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EDITORIAL: Pakistan and China signed an agreement for the construction of Azad Pattan hydel power project of 700.7MW, gravity/run of the river dam on the Jhelum river under the umbrella of China Pakistan Economic Corridor (CPEC) with its scheduled completion in 2026. The projected engineering, procurement, construction and commissioning cost of the project is 1.5 billion dollars and the project company, China Gezhouba Group Company Limited (80 percent shareholding and Laraib, a subsidiary of Hubco, with 20 percent holding) would execute the project on Build-Own-Operate-Transfer (BOOT) basis whereby it would be transferred to the government of Azad Jammu and Kashmir free of cost at the end of the 30-year concession. The life of the project has not been revealed though the life span of hydel projects is mostly between 30 to 40 years.

Hydel electricity is one of the cheapest forms of electricity and with respect to Azad Pattan dam, three major factors need to be highlighted. First, Pakistan has exclusive rights of water use from Jhelum river under the 1962 World Bank-brokered Indus Water Treaty; however, a component of the Treaty cited by India while constructing Kishanganga dam situated in Indian-controlled Kashmir was that underutilised water use by Pakistan would not acquire water use rights after a lapse of time. Thus in that context the planned Azad Pattan is not a dam but a run of the river purely electricity generation project. The need for Pakistan to build dams to secure its water share under the Indus Basin Treaty; however, remains compelling.

Secondly, as the project is to be located in Azad Jammu and Kashmir, no multilateral would have extended support because the entire Kashmir valley is regarded as disputed and therefore ineligible for multilateral assistance and neither would western countries be inclined to participate in this project so China is the only country that Pakistan could rely on for building this project. Nepra determined the tariff for Azad Pattan on 17 May 2018, during the tenure of the PML-N government, of average and levelized tariff for the first 10 years at US ¢ 8.13/kWh while the average tariff for the next 20 years is US ¢ 4.83/kWh (levelized US ¢ 5.20/kWh) - the lowest tariff of all large private hydropower projects on rivers in Pakistan.

Critics acknowledge that the generation capacity today is sufficient to meet demand though at a tariff higher than the regional average due to agreements signed with the Independent Power Producers (IPPs), which are currently being renegotiated, and the generation companies run on expensive imported fuel that necessitate a re-evaluation of the energy mix; however, they point out that given Pakistan's acute financial constraints today, exacerbated by Covid-19 and the front-loaded International Monetary Fund conditions under its ongoing programme, the focus today must be on strengthening the ability of the obsolete transmission system to evacuate existing power supply. The Matiari-Lahore transmission upgrade, under CPEC, is the only ongoing project to strengthen the evacuation capacity of the electricity network and one would hope that more transmission projects would be supported under the CPEC.

Copyright Business Recorder, 2020