20000107

Govt urged to seek revival of SFD loan for Chotiari Reservoir

ISLAMABAD: The Water and Power Development Authority Wapda has asked the government to seek resumption of a Saudi Fund for Development (SFD) loan to finance construction of Chotiari Reservoir project in Sindh.

The Saudi Fund for Development suspended disbursement of an approved loan for over Rs 2 billion project early last year due to default on repayments by the Government of Pakistan.

Suspension of disbursement by the SFD came half way through the construction project, bringing the Chotiari Reservoir construction work to a halt after achieving 49 percent completion.

Wapda now seeks approval of the economic coordination committee of the Federal Cabinet for the government to approach the SFD again with a request for resumption of project financing.

According to documents shown to Fortuna, Wapda has pointed out that construction of Chotiari reservoir needs to be resumed at the earliest as it is blocking completion of LBOD Stage-I project.

The construction of Chotiari is a part of the LBOD Stage-I project which is 98 percent complete except the reservoir construction.

Documents submitted to the Economic Coordination Committee (ECC) suggest that Chotiari reservoir contract was originally financed to the extent of 94 percent of project cost by the Saudi Fund for Development. The remaining six percent of the project cost was to be funded by the government of Pakistan under the original contract. However the SFD later negotiated reduction of its portion of funding to 70 percent, taking the Government of Pakistan's funding to 30 percent of the cost.

Sources said that contract for Chotiari reservoir was awarded to a joint venture contractor in September 1994 at a cost of Rs 1,093 million with completion target of August 1997. However, certain changes were made to the scope of work during the award and subsequently due to safety and environmental considerations of the World Bank dam specialists and panel of experts resulting in manifold increase of the contract price. The World Bank agreed to financing additional costs through a separate contract, limiting the SFD funding to the original scope of work of Chotiari reservoir.

Sources further said, the World Bank also agreed around the same time to financing the cost of Resettlement Action Plan (RAP) for the affectees of Chotiari Reservoir. It later withdrew its commitment to fund RAP due to unsatisfactory implementation of the plan and numerous complaints from NGOs involved in the project. It also refused to finance the additional scope of work at Chotiari Reservoir. This decision by the World Bank almost jeopardised the entire project before the SFD decided to come to the aid of the Government of Pakistan again.

The government approached the SFD immediately after the World Bank's exit to finance the cost of additional scope of work. The Fund agreed to such financing on the conditions that additional work be executed through the same sitting contractor and SFD financing also reduced to 70 percent.

Being left with no other option, the Government agreed to SFD condition. Due to change in the financing percentage, additional loan of 55 million Saudi riyals so required was also conditionally agreed to by SFD mission.

The conditions included: (i) A formal request for additional loan of SR 55 million by the government of Pakistan; (ii) Transfer of balanced amount of SR from Sibi-Aakni project; (iii) Transfer of SFD balance amount of SR from Tidai Link of LBOD project; (iv) Remaining shortfall will also be provided depending upon the rate of progress of the work; and (v) A revolving fund may also be established for timely payments to the contractor.

The sources said actions required under the last condition have since been taken and the revolving fund has been established. However, the sources added that the action regarding condition number two, three and four are yet to be taken by the government. This is the reason for the slow progress on the construction of Chotiari Reservoir and suspension of loan disbursement by the SFD Fortuna.