Financing power project: Government mulls increase in surcharge, expensive bank loan

Lack of financing may halt Neelum Jhelum project as cost swells.

ISLAMABAD: As chances of Neelum Jhelum hydropower project coming to a standstill are increasing due to a whopping financing gap of Rs145 billion, the government is considering increasing the ‘Neelum Jhelum surcharge’ by 100% for all electricity consumers to partly cover the deficit.

A proposal to increase the surcharge from 10 paisa per unit to 20 paisa with effect from January 1 for all electricity consumers, including those of the Karachi Electric Supply Company, was discussed in a meeting at the Prime Minister’s House here on Monday, sources told The Express Tribune.

Cabinet Secretary Nargis Sethi pointed to legal obstacles that stood in the way of increasing the surcharge. Others were of the view that this could be done through a notification. The government expects to collect Rs25 billion by doubling the surcharge.

Stakeholders working on the Neelum Jhelum project informed the premier that the financing gap has jumped to Rs145 billion, including Rs45 billion rupee component. To bridge the gap, officials of the ministries of finance and water and power tabled two financing plans for the premier’s consideration.

Besides doubling the surcharge, they proposed utilisation of Rs20 billion of Wapda’s hydroelectric receivables.

On the external front, they proposed to take an expensive loan of $526 million from Standard Chartered Bank at a rate of 8% and $130 million from the European Investment Bank. There were no concrete proposals for the remaining foreign currency gap of $354 million.

The gap in external financing emerged after China refused to honour its commitment to provide a loan of $448 million after Pakistan cancelled the controversial Safe City Project, Nandipur hydropower project, Jaglot-Skardu road project and delayed purchase of 75 locomotives, the premier was told.

Similarly, the Abu Dhabi Fund refused to lend $100 million and asked Pakistan to first resolve the dispute over $800 million that the UAE-based Etisalat had to pay to Pakistan. UAE was seeking resolution of the grey traffic issue before any release of money, the officials said.

Approved at a cost of Rs85 billion, the cost of 969-megawatt Neelum Jhelum project has swelled to Rs275 billion because of alleged involvement of kickbacks in procurement of tunnel boring machines, change in project design and delay in work. The revised cost had been approved by the Chairman of Executive Committee of National Economic Council, Dr Abdul Hafeez Shaikh, in November 2012.

Though the project commenced in January 2008, so far only 42% work has been completed.

Sources said instead of picking any of the two options the premier, on the advice of Finance Minister Hafeez Shaikh, constituted a secretaries committee to find a solution to the problem that may stall the project.

A press release issued by the PM House stated the prime minister formed an oversight committee comprising secretaries of finance, planning, Economic Affairs Division, special secretary water and power, Wapda chairman and its member finance. He asked the committee to remove bottlenecks so that work on the project could be continued without interruption.

According to the release, Wapda requires Rs4 billion per month for the next six months in order to keep the project running and if the money is not provided the project may come to a standstill and will be difficult to revive.

Owing to the financing gap, other financiers like the Islamic Development Bank, OPEC Fund for International Development, Saudi Fund for Development and Kuwait Fund for Development have threatened to stop their assistance until the government shows serious commitment to the project.

The officials blamed former Wapda chairman Shakil Durrani and Neelum Jhelum Hydropower Company CEO Lieutenant General (Retired) Mohammad Zubair for misreporting facts. Before the start of work, both of them had assured the government that entire foreign funding had been arranged and lenders were just waiting for approval of the project.

Published in The Express Tribune, January 1^st, 2013.                 

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