DHP-1: World Bank projects $1.3bn financing gap

ISLAMABAD: Terming implementation progress on Dasu-1 hydropower project moderately satisfactory, the World Bank (WB) has estimated a total financing gap of $ 1.3 billion due to increased forex requirements.

The Bank Mission, visiting Pakistan from February 20 March 11, 2023 has submitted a detailed update of project costs and available financing.

The mission argues that despite delay in implementation, the total cost is expected to be increased only 3% for the hydropower component. However, due to increased requirements of forex, the total financing gap in dollars for DHP- 1 is about $ 1.3 billion.

Energy sector uplift: World Bank to extend $3bn funding

Given the construction schedule and associated expenditures and keeping in mind the overall financing strategy for Dasu, the World Bank will start preparatory work for potential additional financing to partially address this gap, tentatively before the end of 2024.

Dasu-1 is 2.160 MW hydropower plant on the main Indus River which can be expanded to 4,320 MW in future at a very low cost. The project is a “high-risk-high-reward” operation aimed at providing low cost non-carbon renewable energy.

According to the World Bank, the preliminary updated estimate suggests that despite the delays and variation orders, the total cost of the hydropower component will be about $ 4.004 billion which is about $ 106 million (+3%) higher than the estimated cost of $3,8977 billion at project appraisal in 2014.

The total estimated forex is $2.158 billion and the required local currency is Rs 452 billion. The cost increase is primarily from two sources - increased cost of preparatory works, relocation of KKH (by about $319 million) and consulting services (by about $85 million).

The overall savings in main works (MW-01, MW-02 and E&M) is about $l 181 million (-6%). The other components, including land acquisition, social development costs and capacity building, also have savings of about $101 million (-18%) which helps offset the cost increases.

These estimates can change going forward and depend largely on price escalation and potential changes in the construction design in future. Price escalation factor is now high in the major contracts, particularly in dollar terms in January 2023.

The total expenditures on Dasu Hydropower project as of February 19, 2023 was $ 1.040 billion of which $ 945 million is on hydropower component developed by WAPDA and $ 95.5 million is on Dasu transmission line by National Transmission and Despatch Company (NTDC). Of the hydropower component, $ 319.1 million is disbursed from IDA credit and $ 166.8 million is from Credit Suisse loan. About $ 333.32(Rs 45 billion equivalent) is from local commercial bank (HBL and $ 126.03 million (Rs 19.8 billion) is from WAPDA equity.

About 61 per cent of IDA credit has been disbursed. IDA funds are mostly used to finance the foreign exchange component of preparatory works, including relocation of Karakoram Highway, access road, colonies and resettlement activities.

The project’s progress towards achievement of the project development objectives is rated “satisfactory” as the commissioning of DHP-1, 2,160 Megawatt (MW) and over annual 12,000 gigawatt hours (GWh) of cheap power, is progress and will provide very large economic benefits for Pakistan.

DHP-1 remains relevant as Pakistan suffers high power generation costs. Despite delays due to slow land acquisition, Covid-19 and extreme floods in 2002, the river diversion was achieved on February 18, 2023. Diversion of Indus River is an historic milestone for hydropower development in the world, taking the project to the next phase of development.

With this major milestone achieved, the roadmap for the project’s completion is now well defined. WAPDA’s institutional capacity is being strengthened by the project, as WAPDA mobilizes expert consultants and supervises the performance of contractors on large contracts.

The overall implementation progress of the project remains “moderately satisfactory.” DHP-1 had experienced delays since its commencement in 2014 but has turned a page as major land acquisitions and procurements are complete, the river diversion has been done and works are advancing. The dam construction site is now in full control of the main contractor.

Preparatory works have advanced. The three contractors for construction of Dasu 765 KV TL for evacuation of power with the total contract value of over $ 650 million were mobilized in March 2023.

Land acquisition and resettlement is now well advancing, with 95 per cent of all land acquired and a total $ 164 million spent on compensations for land, built-up property, trees and crops, which has sparked local socioeconomic development.

Another $ 19 million has been disbursed so far on the enhanced self-relocation package. Close to $ 2 million has been provided for local area development, school buses, medical camps, the Bank added.

Copyright Business Recorder, 2023