ISLAMABAD: The strategic 969MW Neelum-Jhelum hydropower project is facing serious financial constraints and despite the prime minister’s instructions none of its units would be operational next year.

The fiscal problems stem from inability of the Economic Affairs Division to arrange $475 million (Rs47.5 billion) from local or international banks and financial institutions for more than four years now.

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The project achieved 66 per cent progress as of third week of August. This includes 75pc progress on most critical segment of the project — the 51km excavation of tunnels passing underneath River Jhelum.

It has so far consumed Rs122bn against revised estimated cost of Rs275bn. Cumulative length of the two tunnels is about 67km passing about 400 metres under the riverbed.

During a visit to the project site three months ago, Prime Minister Nawaz Sharif had asked Wapda and the Neelum-Jhelum Project Company to speed up work so that at least one of its units could be made operational by mid-2015.

This is perhaps the only project in Pakistan that has achieved a two-thirds physical progress without achieving financial close, according to an official.

The Neelum-Jhelum Project Company and Wapda have informed the prime minister that indecent haste in the completion of the project could compromise engineering principles and standards and could lead to a catastrophe, sources told Dawn.

“We will deliver the project by the end of 2016 as envisaged in the PC-I, subject to smooth flow of financing,” confirmed retired Gen Mohammad Zubair, managing director of the project. He confirmed that the EAD had not been able to arrange $475m from banks.

He said the project had also consumed Rs34bn generated through electricity bills in the shape of Neelum-Jhelum surcharge. Another Rs23bn would come from this source over the next two years, he said.

“We have already completed two-thirds work with major payments still outstanding,” he said, adding that critical financing problems would start affecting the progress badly in about a month or so.

Answering a question, he said the project was originally expected to be completed in 2018, but deployment of tunnel boring machine in February last year helped achieve 75pc progress on tunnels. The powerhouse installation is currently in the final stage.

The project was originally estimated to cost Rs130bn in 2007 with half of financing planned to be generated through Neelum-Jhelum Surcharge at the rate of 10 paisa per unit. Subsequent geological changes and project delays increased the project cost to Rs274.9bn.

As liabilities of the contractors and suppliers piled up, the prime minister’s personal intervention led to release of Rs14bn in May this year which allowed the construction work to go on for about three months. “The situation is now back to square one,” an official said.

The project is important when it comes to ensuring Pakistan’s rights over river Jhelum, partially lost to India due to ongoing construction of the Kishenganga hydropower project being built across the Line of Control.

After completion, the project is estimated to produce more than Rs45bn worth of “cheaper and cleaner” energy every year and contribute over Rs5bn per annum to Azad Kashmir government, besides improving Wapda’s financial position and replacing some of the expensive thermal projects being run on imported furnace oil.

Published in Dawn, September 4th, 2014