Neelum Jhelum project: PAC sets aside audit objection to Rs72 million payment

Rs72 million was paid for financial years 2010 and 2011 and payments would continue until the project is completed. PHOTO: FILE

ISLAMABAD: The Public Accounts Com­mittee (PAC) on Wednesday conditionally set aside an audit objection pertaining to irregular payment of Rs72 million to a contractor of Neelum Jhelum hydropower project, continuing its soft approach and setting a precedent that will have far-reaching implications for development projects.

The Water and Power Development Authority (Wapda) had made the payment to a Chinese contractor on account of increase in insurance and performance guarantees, which are never counted in price escalation.

A day earlier, PAC had deferred a decision on irregular payments to contractors of the project following stiff resistance from the auditors, who pointed out that the previous PAC had called for recovery of the money in a similar case.

The Rs72 million was paid for financial years 2010 and 2011 and payments would continue until the project is completed in 2016-17.

“The increased charges are paid only on the cost of labour, maintenance of contractor’s equipment, materials and other inputs,” said the director general of audit. His views were endorsed by some PAC members associated with both the PML-N and the PPP.

But despite that, PAC Chairman Syed Khursheed Shah conditionally settled the audit objection. He asked the representative of the Ministry of Law to review the contract documents and give his opinion whether the payment was lawful or not.

Audit officials fiercely opposed the PAC move but they could not stop the committee chairman from settling the audit objection. It was the second consecutive day when the PAC chairman showed leniency while reviewing the accounts for the period when his Pakistan Peoples Party (PPP) was in power.

On Tuesday, PAC settled about Rs6 billion in audit objections including procurement of dozens of luxury vehicles in the name of the project which were used in the presidency, Prime Minister’s Office and by federal ministers.

“The audit para should not be settled as it will set a precedent for future contracts,” suggested Malik Khadim Hussain, the Additional Auditor General of Pakistan.

He said there was no previous example where the price escalation was allowed in relation to the items that had nothing to do with the inflation rate.

“I have not heard anything like increase in insurance guarantees,” said PAC member Dr Azara Fazal, who was a sister of former president Asif Ali Zardari. She endorsed the auditors’ view that the payment was irregular.

However, Wapda Chairman Syed Raghib Shah misled the committee, saying a clause relating to allowing an increase in insurance and performance guarantees was part of the contract. But the audit revealed that the contract did not carry any such clause.

Wapda was interpreting the definition of base price in such a manner that insurance was added as a component of the base value, said the auditors.

Raghib Shah told PAC that he would not deduct the amount from the contract value as the contractor would go to the international court of arbitration. He expressed the fear that the contractor would stop work on the strategically important project.

While settling the audit objection, the PAC chairman directed that in future the contractors should not enjoy the clause that made it binding for the government to pay escalation in insurance guarantees.