ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Wednesday approved a 10-paisa per unit surcharge on electricity for 18 months and payment of Rs38 billion to Punjab as the first instalment of Rs83bn hydropower profit.

The meeting presided over by Finance Minister Ishaq Dar also approved Rs180bn package for exporters announced a day earlier by Prime Minister Nawaz Sharif.

The committee approved a proposal of the Ministry of Water and Power to extend the closing date for the collection of Neelum-Jhelum Surcharge at 10-paisa per unit from all electricity consumers until June 30, 2018.

Cost estimates for the project have quadrupled to Rs500bn

The surcharge was imposed in 2007 for eight years with the expiry date of Dec 31, 2015 to finance about half of the project cost, which was then estimated at Rs130bn. It was later extended for one year.

It was expected the project would be completed in time, but it was delayed. Cost estimates almost quadrupled to Rs500bn with the fresh completion target of June 30, 2018.

An official statement said the continuation of surcharge would result in the collection of Rs9bn, which will help ensure successful completion of the project. An official, however, said that the surcharge was yielding Rs8-9bn a year depending on the number of units sold annually. The surcharge has already contributed about Rs60bn to the project finances.

Cost estimates for the 969MW Neelum-Jhelum Hydropower Project had been jacked up four times since 2002. Originally, the plant was projected to be completed at a cost of Rs84.5bn. It was revised to Rs277.5bn in 2012 to accommodate changes in design and geography caused by the 2008 earthquake. This was followed by a revised cost approval of Rs404bn in 2015 and Rs500bn now.

As a result, the cost of the project that was originally estimated at about Rs3-4 per unit on completion is now being worked out at Rs12-13 per unit. The project, located near Muzaffarabad in Azad Kashmir, was awarded to Chinese contractors in December 2007 and involved a diversion of Neelum River waters to Jhelum River through a cumulative tunnel of about 68 kilometres.

The ECC approved another summary of the power ministry that sought the issuance of a letter of comfort as the federal government’s guarantee to Water and Power Development Authority (Wapda) for the payment of Rs38.12bn to Punjab as the first instalment of Rs82bn arrears of net hydel profit.

The federal government had reached a settlement with Punjab two months ago that entailed Wapda to pay Rs82bn as net hydel profit for power generated by the 1,450MW Ghazi-Barotha hydropower project since 2005.

This will raise consumer tariff by 33 paisa per unit countrywide. The agreement was reached on the principles of a similar settlement made early last year with the Khyber Pakhtunkhwa government for the net hydel profit on Tarbela Dam.

Under the agreement, the Punjab government will be paid Rs82bn for power generated by the Ghazi-Barotha hydropower project since 2005. Of this, Rs38bn will be settled upfront and the remaining Rs44bn will be paid in the next three fiscal years at a rate of about Rs14.5bn a year. Wapda will continue to pay Rs9.5bn to Punjab every year for the productive life of the project.

Given Wapda’s tight fiscal position and its overexposure to the banking sector, the ECC decision will now empower Wapda to issue a Rs38bn promissory note to the Punjab government.

The ECC also approved the Rs180bn Prime Minister’s Trade Enhancement Incentives announced on Tuesday to mitigate exporters’ difficulties and enhance the country’s exports. It will remain in force from January 16 to June 30, 2018.

Published in Dawn, January 12th, 2017