Let’s have Bhasha dam surcharge to fund construction work

It will help collect billions from consumers who may become project shareholders

ISLAMABAD: A 10-paisa Neelum-Jhelum surcharge was imposed on electricity bills which brought Rs50-65 billion for the government in a span of eight years.

I wonder why a similar charge cannot be imposed for the construction of Bhasha dam. After all, Bhasha is much more important which will provide both water storage and electricity. We are increasingly getting short of water.

We will examine implications of the proposed surcharge for Bhasha dam and also examine Neelum-Jhelum project-related issues.

Neelum-Jhelum project has been constructed at a cost of Rs500 billion – twice the normal cost – in eight to ten years. Due to construction delays and bottlenecks, a long construction time has added soft costs like Interest during construction, currency exchange rate losses, etc.

In addition to these, relending charges have also contributed to the enhancement of construction costs. What happens is that the Ministry of Finance borrows at extremely low rates like 0.5% to 2% and gives the money to projects such as Neelum-Jhelum at an exorbitant rate of 15%.

In return, it undertakes to pay and assumes currency exchange losses. Such costs, on average, amount to 5% per year.

It is advisable that the government does assume the foreign exchange risk and relend with a small surcharge. Wapda has requested this and the Planning Commission has been advising this. It is expected that Nepra may object to the proposal and may not allow it. If the relending charges system is removed, public-sector energy projects would be saved of such unnecessary load.

There are issues of contract terms and its execution both for contractors and consultants which may be too complicated for a layman to understand.

Project study

Planning Commission and Ecnec had given conditional approval to the project subject to the results of a third-party validation study to be done by a credible consulting team. The study was supposed not only to point out the problems, but also to make recommendations for improvement in contract design and execution and other project implementation issues.

The study has not been awarded yet due to an interdepartmental football game. It is high time that such a study is commissioned and conducted, and Nepra should also release its determination subject to the finding of the study.

Neelum-Jhelum surcharge, as mentioned earlier, helped collect around Rs50-65 billion at a rate of 10 paisa – later increased to 15 paisa – per unit on electricity bills. Wapda is treating it as a grant while no decision to that effect has been made by the competent authority.

Surcharge was supposed to be a public assistance for cash flow. It was not a voluntary donation as is being done under court orders for Bhasha dam.

As I have argued in a public hearing, I would propose Neelum-Jhelum surcharge as equity share of the consumers. I am sure if somebody files a case, the judiciary will award the same for very good reason of justice and fairness.

I propose the same for Bhasha dam. It will be emphasising the obvious that Bhasha dam is very essential for the country’s increasing water requirements. Enough discussion has taken place on it and there is a Supreme Court decision on it.

IFIs reluctant

Fortunately, Bhasha dam is ready for construction. Land acquisition has almost been completed. However, the problem is that international financial institutions (IFIs) like the World Bank and the Asian Development Bank are treating the Bhasha dam site to be in disputed territory and requires the government of Pakistan to obtain NOC from India, which Islamabad finds it unacceptable.

Thus, financing from conventional sources is not possible. How about CPEC? Some people argue that CPEC in the very beginning should have included Bhasha dam along with other plum business opportunities that have been agreed upon.

Unfortunately, Chinese have not behaved in relation to the Bhasha dam project as one would have expected. They have proposed impossible conditions like awarding a concession for almost the whole Indus cascade and even selling off Ghazi Barotha project to them, the argument being to synchronise the operations and optimising electricity production.

It is a sensitive issue. Indus water originates from somewhere in China. It may be too risky to put all of our eggs in one basket. The government of Pakistan has declined the offer and rightly so.

Self-financing

Thus, the only option remains is of self-financing. Wapda has proposed a reasonable project and financing plan. It has divided the project into two parts – one of water storage dam and the other of power production.

Water storage component costing Rs625 billion will have to be financed by Wapda through its own resources and government’s Public Sector Development Programme (PSDP).

Although donations may not bring any significant amount comparable to the task ahead, the surcharge approach may be able to do that. If 10 to 20 paisa is collected as Bhasha dam construction surcharge on electricity tariff on an expected 200 billion kilowatt-hours, Rs20 to Rs40 billion can be collected per year, totalling anywhere between Rs200 and Rs400 billion in the next 10 years.

However, as proposed earlier, it should not be extortion. Consumers should be made shareholders in the project. This would yield a return of 17% per annum to the consumers on their surcharge payment. Adequate accounting may have to be done though.

Additionally, some funding may come through the Islamic Development Bank and other lenders in Islamic countries. EPC contractors may bring suppliers credit, etc. And, if determination and consistency is shown, others may join in.

Let the new government come in the saddle, I am sure, it will give the project first priority as almost all the political parties have given support for the project in their manifestos and people would gladly accept the surcharge as it will earn them income as well as give them water to consume.

The writer is former member energy of the Planning Commission

 

Published in The Express Tribune, August 20^th, 2018.

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