Additional cost of Rs167 billion to consumers tied to Neelum Jhelum Hydropower Project failure

ISLAMABAD: A high-level committee, led by the Minister for Power, has determined that consumers incurred an additional cost of Rs167.787 billion (or Re. 0.7551 per unit) due to the reliance on more expensive power sources. This situation arose from the unavailability of the 969 MW Neelum Jhelum hydropower project from FY 2022-23 to 2024-25, reported the Business Recorder.

According to sources, the tariff for the Neelum Jhelum Hydropower Company (NJHPC) operates on a take-and-pay basis. Consequently, the company is not receiving capacity payments due to the plant’s closure, which means there is no financial burden on consumers stemming from this plant. The funds collected through the Neelum Jhelum Surcharge (NJS) have been treated as a grant, significantly lowering the tariff. As capacity payments are not being allocated, the marginal costs cannot be assigned to NJHPC.

On July 14, 2024, the Prime Minister established a high-level committee tasked with assessing the impact on consumer tariffs following the collapse of the headrace tunnel at NJHPC. The committee comprises the following members: (i) Federal Minister for Energy (Power Division) – Convener; (ii) Federal Minister for Water Resources – Member; (iii) the then Deputy Chairman of the Planning Commission – Member; (iv) Federal Secretary for Energy (Power Division) – Member; (v) Federal Secretary for the Ministry of Water – Member; (vi) Chairman Nepra – Member; and (vii) Chairman WAPDA – Member.

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The committee’s Terms of Reference (TORs) include: (i) analysing the tariff impact of ongoing outages at NJHPC due to structural damages since commencement of operations; (ii) establishing mechanisms to protect consumers from additional charges resulting from plant outages caused by design or construction flaws; and (iii) reviewing the existing Power Purchase Agreement (PPA) template to safeguard consumers against losses attributed to the shortcomings of power producers.

The committee’s first meeting took place on Friday, July 19, 2024, in the Power Division, chaired by the Federal Minister for Energy (Power Division). All members attended the meeting, which also included the Joint Secretary (Power Finance) from the Power Division, the Chief Executive Officer of CPPA-G, as well as the Chief Executive Officer and Chief Financial Officer of Neelum Jhelum HPP Company.