Neelum Jhelum project: Funding up to $1b from China, UAE in jeopardy

Abu Dhabi, Beijing link loans with Etisalat dispute resolution, Safe City project approval.

ISLAMABAD:

China and Abu Dhabi have stopped processing roughly $1 billion worth of funding – including some approved and some yet to be approved loans - for the Neelum Jhelum hydropower project following decisions made by the Pakistan government which hit interests that the UAE and China had stakes in.

China was apparently annoyed by Pakistan’s cancellation of a controversial Safe City project and the UAE and Pakistan are locked in a tussle over $800 million that Islamabad claims Etisalat still has to pay as part of the PTCL privatisation deal.

The retaliation on the part of China and Abu Dhabi has threatened the pace of work on the much-delayed 969MW run-of-the-river project. A meeting called here on Monday to find a solution to the problem also ended inconclusively, according to an official.

The meeting, held at the Planning Commission, was attended by PC Deputy Chairman Dr Nadeemul Haque, secretaries of finance and planning, special secretary water and power and representatives of Wapda and Neelum Jhelum Hydropower Company – a vehicle set up to complete the project.

“Bureaucrats cannot find a solution to the political problem, which can only be resolved at the highest political level,” remarked an official of the Ministry of Water and Power, who attended the meeting.

Participants of the meeting asked the Economic Affairs Division to take up the issue with the countries concerned and ask them whether they were still reluctant to sign agreements, officials said.

In August, the Supreme Court of Pakistan had scrapped the Rs14 billion Safe City Islamabad project, in which China was interested, following allegations of corruption. In addition to that, the communication ministry also cancelled a road project, initially awarded to a Chinese firm.

In response, China has delayed signing a $448 million loan accord for the Neelum Jhelum project despite completion of all the necessary work after Beijing’s approval. Pakistan’s request to China for an additional loan of $97.2 million for the same project is also pending, the officials said.

The Neelum Jhelum project has already been delayed. The contract for the project was awarded to a Chinese firm during the Musharraf government without a firm financing commitment.

Owing to the delay, the cost of the project has ballooned from Rs84.5 billion to a staggering Rs274.8 billion. The hefty cost may result in a high power generation cost of over Rs10 per unit, compared to existing hydroelectric production cost of 16 paisa per unit.

Moreover, a $100 million loan agreed between Pakistan and the Abu Dhabi Fund for Development (AFD) has been put on the back burner because of a six-year-old dispute between Pakistan and Etisalat – the telecom giant that bought 26% stake in Pakistan Telecommunication Company. AFD gave cold shoulder to Pakistan’s request for a further loan of $288.5 million.

The delay in the release and approval of a total $934 million may push the project beyond 2016.

Pakistan had sold a PTCL stake along with management control to Etisalat at a price of $2.6 billion. Of this amount, Etisalat withheld $800 million, seeking resolution of the problem of grey traffic in Pakistan, which affected the business of PTCL. Publicly, the government insists that Etisalat has delayed payments due to delay in transfer of some company property.

According to an official of Neelum Jhelum Hydropower Company, the project is facing shortage of Rs24 billion in the current fiscal year. So far, he said, the company had been running the affairs on temporary basis and “maintaining reasonable progress”. However, he added if the funds were delayed beyond a certain stage, then work could come to a halt.

As an alternative, the company has sought government’s nod for acquiring $500 million in loan from Standard Chartered Bank, but the request has been turned down by the finance ministry.

Published in The Express Tribune, December 18^th, 2012.