Monday, January 2, 2012

Neelum-Jhelum project: delays and 50% cost over-run

Neelum-Jhelum project: delays and cost over-runs
Daily the Pak Banker
December 31, 2011

Karachi, Dec. 31 -- ON December 12, Prime Minister Syed Yousuf Raza
Gilani emphasised importance of timely completion of 969mw Neelum-Jhelum
hydropower project to minimise electricity loadshedding vital to
economic development.

This strategic project, which is also on the high priority list of
Executive Committee of the National Economic Council (Ecnec), has been
delayed, resulting in cost over-runs. Ecnec had approved the project at
a total cost of $1,408 million, whereas the revised estimates are about
$2,160 million.

Overall cost of integrated project is likely to escalate to over $3
billion including additional cost of construction of 500-kv transmission
line by Wapda/NTDC to connect the project to national grid and higher
compensation for resettlement of population.

The project, originally due for completion in July 2010, was scheduled
to achieve commercial operations by October 2015 as per contractual
terms. Now a minimum of another two years' delay is estimated at this stage.

Historically, the project has been marred with faulty planning and lack
of external financing. Initially, the project was offered to private
sector under Power Policy 2002 on Build-Own-Operate-Transfer (BOOT)
basis. In response, four international companies China International
Water and Electric Corporation (CWE) and Sino Hydro Corporation of
China, Excellence Group and Union Group of the UAE had presented
proposals on different terms of implementation mode, financing and equity.

Total project cost, as offered by these firms on turnkey basis, was in
the range of $1,500 million to $1,600 million, with 6 -7 years
completion period. Though an MoU was signed with one of these companies
in November 2003, there was no further headway.

Later, public sector was entrusted with the project that became a major
constituent of Wapda's Vision 2025, identified therein as a medium-term

Subsequently, the mega project was included in the National Energy
Secu-rity Plan (2005-2030). Somehow, project initiation was delayed and
interna-tional tenders were issued by Wapda in April 2006.

In response, only two Chinese companies participated for the EPC
(engineering, procurement and construction) contract for the project
that included civil works, electro-mechanical works and hydraulic steel
structure. Though not meeting essential requirement of receiving at
least three bids, the contract was awarded to a consortium of China
Gezhouba Group Corporation (CGGC) and China National Machinery
Import-Export Corporation (CMEC) on July 7, 2007, to avoid further delay
in commencement of construction.

The Chinese consortium was to arrange $800 million through the Exim Bank
of China. Commencement date being determined as January 2008, the
project was to be completed by contractor in less than eight years. The
EPC contract was awarded at a cost of $1,300 million - 58 per cent
higher than 2001 estimates of $823 million and 18 per cent more than
updated cost of $1,100 million based on re-design in the wake of
October-2005 earthquake.

This was the single largest hydropower project contract ever awarded in
the country's history. Incidentally, it is also the largest hydropower
project being undertaken by any Chinese contractor in a foreign country
that deploys some 2,000 Chinese engineers, technicians and workers at site.

Physical progress achieved so far on the project is less than 30 per
cent compared to about 50 per cent projected by the fourth year as per
implementation schedule.

While infrastructure at site has progressed well and damming of
diversion canal has been completed, work on main tunnel has just
started. Likewise, fabrication of hydraulic structure and manufacturing
of electrical and mechanical equipment has not yet been undertaken,
whereas according to schedule, the supply was to commence from the third
and fourth years of implementation, respectively.

Design and engineering for structure and machinery is still in progress.

First of its kind in the country, power station (including allied
services and transmission system) has been designed underground to
achieve optimum hydraulic head, given topographical limitations of the
area. Thus, almost 98 per cent of the project structure will be underground.

According to contractual terms the consortium was required to mobilise
all necessary machinery, equipment and accessories required for
construction at his own cost and charges-and well in time. Also, the
contractor could not arrange for adequate power required at site for
construction activities that was his responsibility, and instead, is
totally dependent on Wapda/AJK government for the supply of required
23MW electricity that remains interrupted and instable, causing delays
in the ongoing works.

The strategic project, original plan of which was approved by the Ecnec
as early as in December 1989, has been delayed so much, coupled with
increased cost, that it would perhaps not be any more an economically
viable power generation unit on completion. Generation cost projection,
originally at 2.77 cents per kWh as per PC-1, then revised to 4.70
cents, is no longer valid now.

Published by HT Syndication with permission from Daily Pak Banker. For
any query with respect to this article or any other content requirement,
please contact Editor at
Copyright 2011 Right Vision NewsAll Rights Reserved
Daily the Pak Banker

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