MUSHTAQ GHUMMAN

ISLAMABAD: Water and Power Development Authority (Wapda) has sought a tariff increase of Rs 13.24 per unit for 969 MW Neelum Jhelum Hydroelectric Project, whose cost has been increased from less than Rs 100 billion to over Rs 500 billion due to mismanagement.

The tariff petition filed by Wapda came under consideration at a public hearing in Nepra, presided over by Chairman Nepra, Brig Tariq Saddozai( retired).

Central Power Purchasing Agency-Guaranteed (CPPA-G), however, termed Wapda’s tariff request on the higher side.

“Purchase of hydropower at Rs 13.24 per unit, will result in increase of overall consumer end tariff,” said, Director General (Finance) CPPA-G; he argued that Wapad’s requested tariff is higher than thermal tariff.

Former Member Energy Planning Commission Syed Akhar Ali, argued that Wapda has not sought final approval of Neelum Jhelum Project’s cost, adding that conditional approvals are accorded to continue important projects by the government.

He further stated that final approval of transparency and cost of the project is linked to third party endorsement, adding that Wapda did not have the cost of the project verified from a third party.

Wapda officials’ argued that if federal government lowers interest rate on foreign relent loans, Neelum Jhelum hydropower project tariff can be slashed substantially. According to Wapda officials, federal government acquired foreign loans at 2 per cent but relent to Wapda at 10 per cent. After hearing the viewpoints of concerned stakeholders, Nepra’s Authority reserved its determination.

The project was originally contracted at a price of Rs. 90.900 billion in 2007 and its original completion date was anticipated to occur in October 2015 though even at that time some price escalation was expected because of the standard cost escalation clauses in the contract; in addition the anticipated change of civil works quantities due to the involvement of extensive underground works and the quantities in the contract were based upon the design carried out by NORCONSULT & NORPLAN in 1996/97 rather than on the detailed project design report.

The earthquake of October 2005, one of the most destructive in the country’s recorded history, in Muzaffarabad and adjoining areas, caused 70, 000 fatalities and widespread damage to buildings, bridges, roads and created humanitarian crises throughout the project region. Under such emergency conditions, the employer could not proceed with the preparatory works such as additional geological studies, topographic studies and land acquisition. Earthquake engineering evolves according to experience. So, after every major earthquake, earthquake design codes and design criteria tend to change. This earthquake was no exception and the Engineer was directed to develop new seismic hazard criteria for design of the project structures in view of safety and long term viability of the project.

The sponsor (WAPDA) also mobilized an independent Panel of Experts (PoE) including the Chairman of the Seismic Safety Committee of the International Commission on Large Darns (ICOLD). This earthquake of October 2005 led to a substantial modification of the seismic design criteria which resulted in: (i) a change of the dam type from all-concrete gravity dam to a composite concrete gravity plus clay core rock-fill dam; (ii) a shift of the dam location away from the Main Boundary Thrust (MBT) fault; (iii) a general rearrangement of the dam gates to suit the modified structural arrangement; and (iv) more robust, more earthquake resistant dam, intake and de-sander structures.

The proposed reference tariff is based on the following assumptions: (i) levelized tariff is applicable for the period of 50 years; the debt shall be serviced (repayment of principal and interest charges) in the first 20 years and equity shall be redeemed in the last 30 years; (ii) debt for the project consists of foreign relent loans and cash development loans by GoP and local commercial loans; (iii) debt to equity ratio of 79:21; (iv) an exchange rate of PKR 105/USD has been assumed. Indexation against PKR/ USD variations shall be permitted for the project in foreign currency. Tariff components shall be respectively indexed for exchange rate variations as discussed in Section 10; (v) the timing of drawdown of debt and equity may vary from those specified in this petition; as such the project cost, will be adjusted based on the actual IDC at COO. Similarly, ROEDC component will also be updated in the reference Tariff; (vi) variations and adjustments in the project cost due to variation in the PKR/USD and KIBOR fluctuations will also be catered at the time of COD; and (vii) power purchaser will compensate for the energy delivered prior to COD. Payments will be invoiced to the power purchaser as per the mechanism specified in the PPA.