of the Turkish power ship will not add any incremental electricity units to the KESC network, it said. The Turkish rental project had been managed and imported by the government for the state-run Pepco and its distribution companies, which will utilise its generation. Therefore, there will be no additional power coming from this plant to Karachi consumers, it said. Some Pepco circles are of the view that the power to be supplied by the Turkish project may prove to be the most expensive. The government would have to raise power tariff by two per cent to meet the rent cost and the consumer would ultimately bear this burden. But Raja Pervez Ashraf gave an assurance while speaking on the eve of the ship's arrival ceremony that the high cost of the Turkish power will not be passed onto the electricity consumers. He said, "it is incorrect that the industry and the people of Karachi will pay higher electricity rates. The 232-MW electricity from this ship will go to the national grid energy mix and will be provided to Karachi at National Electric Power Regulatory Authority rates approved for Karachi. Therefore, Karachiites will pay the prevailing power rates." Regarding arbitration in the event of a dispute with the RPPs, which is very much likely as no RPP has met the deadline, it was stated during a hearing in the Supreme Court on October 29 that it would take place in London. Chief Justice Iftikhar Mohammad Chaudhry while hearing a suo motu case of allegations of corruption in the RPPs asked the Pepco counsel about the place of arbitration in case of a dispute. Khwaja Tariq Rahim replied that it could be held in London courts. At this, the chief justice asked the counsel as to why the local arbitrators could not be trusted. "Prima facie things are not going right as arbitration is being done in London when sellers and buyers are both Pakistanis (in certain cases)," he remarked. There are fears that some RPPs may abandon the project instead of opting for arbitration which a lengthy and costly process. The Asian Development Bank, in a report on the RPPs prepared on the government's request in January, 2010, had observed that "with a 14 per cent down payment and limited bank guarantee, major concern is that the RPP sponsor may abandon the project in the event that the plant runs into difficulties…In case for RPPs with five years contract, the sponsor would have recovered his investment in three years, he would have made comfortable return and still own the government part of the down payment. The seller could thus abandon the project rather than face penalties and the plant would not offer any collateral." A news report on September 17, 2010, quoting a document of the ministry of power said that the government has paid Rs22.35 billion to owners of nine rental power plants having a combined capacity of 1206 MW electricity, but none of the projects has become fully operational so far. This money was given under the head of Advance Payment Guarantee (APG) and mark-up at the rate of 15 per cent since default in targeted date of commissioning. Rs19.008 billion was paid under the head of Advance Payment Guarantee (APG) and Rs3.344 billion under the head of total mark up since advance payments to RPPs. The Supreme Court was informed by the Pepco counsel on Sptember 23, 2010 that a penalty of Rs190 million had been imposed by the government on three rental power projects for failing to come on line by their deadlines. Two projects had been shut down. These were 110MW Pakistan Power Resources projects in Guddu and Multan. Penalties were also imposed on the 201MW Reshma Rental Generation, 232MW ship-mounted Karkey Karadeniz Elektrik Uretin of Turkey in Korangi, which was to start producing electricity from mid-May last year, and 150MW Techno Energy in Sialkot.