Attempt the following questions based on the above readings.

Question 1:
Describe the capital Structure of the Nelum Jhelum Hydro-Power Project?
Capital Structure of NJHPP:
The total project cost of PKR 506,579 Million is estimated to be funded 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.

- Project Financing-- Percentage PKR Million USD Million

1 Debt 79.2% 401,416 3,823

2 Equity 9.3% 46,963 447

3 Grant 11.5% 58,200 554

(NeelamJhelum'SurCharge)
Total Project Cost 100% 506,579 4,825--
Foreign Relent Loans received by NJHPC consist of Islamic Development Bank Loans IDB
Istisna I &II of US$ 358 Million, China Exim Bank Loan I and II of US$ 1024 Million, 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 and 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 and 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.

A loan of PKR 104,232 Million will be raised to meet the financing shortfall. Loan will have a
total tenor of twenty-eight years including eight years' grace period at a mark-up/borrowing rate
of 6M Kibor +113 bps. Water & Power Development Authority (WAPDA) being the sole
sponsor of NJHPC has injected an equity of PKR 46,963 Million. NJHPC has already received a
grant in the form of Neelum 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.

Question 2:
What type of financing risk the project is exposed to?
 carry higher risks for the sponsors.
 Insurance.
 The Power Purchaser will bear hydrological risk
 Operational risk
 Loans.
 Payback period.
 Interest.

Higher risks for the sponsors.

The hydropower plants carry higher risks for the sponsors because of
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
• terrorism;
• environmental and resettlement
• the implementation period;
• cost over-runs for various
• quantified upfront.

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.

The Power Purchaser will bear hydrological risk:

Capacity Purchase Price is a fixed monthly payment payable to NJHPC irrespective of the actual
hydrology i.e. hydrological risk shall be borne by the power purchaser.

Operational risk:
Operational risk arises as a result of host government policies, regulations and administrative
procedures that directly constrain the management and performance of local operations in
productions, marketing, finance and other business functions.

Question 3:
Write your suggestion about how a project manager might reduce these
risks by adopting alternative strategies.

Following are the ways to reduce the risk:

Recovey:
Response:
Prevension:
Development:
Insurance:
Managing equipment failure:

Insurances are required to be maintained throughout the life of the project. Since, the national
insurance companies are not capable to provide insurance for such a huge project single
handedly therefore a mix of local and international insurance companies will be engaged to
insure the risks faced by the project.
Dulac states that
“to perform effective risk management in complex systems, it is necessary to use a more
inclusive approach that encompasses the technical aspects of a system, as well as the
managerial, organisational, social and political aspects of the system and its environment.”

Managing Equipment Failures:

For all the good that technology has done for the world of business, the equipment that you use
to conduct your operations can still break down. Depending on the severity of the failure, you
could face crippling losses in revenue.
It’s because technology has become so intertwined with businesses that extra steps have to be
taken to:
• safeguard information
• make sure all equipment works properly
• ensure alternate plans are in place in the event of a failure.