‘Neelum-Jhelum Project cost increases four times’

LAHORE
THE cost of Neelum-Jhelum Hydropower Project has seen nearly four-time increase since 2001 and this vital hydel power generation project has yet to be completed.
According to a Wapda spokesman, as per Revised PC-1 of Neelum-Jhelum Hydropower Project, the cost of project now projected at Rs. 416 billion from initial estimate of Rs 84.55 billion showing a mammoth jump of 392 percent.
To reassess cost of the project, a meeting of Pakistan Water and Power Development Authority (Wapda) was held at the Wapda House on Tuesday, which was presided over by Chairman Wapda Zafar Mahmood.
While reviewing the revised PC-1 for 969-MW Neelum-Jhelum Hydropower Project before sending it to the Ministry for Water and Power, the meeting deliberated upon factors responsible for the cost escalation of the project. It was noted that right from the beginning, the basic project concept went through major changes. Initially the project was designed for 550 MW capacity with a Power House situated at Majhoi. However, subsequently, to optimise power generation from this project the Power House was shifted to Chattar Kalas, 21 km west of Muzaffarabad. This change resulted in additional financial implication.
The meeting further noted the 1st Revised PC-I approved by ECNEC in 2002 for Rs. 84.55 billion was based on 2001 price level. At that time, the work on the project could not start due to lack of upfront funds. The funds were made available in 2007 and the contract work was awarded the same year. The amount of awarded contract was Rs. 90.90 billion and was one of the reasons of increase in the overall cost of the project. It was further discussed that in the aftermath of devastating Earthquake of October 08, 2005, the project consultants, as a part of their assignment, reviewed tender design and undertook additional studies and investigations. The design review identified many areas of concern requiring design changes, which resulted in increased quantities and

additional scope of work with substantial financial implication.
The major design changes which form the huge chunk of this additional cost include change in the height and design of the dam, composite concrete embankment to cope with the fault movement, increase in cross sectional area of headrace tunnel, concrete lining of tunnels, steel lining in the tunnel under Jhelum River, class 70 bridge on Neelum River and other additional works required for implementation of the project. In addition, two Tunnel Boring Machines (TBM’s) have been deployed for excavation of most critical reach of 11.5 km of twin tunnels (total length 23 Km) as acceleration measure.
Three diesel generators with 4MW capacity each were also procured for uninterrupted power supply. There was no provision for payment of escalation in the previously approved PC-1 which had very high financial implication. Variation in Dollar Exchange Rate and security arrangements also inflicted heavy additional financial burden.
The meeting noted with great concern that revised PC-1 of the project, amounting to Rs. 274 billion, was approved in 2012 with artificially depressed price without giving due consideration to potential harm which could hamper its scheduled completion.
In the following table the increase in major component has been brought out which clearly shows that increase in the cost of civil work is of minor nature. The items, which have shown increase, were intentionally not fully catered for (Rs. Million) S. No. Item PC-I (2012) PC-I (2015) Increase1 Total Construction Cost 162,848.00 165,266.002,418.002 Engineering & Supervision 8,967.0016,343.007,376.003 Exchange Loss 37,269.0074,119.00 36,850.004 Duty and Taxes 1,519.00 12,396.00 10,877.005 Price Escalation17,847.00 61,933.00 44,086.006 Interest during Construction 33,438.00 61,548.00 28,110.007 Others 15,615.00 24,881.00 9,266.00 Total 277,503.00 416,486.00 138,983.00. The Authority maintained that the cost of works of Neelum-Jhelum Hydropower Project remained the same but the abovementioned factors had necessitated another cost revision of the project. The meeting decided to send a revised PC-1 of Rs. 416 billion to the Ministry of Water and Power for its onward submission to ECNEC for approval. However despite increase in cost, the project remains economically and financially viable. Its EIRR is now 23.09%.
The Authority, in its meeting, also decided in principle that in future, construction work would not be started on projects if it was found that their PC-1s were prepared with artificially depressed cost levels. It was noted that 1100MW Kohala Hydropower Project (KHPP), a similar project like Neelum-Jhelum whose feasibility study was completed by WAPDA in 2009, was handed over to private sector. The construction of project has not started yet. Compared to KHPP, work was started on Neelum-Jhelum Hydropower Project in February 2008. Despite the cost escalation caused by design changes and financial constraints, the project is heading towards completion and is expected to be completed by end 2016.