Pakistan has put the Diamer Bhasha dam on the back burner and approached the World Bank (WB) to finance the $7.5 billion, 4,320-megawatt (MW) Dasu hydropower project, conceding to a major demand by international lenders who were reluctant to fund the Diamer Bhasha project.
The federal government wrote last month to the Washington-based lending agency to start the process for the approval of a $700 million loan for the Dasu hydropower project, according to sources in the Ministry of Finance.
The letter was sent to the WB by the Economic Affairs Division (EAD), marking the beginning of a departure from the current government’s stated policy of first building Diamer Bhasha and then starting work on Dasu. An official of the EAD confirmed that the government approached the WB to finance the project.
As the WB was more than willing to finance the Dasu project over the 4,500-MW Diamer Bhasha dam, it immediately started the process and an appraisal mission of the WB is already in town, according to sources in Water and Power Development Authority (Wapda). The mission will hold wrap-up meetings in Islamabad this week and decide a date for presenting the project in front of the Board of Directors of the WB to approve a $700million loan, the sources said.
The WB loan is for the upfront cost of the project, compensation for the affected population, resettlement plans and pre-construction activities, the sources said. Usually, such activities are funded through domestic resources as these activities have low or no rate of return at all. This highlights the WB’s eagerness to fund the Dasu project at the expense of Diamer Bhasha.
The site of Dasu power project is 74 kilometers (km) downstream of the Diamer Bhasha dam and 350 km from Islamabad. The feasibility study and detailed engineering designs of the project were already completed and tender documents ready to be issued, the sources said.
Over the past several years, the WB kept refusing to finance the Diamer Bhasha dam, requesting a no-objection certificate from India first. After the WB’s refusal, the Asian Development Bank (ADB) too attached many conditions, including seeking a consensus resolution from the Council of Common Interests before asking for loan for the $14 billion Diamer Bhasha dam. Recently the ADB raised resettlement and environmental issues resulting from the construction of the dam.
The WB country office confirmed that the work on approving the loan for Dasu project was underway.
The international lenders were of the view that it would be difficult for them to finance the Diamer project due to the huge financing required. They argued that work on Dasu could be completed in four phases with initial funding through loans in the first phase, while the rest of the work can be completed by Pakistan.
The Planning Commission has already received a PC-I form for approving the project for land acquisition for the Dasu project, confirmed Planning Commission spokesperson Asif Sheikh. The commission has not yet critically reviewed the PC-I form but the water and power ministry has put the initial land acquisition cost at Rs74 billion.
Rana Assad Amin, spokesman for the Finance Ministry, said that initiating work on Dasu would not mean that the government has abandoned the Diamer Bhasha project. He claimed that the government will implement both projects simultaneously.
To a question on arranging up to $25 billion funds for carrying on activities simultaneously, Amin said the Dasu project will be completed in eight years while Daimer project would take at least 10 to 12 years, allowing Pakistan more time to raise funds.
Published in The Express Tribune, November 5th, 2013.