ISLAMABAD, Jan 4: The government is contemplating arranging $1 billion foreign exchange through a mix of buyer's credit and issuance of bonds to fund 969MW Neelum-Jhelum Hydropower project in Azad Kashmir following Wapda's inability to secure the lowest bid with financing facility, it is learnt.

Wapda has been seeking about $600-800 million buyer's credit as part of the EPC (engineering, procurement and construction) contract for the construction of $1.4 billion project that is considered crucial to secure Pakistan's priority rights over Neelum waters -- a tributary of the river Jhelum threatened by the Indian move to use its waters for power generation and diversion.

The project has already been delayed by more than six years due to lack of public-sector allocations for the project. Several rounds of bidding have been held and cancelled for one reason or the other.

The project should have been started in 1999 as originally planned. It is estimated to take at least seven years for completion.

When contacted, Riaz Ahmad Khan, adviser on water and power, told Dawn that the entire project would cost about $1.4 billion, and major financing would come from the Bank of China as buyer's credit and issuance of bonds while the remaining gap would be met locally.

Another government official said the final assessment as to the ratio of buyer's credit and the bond size would become clear by the end of next week, following a meeting to be presided over by the prime minister or his adviser on finance, Dr Salman Shah.

Currently, the officials of the Finance and Economic Affairs Division were working out the modalities, he added.

The mode of foreign financing was earlier changed by the government from supplier’s credit to buyer's credit which would mean that Pakistan's sovereign guarantees would be provided for the loan.

The supplier's credit project-financing is usually based on the credit guaranteed by the export credit guarantee agency of the offering country while buyer's credit project-financing by a sovereign guarantee issued by the recipient country.

A few months ago, Wapda received three bids for the construction of the project. The bid from a consortium of Vinci of France and the Frontier Works Organisation (FWO) that had offered to provide $800 million credit on soft terms was rejected on technical grounds because the FWO did not have relevant experience as lead contractor.

The China International Water & Electric Corporation emerged as runner-up with a contract price of $1.8 billion to complete the project and also offered financing facility of $800 million but the bid money was too high.

The lowest $1.3 billion bid from a consortium of China Gezhouba Group of China and CMEC China was recommended by Wapda to the federal government for approval.