Audit flags Rs77bn tariff shortfall, Rs99bn outage losses at Neelum Jhelum project

Audit findings have identified financial, administrative and operational irregularities at the 969MW Neelum Jhelum Hydropower Company, including unauthorised consultant payments, weak receivables management, uninsured assets and major revenue losses after tunnel failures, Business Recorder reported. 

According to the audit, the Neelum Jhelum Hydropower Project failed to meet key objectives set under its approved PC-I, including financial viability, commercial efficiency and designed annual power generation.

The project has not achieved its annual generation target of 5,150 gigawatt-hours since commissioning, even in years when the powerhouse remained fully operational.

The report said the project’s performance worsened after the collapse of the Tail Race Tunnel in July 2022 and the Head Race Tunnel in May 2024. These incidents caused prolonged shutdowns and led to major generation and revenue losses in FY2022-23 and FY2024-25.

Since May 2024, the powerhouse has remained non-operational. The audit said management has not restored operations or finalised investigations into the tunnel collapses, while responsibility for the failures has not been fixed.

The company also suffered an estimated regulatory revenue shortfall of Rs77.346 billion after the National Electric Power Regulatory Authority did not approve its reference tariff.

The audit said the tariff issue stemmed from the company’s failure to conduct Third Party Validation of project costs, despite repeated directives from the Executive Committee of the National Economic Council. As a result, a lower provisional tariff was approved.

Business interruption losses during FY2022-23 to FY2024-25 were estimated at Rs99.18 billion. During these periods, the company’s revenue depended largely on Late Payment Surcharge receipts instead of electricity generation.

Financial indicators deteriorated from FY2022-23 onwards, with the company reporting negative operating margins, losses before and after tax, and declining return ratios.

As of June 30, 2025, current liabilities exceeded current assets by Rs307.894 billion. The audit attributed this mainly to defaults on debt repayments and the reclassification of long-term loans into current liabilities.

The project also failed to meet its planned payback period. By FY2024-25, recoveries stood at Rs180.17 billion against the approved project cost of Rs418.885 billion.

The audit found that around 69% of receivables were overdue by more than 120 days.

Risk management weaknesses were also identified, with assets worth approximately Rs267 billion remaining uninsured during the review period.

The report said an insurance claim of Rs41.964 billion related to the Tail Race Tunnel collapse was still unsettled.

It also noted that the project’s insurance policy, covering assets valued at Rs415.8 billion, expired in 2023 and was not renewed.

In its chapter on project planning, the audit said the Neelum Jhelum Hydropower Project failed to achieve its intended objectives, including securing Pakistan’s priority water rights on the Neelum River.

The report said planning and design deficiencies led to repeated design changes, cost escalation and time overruns.

Auditors also identified irregular payments of Rs94.545 million to consultants for services provided beyond the approved agreement period.

The Consultancy Services Agreement was signed in May 2008 at a cost of Rs4.07 billion and was extended several times, with the latest approved extension valid until June 30, 2024.

However, payments continued after the agreement expired, while Amendment No. 8, intended to extend the contract, had not been finalised or formally approved at the time.

The auditors termed these payments a violation of contractual provisions.