Hydroelectric power plant: Financiers stop $433m loan for Neelum-Jhelum project

Published: July 2, 2015
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The soaring cost of the project is a major concern for the Gulf lenders including the Islamic Development Bank, Kuwait Fund for Development, Saudi Fund for Development and Opec Development Fund. PHOTO: FILE

The soaring cost of the project is a major concern for the Gulf lenders including the Islamic Development Bank, Kuwait Fund for Development, Saudi Fund for Development and Opec Development Fund. PHOTO: FILE

ISLAMABAD: 

Lenders from the Middle East have stopped a planned loan of $433 million to fund the strategically important 969-megawatt Neelum-Jhelum hydropower project following the surge in cost estimate to $4.21 billion.

During the previous government of Pakistan Peoples Party (PPP), the project cost had jumped to $2.74 billion from $1.8 billion and during the rule of the present government, the cost estimate has gone up to $4.21 billion.

Pakistan had kicked off work on the Neelum-Jhelum River in Azad Jammu and Kashmir to secure water supplies but India also developed the Kishanganga hydroelectric power project on the river, which led to a legal battle between the two countries in the International Court of Arbitration.

The disclosure about the loan being denied by the Middle East lenders was made to Prime Minister Nawaz Sharif in a meeting of the Cabinet Committee on Energy on June 18.

Read: Neelum-jhelum project: 72% of work completed

Earlier, the project had to be finished by October 2015, but the deadline has now been revised to November 30, 2016. Financial close of the project has not yet been achieved.

Financing was expected to be received from a consortium of financiers but without any firm commitment. Now the prime minister has been told that the project will not be completed even in 2016 and work may be extended to 2017.

According to officials familiar with the development, the soaring cost of the project is a major concern for the Gulf lenders including the Islamic Development Bank (IDB), Kuwait Fund for Development, Saudi Fund for Development and Opec Development Fund.

They had committed an amount of $692 million, of which $259.5 million had so far been disbursed.

“The release of the remaining $433 million has been stopped by the lenders as they are demanding performance guarantees from the contractors for the additional work (variation orders) and cost escalation,” an official told the meeting.

Clause 10 of the contract calls for providing 10% performance security and clause 60.02 envisages no payment unless the 10% security is paid.

The financiers were of the view that clause 10 also applied to the variation orders and cost escalation and the contractors should provide additional performance security.

Read: Neelum-Jhelum : Funding crunch slows down power project

The project management, however, believes that the performance security should be paid in line with the cost indicated in the letter of acceptance.

The meeting was informed that the lenders had also termed the demand of additional security as “extra-contractual”. The project management was asked about the cushion it had to cover any default by the contractors and was told that clause 60.2 and standard contractual practices covered this risk of default in terms of 10% performance security against the total project cost.

In the case of default, the liquidity damage clause is invoked which primarily banks on the performance security. The project management expressed its apprehension that the additional performance security might put the project at risk and discourage the contractors.

Published in The Express Tribune, July 2nd, 2015.

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Reader Comments (27)

  • ziaurrehman
    Jul 2, 2015 - 8:53AM

    Commission league is at it again :)Recommend

  • AVPMPolpot
    Jul 2, 2015 - 9:04AM

    ” Now the prime minister has been told that the project will not be completed even in 2016 and work may be extended to 2017.”
    ++++++++++++++++++++++++++++++++++++++
    Every Pakistani has right to feel cheated!.Gross incompetence of the Govt.Opposition must make an issue of this.Recommend

  • AVPMPolpot
    Jul 2, 2015 - 9:08AM

    ” The disclosure about the loan being denied by the Middle East lenders was made to Prime Minister Nawaz Sharif in a meeting of the Cabinet Committee on Energy on June 18.”
    +++++++++++++++++++++++++++++++++++++++===
    Is the loan being withheld till certain conditions are met or has the entire Loan offer been withdrawn.Editor: Pls clarify.Recommend

  • AVPMPolpot
    Jul 2, 2015 - 9:14AM

    ” India also developed the Kishanganga hydroelectric power project on the river, which led to a legal battle between the two countries in the International Court of Arbitration.”
    +++++++++++++++++++++++++++++++++++
    And Pakistan was the clear winner:). but India will complete Kishanganga before Neelim Jhelum.!Recommend

  • Fawad
    Jul 2, 2015 - 9:23AM

    I hope politicians don’t start looking for RAW hand behind this.Recommend

  • Khurram
    Jul 2, 2015 - 9:28AM

    Extremely poor mis-management by the governmentRecommend

  • observer
    Jul 2, 2015 - 9:53AM

    Instead of begging foreign financiers, why doesn’t the government use the $4B that it spends every year on nuclear weapons and missiles. on the dam project? Recommend

  • SAM
    Jul 2, 2015 - 10:10AM

    Power generation is costly business and it will require lot of responsibility which pakistan doe not have….sorry…Recommend

  • SAM
    Jul 2, 2015 - 10:11AM

    I hope then don’t blame India and RAW for this failure…Recommend

  • Pakistani
    Jul 2, 2015 - 10:12AM

    Just wait for the spin from PMLN. There must be a very good reason which we have not thought off!Recommend

  • Amin
    Jul 2, 2015 - 10:15AM

    Simple reason, Pakistan didn’t send army to fight in Yemen, so no more money for you PakistanRecommend

  • Jul 2, 2015 - 10:26AM

    Cost escalations can be avoided if future contracts are entered into. This will avoid any major shift in monetary terms. IF…….that is still in vogue. SalamsRecommend

  • bebarg
    Jul 2, 2015 - 10:43AM

    This shows the Oil Coal Mafias are gaining strength each passing day. This is what happens when the corrupt seaaths are in charge of the helms of affairs of Governments.Recommend

  • jehanzaib
    Jul 2, 2015 - 10:44AM

    PM Nawaz sharif already know about this, thats why he said load shedding will end in 2017.

    Name a single project which is going to finish in time? Recommend

  • bebarg
    Jul 2, 2015 - 10:52AM

    KP has completed hydel projects of 20 MW at Mardan and Kohistan. Project of 36 MW will be completed by December 2015. Generation of cheap Hydel Power requires sincerity of Govt. Corrupt businessmen in charge of Govt will never do it for u. Recommend

  • asim
    Jul 2, 2015 - 11:01AM

    When fauji foundation would play its role in projects of critical nature?Recommend

  • incognito59
    Jul 2, 2015 - 12:19PM

    Serves the Govt right! No one will support incompetence and corruption. Period!Recommend

  • Ammar Hassan
    Jul 2, 2015 - 2:18PM

    “Experienced team” in actionRecommend

  • nk
    Jul 2, 2015 - 2:33PM

    i can imagine a project going over budget by 10, 20 even 30%. but triple the cost?? is it because the scale has increased? its now going to be 3 times the size? has something else changed? i hope theres some inquiry into why this is going on. was the initial cost just underestimated to get approval for the project?Recommend

  • Parvez
    Jul 2, 2015 - 3:07PM

    Nawaz Sharif, Abid Sher Ali, Khwaja Asif, Shahbaz Sharif……….what does one expect ?Recommend

  • AVPMPolpot
    Jul 2, 2015 - 3:28PM

    Project Cost from 1.84 to 2.7 to 4.21 BnUSD…and counting.
    +++++++++++++++++++++++++++++++++++++++++++++
    Can anyone tell what would be the impact on the price of power generated from the project?
    Can anyone tell what would be the further cost escalation due to this openended delay?
    Can the readers share whether the Metro Projects are more important than this?
    I am sure that the same story would repeat for Daimer Bhasha…a project about which we hear less and less these days.Recommend

  • ishrat salim
    Jul 2, 2015 - 4:40PM

    This project will meet the same fate as nandipur, which escalated from initial Rs 23 billion to 85 billion & yet not working.Recommend

  • ZAK
    Jul 2, 2015 - 7:26PM

    Failure of govt deptt i.e WAPDA again evident in execution of mega project.

    No adminstrative and financial control.
    Lack of committment on govt end.Recommend

  • Raja Porus
    Jul 3, 2015 - 12:40AM

    PML-N = Pakistan Money-Laundering League (Noora Group)
    The biggest commission agents of Pakistan, what do you expect? Cost escalation is the way this party of thugs operates, it’s their modus operandi.Recommend

  • Affan
    Jul 3, 2015 - 1:35AM

    And we waste 100 billion on nandipur.Recommend

  • B Sivaramakrishna
    Jul 3, 2015 - 8:01AM

    Re: the cost estimate has gone up to $4.21 billion
    ++++++++++++++++++++++++++++++++++++++++++++

    Prime contractors from” Iron Brother” Peoples Republic of China, China Gezhouba Group of Companies (CGGC), are doing their best to maximise price gouging by escalating project cost to a level “higher than the Himalayas” thereby putting Pakistan in debt” deeper than the Indian Ocean” resulting in “sweeter than honey” profits for China and CGGC.Recommend

  • Shah
    Oct 9, 2015 - 9:23AM

    We Are Using Neelum Jhelum Surcharge To Purchase Expensive Cars For Bureaucrats Can We Blame The Gulf Lneders Who If They Give $433 Million Will Only See Their Money Go To WasteRecommend

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