According to a recent news report, China has demanded that all
mega power projects, including the Bhasha Dam, the Gadani and
Lakhra coal plants, the Tarbela extension project and several
transmission lines be handed over to China without any competitive
bidding in exchange for a $22 billion dollar Chinese investment in
Pakistan. Surprisingly, it was also mentioned in this report that
the Pakistani government is seriously considering this offer and is
contemplating either using a loophole in Pakistan's public
procurement rules or amending these rules to close the deal.
One obvious benefit of this proposed deal is that Pakistan can
get the much-needed cash to shore up its foreign exchange reserves
and give its power sector a shot in the arm. The first question
though is whether or not Pakistan is being offered the right
amount. The second question is that even if we assume that it is
the right amount, should China, or for that matter, any foreign
country/investor be allowed to take control of these projects
without engaging in a competitive bidding process?
The purpose of the competitive bidding process is to obtain
services at the lowest prices, openly and competitively, without
any nepotism. While cost efficiency is an overriding consideration
in awarding such a contract, it must also be ensured that it is not
awarded to a company that does not have the requisite experience
and expertise. For the Chinese offer, in the absence of competitive
bidding, it would be impossible to determine whether or not another
foreign company could provide the same service at a lower cost or
provide better quality service at the same cost.
As an alternative to competitive bidding, China has demanded
that these projects be awarded through direct contracting. Although
there is a provision for direct contracting under Pakistan's
public procurement rules, it can only be done in certain
exceptional cases. For example, it could be done if there is only
one supplier of the service or if changing the current supplier
would entail technical difficulties in operation and maintenance.
Pakistan's government could come up with a creative
interpretation of the emergency exception for direct contracting
and maybe this is the loophole being referred to in the news
report. However, citing 'emergency' as grounds for direct
contracting would be a tough sell, which is why the possibility of
amending the law was also mentioned.
Even if the government can show that the Chinese supplier has
the requisite expertise and offers the most cost-efficient option,
amending our country's laws to accede to a foreign
country's demand would set a bad example. What if other
countries also refuse to participate in competitive bidding before
investing in Pakistan in the future? They could argue that if
Pakistan made an exception for China, why can't it do the same
for them? It is a slippery slope.
Amending our laws would also signal to the international
community that by throwing money at Pakistan, a foreign company can
change Pakistan's laws to fit its own requirements. Even if we
disregard the financial and legal aspects, there is an important
strategic element to this. The proposed transaction involves our
power sector and it needs to be thoroughly deliberated whether or
not it would be wise to hand over a substantial part of our power
infrastructure to a foreign entity that may not be the most
reliable and efficient manager of such assets.
This proposed deal seems like a quid pro quo for essentially
getting a loan from China. It seems to be motivated by the same
short-termism and myopia our leaders have been guilty of whereby
they look for quick fixes and the political mileage that comes with
it. The considerations for such large investments in our power
sector should not be some superficial political gain or short-term
economic gain. These decisions should be based on a national policy
that encompasses economic factors, a coherent and stringent
regulatory framework and a long-term vision for our national
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