Asian Development Bank (ADB) has questioned national sole grid’s technical operator, National Transmission and Dispatch Company’s (NTDC) standard approach towards project delivery by underlining the use of multi-contract equipment procurement process, highly placed NTDC sources revealed.
Sources told Pakistan Today that the bank preferring a turnkey approach said that NTDC needed to adopt approach for reducing numbers of contracts during procurement process while transferring some risk to the contractor. “NTDC preferred to use multi-contract procurement for projects involving traditional transmission equipment, such as transformers and outdoor switchgear, so that it can use its standard equipment specifications and retain direct control of the installation contractor”, they added.
However, NTDC views project delivery using turnkey contractors is more suited to projects using newer technology equipment such as gas insulated indoor switchgear and SVCs, where the contractor is in a better position than NTDC to manage the risks.
They said that project completion reports (PCR) had been unable to confirm the level of compliance with the grid code as the code is an extensive document with a multitude of different requirements and NTDC’s level of compliance can only be determined by a compliance audit. In developing countries, they said that such codes are often aspirational and unlikely that such an audit would find full compliance. It would have been more appropriate to have required compliance with specific clauses of the codes that were particularly relevant to the loan.
NTDC needs to improve its compliance with the time requirement to submit its audited entity financial statements to ADB within 6 months of the end of each financial year. The latest submission was for audited accounts for the 2013–14 financial years. While ADB is awaiting NTDC’s submission of the auditor’s opinion on financial covenants as of May 2017, these accounts show that NTDC complied with its covenanted financial ratios up to FY2014. Further, while NTDC submitted their own PCR of the project to ADB, “it only had relevant financial information of the project and not the full contents suggested by ADB for PCRs”, they said.
ADB stressed that government needed efforts to comply with the loan covenant that requires it to ensure that government-owned entities, including distribution companies, provide prompt payment of amounts due to NTDC and to finance any shortfall. According to NTDC’s financial statements, receivables from the government alone were Rs 31 billion in FY2014. This is, however, a part of a much larger circular debt problem in the Pakistan electricity subsector. The magnitude of this issue from 2012 to 2017 had been difficult to predict at the time of project appraisal in 2006.
There were cases of re-bids and cancelations, and some contracts also required 6–8 months to become effective, often due to NTDC’s delay in opening letter of credit (LC) accounts. There was also a concern over the leaking of confidential bid evaluation information.
“NTDC was consequently required to tighten its bid evaluation procedures and issued standard operating procedures for information management” they said adding that while the use of turnkey contracts has benefits in the delivery of complex projects in that it reduces contract management input and transfers risk to the contractor, it was a new approach for NTDC. The NTDC should develop experience gained in the projects, help it recognize and better mitigate risks, they added.
