Funding for Neelum-Jhelum project: Cabinet expected to approve 10 paisa surcharge

The Cabinet in its meeting on Wednesday is likely to approve 10 paisa per unit increase in power tariff, to be collected from both Wapda and KESC consumers, for financing the 969 MW Neelum-Jhelum hydropower project, official sources told Business Recorder.
The main purpose of the project is to establish prior rights of Pakistan on the water of River Neelum over India. Hence, construction of this project is considered to be carried out on priority.
The Economic Coordination Committee (ECC) of the Cabinet in its meeting on August 17 had in principle approved the project but referred it to the Cabinet for ratification, because of political implications.
"Finances for the project may be arranged by levying 10 paisa per unit surcharge on all consumers of Wapda and KESC for a fund to be called 'Neelum -Jhelum Hydro Power Development Fund', sources quoted Ministry of Water and Power as suggesting in its summary.
The ministry estimated that an amount of Rs 64 billion would be generated for the project through this arrangement over the project construction period, sources said, adding that the 'Rate of Return' (RoR) of the project would be 26 percent. Sources said that the project would be executed through a corporate company, 'Neelum-Jhelum Company', which has since been established.
They said that the funds arranged for the project through surcharge on electricity would be kept in 'Escrow account' of the company. The debt-to-equity ratio of the project would be around 50:50 whereas the paid up capital of the company would be suitably increased to meet project's financing requirements.
Sources said that Neelum-Jhelum hydropower project was approved by Executive Committee of National Economic Council (Ecnec) on February 28, 2002 at an estimated cost of Rs 84.5 billion (local component Rs 37.8 billion and foreign exchange component (FEC) of Rs 46.7 billion).
The Neelum-Jhelum project would have a capacity to generate 969 MW electricity. The project envisages diversion of Neelum waters at Nosairi, in AJK, which is 41 km upstream of Muzaffarabad, falling out into Jhelum river near Chattar Kalas, 12 km downstream of Muzaffarabad. A 47 km tunnel would be required for the diversion of water from Nosairi to the power station.
The implementation period of the project is eight years, from the date of its commencement. The overall revised estimated cost of the project would now be Rs 128.4 billion (local component Rs 81.9 billion + FEC Rs 46.5 billion). Wapda invited bids for the Neelum-Jhelum project on the basis of buyer's credit as per ECC decision of February 7, 2007.
After evaluation of bids, Wapda approved, and awarded, the contract to the lowest bidder CCGC-CMEC of China for Rs 90.885 billion. Sources said that an amount of Rs 5.27 billion, required for mobilisation advance to the contractor and consultants during 2006-07, has already been provided to Wapda, and the Authority has asked that the remaining financing for the project be arranged soon.
They said that Wapda's request for financing of the project was considered in a meeting held on April 24, 2007, which was chaired by Advisor to Prime Minister on Finance Dr Salman Shah.