Neelum-Jhelum hydropower project: Consumers to bear Rs9b hit as cost goes up again

It will raise funds for Neelum-Jhelum hydroelectric power project whose cost is likely to rise to Rs500b

ISLAMABAD: The federal government on Wednesday extended the imposition of 10 paisa per unit surcharge for another one and a half year, aimed at forcing electricity consumers to cough up an additional Rs9 billion after cost of the highly mismanaged Neelum-Jhelum hydropower project jumped to Rs500 billion.

The Economic Coordination Committee (ECC) of the Cabinet approved a proposal of the Ministry of Water and Power to extend the closing date of collection of Neelum- Jhelum surcharge up to June 2018, according to the finance ministry. The ECC also approved to give Rs38 billion worth sovereign guarantees to Water and Power Development Authority (Wapda) aimed at making payments to Punjab government on account of net hydel profit.

Headed by Finance Minister Ishaq Dar, the ECC extended the imposition of Neelum- Jhelum surcharge for raising Rs9 billion, which will assist in ensuring successful completion of the project, said the finance ministry. However, according to some other estimates, the government will collect at least Rs15 billion.



In 2007, the General Pervez Musharraf government had imposed the surcharge to arrange funds for construction of the 969-megawatt (MW) Neelum-Jhelum hydropower project. The project’s revised cost was Rs274.8 billion, which the incumbent government again revised twice to Rs414 billion. However, another revision is expected in the cost, which will increase its price tag to Rs500 billion or roughly $5 billion.

Neelum-Jhelum conundrum

So far, the government has collected about Rs70 billion on account of the Neelum- Jhelum surcharge.  It was the second extension by the present government after the last one expired in December last year. The Neelum-Jhelum project is said to be one of the most expensive hydropower projects in the world.

At Rs414 billion, its per-unit electricity production cost was over Rs11, which will now further increase to around Rs13 after the government increases the overall cost to Rs500 billion. Even at Rs414 billion, the project was expected to cost 93 paisa per unit loss, according to Ministry of Planning and Development appraisal.

The project had been initiated without achieving financial close. Due to delay in its completion, the interest during construction on already borrowed funds was increasing phenomenally. The previous Neelum-Jhelum management bought Tunnel Boring Machines (TBMs) at cost of Rs29 billion including generators on the promise that the project will be completed by November 2016.

Now, the government is giving a 2018 deadline to complete the project.

Exporters’ packages

The ECC also gave ex-post facto approval to Rs180 billion Prime Minister’s Package of Incentives for Exporters. The premier has already announced the package that offers up to 7% rebate on exports, elimination of sales tax on import of machinery and withdrawal of regulatory duty on cotton import.

The package will have an estimated financial impact of Rs180 billion and is applicable for the period from January 16, 2017, till June 30, 2018. The incentives for FY2017-18 would only be available to those exporters who would achieve an increase of 10% in their exports as compared to their exports for fiscal year 2016-17, said the Ministry of Finance.



Sovereign guarantees

The ECC also approved to give Rs38 billion worth sovereign guarantees to facilitate the Wapda to pay net hydel profit to Punjab government. Late last year, the federal government had agreed to pay Rs82 billion to Punjab in arrears of net hydel profit (NHP) of the Ghazi Barotha hydroelectric power project after the provincial government had backed off from its earlier undertaking that it would not demand hydel profit from the project.

The Rs82-billion arrears of NHP will cover the period 2005 to 2016 in four installments, said the finance ministry.

The ECC approved the sovereign guarantees in pursuance of Council of Common Interest decision, said the finance ministry. It also approved issuance of Letter of Comfort by Finance Division to Wapda for settlement of Net Hydel Profit claims of the Punjab government.

The ECC was apprised that the reported stock of wheat as on January 03, 2017 was 7.5 million tons, showing that sufficient quantity of local wheat was available for daily releases to mills by Provincial Food Departments and Passco.

The Finance Division informed the ECC that the stock of various POL products averaged 34 days on January 10, 2017. It was also informed that production in the Large Scale Manufacturing sector stood at 2% in July-October FY 2017.

Published in The Express Tribune, January 12^th, 2017.

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