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Pakistan Partner with China to Rescue Delayed Neelum Jhelum Project

Pakistan hopes that the new Chinese leadership will help clear a $448 million loan pledged for the strategically important Neelum Jhelum Hydropower project located in Azad Jammu and Kashmir (AJK). A loan for the 969 MW project had previously been put on the backburner due to a controversy regarding the award of a multibillion rupee project to a Chinese firm.

In August 2012, the Supreme Court (SC) of Pakistan had annulled the Rs14 billion ‘Safe City Project’ for Islamabad due to allegations of corruption. The former Chinese leadership had linked the disbursement of the loan with the award of the Islamabad Safe City project to a Chinese firm. The cancellation of the project meant the loan was withheld.

“We hope that new Chinese leadership will consider our problems and help us strike a $448 million loan deal for the Neelum Jhelum hydropower project,” officials concerned with the matter said. Officials said that though China had pledged the loan for the Neelum Jhelum project, the two countries were still to sign the loan agreement.

“We will convince the new leadership that the loan should be provided, as Pakistan is facing financial hardship in implementing the project, whose cost has surged to Rs274.8 billion against earlier estimates of Rs 84.5 billion,” a government functionary said.

The Water and Power Development Authority (Wapda) is also facing internal problems to generate funds for project. “We need Rs2 billion on a monthly basis to continue work on the Neelum Jhelum project,” an official said, adding that the finance ministry was not forthcoming in helping arrange funds.

The government has also decided to arrange funds from the European Investment Bank (IEB) for the hydropower project, and has requested the bank to divert a 70 million euro loan to Neelum Jhelum, which had previously been committed for a 320MW UAE-gifted power plant.

The power plant in question has been deemed inefficient and expensive to run due to the gas shortage plaguing the country, and the public sector has expressed unwillingness to install it. The Ministry of Petroleum had refused to allocate gas from indigenous resources due to poor efficiency of the plant.

“We have written a letter to the EIB that the loan be diverted to the Neelum Jhelum hydropower plant,” a senior government official said. On another front, the Abu Dhabi Fund has withheld a $100 million loan pledged to the Government of Pakistan for the Neelum Jhelum Hydropower project till the settlement of a payment dispute between UAE’s Etisalat and the Pakistan Telecommunication Company Limited regarding the latter’s privatisation deal.

“The government has again approached the ADF and lobbied for the release of funds,” officials added.

The Neelum Jhelum project has already been delayed for longer than necessary. The contract for the project was awarded to a Chinese firm during the Musharraf regime without a firm financing commitment. Due to the delays, the cost of the project has ballooned from Rs84.5 billion to a staggering Rs274.8 billion. The hefty costs associated with the project may result in an exorbitant power generation cost of over Rs10 per unit, against the existing hydroelectric generation cost of 16 paisa per unit.

The burden of the costs arising out of delays and inefficiency is also expected to be transferred to consumers, as the government has decided to arrange 40% of the required funds through a levy on consumed energy imposed by the Government of Pakistan. At present, consumers are paying 10 paisa per unit surcharge, which amounts to Rs6 billion per year.

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