Recently, the Islamic Development Bank (IDB) and the Saudi Fund for Development came to rescue the 969MW Neelum-Jhelum Hydropower Project by releasing $433 million funding, which was almost coming to a halt due to shortage of funds.

The Neelum-Jhelum Hydropower Project is located in the Muzaffarabad district of Azad Jammu and Kashmir and is being built on the run-of-the river by a Chinese consortium since late 2008. The powerhouse is being connected with the national grid through a 48-km long tunnel, 22-Km South of Muzaffarabad and close to the main road leading to Islamabad. The water will be released into the Jhelum river after passing through the turbines that may cause environmental problems for the citizens of Muzaffarabad and adjacent areas.

It was estimated that the project would be completed by the end of 2016. However, Prime Minister Nawaz Sharif visited the project site in June 2013 and directed the authorities to expedite the construction work. He desired that at least one of its units should be made operational by mid 2015. However, in a recent briefing to the National Assembly Standing Committee on Planning and Development, Chairman Water and Power Development Authority Zafar Mahmood stated that so far only 78 per cent of the total work has been completed, while Rs135.4 billion have been spent on the project. It shows that the deadline has once again been changed.

In 2007, it was estimated that Rs130 billion was required to complete the project, but in 2012 the cost swelled to Rs275 billion, which were approved by the authorities. Subsequently, the cost rose to 414 billion. To meet 50 per cent of its shares in the equity, the government of Pakistan enforced a surcharge of 10 paisa per unit on the power tariff and so far has collected Rs37 billion from the electricity consumers while Rs22 billion are yet to be raised through the above mentioned surcharge. It was decided that the rest of the 50 per cent finances would be arranged through the SUKUK bond, the Islamic Development Bank, Chinese banks and the Saudi Fund for Development.

The project has faced many financial problems since its launch. The cost of the project is constantly rising due to inflation and devaluation of the rupee in the international market. The 2005 devastating earthquake in the Muzaffarabad region also emphasised the need for extraordinary safety measures for the project. The design and implementation process of the project went through several changes to make it secure and safe in the eventuality of any future disaster.

The presence of Chinese workers in the remote areas also increased the project’s cost as the government has to ensure a high level of security for them. Therefore, it caused huge additional financial liabilities.

Talking to TNS, a spokesperson for Pakistan Water and Power Development Authority (WAPADA) stated that there was no provision in the PC-1 to cover these unexpected and escalated expenses in the project.

On the other hand, international donors, particularly IDB, want the government of Pakistan to seek performance guarantees from the project contractors -- Chinese. The government could not furnish performance guarantees due to its flawed arrangements with the Chinese contractors. The government did not want to offend the Chinese companies. As a result, the IDB withheld $433 million loan. It put the project to a halt for a couple of months.

In the meantime, contractors threatened the authorities that if they do not resolve the financial issues, the contractors would de-mobilise machinery and equipment from the project site, which might cause further delay in completion of the project. To avoid this crisis, Prime Minister Nawaz Sharif established a committee led by Finance Minister Ishaq Dar to resolve the issues with the donors as well as with the contractors. The finance minister has given assurance to the IDB that the contractors will furnish performance guarantees about the money spent so far. Now, the IDB and other Middle Eastern donors are willing to release the remaining funds while WAPDA has also decided to revise PC-I of the Neelum-Jhelum project to include the revised cost. It is expected that with these arrangements in place, work on the project will continue without any interruption in the days ahead.

The Neelum-Jhelum project has been a part of national discourse since long but hardly anybody paid attention to the concerns of the government of Azad Jammu and Kashmir or citizens of Muzaffarabad where this project is located.

The government of Azad Kashmir and political parties at large are quite unhappy the way the federal government is running this project. No formal agreement has been made with the AJK government so far.

The experience of the Mangla Dam is quite bitter. An AJK government official told TNS that despite formal agreement, WAPADA had not fulfilled its responsibilities vis-à-vis rehabilitation and compensation of the land and property. WAPADA pays 42 paisa to the KPK government on account of royalty and water usage charges of Tarbela Dam while it pays only 14 paisa per unit to the AJK government; reasons best known to the federal government.

This discriminatory approach is causing mistrust about the WAPADA’s intentions in the context of the Neelum-Jhelum power project and creating disenchantment among the AJK people. The AJK government and civil society have long been urging the government of Pakistan to make a formal agreement with it but to no avail.

It is widely believed that the federal government and its affiliated institutions treat the AJK government very casually. For instance, to supply power from the Neelum-Jhelum project, a new 270-km 500kV transmission line will be laid from Neelum-Jhelum to Domeli near Rawat. A significant portion of it runs thorough AJK that requires a formal agreement between WAPADA and the AJK government.

Surprisingly, without prior consultation/permission by the government of Azad Kashmir, work on the transmission line has been started. Immediately, contractors had to face the wrath of the local population whose land was acquired by the local authorities for the transmission line. This attitude of the local authorities humiliated both Islamabad and Muzaffarabad alike. The local land owners are demanding reasonable compensation for their crop, trees and land. It has also slowed down progress on the transmission line and increased the cost to a great extent.