ISLAMABAD, Dec 12: The caretaker cabinet approved on Wednesday an increase in electricity tariff by 10 paisa per unit.

Sources in the government confirmed that the increase would be called a special surcharge and would cover all power consumers, including those of the Karachi Electric Supply Corporation.

The tariff has been raised to finance over 43 per cent cost overrun of the 969-MW Neelum-Jhelum hydropower project being built in Azad Kashmir.

The project was originally estimated in 2003 to cost $1.5 billion but an inordinate delay by the government in taking up the strategic project has increased its cost to about $2.14 billion.

The meeting, presided over by caretaker Prime Minister Mohammadmian Soomro, also approved the revised cost of Rs128.4 billion, including a foreign exchange component of Rs46.5 billion.

“The debt-equity ratio of the project will be around 50:50 with equity being raised through a nominal surcharge on electricity excluding three million lifeline consumers,” said an official announcement.

“The approval clears the way for the long-awaited construction of the project which came Pakistan’s way following the historic Indus Basin Treaty between Pakistan and India,” it said.

The Water and Power Development Authority (Wapda) had set up the Neelum-Jhelum Hydroelectric Project Company (NJHPC) as a special purpose vehicle (SPV) to raise about Rs50 billion for the 969MW project for protecting Pakistan’s priority rights over the Neelum River. Wapda has also awarded a contract to a Chinese consortium, comprising China Gezhouba and the CMEC China, for Rs90.90 billion ($1.5 billion).

About half of the project cost would be raised through international bonds and foreign loans. The company will be run by a seven-member board of directors led by the Wapda chairman.

Based on the bid price of $1.5 billion (Rs90.90 billion), the actual project cost phasing over a period of eight years would in effect reach Rs128.4 billion ($2.14 billion) on completion. This would include interest payments of more than Rs29 billion, the sources said.

The plan also suggests that the final cost of the project will be more than 105 per cent higher than Wapda’s contract estimate of Rs62.25 billion ($1.04 billion). The government has released Rs5 billion as mobilisation advance to the executing agency to start the project without further delay. Pakistan will need to spend $87 million for the start-up operations in the first year.

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.

Ahmed Hassan adds: The cabinet also discussed shortage of flour in the country and it was informed about the steps being taken to ease the crisis, including release of sufficient wheat stocks in some areas.

It was also briefed on the situation in Swat and other troubled spots of the NWFP.

The prime minister said: “Although the primary responsibility of the interim set-up is to create conducive atmosphere for holding the general elections, the welfare of the people at large remains our top priority”.

The meeting approved in principle the signing of a memorandum of understanding for export of Irri-6 and Basmati rice to Indonesia at the government-to-government level.

The lack of housing facilities for the federal government employees in Islamabad was also discussed and the prime minister directed that a comprehensive plan be prepared by a special cabinet committee headed by Minister for Health Ijaz Rahim along with ministers Abbas Sarfraz Khan and Nisar Mohammad Khan as its members. The committee was asked to submit its report within 10 days.