Supreme Court judgement won't discourage investment

Attention: open in a new window. PDFPrintE-mail

Weekly Updates - Editor's Pick

In a landmark 90-page judgement, the Supreme Court has declared the contracts of all rental power projects (RPPs) illegal and violative of the principle of transparency, fair and open competition and assigned blame on the Ministries of Water and Power, Finance, Pepco and Gencos.

The verdict went a step further and ruled that all the functionaries of Pepco, Gencos and Nepra, together with sponsors who had financially benefited from the RPP contracts were, prima facie, involved in corruption and corrupt practices and were liable for civil as well as criminal action.The essential premise of the verdict, that the contracts were violative of the principle of transparency, fair and open competition would surprise no one for three broad reasons.

First and foremost, the third-party audit insisted on by the then Minister of Finance, Shaukat Tarin, concluded two years ago that the problem behind massive loadshedding is not one of generational capacity but one of liquidity and poor governance.

The circular debt remains a challenge four years after the government vowed to eliminate it as part of its agreement with the International Monetary Fund - a debt due mainly to 12 percent routine non-clearance of total monthly electricity bills, and transmission and distribution losses above those acceptable to Nepra or the international norm.The Power Sector Recovery Plan presented to the cabinet by the Committee on Energy in September last year accepts that the problem of the energy sector could also be traced to continuing the 2007 policy of allowing the differential disco tariff between the best and the worst performers to widen to 40 percent - a policy necessitated due to corporatisation of the Wapda power wing which failed as it was not followed by an effort to induct professional management.Secondly and equally disturbingly, the third-party audit noted that RPP agreements were signed in haste, violated the Public Procurement Rules Authority (PPRA) rules, and were changed by the Private Power and Infrastructure Board (PPIB) in favour of sellers (RPPs).

The project efficiency committed by the sponsors of RPPs was only 32-35 percent but the government made it itself legally bound to pay for 90 percent capacity utilisation.

Additionally, the RPP contracts specified that fuel would be supplied by the government - fuel supply that is held hostage to the circular debt as well as our dwindling gas reserves.RPPs were the short-term solution to what was considered as generational issues by the Musharraf government thus the idea of renting power plants was not conceived by the present government.

However, the RPPs were sanctioned by the present government and blame for the contracts cannot be passed on to the Musharraf regime.

Those who argue that the Supreme Court verdict may well jeopardise the success of the country's privatisation policy with the potential of further drying up foreign private investment must bear in mind two irrefutable facts.

First, the country does not need such investment which is essentially supported by our banks and our tax money (through being allowed 14 as opposed to 7 percent advance money allowed under PPRA rules and getting payment for nearly full capacity even if generation is well below 40 percent of that capacity).

Secondly, the present economic scenario is not supporting privatisation because the idea of transfer of government services and assets to the private sector has found no favour with the PPP-led coalition government and therefore the proceeds from sale of public assets have been zero for the past two years.There remains some scepticism based on past precedence as to whether the government's investigative branch, on which the responsibility for further action in terms of initiating civil or criminal proceedings rests, would undertake their court-directed responsibility in this instance in a fair and transparent manner.

However, the fact remains that the judgement does lay the groundwork for action that may be deferred for a period of time but that may be taken up later.Federal Minister Faisal Saleh Hayat and PML-N MNA Khwaja Asif had challenged the RPP projects, arguing that these plants had been producing a meagre amount of electricity despite billions of rupees having been spent on them.

In the context of Supreme Court verdicts, it may be recalled that Federal Finance Minister Dr Hafeez Sheikh publicly appreciated the return of millions of rupees to the national exchequer.

To date, the Supreme Court has been instrumental in the return of around 8 billion rupees from RPPs and accrued interest payment of around 450 million rupees are also expected to our cash-strapped treasury through apex court's intervention.

It is without doubt judgements like these that account for a rising number of people backing the superior courts over and above the government's thinly veiled denouncements of the politicization of our courts.

Courtesy: Business Recorder

forex pakistan

Forex open Market rates & comments Archive

Login Form