Penny wise, pound foolish

Planning minister has refused to approve Dasu Dam project because he believes that it can be completed for cheaper.

How much does Planning Minister Ahsan Iqbal think a 4,600-megawatt hydroelectric power dam costs? Leaving aside the seemingly poor arithmetic skills of officials at the water and power ministry, Mr Iqbal refused to approve a necessary project like the Dasu Dam because he believes that it can be completed for cheaper. While accountability for the use of public funds is important, losing sight of the larger strategic picture is a far costlier blunder.

Let us examine some of the facts. The water and power minister is estimating that the project to build the Dasu Dam will cost around Rs735 billion, or about $6.9 billion. In other words, the installation cost of the hydroelectric power generation capacity at Dasu comes to about $1.5 million per megawatt, which is very cheap by both global and local standards. For the sake of comparison, a run-of-the-river dam set up by Hub Power Company in Punjab cost about $2.5 million a megawatt of installed capacity. Indeed, if anything, we believe the water and power ministry’s estimates are still too low.

We would remind Mr Iqbal of what his former professors at Wharton would no doubt have taught him about capital budgeting: the longer one waits to execute a project, the higher its cost. Pakistan desperately needs to reduce the weighted average cost of power generation and, by far, the best way to do that is to install more hydroelectric capacity. Of all the major projects under consideration, Dasu is the cheapest option.

In fairness to Mr Iqbal, the water and power ministry did itself no favours, first by using incorrect numbers for the exchange rate with the US dollar, and then by going directly to the Executive Committee of the National Economic Council rather than first sorting out the matter with the planning ministry. But Mr Iqbal should not throw the baby out with the bathwater. Yes, the power ministry made an error. But that error should be corrected, not compounded.

Published in The Express Tribune, February 15^th, 2014.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.