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Power Plant and National Electrical Grid
Mega-project or mega-problem?

June 2008 (Updated 20 November)

On 17 June 2008, the Ministry of Finance posted an “Invitation to Submit Expression of Interest and Proposal” on its website, with a deadline for submitting proposals of 4 July, less than three weeks later.

The short timeframe leads us to believe that the Government already knows who will get the project, and is conducting an open tender only as a formality.

The project, “Construction of Nationwide Electrical Power Grid and Power Plant and its Facilities” is by far the largest project ever undertaken in Timor-Leste, estimated at $300-$500 million dollars. It is an order of magnitude more expensive than any contract the Government has ever awarded. On 23 June 2008, the Prime Minister presented a Budget Rectification law to parliament which includes $105 million for infrastructure for electricity production and $285 million for distribution to be spent between 2008 and 2011.

The project includes supplying two heavy oil power plants, totaling 150 to 200 megawatts (MW), far more than the total anticipated electricity needs for Timor-Leste for the next 20 years. According to the 2004 ADB Power Sector Development Plan, peak power demand in Timor-Leste in 2002 was 18.6 MW, with a target of 109 MW by 2025. That report also said “Coal-/oil-fired steam power generation, offshore gas and nuclear power are all large-scale options, and are not considered feasible for Timor-Leste, which has a relatively small power system.”

If it works, the heavy oil plants would make the Iralalaro and Gariwai hydroelectric plants unnecessary, as well as other projects and proposals for agrofuel, biogas, hydroelectric, gas seep, wind and other alternative energy power sources. It will not use oil and gas found in Timor-Leste and the Timor Sea, but would run entirely on imported fuel.

 

Heavy Fuel Oil
(abridged from Wikipedia)

Residual fuel oil is so viscous that it has to be heated with a special heating system before use and it contains relatively high amounts of pollutants, particularly sulfur. However, its undesirable properties make it very cheap. Residual fuel oil cannot be used in road vehicles or small ships, but power plants and large ships are able to use residual fuel oil. Residual fuel oil was used more frequently in the past, and its use in electricity generation has also decreased. In 1973, residual fuel oil produced 16.8% of the electricity in the United States. By 1983, it had fallen to 6.2%, and as of 2005, electricity production from all forms of petroleum, including diesel and residual fuel, is only 3% of total production. The decline is the result of price competition with natural gas and environmental restrictions on emissions. For power plants, the costs of heating the oil, extra pollution control and additional maintenance required after burning it often outweigh the low cost of the fuel. Burning residual fuel oil produces much darker smoke than natural gas, which affects the perception of the plant by the community.

Most of the facilities which historically burned No. 6 or other residual oils were constructed in the early or mid 20th century, or switched from coal to oil fuel during the same period. In either case, residual oil was seen as a good prospect because it was cheap and readily available, even though it provided less energy per litre than lighter fuels. Most of these facilities have subsequently been closed and demolished, or have replaced their fuel supplies with a simpler one. The high sulfur content of No. 6 oil -- up to 3% by weight in some extreme cases-- had a corrosive effect on many heating systems (which were usually designed without adequate corrosion protection in mind), shortening their lifespans and increasing the polluting effects.

 

 

The project includes a “Transmission line network covering the whole country,” with no specifics as to whether it goes only to a few large cities or to every aldeia, or what coverage there should be within towns.

The contractor must “complete the whole project, from design to commissioning, of power plants and transmission lines within one year after the signing of the Contract Agreement,” which is anticipated for 25 July 2008. It is essentially impossible for a project of this magnitude to be done with any quality in this timeframe. On the other hand, the payments for the project will be spread out over a period of three years.

These power plants will burn “heavy oil,” also known as “heavy fuel oil,” “residual fuel oil” or “No. 6.” This is the carcinogenic residue left over from refining crude oil after gasoline, diesel and other lighter fractions have been removed. It is an extremely dirty technology, already phased out in many countries for environmental reasons, and burning it emits large amounts of sulfur, fly ash, carbon dioxide and other pollutants. Its use would undercut Timor-Leste’s recent signing of the Kyoto Protocol, which commits this nation to address climate change.

The Invitation does not specify that the power plants must be new; perhaps someone is trying to unload some used equipment on Timor-Leste that would otherwise be garbage. The proposed mid-year rectification budget includes $105 million over four years for the two power plants, significantly lower than the normal price for new ones. (It also includes $285 million for a national grid.)

La'o Hamutuk agrees that Timor-Leste needs a national electrical grid and enough power generating capacity to supply the country's needs. However, we believe that this unrealistic project will not meet those objectives. In addition to depleting the country's finances and subverting honest tender procedures, it will block development of more feasible and beneficial alternatives, and damage our environment.

In the two weeks after the invitation was first circulated, it was revised twice, listing different people to respond to enquiries. Since June 25, Canadian Michael E. Francino has been listed, replacing Rosa Ribeiro and Ines Almeida.

Budget amendment

On 23 July, Parliament approved an amendment to the mid-year Budget Rectification to delete the entire $5 million funding for the power plants for 2008. (The amendment does not refer to the future years' appropriations, nor to the distribution grid.) The amendment lists nine small-scale hydroelectric projects totaling 159.5 megawatts in capacity, and explains that they are less polluting and better established than the heavy oil plant would be.

However, the amendment had a slight technical error, referring to an incorrect budget line. The Government therefore decided to ignore it, even though its intention is totally clear. The promulgated budget (official Portuguese version) still includes funding for the heavy oil power plant. Proponents of the amendment intend to inform contractors for this project that the funding is legally in doubt, and threaten to file a lawsuit if the project goes ahead.

 

Section 5. TERMS OF REFERENCE for LEGAL ADVICE (excerpts)

The Government of Timor Leste requires legal assistance with the development of contract documents for the construction of a nationwide electrical power grid and power plants.... Firms are reminded that the law of Timor Leste is based upon legislation and upon the Civil Code of Indonesia, where law does not otherwise exist. Respondent law firms are required to outline their experience, skills and capabilities in advising governments on

  • the procurement of power stations and electricity grids by EPC, BOT, BOOT and other modalities

  • related electrification projects

  • the business of electricity generation facilities and national power grid management

  • power purchase agreements

  • regulatory advice on electricity generation and distribution

  • financing of power plant/electricity grid projects

  • all aspects of power supply, including risk avoidance strategies, environmental impact assessment and the taking of easements or similar over public and private property

A key element of the contract will comprise the financing arrangements that both parties have negotiated and agreed over the project life. The responses received are based on different funding models. Expert project finance assistance should be engaged by the legal firm to assess financial proposals, and commercial risk, of shortlisted bidders, and assist the Government to negotiate the optimal financial arrangement with the preferred bidder.

On 19 September, the Ministry of Finance web-posted a Request for Proposals requesting bids to provide "Legal Advice, and development of contract documents for power plants and electricity grid" to be submitted by 29 September 2008. The 82-page RFP contains only three pages of Terms of Reference (excerpted at right); the rest is boilerplate about billing, payments, bidding procedures and the TOR for the power plant project. We do not know if a contract has been signed for legal assistance.

Power plant contract signed

On 24 October, the Government signed a contract with the Chinese Nuclear Industry 22nd Construction Company (http://www.cni22.com.cn/english/index_en.asp). The Government promises electricity 24/7 in every district in 2009 and in all subdistricts by the following year.  A 120 megawatt power plant will be built on the north coast in Manatuto, and a 60 megawatt one on the south coast in Manufahi.  The Secretary of State for the Council of Ministers issued the following press release

Dili, 24 October, 2008

           East Timor to Electrify the Nation

The Government Spokesperson, Mr. Agio Pereira, Secretary of State for the Council of Ministers, today announced the Government has kept it's promise to electrify the nation.

Pereira said, 'The Government has reached a milestone in our development by committing to investing in vital core infrastructure that will transform every aspect of our social and economic fabric. We are responding to the urgent and critical needs of our people, many of whom have no access to electricity.'

'If we have any hope to transform Timor-Leste from a developing nation to a developed nation, we must build the foundations that can ensure a better future. Electrifying the nation launches a new era in Timor-Leste and will mark the beginning of real progress."

Today marked the official signing of the Government contract to build the Nation Wide Electrical Grid and power Plant. Construction is anticipated to be a two year multiphase process, with 13 districts having 24 hour power by the end of year one and by the end of year two, all sub districts in Timor-Leste will have access to 24 hour power.

Under the contract, two power plants will be built, one in Manatuto with a 120 megawatt capacity and one on the South Coast with a capacity of 60 megawatts. The total capacity was calculated to meet the forecasted growth catering for the development of a cross section of industries including, but not limited to, the budding petroleum industry, the tourism industry, trade, commerce and agriculture.

The three and half months tender process saw 15 international companies bid for the contract. One company failed to qualify because of late submission. From the final 14 companies, nine did not comply with the full proposal and five were shortlisted as satisfying terms of reference.

The shortlisted companies were submitted to a committee which included the National Procurement Director, one international advisor representing the Ministry of Finance, one international advisor representing the Ministry for Infrastructure and two electrical engineers commissioned as independent international consultants, one from Indonesia, and one from Singapore.

When evaluating responsiveness to satisfied criteria, two companies were ultimately considered meeting all outlined objectives, criteria, and terms of reference of the original tender. The awarded company is due to manage the facilities for a term of five years while training 150 Timorese on the management of the systems. After a five year period of capacity building, the Timorese will fully run operations.

A contract evaluation team of five, contracted from PLN Engineering, Indonesia, worked in tandem with the senior legal advisor from the MOF to negotiate the terms of the contract. The contract was awarded to Chinese Nuclear Industry 22nd Construction Company.

Pereira closed by saying, "This is a recognized dream led by the Prime Minister himself, Xanana Gusmão. He believed that the people of Timor-Leste deserved the rights afforded to other independent nations and that power was fundamental to our future livelihood."

For further information please contact:
Mr Agio Pereira, Government Spokesperson
+670 7230011    agiopereira@cdm.gov.tl
SOURCE:  Government of Timor-Leste


 

The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu ba Analiza no Monitor ba Desenvolvimentu iha Timor-Leste
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Tel: +670-3325013 or +670-7234330
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