Diamer Bhasha Dam: US approves grant for due diligence, feasibility study

American involvement in project matters more than the funds it will provide, say experts.

ISLAMABAD:

The United States has approved a grant for verifying feasibility and geological studies of $14-billion Diamer Bhasha Dam, marking the first concrete support from Washington for the much-delayed project.

While speaking to Finance Minister Ishaq Dar, US Ambassador to Pakistan Richard Olson apprised the finance minister of the sanction of funds by the US Congress with regards to due diligence of the dam. Olson also discussed wide range of issues with Dar including the ongoing US civilian assistance and upcoming visit of Secretary of State John Kerry.

The American envoy said funds will be provided through the United States Agency for International Development (USAID) and will be used to finance the due diligence of feasibility studies. He said the US will support construction of the project so that donors and international financial institutions can gain confidence.

The US will provide $20 million for due diligence, which will be done by international consultants, said Shakil Durani, the government’s adviser on Diamer Bhasha Dam, while talking to The Express Tribune.

The experts are terming the development very significant, as the US support for the dam will matter more than the amount it puts in the project. They say after the US assistance, other international lending agencies will also come forward.

“Pakistan welcomes the interest shown by the US for supporting Pakistan’s flagship storage project,” said Finance Minister Ishaq Dar.

Durani said Pakistan has already done detailed engineering design, feasibility studies, technical, geological and physical studies for the construction of the dam. The international consultants will now verify and analyse all the work done by the Pakistani authorities, which was a pre-condition for arranging finances for the dam, he added.

Durani said international consultants will take four to six months for due diligence after which Pakistan will approach international lenders seeking funds for constructing the project.

International lenders like the Asian Development Bank and the World Bank have so far remained reluctant to finance the project. The ADB’s Country Director for Pakistan Werner Liepach, last week, hinted at working with Pakistan to find a workable financing model.

Pakistan is seeking a loan of $500 million per annum from the ADB over a ten-year period for construction – principal amount of $5 billion. However, the ADB has in the past refused to provide such a big amount while arguing it may affect financing for other projects.

The World Bank too remained reluctant to come forward, but according to the Water and Power Development Authority (Wapda) officials, with the change in management at the bank’s South Asia wing, hopes for acquiring funding have been revived. Philippe Le Houerou has joined as the new vice president of the World Bank for South Asia, and is believed to be in favour of pro-green energy projects.

In the coming years, Pakistan is also seeking $200 million per annum assistance from the US for the construction of the dam, while up to $2 billion is expected as suppliers’ credits, said the officials.

Both, the US ambassador and the finance minister also discussed the outstanding issue of bilateral investment treaty (BIT) between the two countries, according to the finance ministry. However, the minister sought time to seek input from all the stakeholders, it added.

The military establishment is said to have reservations over inclusion of security related clauses in the treaty that may have implications for the country’s nuclear and defence programmes, according to the Board of Investment officials.

Both the sides also discussed the agenda of the meeting between Secretary of State John Kerry and the finance minister. Kerry is scheduled to visit Islamabad soon.

The International Monetary Fund loan programme to Pakistan was also discussed during the meeting, where US envoy Olson said, “US supports the programme.”

Published in The Express Tribune, July 25^th, 2013.

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