Diamer-Bhasha dam: Pakistan must get NOC from India, insist multilaterals
October 21, 2012: Pakistani officialdom has failed to grasp the fact that multilaterals such as the Asian Development Bank (ADB) and World Bank will not support the construction of the 4,500-megawatt Diamer-Bhasha dam in what is considered a disputed territory unless both countries party to the dispute approved the project, sources told this correspondent on Saturday.
It is for this reason that both multilaterals are insisting that Pakistan gets a No Objection Certificate (NOC) from India before financing of the $13.5 billion project would be considered. Sources said that the ADB delegation, comprising members of the bank”s Board of Directors, held meetings with President Asif Ali Zardari, Prime Minister Raja Pervez Ashraf, Finance Minister Dr Abdul Hafeez Shaikh and Minister for Water and Power Ahmad Mukhtar, unambiguously communicating that the project had not been presented before the Board for consideration yet.
“The President, Prime Minister, Finance Minister and Water and Power Ministry all urged the delegation to consider (Pakistan”s) funding request for Diamar Bhasha dam and play the lead role of financier,” said an official on condition of anonymity. The Board members promised to convey the feelings of Pakistani government to the management of the Bank. According to some top level bureaucrats, ADB will accord approval to the release of $7.5 million technical assistance for the Diamer-Bhasha dam in its next meeting. However ADB”s web site does not indicate any proposal regarding Diamer-Bhasha dam.
The source also indicated that USAID would also release $7.5 million technical assistance for this project. In December last year, the ADB and USAID had agreed to equally share in providing $15 million grant technical assistance for conducting ”due diligence studies” relating to the dam.
The sources said that ADB”s Director-General for Central and West Asia called on the Minister for Water and Power on June 28 this year wherein the main issue discussed was the lead financing role that the ADB had committed to play for the project. During the meeting, ADB staff indicated that the Bank was no longer ready to support the construction. “In view of the DG, ADB, there were too many issues with the project and unless these were resolved, the Bank was in no mood to make a commitment,” the sources said.
According to sources, Pakistan shared the dam”s financing plan with the ADB delegation which includes securitisation of Wapda assets, Islamic Development Bank (IDB), USAID, Middle East donors and suppliers” credit. “If donors and ADB do not support immediate initiation of the Diamer-Bhasha dam project by announcing a time-bound financing plan and construction schedule, GoP may adopt an alternate plan to construct the dam. Bulk of the financing for the civil works and the E&M equipment would be sought from export credit banks and supplier”s credit from foreign companies that win the contracts. The response is likely to be encouraging as preliminary discussions have already taken place,” the sources said.
The sources said that the cost of land acquisition was Rs 50 billion and Rs 66 billion were needed for resettlement of affectees which needed to be financed by the GoP and IDB/ Middle East donors, respectively. A small electricity surcharge on the pattern of Neelum Jhelum Hydropower Project (NJHP) surcharge may be levied for raising funds for Diamer-Bhasha dam. The sequence of development would consist of inviting International Competitive Bidding (ICB) under PPRA rules for Lot 1 for the civil works of dam construction, diversion tunnels and underground power houses costing $4 billion. Financing support from export credit or commercial banks would be required. Chinese companies have in principle offered to provide Exim Bank loans for these works though a formal process would need to be worked out.
For electromechanical equipment such as turbines, generators, transformers switchyards and transmission lines European, Chinese and other suppliers in the past have offered financing through export credit and suppliers” credit financing. According to Wapda, ADB is responsible for cost escalation in project cost of $2 billion over the last four years because of causing a delay in dam construction.