ISLAMABAD: The prime minister may not get his wish of seeing the 969MW Neelum-Jhelum Hydropower Project operational in the near future, as the project is facing an immediate financial shortfall of Rs50 billion.

“The project was expected to be completed by the end of 2016, subject to the availability and smooth dispersal of funds,” Neelum-Jhelum Hydropower Project managing director retired Gen Mohammad Zubair told Dawn.

He said Prime Minister Nawaz Sharif had directed that the project be completed within the current year when he visited the project site in June 2013. In line with his wishes, a $68 million best effort plan was formulated and submitted to the government for speedy completion of the project at a time when it was already facing cash constraints to the tune of Rs14bn.

Also read: Neelum-Jhelum project facing financial problems

Gen Zubair said the Rs14bn was disbursed to the project after a lapse of one whole year, in June 2014. Therefore, Wapda Chairman Zafar Mahmood offered to incentivise the project acceleration plan by allowing — in November 2014 — contractors a share in project revenues ahead of schedule.

Hostile contractors, financial issues delaying work beyond end-2016 deadline

The contractors “demonstrated an inability to accelerate physical work to operationalise the project in 2015 due to time already lost,” he said, adding that the project had reached a physical stage where haste could lead to compromises on engineering codes and principles, raising the risk of a catastrophe.

The Neelum-Jhelum Hydro­power Company’s board of directors has also discussed the matter with contractors and “opined unanimously that due to immense technical intricacies and financial constraints... early completion is not possible at this point in time”.

The board was also told that the project was suffering immediate liabilities and needed the government to release Rs15bn at the earliest to expedite work. This also included Rs4.5bn in taxes and duties, up until June 30, 2015, which the Federal Board of Revenue deducts upfront and at source.

Mr Zubair said that despite being one of the most strategically crucial power projects for the country, Neelum-Jhelum Hydro­power was perhaps the only project which had reached an advanced stage without achieving financial close.

Projects usually attain financial close before they are initiated, but this one has been suffering funding problems since the very beginning. The project was originally estimated to cost Rs130bn in 2007, which went up to Rs275bn in 2012 — partly because of changes in specifications arising out of geographical changes following the devastating earthquake of 2005.

The Neelum-Jhelum project, located near Muzaffarabad in Azad Kashmir, envisages the diversion of water from the River Neelum through a tunnel underneath the River Jhelum.

He said the project had so far achieved 69 per cent physical progress, while its most crucial component — tunnel excavation — had reached 80 pc at a cost of Rs160bn so far.

He said that negotiations with Chinese banks and the Islamic Development Bank for $300m and $100m loans to meet the foreign exchange component of the project were likely to be finalised soon, but it would take at least six months before disbursement. Therefore, the government has to make available about Rs50bn, even if these are disbursed in two instalments, to ensure that the project keeps moving.

He said that Wapda authorities were also trying to arrange financing from local banks to avoid project delays. The project management had to accept certain conditions from the contractors that were not allowed under the contract and may lead to audit objections.

He said the management took the audit risks because the contractors had threatened to demobilise machinery and equipment from the site that would have cost more to re-mobilise and cost precious time.

He said the government had collected about Rs37bn under the head of Neelum-Jhelum surcharge head and another Rs22bn was expected to be raised through the surcharge, which has now been blocked due to a court order.

Published in Dawn February 9th , 2015

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