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Neeilum Jneitum riyaropo (A Subsidiary of WAPDA)

t • pany (Pvt) Ltd 4:::# CHIEF FINANCIAL OFFICER__

No. CFO/NJHPC/!2018/ (.";.(7--)o March IA ,2018

• Registrar National Elect; is Power Regulatory Authority NEPRA Tower, Attaturk Avenue, G-5/1 Islamabad

Subject: Tariff Petition of NJHPC

Enclosed please find herewith tariff petition of NJHPC for your kind perusal.

•

MUHAMMAD HANLO) MAIEVIOOD

Deputy General Manager CPPA-G ENERCON Building G/5-2 Islamabad. Copy of tariff petition is already submitted to your office vide this office letter no. CFO/NJHPC/Tariff/I945-A6 dt 16-10-2017.

o, 03

HP)

P)

Address: WAPCA Administrative Staff College, H-8/1, Pitras Bukhari Road, Islamabad - Pakistan Tel: 051-4863117, Fax:051-4863118, E-mail: cfo_njhpc@yahoo.com, apstocfo@gmail.com

• (iTi)4114tatii

1••••■•••(••••• *ICAMii•FUnd

TABLE OF CONTENTS

SECTION y.

SECTION Z.

SECTION 3..

SECTION 4„

SECTION 5.

SECTION 6.

$!ECT,ICA4uZ

SECTION 8,

SECTION 9.

SECTION 10.

SECTION 11.

PETITIONER INFAIRMATION

GROUNDS FOR THE PETITION 3

THE SPONSORS AND THE PROJECT

CONSTRUCTION CONTRACTOR - PROCESS & SELECTION 1 7

PROJECT COST .

FINANCING ARRANGEMENT.... .................... ...... ..... ..... .... ........

REFERENCE TARIFFTARIFF 4-C

INDEX ATI ONS & ADJUSTMENTS 43

ONETIME ADJUSTMENT AT COD 48

PASS THROUGH ITEMS & ASSUMPTIONS !;0

5

Tariff Petition for 969 .N1W Neeium Jhelum Hydropower Project

SECTION 1. PETITIONER INFORMATION

1.1 Name of the Petitioner

NeeiUm iheium Hydropower Company Limited ("NJHPC" or the "Project Company" or the "Petitioner").

WAPDA Administrative Staff College, Pitrus Bukhari Road, Sector H-8/1, Islamabad

Official Address

niholi@gmail.zom

Contact No. 051-9250347

—Ftm-oa-nv-Reeis-t-Fatio+-14k)-1-000.00.1a14.05.a.420_04:12-.Q2_. _

Water & Power Development Authority ("WAPOA")

Main Soonsor/Parent Company

1.3 Representative of Petitioner

ennrOmeown

1-1.-.2""—PritirataS

I Engineer MuhammadZa.teepy. CEO NJHPC

NAIrthaOlft*iklT000: dlii6:46.. --).'- " CFO NJHPC

560cifRiaz,011,064 .., ,,:. —

Member 'Water WAPDA /

Member BoD NJHPC

Anwar-ul-Hap G.M.F.Power WAPDA

Nayyar Allauddin C.E. / PD NJHPC - Representative from RIAA BARKER Gillette Legal Advisor

... Representative from Structure Finance Cell WAPDA

1.4 Owner's Engineer/NJHPC Consultants The services of a consortium of five foreign and local firms have been procured as owner's engineer for design review andconstruction supervision.

Montgomery Watson Harza (MWH) United States of America

NORPLAN, Int. Norway

National- Engineering 5er/ices. (,NES.PAK) Pakistan

National.Develbpment Consultants. (NDC)

Pakistan

Associated Consulting Engineers (ACE) Pakistan

1.5 Legal Counsel

RIAA Barker Gillette

Page 2 of 52

SECTION 2. GROUNDS FOR THE PETITION

2.i. Basis of the. Petition

The project is located in the State of Azad Jammu and Kashmir ("AJK"). Therefore. this tariff

petition s qeing submitted to the Central Power Purchasing Agency (Guarantee) Limited ("CPPA-

G" or "Power Purchaser', for onward presentation to the National Electric Power Regulatory

Authority ("NEPRA"). NEPRA is empowered under the Regulation of Generation, Transmission

and Distribution of Electric Power Act, 1997 and the Tariff Standards and Procedure Rules, 1998

to determine tariffs, rates and other terms and conditions for the supply of electric power and to

recommend these to the Federal Government of Pakistan for notification.

C?PA-G is the anent of and qLoc_ur.es_p_o_wP r_ao_b.ehalf-of distribution-ane-t-ransmis-sion mpanfes-- -

under the NEPRA flViarket Operator Registration, Standards and Procedure) Rules, 2.015 read

with ,the_Comm erciaL Cade 2013. CPPA-G is therefore empowered to apply for permission to

acquire power and negotiate a tariff with the Petitioner under the Interim Power Procurement

(Procedures Z Standards) Regulations 2005 (the "2005 Reguiationsl and the NEPRA (Import of

Elea rf ic-Power) Regulations 2017.

2.2 Tariff Determination Stages

In order to cater to the unique nature of hydropower plants, cost undeFta-inty -d-ue to a long

gestation period and other factors beyond the control of the Petitioner and the Power Purchaser, NEPRA has developed a Mecnanism for Determination of Tariff for Hydropower

Projects (the 'Hydro Power Tariff Mechanism"). The Hydropower Tariff Mechanism provides for

deterrnination_of tariff and subsequent adjustments at different stages of development of

hydropower projects. In this respect three distinct stages have been identified in the

Hydropower Tariff Mechanism:

(i) Feasibility stage;

(ii) EPC age; and,

(iii) COO stage (after achievement of Commercial Operations Date ("COD").

The petitioner did not submit a petition for a feasibility stage tariff and is instead directly

submitting this EPC. stage tariff petition for determination. All pertinent information about the

Project is either explained within or attached with this petition. The Project Company will be

pleased to submit any additional information as and when required.

23 About Petitioner

Nee.lurn Jhelum Hydropower Company Private Limited ("NJHPC") is a Company incorporated

under the laws of Pakistan and is wholly owned ',MAPDA. NJHPC was incorporated to design,

construct, own, operate and maintain the Nee.lum Jhelum Hydropower Project (the. "Project"), a

969MW run-of-the-river project in AJK. The Project is part of an under construction run-of-the-

river hydroelectric power scheme designed to divert water from the Neelum River to a power

station on the Jhelum River. The power station is located in AJK, 22 km south of Muzaffarabad

and wilt have an installed capacity of 969 MW. Qn 7 July 2007, the Chinese consortium CGGC-

Page 3 of 52

CMEC (Gezhouba Group and China National Machinery import and Export Corporation) were

awarded the contract CO construct the 4am and power station. The construction contract was

settled at a cost of PKR 90.90 billion by the end of the year and in January 2008, the letter of

commencement was issued.

It is worth noting that the Project is a mega project with state of the art features. Therefore, keeping in view that this project is of immense national importance and is in its final stages, the petitioner is pleased to submit all the requisite information required by Power Purchaser to process this petition.

2.4 Request for Tariff Determination

In accordance with the requirements of the NEPRA Act, rules and regulations, and the Hydro Power T'aTiff-Mecnanism, N.11-1PC-FgEteby submits this Petition for determination/approval off:

(.1) the-LefeiretneEPe the energy production estimate;

(iii) the Indexations, Adjustments, and Escalations; up to COD Stage (iv) Cost Reopeners; and (v) other matters relevant to the project as set out in the Petition,

in each case, for the Project to be located at AJK, 22 km south of Muzaffarabad.

The Power Purchaser is requested to process this Petition and submit it to NEPRA, thereby enabling NEPRA to proceed further with the Tariff Determination process.

Page 4 of 52

SECTION 3. THE SPONSORS AND THE PROJECT

3.1 About Project

The Project is a 96-9' MW (gross) run of the river hydropower project with an underground power generation fcillty. It is the largest hydropc'we.r project undertaken by WAPDA since the completion of Mangia, Tarbela and Ghazi Oar° the Hydropower Projects_

The Project is designed to divert the water from river Neelum through a tunnel. The tunnel intake is at Nauseri 41 Km North East of tvluzaffarabad and the underground powerhouse is being constructed at Chatter Kalas, 22 Km South of Muzaffarabad. The diverted water will produce electric power by passing through the turbines and thereafter this water will be released back into the River Jhelum, atO_Ut d Km South of Chattec_tOlas _ —

The construction of the project commenced in January 2008 and at present. about ninety percent c9004T.of the constructionworkihaVeiiready been completed. The we testing of Vr generating unit is expected in February 2018.

3.2 Technical Details

3.2.1 Civil Works

Civil works for the project includes construction of access roads and bridges, installation of camps and construction facilities, a diversion tunnel to divert the flows of Neelum River during construction period, upstream & downstream cofferdams, construction of a composite dam, spillways and underground tunnels and powerhouse cavern and transformer cavern—as well as a 500 kV GIS Switchyard, construction works relating to reservoir area, diversion and intake structure etc. Civil Works also includes certain allied'physical works such as site roads, water supply, sewer, surface drainage, electricity, communication system operation building, store and venicie services station residential colony office building, dispensary and first aid facilities, recreation facilities, and school. A brief description of main civil works is given below:

3.2.1.1 Dam & Intake.

A GO m high mass composite concrete gravity dam plus clay core rock-fill dam and sedimentation basins is located near to Nauseri on the Neelum River. It will withhold a pondage (reservoir) with a capacity of 6,486 acre-feet of which 2,270 acre-feet is peak storage. The peaking storage of 3.3 million M3 would allow daily peaking of more than four (4) hours. The dam has three large low-level gates designed to pass floods up to the 1:1000 year recurrence. period and also allow the reservoir to be drawn down for sediment flushing. A diversion tunnel with a capacity of 500 m3/sec has been built to divert river around the darn foundation site to allow the construction of the dam. Cofferdams were built on both the upstream and downstream of the dam foundation.

The intake structure with a capacity of 280 m''/sec is located close to the dam and incorporates six (6) intake gates which are connected to the SeC.M'-!fil ::::■sins by six (6) culverts. The basins are designed to trap sediments that could erode the turbine blade's at the powerhouse. Flushing gates are installed at the downstream end of the basins which takes tne sediment back to the

Neelurn River.

Page Sof 52

The intake works are designed to divert up to 280 m3/s into the headrace tunnels. After being used to generate electricity, the water is dikharged southeast back into the Jhelum River through a 3.3 km long tail-race tunnel. The drop-in elevation between the dam and power station afford an average hydraulic head of 420m.

3.2.1.2 Head Race Tunnel

The aam diverts up to 9,888 cu feet/s of the River Neelum southeast into a long head-race

tunnel. The headrace tunnel is 28.54 km long and conveys the water from the intake area at

Nauseri to the powerhouse area near Chattar Kalas. The first 15.1km comprises of twin tunnels, each 7m in diameter and the rest of the route, a single tunnel of 9.5m diameter has been

designed. The tunnel crosses under overburdened hijh ground and also across the

Muzaffarabad fault zone. The headrace tunnel passes approximately 200m below River Jhelum

River and through its bend.

11.2.1.3 Surge Shaft. Power Station Complex & Taiirare Timnpi •

At the terminus of the tunnel, the water reaches the surge chamber, which contains a 353 m tall

surge shaft (to prevent water hammer) and 903m long surge tunnel. From the surge chamber,

the water is split into four different penstocks. The four (4) steel lined penstocks are about 110

m long each and have an inner diameter of 3.8 m which end up in an underground powerhouse.

The underground power station has four (4) generating units, each of capacity 242.25 MW, with

an installed capacity of 969 MW. The powerhouse cavern is about 137.0 m long, 23.5 m to 25.0

m wide and about 47.0 m high from the turbine floor. The electro-mechanical equipment

consists of four (4) vertical-shaft Francis turbines and associated generators. The main access tunnel to the.power station is 763m long with a cross-section of 58m2.The thirteen (13) single

phase transformers, each of capacity 98.7 MVA, have been placed in a separate hall, 151m long,

16.4m wide and about ZOm high.

Page 6 of 52

• I Transformer hall 1

Cownstreem surge tunnel -..-etctrace tunnel

- - -arm

Lrairrace tunnel

AS -ieacirece Adit LAG Cable tunnel 1

LP°werhouse I LBypass tunnel

1 Surge snan:

- . II

The water is discharged back into the Jhelum River near Zaminabad through a 3.5 km tailrace tunnel. Associated facilites include a transformer hall, surge shafts, access tunnels, and a 525kV swircnya rd. The outdoor switchyard is located outside the cable tunnel portal and has dimensions of 126 rn x 262 m.

3.2.2 Electrical and Mechanical Equipment

The equipment :ncluded under E&M package are as follows:

• . Genera/Ors Transformers;

• 525 KV Stivitchgear; • Control System; • Protection;

• 400 V Power Distributions;

• Power House Auxiliary Equipment;

• Radial Gates with Hydraulic System;

• Rap Gaze with Hydraulic System;

• Diversion Dam Stop Log;

Gantry Crane and Bridge Crane; • Intake Gates and Trash Racks;

• Under sluicing Gates;

• Sediment Basin Outlet Gates;

• Adit Bulk Heada;

• Draft Tube Bonnerted Gates;

• Tailrace Outlet Gates;

Turbines;. • Generators;

Governqrs; • Inlet Valves;

Cranes; Cooling and Fire Water Equipment;

Page 7 of 52

• Tunnel and Power Station Drainage Equipment; .

• Dewatering Equipment; and

• Workshop Equipment.

3.3 Interconnection Arrangement

The Hope of work for power evacuation from Nee!um Jhelum Hydro power project is 270 km,

500 kV D/C transmission line from Nee!um Jhelum HPP to 500 kV Ghakkar (Gujranwala) grid

station. However, NTDC plans to evacuate power by an interim arrangement that includes

construction of 500 kV Double Circuit Quad Bundle Transmission line from Neelum Jhelum to

Domeli (145 km).

3.4 Project Category & Difficulty Level

It is important to highlight the fact that besides being the largest project WAPDA has handled

after Mangla and Tarbela it is also the most challenging and difficult Project to execute.

"Technically this has been a difficult project due to the fact of being the first underground

hydropower project of such large magnitude in-Pakistan. The Project involves 28.54 km long

underground power tunnel, an underground power house. and tailrace tunnel. The length of

the entire underground tunneling works reached to more than 68.6.kilometers". Geologically

the Project is located in an area which is susceptible to earthquakes and indeed after the 2005

earthquakes further precautionary measures had to be taken to ensure the design and material

of the Project were such that it could weather such natural calamities. In addition, the floods of

2010 posed further challenges and delays. Politically, this Project is on the same waterway that

is being used by India to construct the Kishenganga dam and under the Indus treaty the party to

establish a power project first is given priority. Financially the Project experienced funding gaps

during its construction.

In summary, each hydropower project is unique and site specific and must be evaluated based

on its unique challenges.

3.5 Hydrology & Power Generation Data

Stream flow records of the Neelum River at Muzaffarabad gauging station are available for the

period 1963 to 1994 inclusive. In June 1990, a gauge was established at Nauseri Bridge near the

-proposed Neelum dam site. The Nauseri-gauging stztion has an ideal location with regard to the

planned intake for Neelum Jhelum. There are nineteen (19) years of digitized observation data

(including the 1992 flood event) available from this station. The average annual flow of Neelum

River at Nauseri and Muzaffarabad are about 2695 and 335.16 m3/s respectively. The average monthly flows at Nauseri are shown in graph below along with low flows and high flows records.

The design discharge for powerhouse is 280 cd3/s.

Page 8 of 52

Daily C7-lows Neelum River at Nauseri

3200 soup L-`mOo

:600 4

:3000 • -- 3,300 `

:1.500 1 14.00 LA.

1200 :Poo

600. 400

2.00

-Peo. mar Aisr May :tin

Title

Jul NOV De.c

3.5.1 hitwItrliv Aver Water flow 8c Energy Genera tinn flora

Month -71.0%ad (m- /sec' Head (rb) Power (MW.) Energy (GV/h) .anuary 55-5 380 178 132.8 February 1.30 .32.9

- .

2-10 139.3 March 125.5 379 413 314.9

gni 484.0 377 244 579.5 May 730.5 377 944 702.1 June ' 32a.3 377 : 944 579.5 ;Lily 54.3,3 377 i.:244, 702.1 August 401.5, , 373. i 945 , 704.0 September 1S.16.8 . . 379 _.

,......-r tr.7.., / 4-59,9 Caader 112.4 380 372 275.4 November 34.8 3.80 273 200.2 _ ___ December 56,5 330 216 150.5

Aver:sge Daily CWS (PerInd: 143,3-2:306) OeSIV Discharge 1'220 curnacs

min Plows

Total Annual Average Energy ' 5150 GIA/h Plant Factor 60.70%

3.3,2 Reservoir Operation

The °aerating headwater levels at Neelum Jhelum Intake have been revised. The normal and minimum ocerating levels are 1015 and 1008 m a.s._I resoe..,ssive'y for winter and summer seasons_ The ch;:itihg oper7;tion or heaorac.a tunnei has been Potimized 'oy aaditionar storageri the .esericHr. The intake / cowerhouse will remain s:i.osedlauring high floods.

Page 9 of 62

•"

•

license granted in 2004 by NEPRA For operatiOit maintenance, and development of hydel power

resources in Pakistan.

NEPRA has. recently approved the revised installed capacity of 17,360 MW for twenty-four hydel

power stations of WAPDA out of which five are under construction. Nineteen (19) hydel power

stations with generation capacity of 5,902 MW are active out of which fou-r projects of 350 MW

capacity were completed during financial year 2014. Section 25 of WAPOA Act requires WAPOA

to ordinarily sell power in bulk and at the rate at which WAPDA is required to sell power is to be

so fixed as to provide for meeting the operation cost, interest charges and depredation of the

assets, the redemption at due time of loans other than those covered by the depreciation, the

payment of any taxes and a reasonable return on investment. Under section 8 of WAPOA Act,

NJHPC was established as a wholly owned Company of WAPOA and was incorporated on 18

November 2004 under the Companies Ordinance, 1984.

3

3

Page 11 of 52

SECTION 4 CONSTRUCTION CONTRACTOR — PRcrFss & SELECTION

4.1. Construction Contractor's Selection Procedure

The render was floated first time in February 2005 on International Competitive Bidding (IC3) 'oasis win the condition of financing foreign exchange component under supplier's credit. The local component of the funds was to oe provided through PSDP. All the three bids, received in May 2005, were found non-responsive and nullified.

Tenders were re-invited in June 2005. Two tenders were received and both were found non-

responsive. Considering the implications attached with the supplier's credit, the Government of Pakistan allowed WAPDA to invite tenders under Buyer's credit financing. Tenders were invited for the VI time throughInterr crai apetitiv.e Bid.ding_aC8'.L)__under_siagie stage., nival envelope method of bidding. Following four joint venture firms submitted bids by the dosing data (15.07.2006):

(i) Frontier Works Organization (PNO)

Synohydro Corporation, China (SHC-HP E JV)

(iii) China International Water & Electric Corp. China (CWEJV)

(iv) China Gezhouba Group, China (CGGC-CME Consortium)

--Eveluat'on

Technical proposals (Envelop-I) were opened on July 15, 2006. The Bid of FWO did not meet the minimum qualifying criteria and was considered non-responsive. The joint venture at serial (ii) did not submit bid security and hence was considered non-responsive. The tenders submitted by the remaining two (2) Chinese firms at seriai (iii) & (iv) were found substantially responsive and their financial proposals were opened. The quoted price of each of the bidders after applying offered discounts is as below:

CWE IV

CGGC-CME Consortium

Rs. 108.37 Billion

,Rs. 87.42 Billion

After receipt of missing information, clarification on quoted prices and other details, the contract was awarded to the lowest evaluated bidder i.e. the consortium of CGGC-GMEC (the "Contractor") at the contract price of Rs. 90,900,240,40A.00 (Rs. 90.90 Billion) or US$ 1506.21 Million (at 1USS=60.35 PKR) which translates into per MW cost of US$. 2.55Million/MW. The construction contract was based on the design carried out by NORCONSULT & NORPLAN IN 1996(97, The notice to proceed ("NIP") was issued to the Contractor in January 2008. The original contract documents sub-divided the scope of works into the following lots:

• Lot Dam, Intake, De-sander, and upstream portion of Headrace Tunnel (HRT);

Lot C2: Middle Portion of Headrace Tunnel (HRT);

• Lot C3: Downstream Portion of Headraca Tunnel (HRT), Surge Shaft and Surge Tunnel, Powerhouse Civil Works, Tailrace Tunnel and Outlet Works; Lot Ml: Mechanical Works;

• Lot El: Electrical Works; and

Page 12 cf S2

a

Lot Hl: Gates and Hydraulic Steel Works. 4.2 Contractual Arrangement

The Construction Contract for Neelum Jhelum Project is based upon the International Federation of Consulting Engineers (FIDIC) 4 th Edition 1987, re-printed in 1992; General Conditions of Contract for Works of Civil Engineering Construction. "The Contract executed for the Project was

not.. an Engineering, Procurement & Construction (EPC) contract where the EPC Contractor guarantees the price, performance and schedule of the project rather the Contract portion for Civil Works, in case of this Project. .;,nit Rate Contract, which is customary for large scale projects where construction quantities are unknown, so unit rates are decided and payments are authorized on the basis of verified quantities and contracted unit rate. Contrarily, the Contract portion for Electro-Mechanical & Hydraulics (EMH) works was based on lump sum payment mode". The Civil Works are a design-bid-build package designed by the Engineer. Payment is by

- -unitprices7-Measurements-ftirrac ein administering the civil works portion of

the contract. The EMH works are turnkey packages designed by the Contractor and approved by the Engineer. Payment is lump sum.

4.3 The Contractor (Unit rate Contract) - CGGC-CMEC-Consortium

-• China Gezhouba Group Corporation (CGGC)

China Gezhouba Group Corporation (CGGC), founded in 1970, is a core member of China Energy Engineering Group Co., Ltd., a super central state-owned enterprise. CGGC's businesses cover the design, construction, investment and operation in water conservancy, hydropower, thermal power, nuclear power, wind power, power transmission & transformation, highways, railways, bridges, municipal works, airports, ports, waterways, industrial and civil buildings, as well as real estate, production of cement and civil explosives, energy engineering, etc. In China, CGGC is-one of the most competitive listed companies with very strong financing capabilities. As a transnational operation enterprise with the fastest growth in China, CGGC's has expanded its business in more than 100 countries and regions, ranking among the foremost 100 in the ENR lop 250 International Contractors.

• China'Machinery and Engineering Company (CMEC)

ds■■■■•■111•101,01.....*10.1.1.01016•00.4

Founded 44-2.-9.7.MEC is the first large engineering & trade company in China, and a member of China National Machinery Industry Corporation. It is a conglomerate taking engineering contracting as it core business and integrating trade, ft&D,and international service. CMEC has extended its business in the fields.oLiatemationaliengineefmg'' contracting and •intematicrnal trade in general. CMEC holds experience in constructing mega hydropower projects worldwide.

Page 13 of 52

SEC! ON 5. PROJECT COST

A summary of the project cost is given below:

is aat Ptio

30,887

4.304

6q7.64

14$7.Mj1litin

EtAti,A* 2E5.84

57,45

S7.25

1891_09

10 211

19.05

easures

racy

49.8E

• 7

4 0

u ervisicrn

nt C

7 500 /

al

exa 10 15

IDC)

4,824.57

As mentioned 4n$e ton 4.1.1, the Construction Contract of the Project was awarded at a cost of Rs. 90.90 Billion, due to the following technical & site specific reasons, this cost lumped to RS. 192.56 Billion by addition of Rs. 107.664 Billion in the Contract Cos: through issuance of Variation Orders. The ciestription of the causes of base construction cost escalation and

aSsoCiattd cbst implications are as follows:

(i) As rnetvd net above, this Froisct was originally =led at 2 price of Rs. 90.900 Billion

in 2007 -and its original completion date was anticipated to occur rn Octooe.- Though, even at that time some price escalation was expected because of the standarc cost escalatior clauses in the Contract, anticipated cnange o civil works. quantities CLUE

to the involvement of extensive underground works and additionally the qua ntitie in

me contract were based upon me design carried out by NORCONSULT & NORP,_AN 1996/57 rather than on the Detailed Project Design Report. Furthermore, the

1

Page 1 4 of 52

development of necessary infrastructure at site, community beneficial schemes and land acquisition and resettlement of affected communities has always been an ever-going process during project development and proved to be as cost escalating and project delaying factors.

i=:urthermore, due to the compelling factor of water rights issue, anticipated due to the

upstream dam construction in occupied Kashmir by India, the Contractor even mobiiized

at the site seven (7) months before the mobilization of the Engineer while the Sponsor

•NAPDA) had not secured full financing for the Project at that stage. These factors

ultimately led to the significant cost changes later on during the construction of the Project.

(iii) Lack of uninterrupted and quality electric power supply from the local electricity -diistribUtib n networnt7fhi re sitT57-fe-P j a proved to be arsigrrin significant hindrance in physical progress of the Project. To mitigate this ironic issue, finally it was decided to purchase three (3) fuel oil based generators each of four (4.) megawatt capacity to

provide stable electricity supply during the construction of the works at all three sites.

(iv) Flooding events of 2.010, 2012 & 2014. Significant delays were faced during the July 2010

floods, which was one of the largest in the country's recorded history.

5.3.2 Site & Technology Orient

- • • - _ .7.

This mega Project suffered extensive design changes "after the award of the Construction

Contract" leading to Contract changes (Variation Orders) which added on huge casts to the

Project. After the award of the Construction Contract, the Neelum Jhelum Consultants/ the

Engineer under-took the review of the tender design as part of their scope of services. The review of the tender design identified many areas of concern requiring major design changes.

These major design changes resulted from a duster of technical considerations as explained

below. The associated costs additionally required to implement the design change, which was considered technically feasible and economically viable in view of available options, and to

eradicate the confronted technical impedirnents at the Project site follows the description of the

design change as well:

(i) Upward Revision in Seismic Design Parameters

(ii) Alteration of Typettocatiorr ul Dor

(iii) Modification in Dam & Spillways Hydraulics

a. Overtopping

b. Addition of Stilling Basin

(iv) Modification in River Diversion Scheme

(v) increase in Tunnel Diameter and Application of Cancete Tunnel Linings

(vi) Spread in Powerhouse Dimensions

(vii) Geological S'.::"PriSES

(viii) Steel Lining of Head Race Tunnel (HRT) at Jhelum River Crossing

5.'."' Upward Revision in Seism

The design on which tenders were awarded, was prepared as per seismic parameters

established before earthquake of 8 October 2005. The earthquake dictated to initiate review of

Pae, 15 of 52

:he aetalled anginee.rin,g design carried out at feasibility stage, which nad its own financial [implications. The seismic hazard study of the Project prior :o the tender design showed that there are considerabie uncertainties regarding the hazard. The spatial distribution of earthquakes does not suggest that any part or the sonerne should have a significantly different

hazard razing than any other. There is, therefore, no particular reason to differentiate the

hazard to different sec ions or the scheme. ThP ire tars aaopted for the render

desi6.9 on the oasis of this study were as follows:

Operating Baisaiakei.-tho 'OBE)

An earthquake ground motion with a return period of two hunared 1200) years

customarily adopted as zhe design basis for dams and hydropower plants. ihis is broadly

:n accordance with ICOLD recommendations. IC0LD Bulletin 72 suggests that the ground

-mt-tron" tt .rtr peecent (5-0%) pro Caloirit\i or exceedanca in7E—an dr d (100)° years

4'6"rrng,7.bie appropriate. The two hundred (200) year eventhas,a,,fiacq./..pescent (40%)

PaliaatIOit4i. of being exceeded' M hundred (100) years. However, considering the tectonic

setting of the scheme with areas of currently, much higher seismic activity on

comparable geological structures, it would seam imprudent to adopt-such low values.

Structures aroplant items and component which are vital to power production were

therefore proposed to be designed to higher criteria as follows:

Surface installations: 0.25 g peak ground acceleration (rock site)

lindergrounct works: 0.20 g peak ground acceleration

This grow return period of 1000 to 2000 years fOr the design earthquake.

Cre'rthaueke 1MCiEl

The MC earthquake ground motions as determined in the report on seismic hazard for

_ the Project were adopted for the tender design of the Project.. These are as follows:

Surface installations: 0.45 to 0.60 g peak ground acceleration (rock site)

Underground works 0.30 to 0.40 g peak ground acceleration

Conservatively, the upper values were ad cited. for the MCE.

ft)

1-.10-c,ateb rs

After the Octoder 2,00S earthquake, the seismic design parameters adopted for the

tender design of the Project were thoroughly reviewed. and seismic design of the

Project structUres was appropriately revised to account for the faiiewing undated

seismic parameters which also indicated that the seismic hazard for various parts of the

Project is of different level.

;or _Site

Operating Basis Earthauake (CBE): 0.34 g peak ground acceleration

Maximum credible Earthquake 1.2.5 g peak ground acceleration

Lar

Page .5 of 52

T.

Operating Basis Earthquake (OBE): 0.25 g peak ground acceleratiOn

Maximum Credible Earthquake (MCE): 0.62 g peak ground acceleration

For Underground Works

Operating Basis Earthquake (OBE): 0.17 g peak ground acceleration

"Higher seismic factor dictated by the Earthquake of October 08, 2005 is now 1.16g for

Maximum Credible Earthquake (MCE) against 0.60g adopted in the tender design".

S.2. - .2 Alteration of Tvoe & Location of Earn

The ear"- cp=a1—e—Eff October 2005, one of largest in the country's recorded history, in

Muzaffarabad and adjoining areas, inflicted a loss of around 70, 000 human- beings. ft caused.

widespread damage to buildings, bridges, roads and created a humanitarian crises throughout

the Project region. Under such emergency conditions, the Employer could not proceed with the

preparatory works such as additional geologfeal studies, topographic studies and land

acquisition. "Earthquake engineering evolves according to experience. So, after every major

earthquake, earthquake design codes and design criteria tend to change. This earthquake was

no exception and the Engineer was directed to develop new seismic hazard criteria for design of

the Project structures in view of safety and long term viability of the Project". The_Sponsor

(WAPDA) also mobilized an independent Panel of Experts ("POE"). The POE includes the

Chairman of the Seismic Safety Committee of the International Commission on Large Darns

("ICOLD"). This earthquake of October 2005 led to a substantial modification of the seismic

design criteria which resulted in:

a change of the dam type from an all•-concrete gravity dam to a composite concrete

gravity plus clay core-rockfiil dam;

• a shift of the dam location away from the Main Boundary Thrust (MBT) fault;

a general rearrangement of the dam•gates to suit the modified structural arrangement;

more robust, more earthquake resistant dam, intake and de-sander structures;

"At the dam site, the Neelum River follows a fault known as "Main Boundary Thrust (MBT)"

fault. The original-dam deign (1996) showed a concrete structure sitting on the fault. At that

time it was considered inactive. After 2005 earthquake, in 2010, the Panel of Experts (POE)

accepted a study, considering the MBT as a potentially active fault. Current design practices do

not recommend seating concrete structures on active faults. This decision to consider M8T as an

active fault prompted rearrangement of darn, change of dam type and substantial increases in

earthquake design loads, affecting the dam, intake, de-sander structures and gates".

Page 17 of 52

Page 18 of 52

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The dam was changed from an all-concrete structure with four radial spillway gates and one flap gate to a composite concrete gravity plus day core-rockfill dam. The concrete structure was •aiso shifted away from the Main Boundary Thrust (Mir) fault". The dam height and so the head pond elevation was raised too. This increased the ra<Prvoir storage capacity as well the pressures on the dam, gates for the Spillways, the Intake and the under sluices. Maximum and minimum operating- levels were raised by three (3) meters which eliminated undesirable fluctuating water levels in the upper reaches of the headrace tunnel.

'This design change was authorized and implemented by issuance of a Variation Order (V0-16) costing Rs. 17,467 Mi(iioe.

5.2..1.3 Modifica.tion-in Darn & S

(a) eoo

Two improvements to the dam and spillways hydraulic performance were made:

• increased spillways capacity; and

aminow.*:0:

•

• addition of stilling basin.

The original tender design allowed water to flow over the dam during extreme floods. This philosophy was considered undesirable from a public safety point of view. Upon the

recommendations of the Panel of Experts (POE), the spillways capacity increased to

handle the Project's Probable Maximum Plood (Pivii-,) of 12,500 m3/sec. This required a

larger spiilway cross section and larger & heavier gates. The shift of the dam away from

the MET had already reduced the available width for the dam. The original darn

structure had four (4) spillway gates whereas the revised design has three (3) larger &

heavier spillway gates. ''The shift in design philosophy from "overtopping allowed" to

"overtopping not allowed" increased the hydraulic capacity of the spillways".

The Changes to Lot H1 (Gates and Hydraulic Ste& Works) were developed by the

Engineer between ano December 2.011. Tneonti—C-7ktor had to stop his design

for more tharrt'Wo and half (2.5) years and wait fornew designs from the Engineer. As a --

_result of the-disruptive nature of these changes and the prolonged work stoppage, the

Contractor requested the Employer/Sponsor to uncap escalation of the entire lot H1

(Gates and Hydraulic Slael.Jorks). Instead, the limitations on escalation in Clause 70

{5% per annum cap) were partially relaxed. Escalation on the value of the original

tendered scope of the works was uncapped during the delay period from April 2009 to

December 2011. Escalation on the extra works (the price of the revised scope minus the

price of the original scope) was uncapped from the time of the tender, As a

consequence of the specific conditions of Lot HI {-Gates and Hydraulic Steel Works)

Clause 70, the price adjustments are higher for Lot Hi than Lot El and Lot M.1 which

have not suffered major design changes.

"This design change was authorized and implemented by issuance of a Variation Order

(VC-24) costing Rs. 6,729 Million". Variation Order-24 was priced by taking the weights

of the various gates provided at the time of the tender and the prices in the tender to

back calculate prices per ton and then applying these unit prices to weights calculated

from shop drawings of new design or estimated using industry standard formulas.

In the original design, water was supposed to flow through the spillway and

directly into–Ozie riverbed,Water flows down the spillway at a high speed, releasing

tremendous- energy. Without a stilling basin, this energy can erode the river bed at the

toe of the dam and eventually compromise the stability of the dam. "The Sponsor, upon

the recommendations of its Engineer/Neelum Jhelum Consultants decided to add a

stilling basin downstream of the spillway to dissipate this energy and protect the river

bed and the dam against riverbed scour. This required a longer diversion tunnel and

more work to be done in the riverbed".

SeYeral rounds of tests have been performed at the Hydraulic Research Station at

Nandipur, (Sialkot, Punjab) which have validated the hydraulic design of the works. The

Nandipur Hydraulic Research Station is a vast facility where multiple dams are modelled

and tested.

"The cost of this design change was included insthe Variation Crder (VO-16)".

Page 19 of 52

(b)

5.2.1.4 Modification in River DiVP•SiOrl cri-Ipcnp

The river diversion scheme was moolfied to allow more time and more space for work in the river bed. The diversion tunnel is sized to divert river flows from October to April. A single diversion tunnel large enough to handle year-round flows is simply not technically feasible. The original diversion scheme consisted of up.sitream and downstream embankment coffer dams that would have washed away every April and required to be rebuilt every October". The Contractor would also had to re-excavate and clean the foundation pit at the start of every dry season, resulting in a significant loss of time. This scheme was revised to provide a non-erodible upsteam cafferwtioarrivand a longitudinal well that would allow diverted water to flow through one half of the river, while leaving the other half available for excavation and concrete work, even during high Flow seasons. The length of the river diversion tunnel also increased from 167 m to. approximately SOO m due to addition of the stilling basih.

"These design changes were authorized and implemented by issuance of a yariation Order (VC-

02) costing RS-. 468.392 Million and VC-30, amounting to Rs_ 247.958 million".

51.15 Increase in Tunnel Diameter a nd Application of T1 rmei Concrete Linings

The original tender design specified "drill and blast" tunnels. The Engineer's review of the Tender Design revealed that the tunnels lacked the hydraulic capacity required for the Project's stipulated output. The original designer had considered lower roughness coefficients (known as Manning's Coefficients) that can be achieved in a drill and blast tunnel. The hydraulic roughness of the headrace tunnel and, to a lesser extent, the tail race tunnel, is a key factor in overall prcy8.ct performance. The roughness governs the friction losses to the flow in the tunnel and these in turn govern the pressure head and flow available to drive the turbines, which determines power output.

The original tender design estimated the gross head at the turbines as 420 meters. It was based upon the following assumed Manning's "n" values (friction coefficients)

0.0185 for the shotcreted drilled and blasted rock

0.0133 for the concrete invert

The resulting head loss is about 40 meters. Selection of "n" value for design of the headrace and

tailrace tunnels due to-the lack of documented experience in-the Mureq.--rmation and the Contractor's untested skills in tunnel excavation and shotcreting. The literature reported the following generally recommended "n" values for drill & blast (D&B) tunnels:

CAB: well-trimmed shotcrete lined "n" value = 0.021-0.025

D&B: smooth Wasting "P" value = 0.024 -0.028

D&B: normal blasting, well-trimmed "n" value = 0.026 -0.031

From the above literature recommended values, the design value of "n" = 0.0185 a oneared to be too raw by a substantial margin. It applies better to tunnels excavated by a Tunnel Boring Machine (TIM) than by Drill & Blast. The Engineer recommenced the following Manning's ''n"

values for the tUrinels in the Project:

n'= 0.028 for shotcrete lined Drill and Blast tunnels

Page 20 of 52

if

• . • n = 0.0185 For shotcrete lined, Machine Bored tunnels

The Panel of Experts (POE) accepted and recommended the following friction factors based upon the measurement from another project:

• n = 0.030 for shotcrete lined DI-ill and Blast tunnels • .- n = 0.0135 for .shotcrete lined, Machine Bored tunnels

"The Engineer thus estimated 1.51 times more friction than the original tender designers".

This issue of higher roughness coefficients could have been properly dealt with either by increasing the tunnel cross sections or reducing the roughness. The Engineer first proposed increase in the tunnel cross sections. This, however, would have required more mucking larger

TFoll—ae—OcTsi s and more-ti:•ompitx excavation sequencing and tunnel support systems. Further

assessments and discussions resulted in a conclusion that it would be preferable to limit the required increase in tunnel cross sections as much as possible by using a smooth tunnel lining

(hydraulic lining) to reduce friction losses and thereby enhance hydraulic capacity. ThiS approach also reduced-the land required for spoils disposal. The Engineer analyzed eleven (11) different combinations of tunnel dimensions and finish types that would result in the same head loss estimated by the original tender designers. These included combinations that involved a machine bored section and others that did not. The combination expected to provide the schedule and least cost was selected.

(a) Aoolication of Concrete Tunnel

The Concrete Tunnel Linings will be applied to all sections of Headrace Tunnel, except for the IBM tunnels. Neelum Jhelum twin tunnel and single tunnel diameters are 23.2 ft and 32.6 ft respectively. Concrete tunnel linings were selected to •improve hydraulic performance and keep the tunnel cross sections to more manageable dimensions. Very large tunnels require more elaborate and expensive support systems and excavation procedures and as a result, these can be more costly to construct. A lined tunnel is more durable, requires less maintenance down time and will remain in service for longer periods. Investments that shorten maintenance outages or extend the service life of the facility yield an attractive rate of return.

"The Variatiorrerders, VO-17 (Rs. 12,320 Million) and VO-26 (Rs. 1.3,879 Million) were issued and implemented to eradicate the problem of overestimated hydraulic capacity in the original tender design".

5.2.1_6 Soread in Powerhouse Dimpricinn•

Responsibility for detailed powerhouse equipment arrangement and design rests with the Contractor. Design of an underground powerhouse must consider a. number of conflicting technical considerations. On the one hand, ft must be large enou6h to house the equipment and allow maintenance. On the other hand, it must be as small as possible to minimize disturbance to the surrounding rock mass. Considerable discussions between the Engineer and the Contractor resulted in a larger powerhouse vault, ventilation tunnels and busbar tunnels than the original tender design.

Page 21 of 52

.7 C38 t (cal S Mrises

Geology constitutes a major source of teonnical uncertainty on any hydroelectric project,

because it is not possible to investigate every portion or a hydroeiectric project size in much

detail. This is particularly true wnen the_orofect (ncludes long tunnels or deeo caverns as in this

Projec:. industry best practice IS to keeo nhntingent of geologists ova:labia on size to uoi.iaLe

th'e geological interpretations and identify risk areas as these appear in the excavations.

Instruments monitor movements in the rock mass. Design of rock supports are adjusted

according to the Instrumentation results. ts.

71-ie PrOject isf located in a geological formation known as the "Murree Formation", made Lic of

sedimentary rocks (stanciszones, slitstones, and muoszones). Sedimentary rocks are deposited in

horizontal layers, bur in the Murree formation, tectonic forces have pushed the rock layers into

isn—a L-Ct”'dlOW-ritikreTruor- .rertical pattern. Where the rock oeddiniTilanes he parallel to existing

slopes, frequent landslides occur,. Somern.ucistones turn to wet soft mud where- expose& to: and water. The Murree Formation is a challenging environment to construct a heavy civil

engineering project.

As tunneling approached the planned powerhouse location, long rock cores were orfiled about

three hundred (3 ) meters ahead of the tunnel face to investizate the rock in the powerhouse

excavation, This (ed. to a shift and a rotation of the powerhouse. The Powerhouse location was

ousted aoproximately three hundred (300) meters further inside the mountain and rotated

out 15 degreesto fit the powerhouse in the 'nest available mass of rock. This lengthened the

cables connecting the Transformer Gallery to the Switchyard by about three hundred.

) meters e .

is design change was authorized ano implemented by issuance of a Variation Order (VC-43)

i g Rs. 753,764 Million'.

Another gealogjcal impact of the Project relates powerhouse convergences. Any large underground excavations alters the state of stresses in the surrounding rock. Good gectecnnical

practice mandates that these be measured and recorded and the supports design be fine-tuned

accordingly. Curing this monitoring and assessment exercise, certain anchors and instruments

extensometers1 were added. The length of extensorneters was 2-4-3 meters in originel

specifications which was changed to 5-10-15 meters in the Transformer Hail and 5-15-25 meters

in the Power Station. This was because the rock in-the--fifai14.former Hall was not very good but it

Was better than that in the Powerhouse. The longer extensometers were to have a wide

coverage on the rock behavior in both the structures. Some posr-tensioned reinforced concrete

c.e€s were added between the draft tube gate chambers. The draft tube excavation

uencing was adlosted so that the last draft tube oft is excavated after the other three have

been concreted. This delayed the start of the powerhouse by aver six (6) months,

he inst.allation

.ssuance of V

mentioned multi-point extensornerers were authorized and implemented

on "Order (VC-35) costing Rs. 115 93 Million".

Steel t i,ning or race Tunnel (HRT) at ihefurn Rivwf-r,nsginc

e original design had an inverted syphon under the lhelum River After extensive review and

discussions, the Engineer, POE. and the Sponsor decided to eiiminate the inverted syphon under

71'7 :or ii

3

the Jhelum River (Jhelum Dip) and replace it with a free draining tunnel. The tunnel vertical

alignment was modified to eliminate the syphon. The need for a Steel Liner was the consequence of this decision. The dip required tunnel. slopes of over 14 degrees. Such steep

slopes in tunnels pose practical problems, e.g.:

• Much haulers tend to slip or get stuck on steep slopes.

The Jhelum Dip would need to be pumped out for inspection which shall be a time-

consuming exercise during maintenance outages.

The dip could trap sediments, which would prove difficult and time consuming to

remove.

I hese pro lems led-to the conclusion tfrit a sfialrow, free araining tunnel under the river shall be

a preferred a ption. Baca usethe tun n el .id..this.acea.. caccieshighipgessuresrsa• leof

water escaping the tunnel at the shallow crossing which pressure may jack open the joints in the

rock, a phenomenon known as "hydro-jacking". Approximately 800 meters of twin tunnels (total

1600 meters) will be lingri with steel in order to avert the risk of hydro-jacking. The—scope of

work included a new Adit sized for transporting steel liner sections, camps, shops and utilities to

support Adit construction. A separate camp, workshop and utilities for the steel fabrication and

concrete encasement around the steel liner were also established.

"This design change was authorized and implemented by issuance of a Variation Order (VO-27)

costing Rs. 7,480 Million'.

(b) Supplementary Technical Reiconc

Following few major reasons also hampered the physical progress at the Sire and contributed in cost and time additions to the. Project:

(i) Due to heavy ingress of water under River Jhelum in Headrace and Tailrace

tunnels, the excavation works suffered quite badly during the years 2014 &

2015. •

(ii) In May 2015, Rock Burst event badly damaged one Tunnel Boring Machine

(T-BM) due-to which it remained under clearance and maintenance frorrrtYtly

2015 to December 2.015. This incident caused 03 deaths and 13 injuries.

Continuous Rock Burst (earthquake in the tunnel) thereafter caused severe

damage to the equipment and tunnel supports.

(iii) Unforeseen rock stresses during the power house excavation in 2014 resulted in

cracking of one of the Piers and warranted complex, time consuming and

expensive remedial measures.

(c) Additionai Cost Intensive Procurements During rring-tructigl

Following explained two (2) cost intensive procurements, resulting in significant cost

additions, were made to recover delays and provision of stable electricity supply at Site.

Page. 23 of S2

(l) Procurement 3. Deciovment 7unne! Spring Viacninpc

a. Justification of Procurement

Cue to,he time the start of the croject and the desire to recover the lost time the project aOnedule, the initial concept of utilizing the Tunnel Boring Machine (TEM) fiar exc.avetiort of the Headrace Tunnel i'rilAT) was introduced in July 2009. The Contractor's initial submittal in this regard was ver;., praliminari in nature and was consequently rejected by the Engineer. Further delays to the project made acceleration even more desirable and the Engineer evaluated different ways to expedite the progress or work. In November 2010, it ',vas determined that the most criticai element of construction with

-respest--to-the--seinedtrie-wes-the-corrstrUction-Of trre—hea—TcraT -e.i.'irT-Tnel (AR 1) oetween edits Al and AZ, although other areas iwere also near critical and similarly considered to evaluate, possddle ways to minimize delay of project completion..

The two p critical worli

ways were considered to recover delaysin_construction for the most HRT construction between edits Al and AZ and these were:

introducing IBM excavation to the project; and

increasing the production rate of the Orli! and Blast (08i8) operation in this cecticn of the HRT.

An increased production rate for the 08.8 operation was favoured by the consultant and the empto Panel of Experts oe"cuse of the flexibility tnis construction method allows in ;addressing the challenging geologic conditions and expected incidents of nigh convergence .anticipated along the IHRT alignment The Contractor was reiuctant to consider the 08.B approach as in his opinion it would not result in recovering the delays deemed necessary far timely completion of the Works. Without the Contractor's buy-in and full suppOrt of 08.B method it was concluded that the possibility of success of this option to mitigate delays would be severely reduced. At that stage it was deemed

necessary that the TBM option be re-considered in view or

gic conditions encountered by then in edits; and lent in TENl technology to handle challenging geology and potential

poonvi rgence.

An evaiLal t f the available geologic data and observation of underground behavior during and atter tunnel excavation in the edits indicated that in general, the rock was of bettar ctuant than was indicated in the contract level design. The recorded rock

conve.irgente r significant overburden was also '.within the tolerable limit. These

findings of the insitu geologic conditions in the excavated -edits were encouraging leading Po the next step that necessitated furtherc../ziu.scion of advancements mace in the TBM technidiugy mar :Dula be applicaole to the Neeium Jhelum Project:.

For the technological evaluation, several workshops were arranged with TEM manufaczu•ers (primarily N.11/5 Herrenknecht of Germany) and detailed discussions on machine technology and operations were held. The IBM manufacturer identified a

Page 24 of 5-2.

machine that has been developed to address most of the geologiC concerns applicable to the Neeium Jhelum project. It was further established that this machine was built a nd

field tested in the excavation of Gotthard Base Tunnel in Switzerland which excavation

exhibits behavior similar to that expected to be encountered in the Neelum Jhelum

tunnels. Both the Engineer and the POE concurred that the.-machine used at Gotthard

utilized technology that is significantly in the course of. a discussion of the

risks of IBM usage, the POE expressed a cautiously optimistic view that a TBM similar to

that used at Gorthar might be successfully deployed and operated in the geology

expected to be encountered during the drive of the HRT from T1 to T2.

• It was expected that the deployment of TBM for the NJHEP will reduce the

implementation time by about 13-24 months.

• IC is estIrrEatd-rte-Firefitsrtf-5-n-1 the early operation of the Project will be

much more than the additional cost being incurred on the deployment of the

TBMs.

• In addition, the use-of TBM on NJHP will result in major technology transfer and Iii the IBM can be utilized on future hydropower projects like Diamer Bhasha and Bunji on Indus River.

Early availability of 969 MW power will help in reduction of load-shedding and

enhancement of economic activity and will also help to establish Pakistan's

priority rights on Neelum waters over Kishanganga Hydropower Project by India. EI

It is worth mentioning that India had awarded a contract, around 2011-2012 to

deploy TBM for Kishanganga Project to speed up the construction after facing difficulties in conventional Drill & Blast excavat.ion.

Fk

Summarizing the above, two considerations drove the decision to deploy Tunnel Boring

Machines (IBMs) at the Project. The first was to mitigate or recover delays that occurred prior to

the tender of the Project (e.g. the Earthquake) and others that resulted afterwards (e.g. land

acquisition and the 2010 floods). The second was a strategic decision to induct TBM technology

in Pakistan. Pakistan has some of the greatest untapped hydropower potential in the world.

Initiatives to create a strategic corridor to China will also require tunnels for railways and

higliwys. The TBMs were procured according to an international open tender.

Cost: "This procurement was authorized and implemented by issuance of a Variation Order-22

(V0-22) costing Rs. 29,255 Million".

(ii) Heavy Furnace Oil (HFO) Generators (VO-;71

Insufficient power supplies from the national grid were causing load shedding and voltage variations made it difficult for the Contractor to operate electrical, and

mechanical construction equipment and utilities at the entire Site of the Project.

Extensive research and consultations concluded that the only economical solution for providing uninterrupted, quality power supply was to install generator sets fueled by

heavy Furnace oil (HFO). Other alternatives considered were diesel generators and gas

Page 25 of 52

turbines. Diesel (light fuel oil) generators were more expensive to operate. Gas turbines

were not feasible because there is no gas supply at the sites.

The scope of works (V0-37) included procurement, construction of suitable generator

houses, acid,. the operation & maintenance of three generators Furnished by Wartsile.

Operation do maintenance costs are paia for per kilo-Watt hour. The Furnishing and

installation of the generators was by lump sum. The furnishing and installation of

generator sets were competitively bid.

"This procurement was authorized and implemented by issuance of a Variation Order -37 (VO-37) costing Rs. 6,475 Million".

3.3.3 Proiect Construction Cost Adiustment Fartnrc

Following four (11.txpes of project,,cpsLce,-ogeAlec a4cla.paide.escL-4ticrirfaetiArAMAYNgeckqn,-- the Construction- Contract:

(i) Design Changes/Variation Orders; (ii) Price Adjustment for Civil Works (Lot Cl, C2, C3);

(iii) Price Adjustments for Hydraulic, Electrical & Mechanical (EMH) Works; and

(iv) Exchange Rate Variations (US$ vs. Pak. Rs).

5.2.3.1. Variation Orders

A variation order is any change or modifications to the design, quality or scope of work. Variation orders can be either caused by the Employer, the Consultant or the Contras r, out the Employer caused changes are the most noteworthy causes of the variation orders.

A.variation order Is considered as an undesirable state of affairs in any project, but due to the

numerous complexities involved and unknown and unforeseen conditicfns at each hydropower

project site, it becomes inevitable to cause design changes and issue variation orders. Therefore,

it is customary in construction contracts based on FIDIC Red-Book contractual format, to have a

stand-by-defense clause regarding the right of issuance of variation orders. This clause gives the

right to issue variation orders to the Engineer and obligates the contractor to execute those

variations in the following language format (Clause $1.1):

"The Engineer shall make any variation of the form, quality or quantity of the Works or any part

thereof that may, in his opinion, be necessary and For that purpose, or if any other reason it

shall, in his opinion, be appropriate, he shall have the authority to instruct the Contractor to do

and the Contractor shall do any of the following:

increase Or decrease the quantity of any work included in the Contract;

omit any such work;

cha nge the character or quality or kind of any such work;

execute additional work of any kind necessary for the completion of the Works; and

change any specified sequence or timing of construction of any part of the Works.

The Engineer has the authority to determine the price of the additional works on the basis of the

prices in the executed Contract. If the Contract aces not contain any rates or prices applicable to

Page 25 of 52

the varied work, the rates and prices in the Cdritract shall be used as the basis for valuation so

Far' as may be reasonable, failing which, after due cOnsuitation by the Engineer with the

Employer and the Contractor, suitable prices or rates shall be agreed upon between the

Engineer and the Contractor. In the event of disagreement, the Engineer shall fix the rates or prices as are, in his opinion, appropriate and shall notify the Contractor accordingly. In case, the

Contractor disputes the or ices determined by the Engineer, it even then has to execute those

additional works and the price of such works shall be determined through the process of

Arbitration. (Clause 67.3):

"From the above, it is clearly evident that Variation Orders are largely in the control of

Employer's appointed Engineer both in terms of scope and cost and in view of that, it is

customary practice to get the additional works on the project done through the same contractor

by issuance of variation orders".

Accordingly, in the context of major design changes implemented in the Neelum Jhelum Project

to deal with the numerous kind of reasons encountered at Project Site, Variation Orders with the

base cost of Rs. 107.664 Billion have been issued so far. The details about Variation Orders

issuance proredurz,--reasons of these Variation Orders, the scope of work involved-and other

information is mentioned in following section 4 of this tariff petition.

5.2.3.2 Price Adjustments For Civil Works & EMH Parkazpq

Both the Civil Works and EMH packages are subject to price adjustment as per RUC Clause 70.

FIDIC Clause 70 and the Supplementary Conditions provide provisions for price adjustment

according to published indices. The EMH scope has a five percent (5%) per annum cap on the

rate of escalation. The civil works scope has no such cap.

5.2.3.3 Price Adjustment for Civil Works (Lots C1. l (-11

The sources of indices and the weightings or coefficients for use in the adjustment formula

under Clause 70 shall be as follows:

Cost. Element._ Description: _

A Non-adjustable portion

B Local Labour (Unskilled)

Weigjitf'n ('4)

20

7

C Local t'bour (Skilled) . __ _.Cement

E Reinforcing Steel Bars and Structural Ste&

F Diesel

4

8

10

4 Expatriate Staff & Labor

H Provision & Maintenance of Contractor's Equipment_ _ _ _ -- • Miscellaneous materials -Local 8

J Miscellaneous materials -Imported 10

Total

Adjustment Formula

Page 27 of 52

•

The value of the price adjustment for Lots Cl, C2 and 03 shall be calculated each month from the formula:

Price Adjustment = Vn x Pn.

And

(A÷b(Ln/Lo)i-c(SLn/Slo)-i-d(Cn/Co)+e--(Rn/Ro)-i-f(Dn/Do)4-g(En/Eo)+h(Mn/Mo)+I(Niln/Mlo) j.(Min/Mio)-1)

Where

kin = the value to be certified for the month n in respect of payments at base value for Works ustrirth—es and prices e-d-irhe Qtities of the Contract and before deduction of any retention

Fn an adjustment factor calculated from the following formula to include all weightings and indices as set out above.

-e is a fixed constant representing the nonadjustable portion in contractual payments;

= For Local Labour (Unskilled), the index shall be the minimum wages for the un-skilled labour as fixed by the Government of Pakistan.

= For Local Labour (Skilled), the index shall be the wages applicable for the "mason (i-a;)" for the city of "Rawalpindi" as given under Intercity Price of Construction Input items and Labour Wages, aresently in Table 12.12, of the Monthly Bulletin of Statistics, publisned by the Federai bateau of.Statistics, Statistics Division, Government of Pakistan.

= For Cement, the-cost index shall be the index number applicable to "cement" as given under Index Numbers of Wholesales Prices by Commodities - Building Materials, presently in

Table II .9, of the Monthly Bulletin of Statistics, published by the Federal Bureau of Statistics, Statistics Division, Government of Pakistan.

= For Reinforcing Steel Bars and Structural Steel, the cost index shall be the index number applicable--to 'iron bars &. sheets" as given under rnoex Numbers of Wholesales Prices by Commodities-Building Materials, presently in Table 11.9, of the Monthly Bulletin of Statistics, published by the Statistics Division, Federal Bureau of Statistics, Government of Pakistan.

---- For Diesel. the index shall be the index number applicable to "Diesel Oil" as given under

Index Number of Wholesale Prices by Commodities-Fuel, Lighting and Lubricants, presently in Table 11.9, of the Monthly Bulletin of Statistics, published by the Statistics Division, Federal Bureau of Statistics, Government of Pakistan.

= For Expatriate Staff and Labour, the index shall be the index number applicable to "Average Hourly Earnings of Production Workers", NAICS Code 23, Series Id: CES2C00000006, given under "Employment Hours, and Earnings from the Current

Page 22 of 52

r

•

J.

Employment Statistics Survey (National), published by the U.S. Department of Lai::: Bureau of Labour Statistics, Web Address: www.b1s.gov

h = For Provision & Maintenance of Contractor's Equipment, the index shall be the applicable tc the item "Construction machinery and equipment", Series Id: WPU 112, giv under "Producer Price Index- Commodities", published by the U.S. Department of 'Labour Bureau of Labour Statistics, Web Address: www.bis.zov

i = For Miscellaneous Materials-Local, the index shall be the index number applicable cs

"Wholesale Price Index" as given under Price Indices (General). with Percentage Change. presently in Table 11.1, of the Monthly Bulletin of Statistics, published by the Statistics Division, Federal Bureau of Statistics, Government of Pakistan.

= For Miscellaneous Materials-Impacted, the index shall be the index number applicable to

"Materials and Components for Construction, Series Id: \VPUSOP2200, given under Producer Price Index-Commodities, published by the U.S Department of Labor, Bureau of Labor

Statistics, Web Address: www.bis.gov

Cn, Rn, Dn, En, Mn, MIA-and Min are the current cost indices or reference prices of the cost elements for the relevant month "n".

Lo = 4000 Rs, SLo = 412.5 Rs, Co = 134.55 Rs, Ro =153.41 Rs, Do '= 239.14 Rs, Eo = 20.04 Rs, Mo = 175.6

Rs, MI° = 141.21 Rs and Mho = 189.2 Rs are the base cost Indices or reference prices corresponding to the above cost elements.

June 2016 Values

Ln = 13000 Rs, Sin = 1200 Rs, Cn = 230.60, Rn = 297.39 Rs, Dn = 454.16 Rs, En = 26.01 Rs, Mn = 219.10 Rs, Mln = 349.91, and Min = 228.80 Rs.

By analyzing the above base values corresponding to June 2006 and values at reference date of June 2016, the average increase of about 63.23% in base costs of construction inputs is evident and this increase translated into an amount of Rs. 48.767 Billion as an additional inflationary cost element incurred till June 2016 whereas for the remaining period till C0,0 (June 2018), an

estimated amount of Rs. 24.485 Billion is also made part of the Project cost, so the total increase in Project cost due to escalation in base prices of civil works input items (labour, cement, steel,

—fire!) ?TIM-June 2006 till June 2018 is estimated as Rs. 73.252 Billion and is claimed in tariff petition.

Exchange Rate Variation

The Contract currency is the Pakistani Rupee. Contract provisions for partial payment of the Civil Works in US Dollars was reckoned at June 2006 rates (1 US$ = Rs 60.35) which make calculation of dollar equivalents relatively a complex task.

The base price of the Construction Contract (Rs. 90,900,240,404) contains a component of 51.15% (Rs. 46,499,042,057) subject to foreign currency (US$) adjustments with reference to the base exchange rate of Rs. 60.35 = 'US$. The refeinte exchange rate is Rs. 105.00 = 1USS (June 30, 2016), which translates into an increase of about 73.47%, and consequential impact of this

Page 29 of 52

oss of currency'/clue atioition of Rs. 94.304 Billion to the Project base constalczion sost.

Physical Continsra ieS

Contingency is a-n integral part of the total estimated costs of a project. Contingency peicentages ?ire set up t3 handle ,Inforaseen cnanges. in a project. Changes such as additional work, Quantity overruns, and aaditionel tams are some or the contingencies that may be

expected in a project. The American A5Scaciation of Cost Engineers oefInes the contingency as follows:

"Covers cost t may result from incomplete design, unforeseen and unpredictable conditions, or uncertainties within the aefine• project scope. The amount of the contingency will depend

--o-n-trre-staturs-df-tits-IghT7rocuremenr. and constructfond Me complexity and uncertainties of the component art of the project_ Contingency is not to be used to avoid making an accurate

saesIrn ant of the up ecter: coat": ..-

IncluSion of contingency becomes ,particularly important where previous experience relating estimates and I costs has shown that unforeseeable events which will increase costs are likely to occur. So in view of the large and diversified scope of worts, design changes leading to

variations in cdristruction quantities ono other unforeseen cost items expected to be encountered in this mega underground Project physical contingencies cost at 2.50% of the total construction psi. amounting to Rs. 4.957 Billion has been included in Project cost estimate

hich s quite reasonable for this highly technically complex Project in view of the industry standards far sirmlar projects.

ngjneering ace w Sipe vision Cost

In 2005. WAPDA recuested proposals from Consuitants to prepare detailed drawings and administer the construction contract. The Request- for'-Proposals (RFP) required the Engineer to review the tender design and modify it as required. A Joint Venture (J)/) of MINH, NORCONSULT,

ESPAK, ACE & NOC responded to the 200E RFP„ however, the contract- negotiations did not result in an award.

The Sponsor/WAPOA invited proposals from consulting Firms in October 2007 to render services s Engineer for the Project through on—Intsrra-t-le•nal Competitive Bidding (fC3) basis, Following-

(2) forms/joint 'ientures submitted their technical & financial proposals by the :losing dare:

(i) Montgd Watson, Hanle. Inc., (USA)

In associ with

• NORPLAN AZ Norway; • National Engineenng Services Pakistan (Pvt.) Ltd (NE:PAK);

• A consulting Engineering (Pvt.) Ltd (ACE) Pakistan; and • National >elooment Consultbncs, FkaKistan (NOC).

ail RSW international. (Canada) Lead Firm, with

BAK CorjsLilting Engineering, Peshawar;

Page 30 of E-2

a

• Engineering Associates, Lahore;

• Designmen Consulting Engineers, likamabad; • Infra-0 Consultants (IDC), Islamabad;

• AGES Consultant, Peshawar; and

• ZOMA (Pvt.) Ltd., Islamabad.

The ;pint venture of MWH, NORPLAN, NESPAK, ACE & NDC (known as Neelum Jhelum Consultants) was awarded the contract for rendering services as the Engineer after detailed analysis of technical and financial ranking of both the above mentioned bidders and eventually the Engineer (Neelum Jhelum Consultants) mobilized in August 2008.

3.3.1 Scope of Work/Terms of Refprpriro

. . -The Engineer, in case of-Eli-Project and other public sector hydropower projects, has to perform many diversified and responsibility oriented tasks and its role is entirely different and heavily- -

---ex-cessiVe iiiterms of scope than that of "Owner's Engineer" hired in case of IPPs. In public sector projects, the engineer is responsible for detailed design preparation, construction supervision, issuance of contract changes, measurement of works performed and application -of complex

escalations formulas and indices, conducting of testing and commissioning etc. whereas the Owner's Engineer, as are appointed in IPPs, has a very limited role because of the nature of the Contract which is "EPC Contract". At present, 350 personnel (local and foreign) of consultants are engaged with the Project".

In EPC contracting, the Contractor performs the detailed designing, and is contractually obligated to complete the project within given time frame and cost and within closely estimated BOQs. Otherwise, it faces imposition of liquidated damages from the Employer. The chances of design changes and variation of BOQs are almost negligible which drastically reduces the role of the "Owner's Engineer" as compared to the "Engineer". The escalation formulas and indices are once and pre-decided and are less complex as compared to Unit rate Contracts. Here, the Owner's Engineer's role is also simplified. So, the cost associated with Engineer shall have no comparison with that of Owner's Engineer and the former shall exceed the latter. The Terms of Reference for the Neelum Jhelum Consultants/Engineer include, but not limited to, the followings:

• the main assignment of the consultants is to supervise the construction of all civil works, supply, efettion, commissioning and testing of hydraulic steel works aninfratiffalTind mechanical works in accordance with the specification and drawings and to coordinate and manage various contract lots to ensure timely and successful completion of the project to get the requisite objectives. The consultants shall be vigilant and take timely appropriate action to discourage the claims from the Contractor.

• The consultants shall plan and supervise additional geotechnicai investigations to verify the detailed design completed by the consultants.

Review previous designs of the civil works completed previously for adequacy and standard and assume full responsibility for it and obtain necessary approval of WAPOA/the Employer/the Sponsor (for the purpose of this tariff petition) for any changes required.

Page 31 of 52

•

WIZ

Carry Out review of derailed design of each and ail elements of the civil works (if

required), incorporate-proposed changes as required and prepare construction drawings for issuance to the Contractor for implementation.

Determination or application of new earthquake criteria in the design of project

features.

Clients desired changes.

Necessary redesign in the event of gross design errors or omissions of others.

Any seryices required in connection with environmental impact assessment or

resettlement action plan.

Any services required to assist the Client with acquisition or administration of lands,and

and rights

Any services required to make for the inadequades-of-cost estimates.

5.32 Rationale of Engineer's Cast

The cost for Engineering & Supervision amounting to Rs. 19.040 Billion is 9.60% of

construction cost of Rs. 198.564 Billiori as estimated for the purpose of this tariff

petition. The base construction cost and engineering and supervision costs reflect the

accurate expenditure incurred so far on mese accounts and educated guess based on

past spending pattern, future project construction requirements and other relevant

factors. This cost estimation is comparatively more accurate and realistic as it has been done while-standing in the middle of the construction stage as compared with the Hydro

IPPs case where all cost estimations are done upfront well before the start of the

construction phase or the project".

The cost of services of the Engineer has escalated since its hiring mainly because of standard escalation clauses in-the services contract and due to many design variations

implemented in the Project. Due to these factors, the man-months of the local and

foreign staff not only increased but the situation E11-50 necessitated the deployment of

more local and foreign staff / expatriates to properisrand professionally accomplish the

task.

The initially anticipated services period of the Engineer was about seven (7) years;

however, due to major design changes implemented in the Project and other delays

caused by floods of Z010 and land acquisition issue, the period of Engineer's services

has been lengthened and now it is forecasted that the deployment of Engineer at

Project Site might be required till 2017, making the period equivalent to about nine (9)

years. The perioci of about nine (9) years for the Engineer's presence at site is nct 2

common eventiplity and that's erhy it entails higher costs.

5.4 Land acquisition, Resettlements and Environment Cost

Page 32 of SZ

OOP

In case of this Project, land has not been directly acquired by WAPDA/NJHPC, rather the and has been acquired by Government of AJK through Land Acquisition Collectors, Muzaffarabad. The

details of the land acquired are as under:

Private Land Acquired = 1778 Kanals

Government Land Acquired = 1577 Kanals

Total Acquired Land (Government + Private) 345S Kanals

Additionally, the Land on Lease = 1212 Kanals

Land under process of award 8 i<ana Is a

Total Land for Project = 4675 Kanals

The COST of the land acquired for the Project is Rs. 2.00 Billion. Apart from this, the Sponsors

have to construct schools, basic health units, vocational institutes, water supply schemes,

recreation parks, solid. water treatment plant, water...shed management systems and upgrade

roads and bridges on the instructions and. demand of Government of AJK as part of Corporate

Soda! Responsibility, (CSR) measures which shall cost the Sponsors an amount of Rs. 5.237

Billion. So, the aggregate cost claimed under this head in the tariff petition is Rs. 7.237 Billion.

5.5 Project Development Cost

Administratively, WAPDA is responsible for the administration of the Project through Neelum

Jhelum Hydropower Company (NJHPC) specifically established for the Project, which is managed

by a Board of Directors (SOD). The Project is not only technically complex, diversified and spread

at longer distances, but the quantum of financing involved is also huge, so the Project Sponsor

has deployed a team with technical and financial experts along with general administration

employees/officers. The cost of administration of the-Project is estimated as_Rs.5.955 Billion

which is about 3.0% of the construction cost and falls within the range defined by NEPRA for

projects of such scale:

5.6 Duties and Taxes

Duties and. Taxes on imported plant and equipment include GST at 17% (may apply to 20% of

equipment), custom duty at 5% (80% of eqUipment), port insurance at 1%, handling charges at

1%, Sindh Government tax at 0.75% and WHT at 6%. Total estimated amount of duties and taxes

on import of EMI; +- Steel Liner + TBMs + Generator, claimed in this head is PKR 7,500 Million.

The actual cost of duties and taxes shall be ad)ilsted at COD.

5.7 Insurance During Construction and Performance Guarantees

The cost claimed in this head is PKR 3,577 Million for the insurance of TBMs and allied

equipment.

5.8 Contractor's Claims

An amount of Rs. 4,500 Million has been allocated in the protect cost for `contractor's claims

These claims primarily reflect the costs associated with the Extension of Time (EOT) events. This

estimation is based on the overall evaluation of contractor's claims which have been submitted

so far by the contractor and are in the process of review and approval by the Engineer / Client.

Page 33 of 52

1.

5,9 interest During Construction

The cost claimed in the head includes the 'DC cost already booked in financial statements i.e.

PKR 53,360 Million as of 30 June 2017 and 'DC For remaining construction period is assumed to

be PKR 34,334 Million. The proiected IOC has been calZulated based on the financing terms as explained in SeCtion 7.1 of the tariff petition. The actual amount of IOC shall be adjuste.c., at COD

upon documentary evidence.

10

Page 34 of 52

0'.e0Nle77J1-10:r.

79.2% 401 d16 I 3,323

9.3% I .

1 Debt

2, 1. Equity

: rql

2% p.a.

1.75% p.a. 1% p.a. 15.0% p.a.

SECTION 7. FINANCING ARRANGEMENT

7.1 Project Financing

The total project cost of PKR 506,579 Million is estimated to be funded based or. 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 Fotelen Relent Loans from GoP, cash development loans and local commercial financing detail

of which are set out in Tables 1 and 2 below.

The terms of the loans vary but for the tariff calculation a standard eight years' grace period and

twenty years repayment period amortizing schedule far loan repayment has been assumed.

- 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 consist

of Islamic Development Bank Loans IDS 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 and OPEC Fund

for International Development OFID Loan I and II of U5$ 81 Million.

15.0% p.a.

15.0% p.a.

15.0% p.a.

• - 1C:0•Loan:IL

SFD US$ 100 M

US$ 42 M Grace Period: 8 Years

Repayment: 20 Years

Grace Period: 8 Years

Repayment: 20 Years

Grace Period: 8 Years

Repayment: 20 Years

Grace Period: 8 Years

Repayment: 20 Years

Grace Period: 8 Years

Repayment: 20 Years

Grace Period: 8 Years

Repayment: 20 Years US$ SO M

2% p.a. L/S5 81 M

USS 31 M

_China Exim Bank I

Grace Period: 8 Years

Repayment: 20 Years 6M Libor + 280

bps

One time Mgt

Fee 0.75%

O5%os

SFD Loan 11..

OFID Loan-1

OFID Loan II

Page 35 of 52

15.0% p.a.

15.0% p.a.

0.5% p.a.

1% p.a.

US$ 448 M I.

551 ee

4,825

eium Surchargef 11.5% I SR ,nn

j. total vraj-e-ct7Cd-St. • . - -I0070% I

An Exulicinge Rate of PKR 105 to 1 USD is used. for conversion

I J

a

15.0% p.a.

n ' 'GracePe.ric

S

ci: 3 Years ; ; One time Mgt I

1 ivi Libor - 280 ! 1 M Reoayment: lc Years ; , Pee 0.75% II 12.0% s.e.

I i .iarli I i i

bps

33 Grace ?erica: 8 Yea.rs 1. USS SWAP Rate +.' 1

I 100 Loan': ; US6 1 VI ! 15.D% sie. i Repayment: 20 Years 1 2% 1

• Grace Perion• R Years l EM Libor - 1.'IC. 1 I ilIR Loan :i `,..1S3 27,13 Tvi

Reoayrnen it; 2:0 Years Ii

boa I i 15.0%

iNforwe'l-ra:r-3vtrx

Grace P eziod: 3 Years i i ;

NO 13-, M ; 6.27% p.a. 1 i 15.3% a a l Ci.-edit ji Repayment: 20 Years ;

NIHPC nas received three cash development loans COL - 1 (2006-07) of PKR 5,270 Million, Cat_ - i 2C12-1.3i PKR 1.300 Vltjlicn and CDL - 3 (2014-15) of PKR 14,000 /Million from the GOP and

-3iseca tornmercial1can or PKRI 100,000 Million from National Sank of Pakistan.

Grace Pertod: 8 Years

Repayment- 7n years

Grace Period: 3 Years

Repayment. In YFars

Grace Period; 8 Years 11.79% p.a.

Repayment: 20 Yearc

Gra ce Period:'-3 'a-rs 6ivlicibcr +.113 Reoavment:.10 VP7r5 bps

• . 2 114 : •••

cOL- 3-l---PKR 1470, M

.3449.P" PK?. ICO,C0f; L

10.65% p.a.

0.20%

11.78% p.a.

10.65% p.a-

11.79% p.a.

hMKibcr

-113 bps

3

Accittonally, a;pan PKR 104,232 Million will be raised to meet the financing shot: dll arising - _

cost over runs anti debt servicing or the existing loan portfolio. Loan will have e total tenor P. F :wen tyeignt years incivaing eight years grace period at a mark-up/borrowing rate of 6M

Klbor -113 boa.

Water & Power Gevelopment Authority (WAPDA) being the sale sponsor of NJHPC has injected

an equity of PR 46,963 Million. NJHPC he already received a grant in the form of Neelum

iheturri Surcharge of PKR 51424 !Million as of 30June NV, and additional grant of 7,075 Million

will also be ralSe, rtor to COO. No return and redemption is being claimed on the Neelum Jhelum Surcharge.

5.10 Return on Equity (ROE. ROE Curing Construction and Equity Redemption

4

13.

The return on irives'trnenr should commensurate with the risk undertaken by the Sponsors.

Compared to Fossil-fuel thermal power plants the hydropower plants: carry higher risks For the sponsors mainly because of the Following:

4•1 • more capital intensive;

• tonger .-geStati011 period;

problemsassociated with the project being in the remote areas i.e. difficult and time •

consuming adOess to project site etc:

• lack of -appropriate infrastructure;

• higher risks during project construction and completion;

Page 3.5 of 52

• political and securty problems;

• terrorism; • environmental and resettlement issues; people indulge in litigation resulting in prolonging

the implementation period; and

• cost over-runs for various reasons including unforeseen delays which can not be

quantified upfront.

The estimate of Return on Equity ("ROE") and Return on Equity during Construction ("ROEDC")

and Equity Redemption ("ER") have all been estimated separately and same are provided in

-.Section 9.

N11-iPC hereby requests the Authority to please allow:

• --RUE—df 1730(1Rnaser. return on invested lauity net of withholding tex;

• accrual of ROEDC commencing from ninety-six (96) months prior to COD at a. rate of 17% and

payment thereafter (i.e. after COD) over the remaining life of the Project ensuring an ROEDC

of 17% (IRR-based) net of withholding tax.. Authority is hereby requested to allow PrGEDG-from

ninety-six (96) months prior to start of construction date till COD based on the actual equity

injection;

• after COD a return of 17% (IRR based) on the accumulated amount; and

• equity redemption commencing after repayment of debt in Year 21.

It is pertinent to highlight that the withholding tax component..has not been identified as a

separate line item in the tariff as the same is assumed to be paid on all equity components i.e. ROE and ROEDC, at actual as a pass-through item-under the tariff.

3

Page 37 of 52

iif iE

Description

• variable. -811-y1.2.Cost

PKR Million

•• Ye a r • I-W.

938 j 938

Fdreign7 402. '102

Fixect40.

- -_-_-_- 1,609 ti,09

37157 3,3'33

6,702 6,702 O&M Waier UsegtIrges,:.: •

;IraSUratae ,q; , 2,179

taial:eiierkti4ks(6st"-:

7179

7 51';

11.394

2,513

11,394

'

Variable O&IVI Cost

SECTION 8. OPERATIONS COST

8.1 The operational cost of the project includes operations and maintenance expenses split in

variable and fixed component with a sub-component of Local and Foreign cost, Water Usage Charges, and insurance cost per annum.

The Variable O&M cost is calculated based on the net average annual energy adjusted with the historical hydroiogical data of River Neelum of 5,12630 GWh at 60.7% Plant Factor. The component compensates for the cost of services provided by the O&M operator solely dependent upon-the operation of the project and thereby determinable on kW1-1—b-isTiTrhC Variable O&M component also includes the cost associated with the replacement of parts necessitated due to regular operation/ normal wear and tear.

As the Variable O&M cost will be incurred in both local and foreign (70:30) currency, therefore Authority is requested to allow the following indexatiOn for the same:

Percentage Indexation In qt:;,( variable 084M Corn

Lccai j 70%

- -30% • ••

Pakistan.CPI (Gonpre I)

US CPI (All Urban Consumers) PKR/USD Indexation

L Forelen

3.1.2 Fixed O&M Cost

The 1 xed 0&M cost is 80% of the total O&M cost of the project. Loaf portion of fixed 0&M costs consists of ail the costs expected to be incurred by the project locally i.e. salaries and

wages, admipiStrative expenses, audit and corporate fees, local component of the 0&/iil operator fee, etc.

Foreign component of the Fixed 0&M cost is predominately comprised of the fee payable to the •̀-" _ O&M operator for routine maintenance related expenditures included but not limited to the

procurementi-6?-risrain---r.epratement corilpOnents, cost ass-cc:RFS-. .n7ttierIng the services of Foreign expertS. etc.

Page 38 of 52

As highlighted above, similarly Variable C&M cost the Fixed O&M cost will also be incurred in

both local and Foreign (30:70) currency, therefore Authority is fp-lease requested to allow the

following indexation for the same:

,

i Fixed O&M Component ;,_ Rercentage ..-. .1-- IndexatiOn

,L Local I 30% • Pakistan CPI (General) 11

1 • US CPI (All Urban Consumers) Foreign 70%

PKR/USD Indexation

I

8.7 Water Usage Charge

This component represents the use of water charges payable to Government of AJ&K. The same

are determined as a function of the electricity generated (in per kWh) by the complex. Water

UTECharge is included in tariff at the rate of 0.425 PKR/kWh. Authority is requested to allow

indexation of Water Usage Charges be based on Pakistan CPI (GeneFiri---

8.3 Insurance Cost

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 abovementioned 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.

NJHPC request's NEPRA Authority to please allow the annual insurance. cost to be 0.6% of the

total project base cost.

3

Page 39 of 52

SECTION 9. REFERENCE TARIFF

0 The requested EPC stage Reference Tariff is a typical two-part tariff comprising of:

Variable Charge: Energy Purchase Price ("EPP") for actual energy produced and delivercd cc the power purchaser; and

Fixed Charge: Capacity Purchase Price ("CPP") based on Net Capacity adjusted with the historical hydrological data of River Neelum.

Energy Purchase Price

The EPP of tariff covers the Variable O&M expenses component and Water Ussag_e_Cb_erge—The EPP is payable against each kWh (Kilo Watt Hours) of energy produced and delivered to the Power Purchaser as.rneasured by the Metering System at the Interconnection point.

9.3 Capacity Purchase Price

The CPP specified in< PKR/KW/Month is based on the net plant capacity specified under the petition —969 MW. The monthly billable amount of CPP will be determined based on the tested capacity determined during annual capacity test. This is a fixed monthly payment payable to NJHPC irrespective of the actual hydrology i.e. hydrological risk shall be borne by the power purchaser. The CPP will comprise of

Fixed O&M expenses (Local);

Fixed 0 expenses (Foreign);

Return on 'Equity (ROE);

Return on Equity During Construction (ROEDC);

Equity Redemption;

Insurance During Operation; and

Debt Servicing (interest inci_PrincipleRepayment).

9.4 Pre-COD Tariff

The generating units of the Project are scheduled to commence production of electrical power

from February zala One by one till May 2018, afterwhich the entire Project shall be tested as a whole and qualifyfordeciaration of COO under the provisions of the applied PPAs, hence NEPRA

is requested to grant the f` Year's Tariff as Pre-COO Tariff on Take and Pay basis for the Project during the-Pre-COD period for the electricity generated by the Project and delivered to the National Grid for onwara sale ay the Power Purchaser to power distribution companies.

Page 40 of 52

Reference Tariff Table REFERENCE TARIFF

Enamy Chad16 Capecily Champ

1.1911.111

Lon! 14 588 14.566

44.646 1 4301 34.541

' 11401 11011 11511 4 4410. 1.4.111. 14143) 119111 243632 149102 149.613 11384/ 1.84361 14.6881 145661. 115661

IAN!

5.30)6 5,100

5-1910 9.1.911 91911 93111 11114 3.1039 14119 1.1119 1.1016

M04. 6 91911 649.3E 14915 54946 5.1016 51016 %.1916 549.16 91913 5:14.10 5:1911 5.1016 5:91.1!1 3:1140 9:12.10 61239

13.1475

9a.0.61 Year W•Lef 9 c fetal is•I

0441 OHM Chaig•

/Lucia/ Voseles

H..J O&M

06..4

Hiked 06W

V.,eynl eorrree

POE Owls Sal a

6or911.9.1 3991409 140E061

loan 19 dm. Saul Calla[ V Naparn•n 01111.. 66•,9e

61 kW 114 . kw 111.:91_ 119179

..1.11199 14179 1911111 1141?- .311139 121411 138.970

l'LLV.1 319.165 804.265 111393

334.260 .911111.

31.111.5 . 391155 911111_ 342E5. 334.265 024 265

9141151 1451154 3942131 31111.1.4 9341151

5.1§§i 9141191

.111405.1 9141951 9313154

1 91111.51 911.3991

.431315.1 311141.1

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111114.1 7113111 f1.7:1131 3111199 U1119

41721.19 917-1119 31.11.139 4174119

1911119 .31.11139 2111149 117 1131

3449 luisn 10112.4. Alum 391111.4 212113.9. .3111139

117.1420

Kt W 09./ kw

011191 574197

, 111.1279 511497

.149113 ...111.L497

_29129-1 ... .171.1107

111193 .. 571997

.0.11.7.79 511197

.131.773 _141P_91

41191 _ 511997

111213 .514.1297

911773 . 471191

_ 512179 511992

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4-19.9.19.2 3.91.9973

_ founl _. 549911

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. 11112799 9919111

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111-.9191 512:0979.

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1111419. 5/1.04.72 .

As kW Rs.

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. .1.11.78.1 1,114q, . 161.4512 ..1.17.112

.1199,434 14.4.1 _115417 .331

.. 1911./13. 111 . 11.4.1111. 11519.31. 325:g 13.11134 3,81

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. 1.1313011 .117 9.414 9097 7.I

i

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...........

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3113 11191 131101 11141

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13 901

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9403 _9411 . .4.113 ..464

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9411! _ 907! . 9.475 .. 1116 10 9 119 0.995 1119.- .9910. MAN

43.14? 19117 11379.9

_ARAM

1319709 _1911701

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It 9119_ 09491 .1145 .09165

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91 2.414.9 19219. 1.1351. 9-1963

54 01810 907e4 1.4150 0.6054

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41 9.030 94311 41950 91195

11 0 1010 44.119 19431 0,1195

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11,1419_ 2414129_ 114134 1734)9 1 ,1420 74•20 49.1114.1 0.1430 09284 .1290 0.4965 1 98.0356 515

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t r 1

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NJ Page 41 of 52

12,315

17

18

19

20

15,080

12,449

6,373

3, / 90

. • •

9.4 Reference Debt Servicing Schedule

I: ROP4YrTifri

3 J

41.792

41,140

40,420

39,624

r

3

6.912

7,554

3,284

9,080

414 in

1(i7gINZNI840f 3,611

3,554

3,497* 3,423

597

653

716

784

r li stallme 9

;m tl +.1. „„ft.

jP lc

"3.704 I 4,203 48,704 I 4,208

48,704 4,208

48,704 4,208

4,208 .18,743 3,347 9,961

. 7,766 3,263 10,938 6b,1363 4.208

3,169 12,02.1 36ASO

861 I 48,704

945 I 48,704

48,704 1.039 4,208 48,704 4,208 114-3-

34,142

29,149

2e,086

,4,781

16,050 2,678

2,518

2,340

2,141 23,923 2 037

1,918

26,502 2.290

4.208 4-8,704 I 4,208 48,704 I 4,708

4,208 ,704 ,2

48,704

48,704

48,70/1 4.8,704

43,704

43 704

1 387

2.539

2,319

3,132

3,485

3,880

17,707

19,555 1,530

.690 21 518

327

29,389

32,624

36,255

40,331. 44,914

4,208

4,208

4,208

4.208

4,208

.208

2,950

2,821

370b

SF

14,562

rl

12

1

1,669

1,389

1,076 773

Page 42 of 52

SECTION 10. INDEXATIONS & ADJUSTMENTS

10.1 It is submitted that indexations be made on i s` January, 1s' April, 1“ juiy and 15' October

respectively, based on latest information available with respect to Consumer Price Index (CPI)

(General), as notified by Pakistan Bureau of Statistics, US C?! (for all Urban-consumer) as notified

by the US Bureau of Labor Statistics and exchange rate as notified by National Bank of Pakistan.

10.2 Foreign Variable O&M Cost Component

The Reference Foreign Variable O&M Cost Component of the Variable C&M Cost shall be

quarterly indexed to both:

• the USD/PKR exchange rate, based on the revised TT & CO selling rate of USD as notified

by the National Bank of Pakistan; and

• US CPI (for all Urban Consumers), asissued by the US Bureau of Labor Statistics.

The Applicable Formula shall be as follows:

/O&M (FReV) = Relevant Reference Tariff Corn ponent x

(LIS CPIIRev) / US CPUI (Ref)) *(F.X USD (Rev)/ FX USD (Rpf))

Where:

VO&M (FRev) = The revised Foreign Variable O&M Cost Component

applicable for the relevant quarter.

• US"CPI (Rev) = The revised US CPI (for all Urban-consumers) for the month prior

to the month in which indexation is applicable, as issued by the US Bureau of Labor

Statistics.

• US CPI (Ref) = the US CPI (for all Urban-consumers) for the month of July

2016(as of 30 July 2016) i.e. 239.842, as issued by the US Bureau of Labor S tatis tics.

• FX USD (Rev) = The revised TT & 00 selling rate of PKR/ USD as on the date on

which indexation is applicable, as notified by the National Bank of Pakistan.

Fx USD (Ref) =iii & OD selling rate of PKR/USD, Prevailing on 31s` July 2016 i.e.

105 as notified by the National Bank Of Pakistan

:0.3 Local Variable 0 & M Cost Component

The Reference Local Variable O&M Cost Component of the Variable O&M Cost shall be quarterly

indexed to the CPI (General) in Pakistan, as notified by the Pakistan Bureau of Statistics based on

the following formula:

e/) = Relevant Rererence Tariff Component x (CPI (Rev)/ CPI (Rot'))

Page 43 of 52

Where:

VO&M (LRev) the revised Local variable 0&M Cosi: Component soplicable Or

rt reievant ouarter.

091 (4ev) the revised CPI (General) In Pakistan for the month prior

to the month in ,mhich Indexation is applicable., as notified by the Federal Bureau df

Statistics

▪ CPI (Ref) = the CPI {General) in Pakistan for the month of July

210,0S. as notified by the Fe•derai Bureau of Statistics.

10.4 Local Fixed O&M Cost Component

The Reference Local Fixed C&M Cost Component shall be quarterly indexed to the CPI (General) n

Pakistan as .notified by the Pakistan Bureau of Btatistibs based on the following Formula:

I- -!;0A-M IL 'Rev) iReIevanz Referenc- e Tariff Cornoonent x 7 I ev)/ (Rel

here:

LiFC&M (Lfiev) the revised Local i--;xed C&M Cost Component applicable for the

relevant quarter

C..71-{Rev4 = the revised CPi (General) in Pa-kistan for the Month prior

to the month in whichindexation is applicable, as Notifiers by the Pakistan Bureau or

ratistiica

104 Foreign Fixed O&M Cost Component

The Referenbe Foreign Fixed O&M Cost Component shall be quarterly indexed to both:

FFC:41\it (F Rev) Re!evartt Ral'erence ariffCorrrbonent x r (US__CP1(Rev ' !IF Refl) (FX US0 (Rev)/ °X USD {Ref))

e LISOIRKA exchange rate, based an the revised Tr& CD selling rate of USD notified by the

National 'Bank of Pakistan

the US (P! (for all Urban Consumers), issued by the US Bureau of Labor Statistics

FX USD (REF) TT & CD selling rate of XR/11SD, bre ',/ailing on 311̀ iuiy 2016 i.e.

ICS as notified by the National Bank of Pakistan

104 Insurance- Cast

The Reference Insurance Cost Component snail be annually indexeP 1.,50/PKR exchange rate,

based on the revised '7 & 00 selling rate of USD notified by the National Bank of Pakistan.

Pag a of Si'

(a) Indexation Formula

The indexation of the insurance Cost Component shall be based on the following formula:

Linsurance [Rev) = Relevant Reference Tariff Component x (FX USD(Rev1/ FX USD (Ref)) iv

here:

Insurance (Rev) = The revised Insurance Cost Component applicable for the relevant

year.

-FX-USD - -=- - --The-rev is ed-T-T--&-0 0 -se n g-rate-o-f-PKR/- td S-8-as- on-th e- -d a te -

which indexation is applicable, as notified by the National Bank of Pakistan.

Fx U5D (Ref) = 77 & OD selling rate of PKR/USD, Prevailing on 31" July 2016 i.e.

105 as notified by the National Bank Of Pakistan

10.7 Return on Equity Return on Equity during. Construction and Equity Redemption

In line with NEPRA's previous determinations, the ROE and ROEDC, and ER component of the

Reference Generation Tariff shall be quarterly indexed to the USD/PKR exchange-rate-, based-on

the revised Tr & CO selling rate of USD notified by the National Bankof Pakistan. The applicable

formula shail be as Follows:

KUL (Rev) = Relevant Reference Tariff Component x FX USD (Rev) / FX (Ref)

It LA-1x (Rev) = Relevant Refiarence.Tariff Component x FXUSD (Rev) / FX ucn (RPf)

zfl (Rev) = Relevant Reference Tariff Component x FX USD (Rev) / FX usn (Ref) --Qv

here:

• ROE (Rev) = the revised ROE component applicable for the relevant quarter.

• RCE-DC (Rev) = the revised ROE-DC component applicable for the relevant quarter.

ER (Rev) = the revised ROE-DC component applicable for the relevant quarter.

• FX USD (Rev) = the revised TT & 00 selling rate of PKR/USD as on the date on which

indexation is applicable, as notified by the National Bank of Pakistan.

• FX USD (Ref) = TT & Selling rate of PKR/USD, prevailing 31' July 2016 i.e. 105 as notified

by the National Bank of Pakistan

10.8 Withholding Tax on Dividend

Withholding Tax on dividend shall be treated as pass through item. Withholding tax shall be paid

at the rate of 7.5% of the return on equity (including return on equity during construction). The power purchaser shall make payment on account of withholding tax at the time of actual payment

Page 45 of 52

A

•

of the dividend subject to maximum of 7.3% of 17% (IRR based) return on equity according the following formula:

firm iv pine Fax payable

({17% " (Eoui

here:

Equity (Ref) = Adjusted Reference Equity at COD.

Equity (Red) = Equity Redeemed.

ROEDC (Ref) = Adjusted Reference return on equity during construction.

hi case the project does not declare a dividend in any particular year or only declares a partial

(dividend, then the difference in the withholding tax amount (between what has been paid in that

year and total entitlement as per net return on equity) would be carried forward and accumulated

5c) that the company is able to recover the same as pass through item from power purchaser in

the future on the basis of total dividend payout.

10,9 Water Use Charge

The reference Water Use Charge Cost Component shall be annually indexed to the CPOGenerai) in

Pakistan, as notified by the Pakistan Bureau or Statistics based on the following formula:

WLIC (Rev)

here:

Relevant Reference Tariff Component x (CPI (Rev) / CPI (Ref))

111.(UC. (Rev) = the revised Water USe Charge Cost Component applicable for the relevant

year.

CPI (Rev) = the revised CPI (General) in Pakistan for the month prior to the month in which

indexation is applicable, as notified by the Pakistan Bureau of Statistics.

C1R! (Ref) -= the CPI (General) in Pakistan for the month of July 2016 i.e. 210.08 as notified,

by the Pakistan Bureau of Statistics.

1G.10 l nterest Cha rges

The Petitioner h-as utilized multiple loans to fund the project and since the servicing of all these

loans is in local currency, no indexation of exchange rate is required. Interest on all the loans carry

fled mark-up rate, with exception or local commercial loanfsukuk. No indexation is required for

the loans carrying fixed mark-up rate but for the floating rate loan the Power Purchaser is requested to piease allow for adjustment of any variation in the 5 months KIBOR as per below

mentioned formula:

• i = P (Rev) x (;LIBOR (Rev) - KIBOR (Ref)) 2

Where:

Page 46 of 52

•

GI the variation in interest charges applicable corresponding to variation in six month

KIBOR. 8 1 can be positive or negative depending upon whether KIBOR (Rev) > or < KIBOR

(Ref). The interest payment obligation will be enhanced or reduced to the relevant of A 1

for each period under adjustment applicable on annual basis.

P (Rev) = the outstanding principal on a semi-annual basis at the relevant calculation

• dates.

KIBOR (Rev) = the 6-month Kibor (Offer/Selling rate) at the relevant calculation dace as

notified by State Bank of Pakistan.

KIBOR (Ref) = the 6-month Kibor (Offer/Selling rate) as notified by State Bank of Pakistan

_o

I

Pa..ge 4:7 af 52

SE'71CN 11, GNc Tai ME A.DUSTl T AT COO

tc Variation it Ne7., C:7:10 •S 7

The re ere:ion tanff `Cr r- as been oatar-r-inec based on the net C:iC3CitV of 96.4.30- 's fecueszed that the C?.0 component oe ea5ustea at :he time of COD oasec !tai ri the :n#tai Ueoenaaote.'Cooacri teZZ z_o ca carrieo ci. for the dezerraina;:an Cont ac'_

; fined unciet nice We would request NEPRA to adjust the CPP Component based zn crrrnuia;

CC 964..50 11

= Adjusted Relevant CC? Co n . or tariff.

- CC,(Re = Reference Reievant CCP Component of tariff.

NC (MD= Net :opacity at re erence site conditions established at the time of ICC test,

'Ll,Q to variation in Projec' Cus. Q C

The Tariff shall

used the ,eLow Operation Date:

!nor, scion eel p rt7i

Cost aiir the

e the Clvil Worsis Cast Escalation including costs associated with Steel, cement, F ei in accordance '.with the Construction Contract of :he Project.. The procedure or

errs is, in essence, acknowledged ;n NEPRA approved mecnanism for hvdei

is rnpieted through fu Venation Crdera. (Vos) issued by the Company ission this tariff petition.

lair o pVitl ed prior to achieving CrOD on account of unforseen events such as change in

i- events irtota, szrlkes. war etc; ant Act of God; which cause damage to the

ariation in cost of Land Acquisition and esettiement

aria Return on Equity during ConstruC;icn based on actual equity investment. infections and variation in Fl<7/LiSD exchange rate during period 3.6 months

:ion end daze and dur:r.g " -̀ fon sieriod;

4-itange raze variations during' the constraction period for any project related cost:

I' the financial cost due to the arrangement, commitment and other fees charged s of the Project based on fihei rates agreed with lenders, NEPRA approved dent

Page i13 of 52

at COD and variation in withholding rate on such payments to financiers and variation in USO/PKR exchange rate;

• Adjustment due to:- (a ) any changes in rates of duties and taxes paid or withheld in relation to the project and, (b) any duties and taxes paid (inciuciing as a tax gross up obligation) or withheld and clot taken into account/assumed with respect to calculating any project cost in the reference tariff including without limitation any payments to EPC contractor;

• Adjustment of the interest during construction including change in the interest base rate (L1BOR/K1SOR), final agreed margin, variation in pattern of Loan drawdown, PRK-USD

exchange rate and withholding tax rate;

-•---Adjustrne-nt-of-the-Gest-s-assoeiated-with--Ndraulle-s-teel-structure-arrd-hydro-n-rechanical--and-- - - electrical works;

• Adjustment of the costs associated with the Engineer/MHPP Consultants and other

consultants including financial and legal consultants as per actual based on documentary evidence;

• Adjustment of the costs of Project Administration as per actual incurred till COO;

• Adjustments due to the costs associated with the resettlement of habitants of the area

affected by the construction of the Project; and

• Adjustment of insurance cost incurred during construction to be adjusted based on actual cost incurred including changes in PKR-USO exchange rate and withholding tax.

Page 49 of S2

N 17. PASS THROUGH ITEMS & ASSUMPTIONS

Pass through Cast items

The. ALIthCii equeszeo to allow he 'chewing Cost Components as pass ;hrnl..gh item5 'eased

acaiai coats :isoneoly incurred by ;',i2HPC:

No Tax on the income of NJHPC has been assumed. Any. Corporate Tax, turn over tax, general

sales Taxi prpvinclaf seies tax a ne all other taxes, excise out{, levies, fees etc. by any !ede rai/

proyinciat. entity ncluding locsi bodies and when imposed, shall be treated as pass through

item.

AnY rede.'Te.r&I--previtTcial-55re.5-',:a;c---rtairrEr--atiti-ed-tax-or-ottrer-tax--poiyabie -by- NJH PG -for-its

operation arid maintenance- cost, on invoices of its consultants or for its insurance during

operator) dhate shall be trestec as Pass Thraugn.

Nd. wit.`lr dlding -ax on the Dividend has been Included in the Tariff. Authority is requested to

of withholding tax on dividend as pass through at the time of actual payment

of withhold ng tox-

No Debt Sertices Reserve account 'DSRA}, Maintenance Reserve Account or Contingency

Reserve Account er any other Reserve Account has been considered in the tariff model

Any water use r Large payable in excess of whet has been assumed.

.v other item hat is set Our. as a pass-through item M the power purchase agreement.

;re payreents Workers Welfare Fund and Workers Profit Fiarticipation Fund have not been

accounte=d the projec budgerand have been assumed to be reimbursed as pass through

at actual the Power Purchaser.

Any increeSe In cost borne by the NJEPC on account of a change in tax or change in law

including changes in the method of assessment or calculation of taxes.

The payments tia workers welfare fund and Workers ProfrParocioation Fund have not been

accounted for in the Project 8udget and have been assumed to be reimbursed as Pass through

at actual ewer Purchaser;

•

Zakat oedductien on the Dividends as required under Zakat Ordinance is considered as a Pass

Trough:

No hedgin,gs assumed for exchange rate fli,ctuat'ons during construction and el cost

overruns resultin r cit ,unations in ne exchange rate during construction shall be allowed as

mass through,

AJK taxes have been assumed in tne tariff petition. in case the project is required to pay

any such tzuw., ,a.rne shall be created as a pass through;

Fear. 70 of 5Z

a I

•

• Operation and maintenance of the plant will be as per the manufacturer's recommendations

in the Davi manuals.

• Any costs incurre7 !oy the project company, which are i-equir-z-d to be incurred by Power

Purchaser pursuant to provisions of the PPA, shall also be treated as pass through;

• Power Purchaser shall make payments to the Company tc cover ail energy delivered to the

Grid during the pre-COD period on account of the trial runs and during tasting/retesting,

commissioning of the complex and during additional Commercial Operations Tests until COD is

achieved. Payments will be invoiced to the Power Purchaser as per the mechanism specified in

the PPA. Similarly, the price of energy delivered during testing post-COD period shall be paid

as-per-the-EPP-component-of thetarit.a.ncl _

• Any cost payable on account of a change in the assumptions set out in 12.2.

• Any other taxes, duties, levies and charges that have not been factored into the tariff

calculation shall be treated as pass through.

12.2. Assumptions

The proposed reference Tariff is based on the following assumptions. .A change in any of these

assumptions will necessitate corresponding adjustment in project cost and the ReFere.;-,ce to;iFf:

• The levelized Tariff is applicable for the period of 50 years; the debt shall be serviced

(repayment of principal and interest charges) in first 20 years and equity shall be redeemed in

last 30 years;

• Debt for the project consists of foreign relent loans and cash developmentjoans by GoP and

local commercial loans;

• Debt to equity ratio of 79:21;

• An exchange rate of PKR 105/USD has been assumed. Indexation against PKR/ USD variations

shall be permitted for all the project rncr riprinminated in the foreign currency. Tariff

components shall be respectively indexed for exchange rate variations as discussed in Section

10;

• The timing of Drawdcwn of debt and equity may vary from those specified in this petition; as

such the Project cost, will be adjusted based on the actual IDC at COO. Similarly, ROEDC

component will also be updated in the reference Tariff;

• Similarly, variations and adjustments in the Project cost due to variation in the PKR/USD and

KIBOR fluctuations will also be catered at the time of COD;

• The Power Purchaser will compensate for the energy delivered prior to COD. Payments will be

invoiced to the Power Purchaser as per the mechanism specified in the PPA;

Page 51 of S2

Customs duif will be adiu

as'surned;

Any addit

over

cation cr concession allowed by the GOP, NTDC/CPPAG/ NEPR,A or any

tit; to any IPP will be allowed to NJHPC without any discrimination.

The Po, r PaRrcraser will be solely resconsible ,or he financing, engmeering, orocurement, :cnstrucsion eszing :and commissioning or he interconn.ection and transmission facilities.

The Paciiities oe made :available to the Priciett at least on or before he :deadline Sc: in tne.

Power Purcniase Agre.ernent and in any even: at such time that it does not dela'/ COD any

unic.. Fun:Met:M:0re, ;he Power Purcha-ser will oe :spiew the coeralion

main telnance interconnecrion ano zran smisslon facilities;

II-he Po. ser will bear hydroicgicel risk;

The PaA structured as a take or pay contract whereby tie Cacaclty Porshase Price

be payable to the Project company regardless of the actual disoarcn levels:

All generabl'eertergy from the plant shall be fully dispatched/accepted by the Power Purchaser

or payment in lied thereof shall be made by the Power Purchaser;

Water Use Charge and Its indexation will be charged at the same rate as provided for in the

Power Poiity, 2015 and the Water Use Agreement signed be.tween ii iPC and the AA(

Government;

import of:plant, materials and. spares and parts is assumed at 7 v, which per actual payment at COO and no other import duties have Seen

• r? my F:,- n wtthholai-ngtax on EPC onshore works has been assumed; withIcicing 'tax on C<?,,A1

ost is no : and no assumptions has "Jeen made fc any oilier :Taxes: ircluclng sales

tax and va taxes on the LIPC contract (both onshore and c:ii:shore works', and. for the

M casts in there is any change in taxes etc. or additional taxes, fees. excise. duty, ievles

ec:t. are imposed, he project. cost and reference tariff shall be adjusted esso:aingly;

in case t any unintentional.error or omissions, typographic errors, and any genuine

asaurnoticn yen overlooked, the some will be corrected/ incorporated and aaviseo to the

er Pure-a r ark soon as NJHPC becomes aware of It;

tor orkrng capital has not been assumed;

Cr, or before JHPC the project most and reference tariff will be adjusted ro account for

one-time adjustments; and

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