In jeopardy: Neelum Jhelum plant faces $475m funding black hole
WAPDA chief says various loan options being considered
ISLAMABAD:
Despite the government’s promise to complete the 969-megawatt plant in the next two years as part of its strategy to end load-shedding ahead of next general elections, the Neelum Jhelum hydropower project still faces a $475-million financing gap, threatening its timely execution.
“It is very unfortunate that there is no financial close and the project is still facing a financing gap,” said Water and Power Development Authority Chairman Zafar Mahmood in a testimony to the National Assembly Standing Committee on Planning and Development.
Mahmood was called by the parliamentary body on Monday to give a briefing about the present status of the project.
Prime Minister Nawaz Sharif has promised to bring an end to power outages before the next general elections. The situation remains the same for the last one and half year. Even in winters, the urban areas are subject to eight hours a day of load-shedding, while in small towns, power outages are more frequent. The government has shut down many inefficient power plants to save cost on account of subsidies.
The new secretary in-charge of the Ministry of Water and Power, Younus Dhaga, in line with the PM, said that he would end load-shedding by December 2016. His plan included an additional 5,000MW – included with the 969MW from the NJ project.
According to Mahmood, various options are being explored to address the financial woes of the project.
He said negotiations with the Export-Import Bank of China were going on for an additional inflow of $200 million. The bank has already provided a $448-million loan for the scheme.
In the PPP government, China had delayed signing the $448-million loan accord for the Neelum Jhelum project despite completion of all the necessary work done for Beijing’s approval. At that time, it had also turned down a request for an additional loan of $97.2 million for the same project.
Mahmood said negotiations for a $32-million loan from the Kuwait Fund for Arab Economic Development would take place this week. He said talks with the United States Agency for International Development and the World Bank for getting finances were also under way.
The cost of inefficiency
Approved at Rs85 billion, the cost of the project has swelled to Rs275 billion due to a change in project design, alleged involvement of kickbacks in procurement of tunnel-boring machines and delay in work. The revised cost had been approved by the Executive Committee of National Economic Council in July last year.
Though the project commenced in January 2008, so far only 78% of the total work has been completed, while Rs135.4 billion have been spent on the ground.
The Ministry of Water and Power officials blame former Wapda chairman Shakil Durrani and the Neelum Jhelum Hydropower Company management for misreporting facts. Before the start of work, both of them had assured the previous government that the entire foreign funding had been arranged and lenders were just waiting for the project’s approval.
The contract for the project was awarded to a Chinese firm during the Musharraf government without a firm financing commitment.
Mahmood told the committee that a plan costing $68 million was made for early completion of the project by completing the first 242MW unit by the end of next year. He said the plan was rejected by the government due to its cost.
The Ministry of Water and Power has now proposed a plan where the contractor could be incentivised by making him a partner in profit earned from electricity generation for the period it is completed ahead of the schedule, said Mahmood.
The standing committee chief, Abdul Majid Khan Khail, urged the government to arrange finances at the earliest aimed to ensure the scheme can finally be completed.
The CEO of the NJ Company told the committee that the transmission scheme for dispersal of power from Neelum-Jhelum hydropower project was also facing problems. There were problems in determination of route for the transmission lines, he added. The land owners were demanding exorbitantly higher rates for crop compensation.
Published in The Express Tribune, December 16th, 2014.
Despite the government’s promise to complete the 969-megawatt plant in the next two years as part of its strategy to end load-shedding ahead of next general elections, the Neelum Jhelum hydropower project still faces a $475-million financing gap, threatening its timely execution.
“It is very unfortunate that there is no financial close and the project is still facing a financing gap,” said Water and Power Development Authority Chairman Zafar Mahmood in a testimony to the National Assembly Standing Committee on Planning and Development.
Mahmood was called by the parliamentary body on Monday to give a briefing about the present status of the project.
Prime Minister Nawaz Sharif has promised to bring an end to power outages before the next general elections. The situation remains the same for the last one and half year. Even in winters, the urban areas are subject to eight hours a day of load-shedding, while in small towns, power outages are more frequent. The government has shut down many inefficient power plants to save cost on account of subsidies.
The new secretary in-charge of the Ministry of Water and Power, Younus Dhaga, in line with the PM, said that he would end load-shedding by December 2016. His plan included an additional 5,000MW – included with the 969MW from the NJ project.
According to Mahmood, various options are being explored to address the financial woes of the project.
He said negotiations with the Export-Import Bank of China were going on for an additional inflow of $200 million. The bank has already provided a $448-million loan for the scheme.
In the PPP government, China had delayed signing the $448-million loan accord for the Neelum Jhelum project despite completion of all the necessary work done for Beijing’s approval. At that time, it had also turned down a request for an additional loan of $97.2 million for the same project.
Mahmood said negotiations for a $32-million loan from the Kuwait Fund for Arab Economic Development would take place this week. He said talks with the United States Agency for International Development and the World Bank for getting finances were also under way.
The cost of inefficiency
Approved at Rs85 billion, the cost of the project has swelled to Rs275 billion due to a change in project design, alleged involvement of kickbacks in procurement of tunnel-boring machines and delay in work. The revised cost had been approved by the Executive Committee of National Economic Council in July last year.
Though the project commenced in January 2008, so far only 78% of the total work has been completed, while Rs135.4 billion have been spent on the ground.
The Ministry of Water and Power officials blame former Wapda chairman Shakil Durrani and the Neelum Jhelum Hydropower Company management for misreporting facts. Before the start of work, both of them had assured the previous government that the entire foreign funding had been arranged and lenders were just waiting for the project’s approval.
The contract for the project was awarded to a Chinese firm during the Musharraf government without a firm financing commitment.
Mahmood told the committee that a plan costing $68 million was made for early completion of the project by completing the first 242MW unit by the end of next year. He said the plan was rejected by the government due to its cost.
The Ministry of Water and Power has now proposed a plan where the contractor could be incentivised by making him a partner in profit earned from electricity generation for the period it is completed ahead of the schedule, said Mahmood.
The standing committee chief, Abdul Majid Khan Khail, urged the government to arrange finances at the earliest aimed to ensure the scheme can finally be completed.
The CEO of the NJ Company told the committee that the transmission scheme for dispersal of power from Neelum-Jhelum hydropower project was also facing problems. There were problems in determination of route for the transmission lines, he added. The land owners were demanding exorbitantly higher rates for crop compensation.
Published in The Express Tribune, December 16th, 2014.