ISLAMABAD: Even before the formal launch of $4.5 billion Dasu hydropower project, the Water and Power Development Authority (Wapda) has terminated two of its key contracts with a Chinese firm, citing ‘fundamental breaches’ of the agreement.

Moving swiftly, Wapda has not only encashed the performance guarantees of the two contracts awarded to China Railway First Group (CRFG) in November 2015 — worth Rs5.4bn — but also ordered the contractor to vacate the project area immediately, while calling for fresh tenders to make up for lost time.

The World Bank is the major financier of the 4,320MW Dasu project. The project’s terminated contracts include the ‘construction of colony and infrastructure’ worth Rs4.806bn and ‘resettlement of village Choochang and construction of Shatial Museum’ worth Rs572 million.

Chinese firm accuses authority of acting illegally, vows to seek arbitration

The completion of these two components was considered crucial to the start of construction work at the main project site.

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CRFG project director Fan Lingang told Dawn: “The termination of the contract is un-contractual, illegal and fiercely unfair.” He claimed it was Wapda’s responsibility to complete the land acquisition process and hand over the required area to the contractor, adding that all Dasu contracts were suffering due to its default.

In reply to a set of questions sent to Wapda chairman retired Lt Gen Muzammil Hussain, the authority said it had “provided the partial possession of the site to the contractor M/s CRFG in line with the Contract Discussion Agreement/Conditions of the Contracts”.

Asked if the World Bank had indicated that it would take any action, such as loan cancellation or postponement because of project delays, Wapda said: “There is no such indication from the World Bank”.

“We are going to approach the local courts to allow us to approach an international court of arbitration to protect our rights because Wapda is not willing to resolve [the issue] amicably,” Mr Fan said, adding: “Arbitration is our right and we have to protect ourselves, not only financially but also our reputation and image.”

He maintained that his firm would “complain to the World Bank as well”. Mr Fan said the company had mobilised 30 staffers to the project site, but conceded that practically no work was done because of Wapda’s inability to settle land disputes with locals. “Wapda is the defaulter because it didn’t provide the land. The contractor actually had the right to terminate the contract, but it didn’t.”

He claimed that the contract had been terminated without prior legal notice and without being provided the opportunity to rectify any violation, if any, by the contractor. He said Wapda had blamed the CRFG for subletting the contract to a Lahore-based blacklisted company in order to terminate the contract, even though the former was not a legal contract.

The authority, however, defended its decision, saying: “The contracts were terminated due to fundamental breaches of the contract by the contractors. In these circumstances, no legal notice was required to be served on the contractor to rectify under the conditions of the contracts.”

Mr Fan explained that “a cooperation agreement” was signed with a local firm before the bidding took place as “a matter of comfort”. This, he said, was cancelled when it was pointed out by Wapda and the project consultants, long before the authority terminated the contract.

He called Wapda’s encashment of securities and refund of the mobilisation advance a case of fraudulent practice, misrepresentation and use of influence.

In response to CRFG’s claims, Wapda maintained that it “issued the notice of termination and lodged the claim for the encashment of the contractors’ advance payment and performance security guarantees to safeguard the mobilisation advance paid to the contractor and to cater other financial losses to Wapda in compliance with the requirements of the conditions of contracts”.

To secure itself legally against financial loss and project delays in the case of international arbitration, Wapda said it had lodged the claim for encashment of the contractor’s advance payment and performance security guarantees since it was the only tool available to safeguard Wapda and to avoid financial loss.

Fresh bids

Wapda has already initiated procurement for these contracts by inviting fresh bids through leading newspapers and official websites of Wapda and the Public Procurement Regulatory Authority, the World Bank and UN Development Business to avoid delays in project implementation.

“There will be no delay in project completion if the contractor opts for [international] arbitration,” Wapda said, adding: “Termination will have no adverse impact on the CPEC framework or China-Pakistan relations.”

In August last year, the Economic Affairs Division had warned the government that the World Bank could cancel its $1.1bn loan agreement owing to inability of the stakeholders — the federal and Khyber Pakhtunkhwa governments as well as Wapda — to complete land acquisition. The acquisition of about 80,000 kanals of land is a fully funded component of the World Bank.

Dasu is one of the top-priority hydropower projects of the government under its 2013 power policy and Vision-2025. The World Bank is providing a $590m loan, along with a $460m credit limit as partial risk guarantee for external commercial financing. Separately, Wapda has contracted about Rs144bn from commercial banks to make available matching financing to meet local expenses.

After the completion of the first stage, the project will generate about 33.5 gigawatt hours per day, translating into Rs335m per day (at Rs10 per kilowatt hour).

The first phase of the project being executed by Wapda is scheduled for completion by 2019. The second phase to commission another 2,160MW has an expected completion date of 2022.

Published in Dawn, January 23rd, 2017