Navigating a turbulent path, the 969-megawatt Neelum-Jhelum Hydropower project is gradually nearing completion, with progress currently at 87 per cent and cost estimated at Rs464 billion — an almost 450pc escalation since 2002.

Located near Muzaffarabad in Azad Kashmir, the project involves a tunnel complex of about 68 kilometres for diverting water from the River Neelum, passing underneath the Jhelum river bed. While the project has faced a host of problems along the way, the latest challenge is the political temptation for its speedy completion while deadlines have already been eased.

As of Nov 24, a crucial financing element, $576m from the Chinese Exim Bank, was yet to be confirmed. To go beyond 87pc physical progress without financial closure — a prerequisite for any project to begin with —makes the strategic initiative, which is also meant to establish Pakistan’s rights on the Jhelum waters, a rare venture.

Without compromising on quality the project now seems unlikely to materialise before the PML-N goes into the next election

Based on the temptation for acceleration — at 85pc project completion — the government recently re-appointed the chairman Wapda and the chief executive officer of the Neelum-Jhelum Hydropower Company (NJHPC) alleging that they had not measured up to the expectations of the government and had been unable to give a definite completion date. A chief consultant of US origin has also been replaced by a British consultant.

The NJHPC had already prepared a time schedule in consultation with the Chinese contractor and the project consultant from the United States and submitted it to PM office in November 2015.

As per this schedule, the first unit was to be operational by 31 July, 2017, followed by subsequent units every quarter, to reach 100pc operation of 969MW by January 2018, in accordance with the agreement signed with the Chinese contractor in December 2007. Work started in May 2009 and was to be completed in 8 years.

The project cost increased to Rs278bn in 2012 (from original estimates of Rs84.5bn) because of geographical changes following the 2005 earthquake, the induction of a tunnel boring machine to recoup the time already lost and simultaneous development work, on the same river upstream, by India.

In December 2015, the Wapda and the NJHPC management demanded another cost increase to Rs414bn, citing interest during construction and taxes but the Executive Committee of the National Council (ECNEC) allowed only Rs404bn. Local funds were arranged through commercial banks but the $576m external financing could not be finalised with the Exim Bank of China.

Cost estimates have been jacked up again to Rs464bn by the new management at Wapda and NJHPC but are pending approval from the federal government. These cost increases have been necessitated because of a recent accident that disturbed the river structure and requires reinforced concrete jacketing at a cost of Rs10bn. It also delayed the project by almost four months.

Another rock-burst damaged the tunnel boring machine and consultant cost also increased as the timeline extended. An added Rs12bn is the amount of taxes payable by the Wapda. Now that only 1.5km of tunnel, out of 64km, is to be excavated by February 2017, any haste in accelerating boring or moving fast with weak tunnel grouting could be catastrophic and cause another six-month delay.

Total liabilities payable by September 17 this year have now increased to $150m. By that time, the project had consumed about Rs168bn, including interest, during construction. The project will produce 5.15bn units of electricity annually with an average cost of Rs20 in the first 10 years and then Rs3.50 per unit subsequently for at least 30 years.

This project never experienced smooth sailing as the government did not provide the required funding. As a consequence the contractor slowed down work.

In a recent meeting in the PM house, the new management has come up with a new timetable and cost revision.

Under this plan, the first unit will be made operational at the end of February 2018 and the other three before the start of next summer, extending the completion date by 7 months.

Astonishingly the prime minister has shown his satisfaction on the new timeline without asking about its financial and technical repercussions.

Internally, Wapda is pushing — under pressure from a monitoring unit in the prime minister’s office — to deliver the full 969MW capacity by May 2018 to take full advantage of the monsoon flows.

Now the pressure on contractor and project consultant to complete the first unit by July 31, 2017 has been released by the government. The contractors were previously under pressure from the Chinese government to complete the project as per timelines submitted to the PM House. The project now seems unlikely to materialise before the PML-N goes into the next election without compromising on quality.

The delay would make contractors viable for compensation of Rs8-10bn through the extension of time (EOT) clause. The nation will miss potential revenue of Rs1-4bn in energy loss from the project for 7-8 months and fresh negotiations may be required for additional time with lenders.

Unfortunately the Prime Minister’s team is focused more on deliverable indexes rather than the engineering complexities which may affect the safety of the construction and the productivity of the project in the long run.

Published in Dawn, Business & Finance weekly, November 28th, 2016