Pakistan borrows additional $100m for Neelum Jhelum project from Saudi Arabia

Saudi Arabia also extends a $100m grant for health and education sectors of Pakistan.

ISLAMBAD: In a bid to bridge a wide gulf between the funds it has and the funds it needs to build the 969 megawatt Neelum Jhelum Hydropower Project (NJHP), Pakistan on Thursday inked a loan agreement with Saudi Arabia which allows it to borrow an additional $100 million from the Gulf country. 

The loan agreement for additional financing was signed between Pakistan and the Saudi Arabia at the Economic Affairs Division in Islamabad on Thursday. Saudi Arabia was already providing $81 million for the project which has seen its cost soar four-fold over time.

The loan agreement was signed by Engineer Yousef Ibrahim al-Bassam, Vice Chairman and Managing Director, Saudi Fund for Development (SFD) and Nargis Sethi, Secretary Economic Affairs Division. Saudi Ambassador to Pakistan Abdul Aziz Ibrahim Al Ghadeer attended the signing ceremony.

After the signing ceremony Yousef Ibrahim al-Bassam announced an additional grant of $100 Million for social sector in the fields of health and education. According to EAD officials, the modalities of the grant disbursements and its duration will be finalised later.

Approved at an estimated cost of Rs84.5 billion, the Neelum Jhelum project’s total cost has been increased to Rs321 billion, including interest during construction. Due to four-fold increase in cost, the exchange component requirements have also significantly increased.

The project is aimed at generating 969MW on completion. Wapda authorities claim that if the project was not completed ahead of India’s Kishanghanga project, Pakistan will lose priority rights on waters –a claim that is not substantiated by Indus Basin treaty, signed between Islamabad and New Delhi in 1960s.

The total foreign funding requirements of the project have been estimated at $1.6 billion, according to EAD. So far, the government could arrange about $1.1 billion, which was committed by Islamic Development Bank, Saudi Fund, OPEC Fund, Kuwait Fund and China Export-Import Bank, said the EAD.

It added there was still a financial gap of $475 million. Pakistan is engaged with Kuwait Fund, Abu Dhabi Fund for Development, Exim Bank Korea, China Exim Bank, governments of Japan and Qatar to bridge this gap. Another agreement of $50 million was expected to be signed with OPEC Fund by early next month.

However, the government was still facing problems in convincing Abu Dhabi Fund for Development (AFD) to process a $100 million loan that it committed in the past but did not process it. Islamabad also asked the AFD to consider the possibility of giving a further loan of $288.5 million, according to officials.

The AFD was first seeking resolution of a seven-year -old dispute between Pakistan and Etisalat – the telecom giant that bought 26% stake in Pakistan Telecommunication Company.

According to Wapda officials, the AFD would not give loan until Pakistan takes up the issue at the political level. They added the matter can no more be resolved at ambassador level.

Pakistan was also getting $448 million loan from China’s Exim Bank. China too delayed the funds in retaliation to cancellation of loans that Islamabad had agreed for road projects. Pakistan’s request to China for an additional loan of $97.2 million for the same project was also pending, the officials said.

During his visit to the project site, Prime Minister Nawaz Sharif had directed the authorities to complete this project before the schedule time and also showed his annoyance over reports of increase in project cost due to alleged corruption, according to the media reports.