May 28, 2007	Monday	Jamadi-ul-Awwal 11, 1428

ISLAMABAD, May 27: The cost of 969MW Neelum-Jhelum Hydropower Project will increase by more than 41 per cent to $2.1 billion, according to Wapda estimates.

The estimates are based on the $1.5 billion lowest bid offered by a Chinese consortium, according to the actual project cost phasing over a period of eight years. The cash requirement plan suggests that Rs90.9 billion ($1.5 billion) cost offered by the consortium would in effect reach Rs128.4 billion ($2.14 billion) in eight years. This also includes interest payments of more than Rs29 billion.

The plan also suggests that the final cost of the project would be more than 105 per cent higher than Wapda’s estimate of Rs62.25 billion ($1.04 billion).

The government has already released Rs5 billion as mobilisation advance to the executing agency to start the project without further delay. Pakistan will need to spend $85 million for the start-up operations in the first year of the project’s implementation.

On completion, the project will generate electricity at a cost of Rs1.91 per kilowatt hour (unit), which is much higher than the engineers’ estimate of Rs1.42 per unit, but significantly lower than the tariff currently being offered by the government for thermal power projects.

According to Wapda’s cash plans, the project will require $123 million (Rs7.4 billion) in the second year of implementation, followed by another $233 million (Rs14 billion) in the third year. In the fourth year, Wapda will spend $269 million (Rs16.1 billion) and $383 million (Rs23 billion) in the fifth year. In the sixth year, $447 million (Rs26.8 billion) will be spent on the project and then about $351 million (Rs21 billion) in the seventh year. In the final year of implementation, the project will eat up another $248 million (Rs14.8 billion), leading the total cost of the project to $2.14 billion (Rs128.37 billion), although the bid quoted by the lowest contractor is Rs90.1 billion.

The fate of the 969MW Wapda project has been hanging in the balance for six years although it is considered crucial to secure Pakistan's priority rights over Neelum waters -- a tributary of the Jhelum river -- threatened by the Indian move to use its waters for power generation and diversion.

Bidding for the project was held about a year ago. Wapda received three bids for the project. The lowest $1.3 billion bid was given by a consortium of Gezhouba Group of China and the CMEC China was recommended by Wapda to the federal government for approval.

The project has already been delayed by more than six years because of lack of public sector allocations for the project. Several rounds of bidding were 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 eight years for completion.

Pakistan had stopped India about a year ago from completing a 22km tunnel that sought to construct a storage-cum-power project and divert Kishanganga (Neelum) waters to Wullar Lake in violation of the Indus Waters Treaty 1960.

Later, India offered to alter its project design but Pakistan rejected that plan as well. Like the Chenab, Jhelum River of which Neelum is an integral part, belongs to Pakistan under the 1960 treaty.

Under the treaty, India could not change the flow of the Jhelum river even for power generation that may affect any Pakistani power project. But if Islamabad fails to construct the project and there is no power project in Pakistan for that particular river, India could divert the river for run-of-the river project but without any storage.

Under the treaty, Pakistan has exclusive rights to use water of western rivers -- Indus, Jhelum and Chenab -- while eastern rivers -- Ravi, Sutlej and Beas -- have been assigned to India.