In yet another case of funding constraints, the completion of Neelum-Jhelum hydropower project has hit a road block due to skyrocketing costs.
Expenditure of the project has reached Rs414 billion and there is no concrete financing of almost half of the total requirement. This has led to the government on Monday deciding to re-engage estranged lenders to complete the troubled mega project.
Read: Hydroelectric power plant: Financiers stop $433m loan for Neelum-Jhelum project
The bureaucrats and politicians responsible for the project met in Q Block to find a solution to the problem of arranging the balance of Rs200 billion for the 969MW project. Ministers from finance, water and power departments, and other relevant officials attended the meeting.
The cost of the project, which is currently under implementation, has soared from the earlier approved Rs274 billion to Rs414 billion - up by Rs140 billion or 51%.
The financing gap widened after the Water and Power Development Authority (Wapda) decided to include all the cost in the revised PC-I of the project, which it had earlier suppressed to show the cost at a lower end.
The purpose to understate the actual cost of the project was that the higher cost would make it difficult to arrange funds from international lenders, said a senior official who attended Monday’s meeting. Now, the revised PC-I has been submitted to the Planning Commission for approval, which also includes the components that were excluded from the original PC-I, said the official.
The official said the financing gap has been soared to Rs200 billion including Rs100-billion rupee component. The government decided to arrange Rs100 billion from a consortium led by National Bank of Pakistan. He said the term-sheet of the Rs100 billion was being finalised and the federal government will provide sovereign guarantees against the borrowing.
Looking for a solution
There is over Rs100 billion or $1 billion foreign financing gap, which has to be filled amid serious concerns of the international lenders. The meeting decided to form a team to re-engage Islamic Development Bank and Exim Bank of China aimed to speed up the funding for the project, according to a handout issued by the Finance Ministry on Monday.
Read: Cabinet committee deliberates over privatising Neelum-Jhelum project
Finance Minister Ishaq Dar directed the team involved in the completion of the Neelum-Jhelum hydropower project to work in close coordination and sum up their numbers, according to the official handout. Federal Minister for Water and Power Khawaja Asif said he would also consider making a supervisory committee to ensure efficient execution of the project.
The Islamic Development Bank has withheld a loan amounting to $433 million because Pakistan has not sought performance guarantees from the project contractor. However, the government fears that if it asked the contractor to provide guarantees against the additional cost, the contractor may take the authorities to court.
The variation in the cost is more than the actual cost, which shows the ill planning of the authorities executing the project that has strengthened the hands of the contractor.
The government is also facing problems in arranging an additional $576 million from China that has already extended $448 million for the project. The officials said it was decided in the meeting that the financing issue will again be taken up with China and another meeting will be held by the end of this week.
Wapda Chairman Zafar Mahmood said that 70% of the issues have been resolved and it is making speedy progress as compared to in the past.
Published in The Express Tribune, July 7th, 2015.
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