Hydroelectric power: Neelum-Jhelum project receives $32m from Kuwait

Gap of $450 million needs to be bridged to achieve financial close.

ISLAMABAD:

Pakistan has managed to obtain additional financing of $32 million from Kuwait for the Neelum-Jhelum hydropower project, which will fill the financing hole by only 7%, throwing a challenge to the government to arrange roughly $450 million more to achieve financial close.

With the additional financing, Kuwait’s total contribution to the 969-megawatt project has increased to $74 million. In 2010, the Kuwaiti government, through the Kuwait Fund, had extended a $42 million commercial loan for the project, out of which $31.2 million was utilised till the end of last year.

Economic Affairs Division Secretary Saleem Sethi and Kuwait Fund Deputy Director General Hamad Al-Omar signed the agreement on behalf of their respective governments. Finance Minister Ishaq Dar and Kuwait Ambassador Nawaf Abdul Aziz Alenezi witnessed the signing ceremony.

Neelum-Jhelum Hydropower Company, which is managing the project, has sent a withdrawal request for another $10 million to the fund, said the chief executive of the company, General (Retired) Mohammad Zubair. The withdrawal is linked with the progress of the project.

Against a revised estimated cost of roughly Rs275 billion or $2.7 billion, the foreign funding component is close to $1.6 billion. Of this huge sum, the government has received firm commitments of $1.1 billion.

Neelum-Jhelum Company has already availed $440.2 million financing and the undisbursed foreign loans against the critical energy project are $669.4 million.

The government has so far paid $2.5 million in commitment charges on the unspent balance of foreign loans, according to the Economic Affairs Division.

The government is also negotiating a second loan of $300 million with China and has received a positive response from the Chinese counterpart, said Zubair.



He said that after the release of the second financing line from China, the gap will narrow down to $150 million. Pakistan has already signed a $448 million loan with China’s Export-Import Bank and so far it has withdrawn $183.6 million.

It has also contracted two separate loans of $357.6 million with the Islamic Development Bank. The Opec Fund gave $81 million while the Saudi Fund for Development extended $181 million for the project.

Rupee funds

The government is also charging Neelum-Jhelum surcharge at 10 paisa per unit of electricity consumed in the country aimed at raising funds for the project.

According to an official, the company was successful in raising foreign loans for the project but it is facing problems in managing the rupee component. So far, Rs138 billion has been spent on the project, said Zubair.

Once completed, the project will reduce the gap between electricity supply and demand by at least 15%. It will also change the energy mix, which will cut average cost of electricity generation in the country.

The finance minister welcomed the signing of the agreement, saying that it adds another chapter to the Pak-Kuwait economic cooperation.

In his testimony to the National Assembly Standing Committee on Planning and Development on February 3, Zubair had said although about 70% of the work was completed, the project was facing a financing gap of Rs50 billion and an amount of Rs14 billion was immediately sought from Prime Minister Nawaz Sharif to continue work on the plant.

“The completion of the project by the end of next year hinges on the availability of funds,” said Zubair.

The company had also prepared a $68 million plan to fast track work on the project, which had to be shelved after the government did not provide additional funds.

“Each day of delay in completion of the project would cost the national kitty $1.5 million in terms of delay in electricity generation.”

Published in The Express Tribune, February 27^th, 2015.

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