Escalating costs, design flaws, mismanagement: The story of Neelum-Jhelum

 

While it appears that the government has successfully weathered the Nandipur storm, another scandal, possibly even bigger may still be in store. The projected cost of the Neelum-Jhehlum project has jumped from Rs 275 billion to Rs 416 billion according to revised PC-1.

The Rs 275 billion figure had actually been revised from Rs 84 billion ­ the Executive Committee of the National Economic Council (ECNEC) even authorised an inquiry in 2013 when WAPDA sought the increase in the cost of the 969 MW project.

The project was first approved in 1989 at an estimated cost of Rs 15.3 billion. However, major changes have been made to the project since its inception. The project was initially designed to have an output of 550 MW, but was later optimised to the current projections of 969 MW.

WAPDA has been collecting funds under the much maligned Neelum-Jhelum surcharge since August 2007. But those hoping for an end to the surcharge would be waiting for a long time as it was revealed in November 2014 that WAPDA had only collected Rs 35.252 billion under this head. By comparison, in the latest PC-1, WAPDA has demanded over Rs 28 billion as “increase in interest during construction”.

The revised estimate of Rs 416 billion was approved by the Central Development Working Party (CDWP) with the government saying that while the project was plagued with mismanagement and corruption, it still had to be executed because of its strategic nature. The CDWP also ordered a third-party assessment of the higher cost.

After the cost estimate was revised, international financiers of the project backed out and canceled the payment of Rs 45 billion. The government was left with no choice but to find alternative funding sources for the project.

The revised PC-1 has detailed increase in the cost of engineering and supervision, Rs 7.376 billion; exchange loss, Rs 36.850 billion; duty and taxes, Rs 10.877 billion; price escalation, Rs 44.086 billion; interest during construction, 28.110 billion and other expenses of Rs 9.266 billion.

In a meeting of the top WAPDA officials held at the start of the current year, the participants pointed to several reasons for escalation of the cost of the project. The meeting, chaired by WAPDA chairman Zafar Mahmood noted that the project had initially been approved for generation of 550 MW of electricity, which was later increased to 969 MW. To optimize the power generation, the power house had to be shifted to a new location. They also pointed out that the 1st revised PC-I approved by ECNEC in 2002 for Rs 84.55 billion was based on the 2001 price levels. But while the PC-1 was approved, work on the project could not start as no funds had been made available for the project. The funds were made available in 2007 and contract work was awarded the same year.

Moreover, the meeting discussed that in the aftermath of the devastating earthquake of October 8, 2005, additional studies were carried out to review the design of the project. Several changes in design were recommended to ensure safety, which increased the cost of the project even further.

But after several workers died in an accident in the construction of the project, WAPDA Chairman Zafar Mehmood told Public Accounts Committee (PAC) that the project had been launched in haste which had caused immense losses, including loss of human lives.

“Work on 58-kilometre-long tunnels was started without studying rock structure and geology that led to rock burst and damages, including loss of precious human lives,” Zafar Mehmood told PAC.

But while questions regarding mismanagement, corruption and flawed design of the project remain, the government, it seems has put all its eggs in this particular basket as this is one of the few large scale power generation projects that the government estimates can be completed by November 2016.

The WAPDA chairman also told PAC after the accident that the project would have been delayed for years, if the government had waited for completion of the studies.