Diamer-Bhasha Dam project: ADB urged to act as lead financier
October 19, 2012: Pakistan has requested the Asian Development Bank (ADB) to act as lead financier for $4.792 billion loan for the construction of Diamer-Bhasha Dam project designed to generate 4500 MW electricity and live water storage capacity of 6.4 million acre feet (MAF), it was learnt.
Sources told Business Recorder that the ADB was requested to act as lead financier of Diamer-Basha Dam project here on Thursday by the economic team led by Finance Minister Dr Abdul Hafeez Sheikh and later during talks on energy sector by the Minister for Water and Power, Ahmed Mukhtar, and other senior officials of Ministry of Finance Water and Power and WAPDA.
The Pakistani side led by Secretary Water and Power Nargis Sethi also gave a presentation to the visiting members of the ADB Board of Directors on the indicative financing plan of $13.683 billion Diamer-Bhasha Dam project. According to the financing plan, Pakistan would seek $4.792 billion for Diamer-Bhasha Dam from the ADB, local banks, Exim Banks and supplier credit.
The loan would be used to pay $1.190 billion as interest payment during construction, $868 million for cost escalation, $1.156 billion for the purchase of electrical high voltage equipment and power plant electrical equipment for left and right bank and $1.119 billion for power plant generation equipment left and right banks. An amount of $459 million would be used for hydro-mechanical equipment and hydraulic steel structure.
The government would arrange $1.954 billion for the dam through issuance of Sukuk Bonds/power surcharge while according to indicative financing plan presented to the ADB team, an amount of US $4.794 billion is estimated for the dam from Islamic Development Bank (IDB), the Middle East donors, USAID, and Public Private Partnership (PPP) suppler credit. The government has also estimated $2.143 billion for the cost of dam on account of deferred payments from power revenue. An official quoted the senior representatives of ministries as saying that the construction of Bhasha Dam would contribute towards affordable energy by shifting hydel mix from existing 33.61%, to 53.9% after the completion of the dam.
Earlier, ADB Board of Directors led by its executive director Maurin Sitorus also met Finance Minister Dr Abdul Hafeez Sheikh. The Finance Minister requested the ADB to send a review mission on Diamer-Bhasha project as this would encourage other donors interested in this project.
Sitorus of the ADB stated that energy sector and infrastructure reforms were their focal points. Sheikh gave a detailed briefing on the status of overall national economy and stated that despite many challenges such as increasing oil prices, security situation and natural disasters such as floods and rains, economic growth was encouraging. Sources said that some members of the ADB expressed serious concerns over a decline in investment in the country and stated the data showed about 3 per cent decline in investment during the last three years. The ADB boad of directors reportedly stated that investment had gone down from 15.4 percent of the GDP in 2010 to 12.5 percent in 2012, which was not a good sign for growth.
The boards of directors of multilaterals are not part of the management and are not engaged in designing, negotiations and drafting of the project agreements. However, the management of the multilaterals have to get approval for the project from their respective boards of directors for the loan amount to be disbursed.
At present, documents available with Business Recorder reveal that the management of ADB has indicated that it would only proceed with financial support for Diamer-Bhasha Dam if the government can procure a “No Objection Certificate” from India. Projects in disputed territory require approval from the two protagonists (both being member countries) of the dispute before multilaterals can approve a project.