Dam financing

There has been some criticism of the dam fund set up by the honourable Supreme Court and later the prime minister’s joining the initiative. Both gentlemen enjoy the reputation of being free of corruption, and just about everyone seems certain about the well-meaning intentions behind the creation of this fund. Therefore, there is no criticism regarding intent and character.

The critique, also well-intentioned, pertains to the economics and public/social policy of it. First of all, the size of financing required to build Diamer-Basha and Mohmand dams has to be kept in mind. The former has an estimated cost of about $14 billion or about Rs1680 billion; the latter costs, according to 2010 estimate, about $1.4 billion or Rs168 billion at current currency conversion rates. That’s nearly Rs1900 billion combined. To put this in context, total direct tax collection in FY18 was Rs1563 billion, whereas total federal PSDP was Rs750 billion. These are huge numbers.

Contrast that with the actual funds’ collection so far, after two and a half months of active advocacy. The pace of collections has indeed increased, as is evidenced from the graph, to an average daily collection of Rs108 million in the month-to-date.

However, the advocacy for dam fund is not going to last forever; there is something called donation fatigue. The current CJ is scheduled to leave office at the start of third quarter FY19, whereas the PM and his finance team will have far more on their plate (if they are serious about reforms), leaving them with less time for advocacy for the dam fund. Even if one assumes an average daily collection of Rs108 million for the rest of the fiscal year, total amount collected in FY19 would be no more than Rs33-34 billion, which would still be peanuts given the scale of affairs.

Granted that infrastructure projects like these may have multiple financing sources: local versus foreign; debt versus equity; with total financing raised over a period of 2-3 years and even longer. But even after three years, total financing raised through these funds may be about Rs100 billion (assuming the optimistic daily collection of about Rs100 million). By that time, the estimated cost of completion of the project would have moved north anyways.

To avoid losing the momentum, and to give a sense of plan to those contributing to the dam fund, therefore, the fund managers would do well to present a dam financing plan and within it a target amount to be collected from the now-merged Supreme Court and PM dam fund. A collection target with an overall financing plan can create more drive and inspire more confidence than a drive with no collection target. Here one strategy could be to have three or more rounds of campaign, each having its own target rather than having one big, open-ended campaign.

The charity model has its limits. Previous studies on the subject, by Pakistan Centre for Philanthropy and some others, indicate that charity in Pakistan is mostly given for religious reasons (of which, mainly for Quranic education in madrassa or for mosque construction/maintenance) or for food and health supplies. Secular education, sports, house construction, etc are not the main reasons that attract huge sums of charity.

Then again, the dam fund is not to be construed as charity; it is a ‘self-help’ effort toward the greater collective cause under the flag of ‘patriotism’. This is no easy task, considering that in this country even business chambers and associations that work towards collective business interest also struggle with financing for their efforts.

But if one is to go down that lane, then at least equal efforts should be made to whip up patriotic sentiments within the country to raise direct tax collection by increasing the number of tax filers. That could be a litmus test of patriotism under a leadership that has come to power under the banner of being ‘corruption free’.

Another test of patriotism would be adding a dam-surcharge to the severely-low water pricing in the country. Surely, the leadership that can protect the money raised from dam fund can also inspire confidence and prevent the misuse of higher direct tax collection and dam-surcharge added to under-priced water.

The campaign for raising money through dam funds cannot raise total financing for the dams, or even significant financing. But it has, and can even more, raise the much-needed awareness, which also defines the limit of this laudable effort. The test of patriotism and confidence on the new government would be fixing public finance and governance aspects of water management – of which building and maintaining dams is only one part of it.

Too much emphasis on building large dams at the expense of emphasis on other aspects of water management is neither a good measure of policy nor of action. Besides, calls for overseas help means the financing crisis at home will continue to be externalized. Making funding appeals to overseas Pakistanis without fixing the tax system at home might serve to prolong the ‘Dutch disease’ that Pakistan contracted through its decades-long dependence on IFIs.