Contracts for A Sustainable Power Sector

 

In case of any failure in ensuring transparency regarding loan, implementation, operation and maintenance agreements, project expenditure will instantly rise, which will inevitably create a negative impact on the business. In such circumstances, we obviously cannot overlook the donors’ advice. Let us cite some examples.

After setting up the 56 MW BMPP (Barge-Mounted Power Plant) in 1980 at Khulna by a Japanese donor, we began facing several mechanical problems such as excessive vibration, air-seal wearing, unavailability of spare parts, etc. In 1983, the Japanese company IHI proposed supplying a second BMPP to the respective ministry. For a feasibility study, the power ministry forwarded the proposal to BPDB, seeking the opinion of local engineers. Based on our prior experience, we strongly opposed the proposal and explained the technical problems and the terrible consequences that would follow. I was confident that such a power station should never again be installed in our country because it would only bring economic and financial hardship. But our written objections went in vain.

To speak the truth, within a year Mr. Ueamatsu, a mechanical engineer and turbine expert of IHI, came to BMPP for his routine inspection. I was on duty at the control room. Entering the room, the expert pointed at me and said, “Athar, our second BMPP is coming to Chittagong.” Hearing this, I felt as if I had fallen from the zenith to the earth. I told him, “We sent our recommendation to the ministry through the proper channel, advising not to install this type of power plant for the second time. I wonder how it got approved! Our national pride and interest are involved. How could this be possible?”

In reply, the Japanese expert said, “We know what you wrote, why you wrote it, and how you wrote it. However, when the hope for the project was faint, our ambassador negotiated with your government through diplomatic channels and arranged all meetings. The ambassador told the authorities that if they did not accept the proposed fund, the Japanese government would positively discontinue all future aid. As a result, we obtained permission for the second project.” I was astonished hearing his response. I requested him to supply a proven turbine instead of such a project. The Japanese engineer replied that certain essential components had to be manufactured in their own factories. “Our company has no business orders, and therefore, our workers will have no work next year. If we fail to secure this type of business opportunity, our workers may face unemployment, which might create unrest and even put pressure on our government. This is directly related to our national interest. Therefore, the Japanese government is determined to provide finance through this project,” he explained. From this experience, I learned bitter lessons about foreign funding. Donors never provide loans based on the receiver’s needs; they always prioritize their own interests at any cost.

How strange the situation was! What was believed to be settled in our favor was ultimately settled against us. The second BMPP was erected and commissioned on 13.10.1986. The final result is this: the power generation of both BMPPs gradually declined and eventually stopped due to the lack of spare parts. The ill-fated BMPP of KPS was sold as scrap in 2008. Likewise, the second BMPP at Chittagong is also heading toward auction in the near future. I believe the root cause of the closure of these plants was a faulty implementation agreement that lacked an LTSA (Long-Term Service Agreement).

Loan agreements may vary. I had an opportunity to work on the Greater Khulna Power Distribution Project (Phase-2). The scope of work included constructing new substations, distribution lines, and rehabilitating old ones at Khulna, Mongla, Bagerhat and Satkhira. The donor proposed reducing the scope of work to half of the estimated volume, offering a lame excuse of rising international market prices due to delays in processing ICB (International Competitive Bidding). At any cost, the donor convinced the consultant group of the same nationality, and both jointly pushed for lowering the scope. They even threatened to postpone the loan agreement if the decision went against their proposal. Meanwhile, the government had already paid several loan installments and consultant fees. To avoid complications, the authority accepted the reduced scope. This project was financed by EXIM Bank of Korea. This debt agreement directly went against our national interest.

The loan agreement specified strict time-limits for international tender invitation, bidder selection, work-order issuance, LC opening, equipment shipment, and arrival of goods, site selection, and project construction. Regardless of work progress, the borrower was bound to repay loan installments with interest as scheduled. Failure to maintain the conditions would result in penalties. Such funding always goes against the national interest. Despite this, these conditions were annexed to the loan agreement, leaving no scope for escape. Moreover, no EPC contractor except bidders from the donor’s own country was allowed to participate in the ICB tender. This completely contradicted the principle of competitive bidding—an artful strategy of deception toward LDCs like ours. Truly, such terms never support participatory business partnership.

Another harmful condition was that no advisory firm other than from the donor country could be appointed as consultant. Those appointed consultants were allowed to work from their home offices abroad. Their submitted bills had to be paid without any field evaluation or verification—an unbelievable and irrational condition.

When I joined, the ICB was being prepared hastily. Ultimately, only three Korean companies participated in the tender. The donor-linked Samsung Corporation submitted the lowest bid. It was clear that the “act” was nothing but a “playful rope dance.” For example, Samsung priced a 1.5-ton window-type air conditioner at Tk 65 lakh per unit, whereas the market price at that time was only Tk 58,000. Likewise, every scheduled item was quoted many times higher than the market price. The authority had no alternative but to accept the proposal. Now it is evident why the donor insisted on reducing the scope of work—simply for profit. Thus, with cooperation from a few dishonest local officers, these donors looted large sums of money. In this way, underdeveloped and developing countries are deceived by powerful donor nations.

Once, I read in the newspaper that one of our honorable ministers said, “The development of a country cannot be achieved only with donation money.” Truly, we field workers realized the honesty and depth of the minister’s remark.

The Siddhirganj 210 MW Power Plant is another example of suffering caused by such crises. It incurred huge financial losses due to delays justified by various excuses. A three-year target took 13 years to complete—another result of a weak implementation agreement. The project cost increased several times. Imported equipment rusted in warehouses due to delays and lack of care. As a result, the plant soon became inactive. The debated capacity of the generator ultimately dropped to 120 MW. What is the solution to these problems? The answers are:

i) obtaining self-funding, and

ii) seeking funds that uphold national interest with complete transparency during loan agreements.

Bangladesh obtains substantial loans from Japan, the USA, the UK, India, Norway, Canada, Denmark, China, South Korea, the World Bank, ADB, SFD, KFD, OFID, etc. With funds from KFD, the East–West Electrical Interconnector Project was implemented, from which Bangladesh still benefits. If we can better utilize Middle Eastern funds, project costs will surely be reduced. Middle Eastern countries do not manufacture heavy electrical or mechanical equipment; thus, they do not impose conditions requiring the purchase of their own products or the appointment of their own consultants. Therefore, the sooner we implement Middle Eastern funding, the better our economic performance will be. We must carefully think and analyze what foreign planners and donors propose, and we must not treat their prescriptions as the Holy Bible.

 
Engineer Athar Uddin Talukder is a
retired member of Power Development
Board (PDB), Bangladesh.