OTHER IMPACTS

The proposed project will provide major environmental benefits from a lower increase of
consumption of petroleum products, in the form of gas, diesel oil and possibly coal. The result will be
reduced pollutants emissions. Lower increase in the rate of petroleum imports will also have a beneficial
impact on the economy and on the balance of payment. Reduced foreign currency requirements for fuel
imports will only partly be offset by the debt service on foreign loans for the project investment (the
magnitude of this difference will depend on a number of factors, including the share of fuel that has to be
imported).

Given its lower cost per unit of electricity generated compared to other alternatives, implementation of the
NJHP will result in lower electricity tariffs. Moreover, given the high economic cost of power shortages
(estimated to be between USc 27 and USc 75/kWh), any reduction in load shedding resulting from the
implementation of the project will contribute to removing an important constraint to Pakistan's economic
growth. and in the industrial sector in particular. There are no significant negative externalities associated
with the implementation of the project, according to the Environmental Impact Assessment. The
environmental and resettlement mitigation measures, whose costs have been included in the least-cost and
energy benefit evaluations, are expected to more than compensate for the loss of welfare to the population
of the project area. Additional permanent income opportunities (from manpower needs on the scheme as
well as through measures aimed at creating new employment opportunities), new infrastructure and
improved social services are some of the local benefits that will emanate from the scheme. Finally, the
project will require a working force of up to 2.500 people during the construction period, many of whom will
be hired locally. The results of the economic evaluations would further improve if the above net positive
externalities were induded.

ENERGY BENEFIT EVALUATION

The evaluation seeks to demonstrate the justification of investing scarce resources in the
NJHP rather than elsewhere in the economy. It compares the benefits of electricity to
society with the costs of the project, both expressed in economic terms. Benefits in this
context are represented by the quantities of energy generated by the projected and sold by
WAPDA to its consumers. As per WAPDA's calculations, the weighted average electricity
tariff in FY 1997 has been calculated at Rs 2AS/kWh, or the equivalent of USc 6.1.
However, applying this tariff to the relevant energy quantities is considered to underestimate
the value of electricity to consumers in the country.

A more appropriate measure of this value is the consumers' willingness to pay for electricity.
From this, one can calculate the consumer surplus. A reasonable measure of consumer
surplus may be obtained by observing how much consumers are prepared to pay for energy
from alternative sources. '

Selective surveys have recently been undertaken to obtain data for making an assessment
of consumer surplus for a hydropower project in the Northwest Frontier Province, described
in Appendix M-6, "Consumer Surplus Evaluation". The average willingness to pay, arrived at
in the surveys, lies 81% over the prevailing tariff. To reflect the assumed shape of the
demand curve for electricity, only 50% of the estimated consumer surplus has been taken
into consideration. This implies that, in the economic analysis, a surplus equal to 40% of
the average tariff has been added to the benefit reflected by energy sales valued at the
prevailing average tariff.