Diamer-Bhasha: sliver of hope

It seems the Diamer-Bhasha project dam has caught a lucky break recently with the Chinese deciding to include it in CPEC. The project has had bumpy journey so far but its construction is imperative from both a power generation as well as water storage perspective. When fully completed, the dam will generate 4500MW of electricity and can hold 8.1 million acre-feet of water which includes 6.4 million acre feet of live storage.

Recall that the first inauguration took place back in 2011 but was soon put on hold due to financing issues. The major donor agencies including the World Bank and Asian Development Bank (ADB) had earlier bowed out when it came to financing the project.

The World Bank cited Pakistan’s inability to procure a no-objection certificate from India on the project due to supposedly being part of dispute territory. While, the ADB chose to hold off until other investors also provided financing for the mega-project. So inclusion in CPEC might entail some funding flowing from the bank as well.

To add to the woes, the prolonged delay in project implementation has already resulted in enormous cost escalation. The land acquisition for the project has been undertaken at exorbitant rates due to the delays and the total project cost has crossed $14 billion. That too, if it is started on a war-footing basis as further delays will increase the cost even further.

The government has already decided to divide the construction of the mega project in three phases: Land acquisition, construction of the dam and lastly construction of the power house. Land acquisition has been completed to a large extent but the remainder of the project still requires massive investment.

Even though China had earlier passed the ball on Bhasha, preferring instead to invest in coal power plants where IRR’s hover north of 18 percent, the renewed interest comes at a crucial time for Pakistan with a lack of multi-lateral donor support.

According to a USAID economic evaluation of the project in 2014, Diamer-Bhasha dam is an excellent investment under various climate scenarios, yielding benefit-cost ratios of 3.3 to 3.9 and internal rates of return (IRR) in the range of 11 to 14 percent and cites a payback of eight years for the project. Therefore, it offers a decent payback as well making it economically feasible for the Chinese to invest in.

Chinese involvement will be beneficial for project implementation as well given the vast experience the nation holds in constructing mega-hydel projects. This includes the momentous Three-Gorges Dam, the largest in the world. China is also involved in construction of Dassu Dam with the Chinese Gezhouba Group Co Limited (CGGC) selected as the contractor for the main works.