Neelum-Jhelum project gets financial close this month

ISLAMABAD: Pakistan’s most strategic 969mw Neelum-Jhelum Hydropower Project (NJHP) is going to get its ‘financial close’ by May 2016 (this month) as the federal government is going to  sign $1.53 billion loan agreements soon with the local banks’ consortium and Chinese Exim Bank, a top official told ‘The News’ on Saturday.

As believed to be completed next year, this project would become the country’s fourth largest hydropower plant and help overcome energy shortage that hindered Pakistan’s economic growth for years. Government’s estimates show that every year, energy shortage is taking away two percentage points of the country’s GDP growth.

Under the proposed agreement with the consortium of 16-member local banks led by National Bank of Pakistan (NBP), the federal government will guarantee Rs100 billion (around $960 million) worth of 10-year Sukuk (Islamic bonds)—the investment certificates that follow religious principles and without involvement of interest payments. The draft agreement is final, and the Water and Power Development Authority (Wapda) will sign it with the consortium on behalf of Neelum-Jhelum Hydropower Project (NJHP) by May 2016.

For meeting the foreign exchange component of the project, a $576 million loan agreement will also be signed with the Chinese Exim Bank by this month. However, to fulfill the legal requirements, the Ministry of Water and Power has sent the agreement documents with Exim bank to the Ministry of Law and Justice for vetting. Once, these are cleared, we will sign it, CEO of the project General (r) Muhammad Zubair said.

“By this month, the project will inshallah achieve its financial close after signing loan agreements with the local banks’ consortium and Chinese Exim Bank,” confirmed Wapda Chairman Zafar Mehmood to The News.

“Now, there are no financial constraints on the project, and hopefully by June or July 2017, its first turbine of four will start generating electricity,” chairman said.

Interestingly, the project has so far achieved more than 80 percent physical progress, but is yet to achieve its financial close. “Wapda is confident to complete first generating unit of the project in mid 2017 and rest of the three units in phased manner by December 2017.”

When the chairman was asked about the impact of the India’s diverting water for its own Kishenganga hydroelectric project as Hague’s Permanent Court of Arbitration (PCA), in its final verdict on Dec 20, 2013, gave it the right, he said, “It will have a minimal impact, as according to the verdict, India can divert water for power generation but will have to maintain minimum environmental flow of nine cubic metre per second in the river in winter.”

Whereas, in four months of summer, water flow is always high and almost all four turbines will be running of the project, but in winter, water flow reduces, so the operation of turbines too. In other hydropower projects too, in winter, most of the turbines are kept idle due to low water level while in summer all are always operational.

Except from delay in the project due to unavailability of funds, the rupee-dollar parity was one of the instrumentals in ballooning IDC and the overall project’s cost. A decade ago, when the project was started, a US dollar was of around 43 rupees and now it is more than 100 rupees.

“IDC component of the project will be more than Rs200 billion [almost half of the project cost]. Had the project funded in time, it would have been completed much earlier and with lower IDC component,” the  chairman said when asked about IDC volume.

The IDC is the interest that accumulates on a loan that finances the construction of the building.

It is calculated until the project begins to generate revenue. As three-fourth of the project is from debt financing, so is its IDC, a senior official in planning commission said.

This run-of-the-river Neelum-Jhelum Hydropower Project is being constructed in Azad Jammu and Kashmir. Ninety percent of the project is underground. It has four units with 242.25 megawatts each. The project, on its completion, will contribute 5.15 billion units of low-cost and environment friendly electricity to the national grid.

The project was first approved in 1989 and after improving its design, tunnels length generation capacity, it was intended to begin in 2002 and be completed in 2008, but significant delay was experienced and then rising cost. Since 2002, the project PC-I has been revised for three times, while its cost has been revised for fourth time which is yet to be completed.

The cost for Neelum-Jhelum approved by Ecnec on  January 22, 2011, was Rs84.5 billion. Its PC-I was revised to Rs274.88 billion [Ecnec approved on July 4, 2013] after bringing changes in already applied OBE/DBE (operating/designed basis earthquake) parameters and increased component of providing security to Chinese and expatriate staff  of consultants. In December 2015, the PC-I was again upward revised and the Ecnec approved its Rs404.32 billion cost.