Neelum Jhelum project: Irregularities unearthed in costing, award of contract

Officials ask why project has been repeatedly delayed; question projected costs.

ISLAMABAD:

The Planning Commission (PC) has unearthed inconsistencies in the award of contract for the 969 megawatt (MW) Neelum Jhelum hydropower project to a Chinese firm during the Musharraf regime.

The irregularity surfaced after the Ministry of Water and Power submitted a revised draft of the project’s PC-1, in order to approve a raise in the project’s cost from Rs84.5 billion to Rs321.3 billion. However, refusing the new cost figure as too exorbitant, the PC’s Central Development Working Party (CDWP) has approved a raise in the project’s cost to Rs274.8 billion against the earlier estimate of Rs84.5 billion.

According to documents available with The Express Tribune, during scrutiny of the project, the energy wing of the PC noted that the contract had been awarded to a joint venture of Chinese firms China Gezhouba Group of Companies (CGGC) and the China Machinery Engineering Company (CMEC). The contract had been awarded on December 19, 2007, at a cost of Rs90.94 billion – in contravention to the approved Rs84.5 billion cost for the project.

The energy wing also raised several questions over the project’s implementation. It noted that the original project was approved on December 12, 1989, at a total cost of Rs15.23 billion. This cost was later revised on February 28, 2002, to Rs84.5 billion; but delays in the awarding of the contract continued even after the revision.

Documents show that the government appears to be unable or unwilling to fix responsibility on the officials or the contractor causing the delay in implementation. The Neelum Jhelum Hydropower Project’s costs have now ballooned to a massive Rs274.8 billion. This will make it a one-of-its-kind hydel project, insofar as it will generate electricity at a cost of over Rs10 per unit, against existing hydel projects’ cost of 16 paisa per unit.

Importantly, the government is mulling passing the economic costs of these delays and inefficiencies on to consumers. The government is deciding on arranging 40% of the financing for the new total project cost through a levy imposed on energy by the Government of Pakistan. At present, consumers are already paying a 10 paisa per unit surcharge, which puts Rs6 billion in the government’s pocket every year.

Furthermore, an amount of Rs1.2 billion was also provisioned – in the project summary tabled before the PC – for the services of 260 police personnel, who would provide security for project staff. The energy wing expressed serious reservations over this anomaly, and asked the sponsor to justify the need for such high security, and details of salary packages for hired personnel.

In response to the objections raised, the Neelum Jhelum Hydropower Company (Private) Limited – an implementing agency of the project – said the Government of Pakistan had started the project on a very short notice at the time of its inception; given that India was constructing the Kishan Ganga dam upstream of the Neelum river; so as to claim its right over the river by completing the project earlier than its neighbour.

It said that the process of bidding was initiated on a supplier credit basis, but this strategy failed twice in 2005. Subsequently, the Government of Pakistan was requested for financing, and allowing the bidding on a buyer’s credit basis: the demands were accepted; the Economic Coordination Committee approved the same on October 2, 2006; and bids were invited accordingly.

The energy wing was not satisfied over this response.

Some officials said that claiming the project was bungled due to an ongoing fight over water rights is a lame excuse, and that it does not explain why the contract was mishandled. They said that Pakistan has rights over the Neelum River under the Indus Water Treaty, and India cannot just claim its rights over it.

Published in The Express Tribune, September 7^th, 2012.