The Neelum-Jhelum project is a classic example of how prolonged delays, cost escalation and weak project management can undermine the economics of a major infrastructure scheme.
POWER PROJECTS
The Neelum-Jhelum project is a classic example of how prolonged delays, cost escalation and weak project management can undermine the economics of a major infrastructure scheme. The prolonged closure of the power plant and its uncertain future have transformed what was intended to be a strategic national energy asset into a major financial and operational liability.
The latest audited financial statements of Neelum Jhelum Hydropower Company (NJHPC), prepared by independent auditors Crowe Hussain Chaudhury & Co, raise fundamental questions about the company's financial sustainability and its ability to continue as a going concern. The issue is therefore no longer simply whether the damaged infrastructure can be repaired. The more fundamental question is whether Pakistan can economically justify committing further billions of rupees and years of reconstruction to rehabilitating the project.
Neelum-Jhelum's construction cost is exceptionally high compared with other major hydropower projects in Pakistan. Its unit construction cost works out at $5.15 million per MW ($4.23 million, according to the Ministry of Planning, Development and Special Initiatives). The project's original approved cost in 1989 was Rs15.25 billion. It was revised repeatedly, reaching Rs506.81 billion in the fourth revised PC-I. The AGP, however, uses approximately Rs418.88 billion as the project cost when assessing cost recovery.
The auditor-general of Pakistan's performance audit confirms that the project's original approved cost was Rs15.25 billion and that its cost was revised repeatedly. The project cost eventually rose to Rs418.88 billion, while the project suffered a substantial time overrun. The AGP also reported that the project's payback period increased from five years to 12 years.
The financial position disclosed in NJHPC's 2024-25 audited financial statements is particularly disturbing. The company incurred a net loss of approximately Rs29.41 billion during the financial year, while current liabilities exceeded current assets by approximately Rs307.89 billion. The auditors said these conditions, along with the disruption of operations following successive structural failures and the resulting revenue losses, indicate a material uncertainty that may cast significant doubt on the company's ability to continue as a going concern.
This is perhaps the most significant finding in the audited accounts, besides the disclosure that the company has been unable to make the foreign loan repayment instalments on their due dates and late-payment charges on the overdue amount. Foreign-re-lent loans classified as current liabilities amounted to approximately Rs148.46 billion.
A going-concern warning does not mean that the project must necessarily be abandoned. It does, however, indicate that the company's financial position is sufficiently precarious to require urgent attention and a credible plan for its future viability. The government can no longer treat the project merely as a damaged power plant awaiting technical repairs; it must determine whether NJHPC can remain financially viable after rehabilitation.
The auditor general of Pakistan has also reported combined losses exceeding Rs128 billion, including a net loss of Rs29.41 billion in FY2024-25 and business-interruption losses of Rs99.18 billion during FY2022-23 to FY2024-25.
The Wapda chairman has reportedly stated that the project has recovered 80 per cent of its cost. The assertion, however, needs to be reconciled with the AGP's calculation that only Rs180.17 billion had been recovered against a project cost of Rs418.88 billion. The two figures appear to reflect different bases of calculating ‘recovery’ and should be clarified by Wapda.
The financial consequences of the Neelum-Jhelum shutdown extend beyond the company's balance sheet and affect the national power system as well as consumers. Any proposal to recover additional rehabilitation costs through electricity tariffs, as indicated in the company's audited financial statements, should be subject to rigorous scrutiny by Nepra
The issue, however, is not simply how much revenue the project has generated since commissioning. What matters is whether the investment remains economically recoverable after taking into account the enormous cost escalation, accumulated losses, debt obligations, prolonged shutdowns, lost generation and the additional expenditure required for rehabilitation.
The project's operational performance has also fallen short of expectations. Against its designed annual generation of 5,150 GWh, the AGP reported that the plant has never achieved its designed annual generation target. It has further noted that the company's financial performance has deteriorated steadily since 2022-23, and that the project failed to achieve its operational and financial objectives.
The financial problem is compounded by the repeated failure of the project's tunnels. The latest rehabilitation programme therefore raises a more fundamental question: whether the underlying engineering and geological problems have been adequately identified and resolved, or whether further failures could occur after substantial additional expenditure. The government must ensure that any rehabilitation programme is based on a comprehensive independent technical assessment. It must establish whether the proposed repairs will restore the project's long-term structural integrity or merely provide a temporary solution.
The shutdown, initially expected to be considerably shorter, is now expected to continue until March 2028, almost four years after the April 2024 failure. The cost of rehabilitation must therefore be assessed alongside the project's accumulated losses, existing liabilities, lost revenue, financing costs and the uncertain timing of a return to commercial operation.
The going-concern issue raised by the independent auditors makes a fresh assessment of the project's financial model unavoidable. Its original assumptions have been fundamentally altered by repeated structural failures, lower-than-designed generation and prolonged shutdowns. The company must now absorb substantial additional rehabilitation costs while its generating assets remain idle and its financial position continues to deteriorate.
The government should therefore calculate a revised payback period, taking into account all additional expenditure incurred since commissioning, accumulated losses, financing costs, rehabilitation expenditure and the expected future generation of the plant.
The AGP had already found that the project's original five-year payback period had increased to 12 years. Following the latest prolonged shutdown, it is likely to increase substantially further. The precise figure, however, should be determined through a fresh independent financial assessment rather than an estimate based on incomplete information.
The audited accounts raise a fundamental question that policymakers can no longer avoid: should the project be rehabilitated at any cost? The answer should not be determined by the amount already spent. Money invested in the past seems to be a sunk cost. The relevant question is whether additional expenditure today will produce sufficient future economic benefits to justify the investment.
The government should therefore commission an independent cost-benefit analysis comparing three options: complete rehabilitation of the existing project; major redesign and reconstruction of the damaged infrastructure; and abandonment of the project.
The assessment should consider the total cost of rehabilitation, the remaining useful life of the project, expected future electricity generation, financing costs, the probability of further structural failures, the cost of alternative power generation and the financial burden on consumers. If the analysis establishes that rehabilitation is economically viable and technically safe, the government should proceed. If, however, the cost of rehabilitation and the risk of further failures make the project economically unviable, it should not hesitate to consider abandonment. The billions already spent cannot, by themselves, justify committing billions more.
The ultimate concern is the electricity consumer. When a 969MW hydropower plant remains unavailable for several years, the national power system must compensate through other generation sources and demand-management measures. In Pakistan, this generally means greater reliance on thermal generation, higher fuel costs and additional pressure on electricity tariffs. The financial consequences of the Neelum-Jhelum shutdown therefore extend beyond the company's balance sheet and affect the national power system as well as consumers.
Any proposal to recover additional rehabilitation costs from consumers through electricity tariffs, if pursued as contemplated in the company's audited financial statements, should be subject to rigorous scrutiny by Nepra. Consumers should not be required to indefinitely finance a project whose technical and financial viability has not been independently established.
Pakistan urgently needs more hydropower. The country has substantial indigenous hydropower potential, and developing it can reduce dependence on imported fossil fuels, improve energy security and provide relatively low-cost electricity. But the Neelum-Jhelum experience demonstrates that hydropower development must be accompanied by sound planning, realistic cost estimates, comprehensive geological investigations and independent engineering oversight.
Neelum-Jhelum was conceived as a strategic national asset capable of supplying clean electricity for decades. Instead, it has become a case study in cost escalation, prolonged delays, structural failures and financial uncertainty. The government should now consider all relevant facts together, including the AGP's latest audit findings, the audited financial statements and the independent technical investigations. The decision on rehabilitating Neelum-Jhelum should ultimately be based not on the desire to protect past investments, but on whether further investment is economically and technically justified.
Pakistan needs hydropower. But it cannot afford to keep investing blindly in projects whose financial and engineering foundations remain uncertain.
concluded
The writer is a retired chairman of the State Engineering Corporation.
