ISLAMABAD: The government is expected to impose 10-paisa per unit surcharge for all electricity consumers for at least 18 months to finance cost overruns of Rs500 billion Neelum-Jhelum Hydropower Project and extend Rs3 per unit reduction in power tariff for industrial consumers for six months.

A senior government official told Dawn on Thursday that a meeting of the Economic Coordination Committee (ECC) of the Cabinet has been called on Friday to approve two proposals moved by the Ministry of Water and Power following green signalled by the Prime Minister Office.

The official said the 10-paisa per unit surcharge was originally imposed in 2007 when the Neelum-Jhelum project cost was approved at Rs130bn with a sunset clause of Dec 31, 2015. It was envisaged that half of the financing would be generated through this surcharge on every unit of electricity sold to consumers in eight years.

Tariff cut for industry to be extended for six months

The cost of 969-megawatt run of the river project in Azad Kashmir kept on increasing with latest estimates at Rs500bn for targeted completion in 2018. The 10-paisa per unit surcharge was extended for one year up to Dec 31, 2016 when the total cost was approved at Rs404bn early last year. So far, the surcharge contributed about Rs70bn.

However, the power ministry has now proposed to continue with the surcharge until June 2018 when the project may come into production. It expects additional revenue generation of about Rs15-18bn in 18 months, the official said.

The official said the cost estimates for the Neelum-Jhelum project had been jacked up four times since 2002 when the plant was projected to be completed at a cost of Rs84.5bn and was revised to Rs277.5bn in 2012 to accommodate changes in design and geography caused by 2008 earthquake. This was followed by revised cost approval of Rs404bn in 2015 then Rs500bn now.

As a result, the per unit cost of the project which was originally estimated at about Rs3-4 per unit is now being worked out at Rs12-13 per unit, the official explained. The 10-paisa surcharge is not applicable to consumers of K-Electric.

The project, located near Muzaffarabad in Azad Kashmir, was awarded to Chinese contractors in December 2007 and involved diversion of Neelum River waters to Jhelum river through a cumulative tunnel of about 68 kilometres.

The government is currently charging about Rs2.5 per unit of different surcharges on electricity rates over and above approved by the National Electric Power Regulatory Authority (Nepra) to cover inefficiencies in the system on account of debt servicing, late payments and tariff equalisation across the country etc.

To go beyond 87pc physical progress without financial closure — a prerequisite for any project to begin with —makes the strategic initiative, which is also meant to establish Pakistan’s rights on the Jhelum waters, a rare venture.

The PML-N government was expecting the first unit of the project to become operational by July 2017, followed by subsequent units every quarter, to reach 100pc operation by January 2018, in accordance with the agreement signed with the Chinese contractor in December 2007. Work started in May 2009 and was to be completed in eight years.

The project is now expected to bring its first unit to operations at the end of February 2018 and the other three before the start of next summer, extending the completion date by seven months. The full capacity will be available for use by May 2018.

TARIFF CUT FOR INDUSTRY: The ministry has also sought extension of Rs3 per unit reduction in industrial tariff announced by the prime minister in January last year for another six months i.e. June 2017. However, this lower tariff mostly goes against the industrial consumers because they are kept outside the purview of monthly fuel based tariff cuts.

Published in Dawn, January 6th, 2017