Cost overruns: Saudi Arabia pledges $100m for Neelum Jhelum project

About $500 million in foreign funding still not arranged, costs rise due to mismanagement and alleged corruption.

ISLAMABAD:

Pakistan will borrow additional $100 million from Saudi Arabia for the Neelum Jhelum Hydropower project aimed at partly bridging foreign funding gap, as the 969 megawatts (MW) power project largely remains unfunded due to four-fold escalation in its cost.

The loan agreement for additional financing was signed between Pakistan and the Kingdom of Saudi Arabia here on Thursday. Saudi Arabia is already providing $81 million for the project.

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

After the signing ceremony Yousef Ibrahim al-Bassam also announced a grant of $100 Million for social sector projects 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 steadily increased to Rs321 billion including interest during construction. Due to the four-fold increase in cost, the foreign exchange component of the total cost requirement has also significantly increased.

The project is expected to generate 969MW on completion. Officials from Water and Power Development Authority (Wapda) claim that if the project is not completed ahead of India’s Kishanghanga project, Pakistan will lose priority rights on waters –a claim that is not substantiated by the Indus Basin treaty, signed between Islamabad and New Delhi in 1960s.

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

Total foreign funding requirements of the project have been estimated at $1.6 billion, according to EAD. So far, the government chas arranged about $1.1 billion, which was committed by the Islamic Development Bank, Saudi Fund, Opec Fund, Kuwait Fund and China Export-Import Bank, according to EAD.

EAD also said that 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 hasn’t processed yet. Islamabad also asked the AFD to consider the possibility of giving a further loan of $288.5 million, according to officials.

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

According to Wapda officials, the AFD will not give any loan until Pakistan takes up the issue at the political level.

Pakistan was also getting a $448 million loan from China’s Exim Bank. China too delayed the funds in retaliation for 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.

Published in The Express Tribune, September 27^th, 2013.

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