While the blame game goes on, the government has ordered enquiry on failure of the highly controversial Nandipur thermal power plant, including commercial audit by the Auditor General of Pakistan (AGP), and a comprehensive report by an independent chartered accountant firm.
While the blame game goes on, the government has ordered enquiry on failure of the highly controversial Nandipur thermal power plant, including commercial audit by the Auditor General of Pakistan (AGP), and a comprehensive report by an independent chartered accountant firm. Also, the National Accountability Bureau (NAB) has reportedly initiated an enquiry into the affairs of Nandipur project. The nation keenly awaits the outcome of these enquiries.
Poor planning, lack of transparency, ineffective monitoring, mismanagement, and, above all, laxity on the part of the government are responsible for the failure of the expensive, oil-based Nandipur power project of 425MW capacity, a project of the Northern Power Generation Co Ltd (NPGCL) of GENCO-III. The project is of strategic importance as it would have reduced the massive electricity load-shedding prevalent across the country had it been operative as scheduled. Today, the plant is no more economically viable as, even if the plant gets operational, it will continue to incur heavy losses of billions of rupees annually. The long delays in project completion have already caused a financial loss of Rs113 billion to the national exchequer up to April 2012, and additional Rs1.05 billion from April 2012 to August 2013, whereas loss figures beyond this period are not available. The opportunity cost and economic losses are beyond the estimates.
But, the most crucial issue is the failure of the power plant to operate on technical grounds, and the risks and high cost involved if it is put into operation under the given conditions. In essence, the Nandipur project case is similar to the supply of 75 defective locomotives to Pakistan Railways by the same company (Dongfang Electric Corporation, DEC) under the agreement signed in 2009, the Chinese company which was finally rendered blacklisted in June 2013. Or, like the 150MW Lakhra coal-fired power plant installed by the same company (DEC, China) in 1980s that had run into technical problems from the beginning and never recovered, generating hardly up to total 25-30MW de-rated capacity.
The Nandipur power plant can be operated both in simple cycle and combined cycle modes. It consists of three GE (France) gas turbines PG9171E of 95.4MW each, and one DEC (China) steam turbine N2008.54/522 of 138.8MW, to generate 425MW at furnace oil and 460MW at natural gas. (Amendments 1 & 2 to the Contract made by the present government in August 2013 have revised plant capacity to 425MW). Heat recovery steam generator (HRSG), Balance of Plant (BOP) equipment (like pumps and motors), transformers, associated equipment and allied accessories and ancillaries have also been supplied by DEC from China, under the suppliers’ credit.
Initially, the Chinese had offered these GE turbines being manufactured in China under joint venture arrangements, as GE allows its export to the developing countries only and with the condition if the major project financing is from China. Nonetheless, when the contract was being negotiated, Pakistan Electric Power Co (Pepco) insisted that GE should provide or verify the warrantee/guarantee to be submitted by DEC to ensure operation of the Chinese-made gas turbines according to the GE performance parameters. Showing reservations on the performance of the Chinese-origin turbines that were not tested in the export market, GE refused to do so. After long deliberations, it was therefore decided that DEC would supply the gas turbines from France, though at a higher price, and arrange the requisite financing from France as well.
These GE 9E Frame gas turbines are well-reputed, heavy duty, designed to operate on three fuels ie natural gas, residual fuel oil or heavy fuel oil, and distillate oil (high speed diesel, HSD), whereas start-ups and shutdowns are on HSD. However, proper liquid fuel is to be used in accordance with GE’s liquid fuel specifications GE1-41047. The firing of furnace oil in the gas turbine is however the biggest area of concern. This fuel contains high levels of sulphur, sodium and vanadium, the combustion products of which adversely affects the hot gas components of the turbines causing reduction in their lifetimes, and requiring more frequent maintenance and replacement of spares. Therefore, globally, there are references of operating these turbines only as dual-fuel, on natural gas and HSD. In Pakistan too, many GE 9E Frame turbines are operating such as in Guddu, Kot Addu (KAPCO), Uch-I Power, K-Electric and other thermal power plants. All these turbines are natural gas-fired, except KAPCO where low sulphur fuel oil (LSFO) is used after conversion of turbines from gas-firing to fuel oil by GE.
There is however no track record of the proposed technology on high sulphur fuel oil (HSFO) in Pakistan or in other countries. It may be added that LSFO contains below one percent sulphur, while HSFO is with high sulphur content, up to four-and-a-half percent, but it is low cost. Besides environmental issues, use of HSFO causes corrosion and erosion to the turbine. In case of Nandipur thermal power plant, HSFO has been used, which has most likely damaged the combustion system of the turbines. Quality of HSFO available is poor, and it is costly to treat. It also contains excessive amount of sodium and vanadium that must be removed before combustion by washing with water. There are on-site ten oil storage tanks, each of 10,000 ton capacity, eight for furnace oil and two for HSD, supported with a fuel oil treatment plant. However, it is reported that oil treatment facility is currently not functional, and fuel oil was used as received, without the requisite treatment. Again, it is reported that adulterated HSFO was supplied having impurities in oil far beyond the permissible levels.
Originally, these GE turbines were to be operated on natural gas, later converted to use furnace oil. It is not known whether the necessary changes in the process design proposal were properly made by the Chinese company, duly integrating turbine combustion system with the equipment being supplied by the Chinese, in particular critical equipment such as oil treatment, control, excitation, regulation and protection of power plant, etc. In fact, testing and system adjustments are required to be conducted in accordance with GE’s standard GEK-28172F. The question arises; did the management ensure necessary compliance by DEC or not.
Apparently, plant system performance is not in compliance with design specifications and contractual obligations. On the other hand, the use of furnace oil is the largest contributor to the increased cost of the Operation and Maintenance (O&M) of the plant, necessitating frequent replacement of spares.
In a latest development, the Chinese machinery supplier has been given the contract for O&M of the plant for a period of six months. It may be noted that the Chinese company is not in the business of O&M of power plants. Furthermore, the project has not yet achieved the contractual COD (commercial operation date), and now that the Chinese company has been given the O&M contract, again without bidding in violation of rules like the EPC contract for the project, it would manage to run the plant on a temporary basis, declare the COD having achieved, and receive all outstanding payments that are due waiting for commercial operation of the plant. Obviously, the supplier would not bother if later the plant is rendered sick and becomes a liability on the government, like the Lakhra power station or the railway locomotives.
Clearly, to cover up administrative and professional incompetence on the part of plant management, the O&M of the plant has been outsourced to the Chinese company at service charges of $7 million, which is considered very high compared to other similar projects. Also, spare parts worth $15 million are being imported that are not included in the project cost. It is reported that a team of as many as seventy (70) Chinese engineers would shortly visit Pakistan for the purpose. The fact is that GENCOs are already operating and maintaining thermal power plants of cumulative capacity of 4,829MW based on similar technologies and various sources. The Nandipur project too was planned to be operated under NPGCL/GENCO-III on the same lines as its other power plants in operation, utilising in-house technical resources.
About the high O&M cost allowed to the Chinese, it is pointed out that as on June 30, 2014, the O&M cost of various thermal power plants was average Rs0.02500 (Muzaffargarh plant), Rs0.06890 (Guddu plant) and Rs0.13590 (Jamshoro plant) per unit (kWh). It is ironical that the Chinese contractor is not being asked to fulfil its contractual performance obligations as it has provided warranty and guarantee for successful operation of the plant machinery, delivering required output and efficiency as per defined parameters, for a period of 18-24 months after COD. As per rules, the bank guarantees submitted by the Chinese contractor should have been forfeited immediately, rather than giving another favour of awarding it the O&M contract.
A few words about the project cost. Tariff petition submitted by NPGCL to Nepra gives complete details of the project which somehow are being distorted by the vested interest. According to this document dated May 20, 2014, total cost (CAPEX including financing) of the project is $847.016 million, but the government functionaries repeatedly mention it as $574 million, which is only the revised EPC contract value, compared to $329 million approved by the ECC of the Cabinet, but the contract was awarded at $382.52 million. Interestingly, more efficient systems at lower capital costs are available globally due to technological improvements in recent years.
The writer is former chairman of the State Engineering Corporation
Nandipur
cost discrepancies
$847.016 million
is the final cost
$574 million
is what government officials tell
$329 million
was approved by the ECC of cabinet
O&M
* Nandipur project: $7 million service charges plus $15 million spare parts
(Chinese operated)
* Muzaffargarh plant average Rs0.02500 per unit (kWh). (Locally operated)
* Guddu plant Rs0.06890 per unit (kWh). (locally operated)
* Jamshoro plant Rs0.13590 per unit (kWh). (locally operated)
