Heavy Oil project delayed, over budget, unsafe and ill-managed

Since 2008, Timor-Leste’s Government has pursued the dream of cheap, reliable electricity for the entire nation. The construction of heavy oil-fueled generation stations and a nation-wide high-voltage transmission lines is by far the most expensive project Timor-Leste has ever undertaken. The Government promised to provide 24-hour electricity in all district capitals by the end of 2009, and now hopes to achieve this by the end of 2011. But it is not happening.

From the beginning, this project has been characterized by bad planning, dubious procurement procedures, incompetent contractors, illegal practices, poor oversight, and lack of transparency and accountability. La’o Hamutuk has written about this many times, and we are sad to report that reality is even worse than we had feared.

La'o Hamutuk has obtained the confidential September 2010 Monthly Progress Report from the Italian joint venture Electroconsult and Bonifica, SpA” (EB) which the Government hired in July 2009 to supervise Chinese Nuclear Industry Company No. 22 (CNI22). The Government had contracted CNI22 six months earlier, but they were implementing the project without any clear specifications, valid tender, environmental impact analysis or public consultation. In response to criticism that the government was not managing the project effectively, Timor-Leste began paying EB $2 million per year as a consultant to oversee the project.

The report describes an escalating disaster in performance, implementation, environment and safety, and reveals that the Government has already re-assigned responsibility for the power stations to another company, nearly doubling the cost of the entire project. Here are a few of the most important issues:

The project is way behind schedule, and EB is very frustrated with the slowness and unresponsiveness of CNI22. EB says it “does not spare any effort” to press the Chinese company to speed up progress which they say is “below the satisfactory level required” to meet the 31 December 2011 completion date.

The power plants have been removed from CNI22’s responsibility, at great expense. During September, the only work done on the Hera generating station was applying asphalt on the area where oil tanks will be place. Virtually nothing has been done at Betano, although the project timeline says work was to have begun in June 2010.

The Government decided to “cancel" the Hera and Betano power plants "from CNI22’s contract.” Construction of these generating stations was re-contracted to “the Indonesian company Puri Akraya Engineering Limited” on 15 September 2010. La’o Hamutuk’s internet research on “Puri Akraya” turned up only that the name was newly registered with the Hong Kong Companies Registry on 4 August 2010. Five weeks later, Timor-Leste awarded them this huge contract to “do the supply, installation, commissioning and operation of 15 Generating Sets manufactured by Wartsila of Finland.”

Reassigning the contract for the generating stations, together with design changes, quadruples their cost from $91 million to $353 million. EB’s estimate of total project cost is now $629 million, nearly double the original $367 million CNI22 price. If schedule slippages continue and most of the transmission lines are also subcontracted, the costs will be far higher.

Construction of the national electric grid is going extremely slowly, with only 1.2% of the towers having been erected so far, nearly all between Hera and Dili. EB notes “As discussed many time, the Contractor must, in every single calendar day, complete a minimum of” four excavations, four concrete foundations, and four tower erections “including tightening of bolts.” Most of the routes have not even been surveyed, and land disputes have caused a number of problems.
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Segment	Kilometers	Towers needed	Towers erected	Concrete foundations poured	Earth excavated	Status
Hera-Dili	10	30	23	27	28	Construction underway
Dili-Liquica	37	87	0	2	24	Excavation underway
Hera-Manututo	41	92	7	40	51	Construction underway
Manatuto-Baucau	50	131	0	24	46	Foundations underway
Baucau-Viqueque	64	96	0	0	0	Survey in process
Baucau-Lospalos	53	118	0	0	0	Survey being finished
Liquica-Maliana	63	112	0	0	0	Survey done, design in process
Maliana-Suai	n.a.	n.a.	0	0	0	Field survey started
Suai-Cassa-Betano	n.a.	n.a.	0	0	0	No work done
Betano-Viqueque	n.a.	n.a.	0	0	0	Survey done, design in process
Viqueque-Lospalos	n.a.	n.a.	0	0	0	Starting field survey
Total	630	2,400	30 (1%)	103 (4%)	149 (6%)

The Government directed CNI22 to find other companies to build the most problematic parts of the national grid. CNI22 hoped to sign a contract in early October with the DCP company from Surabaya for the Liquica-Maliana-Suai segment. CNI22 was also talking with PT Karya Logam Agung from Jakarta about Suai-Cassa-Betano-Viqueque, and the Government has asked them to find a third subcontractor for Viqueque-Lospalos.

Only one substation is being worked on. Although the foundation for the Dili substation is 80% complete, virtually no construction has been done on the substations planned for Manatuto, Baucau, Lospalos, Liquica, Maliana, Suai, Cassa and Viqueque.

Hardly any Timorese workers are employed. In January 2009, the Prime Minister told Parliament that “this project will in itself create over 20,000 jobs already in 2009,” but by 28 May 2010, CNI22 had hired only 155 Timorese workers. The Government is “very unhappy” about this and has threatened to stop issuing visas to Chinese workers and to require CNI22 to employ four Timorese workers for every Chinese. CNI22 has asked EDTL to recruit local workers to be trained and employed by CNI22.

The company is not taking adequate measures to safeguard health, safety and environment, endangering both project workers and the local communities. EB observes that “the quality of workmanship is deteriorating” when EB is not on site, and that CNI22 does “no cohesive planning,” “safety practices are far below regulations” and acts with “environmental negligence.” EB’s September report lists 14 serious “issues of concern” and eight more “problems/issues,” but their recommendations to CNI22 are rarely implemented. Nothing is said about Government awareness or involvement in trying to improve the situation.

In March 2009, during the tender process for the consultancy that EB later received, La’o Hamutuk asked, “What authority will the Consultant have to compel compliance?” We warned that “the Government will be more effective in securing the Contractor’s commitment [to implement mitigation measures] than a Consultant will be.”

Legally required environmental clearances, right-of-way access permissions, environmental baseline survey and tree-cutting permits have not been done. CNI22 has not prepared a single monthly environmental report, although they have been required to do so since January 2010. Timorese workers receive less safety equipment than Chinese, and Chinese workers live in unsanitary, unsafe conditions. CNI22’s Health/Safety/Environment and Site Emergency plans “lack essential operational details” and need to be revised. The company has no formal process for complaints, has not replanted cleared areas, has no Solid Waste Management Plan, has not established buffer zones between residential and project areas, and has not complied with requirements for silt containment, oil and grease traps, sanitation facilities or waste treatment.

On 18 November, the Prime Minister misled Radio Timor-Leste listeners [listen to unedited Tetum] by telling them that La'o Hamutuk's information that the Government had cancelled CNI22's contract was incorrect, and then talked about transmission towers. The journalist talked about the purchase of Finnish generators weighing 250 tons (which should have been 250 megawatts generating capacity), but neither he nor the Prime Minister mentioned that the Government had taken the generating station contract away from CNI22 and assigned it to Puri Akraya Engineering two months earlier.

La’o Hamutuk is distressed that our dire predictions are being fulfilled, especially while the electricity situation in Dili and across the country becomes increasingly frustrating, and that public officials are concealing the extent of the project’s problems. Once again, we reiterate our call for transparent and accountable procedures consistent with law, public information, effective management and oversight, and well-considered planning and budgeting. When such practices are not followed, Timor-Leste not only wastes money and time, but loses opportunities to create infrastructure and develop our economy to improve our people’s lives.

Update 1: On 21 December, we posted the EB report for October, and wrote a new blog entry with some of the highlights.  Our web page includes media reactions and disinformation which emerged after this original posting, as well as a summary of project costs and the inconsistency between contractual obligations ($380 million in 2011) and the proposed 2011 State Budget ($166 million). 

Update 2: In January, Parliament increased the appropriation for this project in the 2011 State Budget to $447 million, raising questions about the sustainability of Timor-Leste's rapidly escalating expenditures. An order was placed with the Finnish company Wartsila for generators, and EB's November report highlighted scheduling and environmental problems. La'o Hamutuk will keep updating our web page to track ongoing developments.

Update 3: March 2011 - Heavy Oil project collapsing under its own weight

Update 4: June 2011 - Audit confirms problems with electricity project