Japan has agreed in principle to finance the power houses of the Diamer Bhasha dam, renewing hopes that the project will not be suspended. The dam has been designed to generate 4,500 megawatts of electricity, which Pakistan direly needs, besides storing water for agriculture purposes.
According to a senior government official, Japan has agreed to finance the construction of the power houses of the dam through the Japan International Cooperation Agency (JICA). He said the move, if it materialises, will create a win-win situation for both parties: it will provide much-needed funding for the project and an opportunity to JICA to sell its equipment.
However, the exact amount of the funding has not yet been worked out as modalities will be finalised later on, the official added. Meanwhile, the authorities have informed the premier about this development.
The project was originally meant to be completed by 2017, but suffered setbacks after its lead financer reportedly backtracked from commitments. It is currently facing delays of up to three to four years. Officials say Japan’s decision is good news for the country: the $11.2 billion project can still be kept alive, after the Asian Development Bank (ADB) recently reportedly refused to fund the dam.
The ADB had committed $4.5 billion to $5 billion for construction of the project. The bank had also pledged that it would act as the government’s investment banker in raising the money from international capital markets to meet funding requirements.
According to media reports, the ADB has now refused to provide financing for the dam. According to a senior government functionary, the ADB has reiterated an old stance: it will be difficult for the lending agency to arrange the entire funding on its own, and it needs collaboration from other international lending agencies as well. The ADB itself has not clarified the news reports
Officials say that talks with the ADB continue, to convince the lending agency not to withdraw its support even if there are problems in arranging funds from other international lending agencies.
In its efforts to keep the ADB on board, the government has increased the land acquisition compensation cost to more than twice the original. The ADB had suggested the government increase the cost – in order to appease the affected population and avoid future litigation. The cost of the land acquisition project was less than Rs48 billion originally, but has since soared to Rs116.6 billion, according to the Planning Commission.
The World Bank has already refused to provide funds for the initiative, fearing a backlash from India as New Delhi considers Gilgit-Baltistan a disputed territory. However, the United States has assured up to $500 million in assistance for the project; to be paid out of the $7.5 billion Kerry Lugar aid package.
Published in The Express Tribune, August 31st, 2012.