The delay in completing the Neelum-Jhelum Hydropower Project not only increased the cost by 400 percent, but also resulted in Pakistan losing its priority water rights on the Neelum River, which is one of the project's key objectives.
'Neither the envisaged benefits for generating 5,150 GWh electricity units could be achieved nor water rights over Neelum River established due to loosing Kishenganga case in International Court of Arbitration,' said Performance Audit of Neelum Jhelum Hydropower Project for the audit year 2022-23, conducted by the Auditor General of Pakistan.
The project was delayed by nearly nine years due to which its cost was increased from Rs84.502 billion (1st revised PC-I) to Rs419.454 billion, thereby resulting into cost overrun of Rs334.952 billion. Regarding the non-achievement of objective and establishment of water rights on River Neelum Kishenganga for Pakistan, the audit pointed out that there was a scheme in Pakistan to divert the Neelum River (Tributary of the Jhelum) waters for such use and India had a similar schedule in occupied Kashmir.
During audit of the NJHPP, it was observed that PC-I of NJHPP with proposed installed capacity of 500 MW was approved by ECNEC in 1989 which was to be completed in 1996. The execution of the project was delayed and feasibility study report was revised in 1997 by increasing the generation capacity from 500 MW to 969 MW. Later on, ECNEC approved 1st revised PC-I of the NJHPP in 2002 having installed capacity of 969 MW with completion period of 8 years i.e. up to 2010; however, construction of the project started in 2008.
The issue of securing water rights over the Neelum River was explicitly stated in the objectives section of the 3rd and 4th revised PC-I of the Neelum-Jhelum Hydropower Project (NJHEP). Meanwhile, in 2007, India began construction of the Kishenganga Hydro-Electric Project (KHEP) in Indian-occupied Kashmir. In response, Pakistan initiated arbitration proceedings by submitting a 'Request for Arbitration' to the Permanent Court of Arbitration (PCA), Hague, on May 17, 2010.
The court found that India had demonstrated a stronger claim by coupling intent with action on the KHEP earlier than Pakistan had done with the NJHEP. As a result, India was granted priority rights over Pakistan concerning the use of the Kishenganga / Neelum River for hydroelectric power generation. However, in its decision dated December 20, 2013, the court ruled that 'India shall release a minimum flow of 9 cumecs into the Kishenganga / Neelum River below the KHEP at all times at which the daily average flow in the Kishenganga / Neelum River immediately upstream of the KHEP meets or exceeds 9 cumecs.'
It was further decided that 'at any time at which the daily average flow in the Kishenganga / Neelum River immediately upstream of the KHEP is less than 9 cumecs, India shall release 100 percent of the daily average flow immediately upstream of the KHEP into the Kishenganga / Neelum River below the KHEP'. Resultantly, Pakistan lost priority water rights on Neelum River and one of the objectives of the project to establish water rights on River Neelum could not be achieved due to delayed completion of the project. Project mismanagement resulted into non-achievement of objective regarding establishment of water rights on River Neelum / Kishenganga for Pakistan. The matter was taken up with the management and reported to MoWR in March, 2023. The management replied that design / output of NJHP was optimised without considering the construction of Kishenganga Hydroelectric Project. The reply was not acceptable. Furthermore, time overrun of the project was a major factor with regards to non-achievement of the objective of securing water rights over River Neelum for which the management has not provided any justification. Audit recommends the management to justify non-achievement of objective of the project regarding establishment of water rights on River Neelum / Kishenganga for Pakistan.
During audit, it was noticed that original PC-I of the project was approved by ECNEC on December 31, 1989 at a total cost of Rs15,012 million and 1st revised PC-I was approved on February 28, 2002 at a total cost of Rs84,502 million with completion period of eight years. Later on, subsequent to two intermediary revisions of PC-I, fourth revised PC-I of NJHP was approved by ECNEC on May 22, 2018 at a total cost of Rs506,808 million with completion date of June 30, 2018. The project is yet to be concluded but actual expenditure of Rs423,446 million has been incurred up to June, 2023 resulting in cost overrun of Rs338,944 million and time overrun of nine years as compared to the cost of 1st revised PC-I. The management replied but the reply was not tenable because all the design issues should have been addressed before award of contract. Audit recommends the management to fix responsibility for abnormal cost and time overrun of the project.
The payback period of the project had been increased from 5.17 years to 12 years as per actual calculations on the basis of average generation of the project from date of commissioning i.e. July 04, 2018. The management replied that payback period was calculated on provisional tariff of Rs9.1184/kWh, whereas, NJHPC has applied for tariff of Rs13.0331/kWh. On finalisation of tariff, NJHPC would receive its impact retrospectively. Energy loss occurred due to collapse of TRT which was also recoverable from M/s National Insurance Company Limited (NICL) through business interruption claim. The payback period of the project would be reduced upon approval of tariff and successful claim from NICL. The reply of the management was not convincing as tariff of Rs13.0331/kWh was not approved by NEPRA in July, 2018 onwards due to non-conducting of third party validation (TPV) which was required by ECNEC while approving 3rd revised PC-I of the project. TPV is still pending since more than 8 years. The insurance claim lodged with M/s NICL is also pending since February 2023. Audit recommends the management to justify non-achievement of payback period as envisaged in PC-I.
Regarding Clean Development Mechanism (CDM) revenues, of the 4th revised PC-I of the NJHP, the benefits arising from sale of carbon credits will be valued at $5 per tonne of Carbon Dioxide (CO2) gas produced. The government will claim carbon credits from United Nations Framework Convention on Climate Change (UNFCCC) amounting to $12.533 million per annum. It was further observed that no efforts were made by the management to avail financial benefits amounting to $50.133 million ($12.533 million in 4 years) under CDM. The management replied but the reply is not tenable as no responsibility was fixed for non-earning of CDM revenue as envisaged in PC-I of the project. The AGP also pointed out loss of Rs70.443 billion revenue due to non-approval of reference tariff by NEPRA. Non-conducting of inquiry for collapse in Tail Race Tunnel resulted into generation loss Rs20.387 billion. Non-indemnification of insurance claim lodged for loss sustained due to collapse in Tail Race Tunnel: Rs41,964.645 million.
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