Govt to approach China, local banks for financing on Diamer Bhasha Dam

China assured Pakistan that it would finance the construction of the dam but it will seek guarantees.

With power shortage increasing continuously in the face of rising consumer demand, the government has decided to seek financing from China for the mega $13 billion Diamer Bhasha Dam with power production capacity of 4,500 megawatts and also take loans from domestic commercial banks by offering guarantees.

According to sources, Prime Minister Raja Pervez Ashraf will place a request before his Chinese counterpart during the visit on September 10 for financing the Diamer Bhasha Dam, for which multilateral donors including the World Bank and Asian Development Bank (ADB) had sought no-objection certificate (NOC) from India due to the dam “being situated in a disputed territory”.

The decision to approach China was taken in a meeting held at the Planning Commission last month as Beijing had wide experience of building large dams, a senior government official said. During the meeting, different options were considered for arranging capital for the dam, which is vital for wiping out most of the gap between electricity demand and supply in the country.

In the meeting, the government officials also decided to borrow money from banks with 50% guarantees to be provided by the central government and the remaining by the Water and Power Development Authority (Wapda). The loans will be taken against security of assets like turbines of dams.

“The prime minister has been briefed on the plan for seeking financing from China and he will discuss it with his Chinese counterpart during the upcoming visit,” the official said.

The Chinese government had already offered Pakistan skilled labour for the construction of the dam. Beijing has 17,000 skilled workers, who worked on the Three Gorges Dam, which is producing 30,000 megawatts of electricity.

Sources said China had also assured Pakistan that it would hire a company to finance the construction of the dam. China Development Bank was also willing to pour money into the project. However, they said China would seek guarantees from the Government of Pakistan.

Pakistan had been engaged with China since 2008 and had shared with it the draft of a detailed engineering design of the dam.

In the draft, German firm Lemhyer put the cost of the dam at $8.5 billion in 2008 against estimates of $6.5 billion in 2005. The cost has further gone up and now stands at $13 billion, say some estimates, as the project has been considerably delayed compared to the government’s plan to start construction work by 2009.

According to officials, the government has rejected a proposal to impose surcharge on power consumers, like the one being used to finance the Neelum Jhelum hydropower project, to raise funds for the Bhasha Dam.

“The proposal was opposed by different stakeholders as consumers were already paying a higher power tariff,” an official remarked.

Consumers are paying a surcharge of 10 paisa per unit for Neelum Jhelum hydropower plant, which will generate Rs6 billion per annum for the project.

The country has been searching for alternative financing sources since the multilateral donors asked Pakistan to seek NOC from India for Diamer Bhasha dam. The donors instead offered to finance the Dasu hydropower project. However, the government has rejected the donors’ programme and wants to complete Bhasha Dam first.

The Dasu project is situated 7 km upstream of Dasu village on Indus River and 350 km from Islamabad. The project is in Kohistan district of Khyber-Pakhtunkhwa.

Published in The Express Tribune, September 2nd, 2012.