Sunday, November 18, 2012

Neelum Jhelum project: Pakistan looks to new Chinese leadership for funds

Neelum Jhelum project: Pakistan looks to new Chinese leadership for funds
The Tribune (Pakistan), by Zafar Bhutta
November 17, 2012

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 megawatt (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.

Published in The Express Tribune, November 17th, 2012.

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