Nelum Jhelum Hydro-Power Project

Question#01: Describe the capital Structure of the Nelum Jhelum Hydro-Power Project?
Answer: According to the provided document, the estimated total project cost of the project
was PKR 506,579 Million .It was based on a Debt: Equity: Grant ratio of (79:9:11). For this
Petition, a debt: equity ratio has been assumed and may vary from the anticipated (79:9:11)
due to any variation in the estimated costs.
For financing the project, NJHPC has utilized multiple sources of debt. The debt portion consists
of Foreign Relent Loans from GoP, cash development loans and local commercial financing.
1. Debt:
Foreign Relent Loans are raised by the Government of Pakistan and relent to NJHPC at a
fixed rate set by Economic Affairs Division of Pakistan. Foreign Relent Loans received by
NJHPC consists of:
 Islamic Development Bank Loans IDB Istisna I &II of US$ 358 Million.
 China Exim Bank Loan I and II of US$ 1024 Million.
 Kuwait Fund for Arabic Economic Development KFD loan I and II of US$ 74 Million.
 Saudi Fund for Development SFD Loan I and II of US$ 181 Million.
 OPEC Fund for International Development OFID Loan I and II of US$ 81 Million.
NJHPC has received three cash development loans:
 CDL –1 (2006-07) of PKR 5,270 Million.
 CDL –2 (2012-13) of PKR 1,500 Million.
 CDL – 3 (2014-15) of PKR 14,000 Million
from the GoP and raised a commercial loan of PKR 100,000 Million from National Bank of
Pakistan.
2. Equity:
Water & Power Development Authority (WAPDA) being the sole sponsor of NJHPC, has
injected an equity of PKR 46,963 Million.
3. Grant(Nelum Jhelum Surcharge):
NJHPC has already received a grant in the form of Nelum Jhelum Surcharge of PKR 51,124
Million as of 30 June 2017, and additional grant of 7,075 Million will also be raised prior to
COD. No return and redemption is being claimed on the Nelum Jhelum Surcharge.
The details are given in table 1 and 2.
Project Financing Percentage PKR Million USD Million
1 Debt 79.2% 401,416 3,823
2 Equity 9.3% 46,963 447
3 Grant(Nelum Jhelum Surcharge) 11.5% 58,200 554
Total Project Cost 100.0% 506,579 4,825
Table. 1

Financial Summary
Balance Sheet FY16 FY17 FY18
Operating Fixed Assets 444.9 1,043.5 1,128.1
Capital Work in Progress 275,760.2 338,274.4 402,023.9
 Other Non-Current Assets 2.3 1,877.1 1,797.4
Other Current Assets 53.7 442.0 299.7
Bank Balances 14,491.1 34,826.1 58,261.5
Total Assets 290,752.2 376,463.1 463,510.6
EQUITY
Issued, subscribed and paid up capital 41,656.5 41,663.5 41,663.5
Accumulated Profit/(Loss) (288.4) (2,092.3) (5,202.6)
Share Deposit Money 49,478.9 5,300.0 5,300.0
Government Grant (NJS) - 51,213.6 58,593.4
LIABILITIES
Long-term Financing 100,447.9 133,688.7 146,865.1
NBP Sukuk 30,000.0 65,000.0 100,000.0
Retention Money Payable 10,355.4 12,002.9 9,958.7
Current Liabilities 59,094.9 69,686.7 106,332.5
Total Equity & Liabilities 290,752.2 376,463.1 463,510.6
Table. 2
Question#02: What type of financing risk the project is exposed to?
Answer: Following is the list of the problems to which the Nelum Jhelum Hydro-Power Project
is exposed of:
1. Hydrological risk.
2. Operational risk
3. Higher risks for the sponsors.
4. Payback period.
5. Interest on Loans.
1. Hydrological Risk:
The power purchaser will bear the hydrological risk because the capacity purchase price is a
fixed monthly payable to NJHPC irrespective of the actual hydrology.
2. Operational Risk:
Operational risk occur due to shortage of material which is being supplied to the plant, fault
in machinery as every machine has a specific life period, lack of labors’ training, etc.
3. Higher Risks for the Sponsors:
 More capital intensive.
 Longer gestation period.
 Problems associated with the project being in the remote areas i.e. difficult and time
consuming access to project site etc.
 Lack of appropriate infrastructure.
 Higher risks during project construction and completion.
 Political and security problems like terrorism.
 Environmental and resettlement issues; people indulge in litigation resulting in
prolonging the implementation period
 Cost over-runs for various reasons including unforeseen delays which cannot be
quantified upfront.
4. Payback Period:
Due to some issues, which causes delay in the completion of the project earlier, become the
reason of longer payback period. Due to this reason the project earning period starts later
and the initial investment also recover in longer time period.
5. Interest on Loans:
Due to fluctuation in market, the $ prices goes up and down. It will cause an effect on the
interest rate. For example, you have to pay PKR 50,000 when 1$=100 PKR. But later on $
prices goes up and become 1$= 100PKR, then you have to pay PKR 100,000
Question#03: Write your suggestion about how a project manager might reduce these risks
by adopting alternative strategies?
Answer: According to my point of view, a project manager might reduce these risks by adopting
the following strategies:
1. Intelligent use of Resources:
If the project manager has a clear objective then he will be able to utilize the resources
intelligently. Intelligent utilization of resources will help in reducing gestation period.
Because longer the gestation period, more will be the additional cost in the project. So,
the period should be as small as possible. And it could only be possible by the efficient
utilization of resources.
2. Market Intelligence:
More market knowledge is always good. By knowing all the information about cost,
demands, country relations with others, supplies and information about other
competitors like what type of designs and products they are using etc. , the project
manager will be able to make the estimated project cost. He will also be able to make
better design for construction, which will reduce the risk involved in construction and
completion phase of the project.
3. Realistic Estimations:
The project manager should have to base his estimations on realistic values. Because the
more the realistic values, the less will be the risk.
4. Mitigations Schemes:
The project manager should have some mitigations schemes to reduce the possibilities of
risk to occur. Like problems associated with the project being in the remote areas i.e.
difficult and time consuming access to project site etc. As the manager cannot prevent
these risks due to backwardness of the location, at that moment his mitigations schemes
will help him to minimize the risks.
5. Schemes to Deal with Hazards:
The manager has to plan two or three schemes, which he can use at the time of need, in
case if one gets fail. For example if any issue occurs like political or security issues,
environmental and resettlement issues and cost over-runs for various reasons etc. , he
should use the pre-planned schemes to solve the issue.
6. Proper Execution Time:
The choice of execution time is very important. As it tell us whether the project will
flourish in market at that specific time or not. Wrong choice of execution time will lead
towards loss.
7. Insurance:
The insurance cost consists of the insurance for all the operational risks of the project, as
well as the business interruption insurance. These are standard insurances required by all
lenders and the same are also set out under the PPA. The risks to be covered through
insurance will include machinery breakdown, all-natural calamities, sabotage, and
consequential business interruption, etc.