Avoiding project bidding: Power ministry seeks advice on direct award of contracts

The impact of the energy crisis has been compounded by a lack of internal resources, prompting the country to search for foreign investment and assistance to undertake key projects. PHOTO: FILE

ISLAMABAD: 

As the country finds it difficult to attract significant investment in the energy sector, the Ministry of Water and Power has approached the Public Procurement Regulatory Authority (PPRA) to seek advice on awarding contracts for mega energy projects directly to foreign companies, investors and sovereign states.

“The Ministry of Water and Power has sent a draft to the PPRA for its advice on the application of Rule 42(c), which allows public sector entities to enter into direct contracts,” a senior government official told The Express Tribune.

Many countries like China and Russia and even foreign private investors were interested in undertaking mega energy projects with the offer of financing but they wanted contracts without bidding, the official said.

Quoting an example, he said China had recently expressed its willingness to provide the entire financing of $14 billion for Diamer Bhasha Dam, but sought direct award of contract.

Pakistan is currently facing an energy crisis because of widening demand and supply gap. As a result, power outages have become unavoidable and have hit the economy badly.

The impact has been compounded by a lack of internal resources, prompting the country to search for foreign investment and assistance to undertake key projects to tackle energy shortages.

According to the official, the Ministry of Water and Power has been constantly contacting potential investors, but these efforts have not borne fruit. The investors are shy of the procedural nitty-gritty and do not want to get involved in what they perceive as a lengthy, inefficient and defective system of bidding, evaluation and award.

Sources disclose that the ministry has prepared a draft framework to stimulate foreign investment in power projects through grant of direct contracts keeping in view Rule 42(c) of PPRA Rules 2004, which enables the public sector to enter into direct contracts.

Under the framework, “direct contracting” will be followed in cases where the foreign private investor or sovereign lender will bear 85% of the project cost while
the remaining 15pc will be arranged by the government of Pakistan or its designated agency. The government will also provide sovereign guarantees for project financing.

The Ministry of Water and Power has sent the draft to other relevant ministries, which have backed direct contracts for mega power projects. The law ministry has also supported the draft, but it has asked the water and power ministry to seek the advice of PPRA before going ahead.

According to the government official, prices of such contracts are determined by the government or its authorised body.

At present, the role of government’s authorised body for the power sector is being played by the National Electric Power Regulatory Authority (Nepra), which has already determined upfront tariff for coal and wind power projects including the capital cost component.

The spirit behind designing the framework is that interested investors will submit their technical and financial proposals for examination by Nepra and approval in accordance with the regulator’s parameters. The project sponsor will get the letter of award once the proposal is approved by Nepra whose determination will be binding.