Neelum Jhelum project: Planning Commission proposes share float to raise funds

Proposal comes after a sharp increase in cost due to delays.

ISLAMABAD: The Planning Commission (PC) has proposed that the 969-megawatt Neelum Jhelum hydropower project can be registered as a public limited company – a move that will pave the way for floating its shares in the open market to raise funds and complete the project.

The proposal comes in the face of a sharp increase in project cost, which has jumped 225% to Rs274.8 billion against earlier estimates of Rs84.5 billion because of years of delay.

According to sources, the energy wing of PC has given the suggestion that the Neelum Jhelum project should be converted into a public limited company for issuing its shares in the open market. It also pointed out that rupee component of the project could be arranged through a cash development loan instead of grant from the government.

Earlier, the Ministry of Water and Power – the sponsors of the project – had informed the PC that Exim Bank of China and the Kuwait Fund were willing to finance the project.

When approached, Neelum Jhelum Hydropower Company Managing Director Lieutenant General (Retired) Muhammad Zubair confirmed that the PC had advised the government to register the project as a public limited company for floating its shares. In this regard, he said, the finance department of the company was working on the programme.

He said the government was close to striking a loan deal with Exim Bank of China, adding the bank would provide $448 million for the project. In addition to this, tunnel boring machines are being installed at the project site and they will start working in October.

A water and power ministry official, however, stressed that it would be difficult to generate funds by floating shares of the project. “Neelum Jhelum hydropower plant is scheduled to be completed in 2016 and investors would not like to invest in shares over the long term,” he added.

The PC’s energy wing has also raised questions over the project execution programme. It pointed out that the original project was approved on December 12, 1989 at a cost of Rs15.23 billion, but the cost was later revised upwards to Rs84.5 billion on February 28, 2002.

The energy wing also observed that the project was awarded to a Chinese firm without a firm commitment of financing from the donors.

At present, the project cost stands at Rs274.8 billion. It will be a novel hydropower project, which will generate electricity at a higher cost of over Rs10 per unit against existing cost of 16 paisa per unit through hydel resources.

Consumers will also pay the price of delay and inefficiency as the government has planned to arrange 40% of the total project cost through a levy on energy. At present, the consumers are paying a surcharge of 10 paisa per unit which amounts to Rs6 billion per year.

Neelum Jhelum is a strategic project initiated by the government to secure water rights over Neelum River, where India is also constructing Kishan Ganga Dam.

Pakistan and India are also engaged in a legal battle in the International Court of Arbitration, which has granted a stay order against construction of Kishan Ganga Dam.

Published in The Express Tribune, September 21^st, 2012.