Gilani starts US$12 bn dam amid funds riddle

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Gilani starts US$12 bn dam amid funds riddle

By Syed Fazl-e-Haider

KARACHI - Prime Minister Yousaf Raza Gilani laid the foundation stone of the US$12 billion Diamer-Bhasha dam in the far north of Pakistan last week, describing the project as a "life-line" for the national economy, but giving no indication of how it will be paid for.

The long-delayed hydro-electric dam on the Indus River is being built about 40 kilometers from Chilas in Gilgit-Baltistan, a seismic zone. At 281 meters, with an estimated generation capacity of 4,500 megawatts (MW), the roller compacted concrete dam would be the highest of its type in the world - if it is completed - compared with the 195-meter high Itaipu Dam in Brazil/Paraguay and the 185-meter Three Gorges Dam in China.

The project's estimated cost has doubled since then-president Pervez Musharraf gave it his go-ahead in early 2006 and is expected to rise further during the 10 to 12-year construction period. With Pakistan having, for the present, severed ties with the International Monetary Fund (IMF) after loans that were part of a 2008 $11.3 billion bailout, access to funding by international organizations is doubtful.

The United States might prove willing to stump up some funds, but Islamabad would then have to shelve the $7.5 billion Iran-Pakistan (IP) gas pipeline project, to which the US is strongly opposed.

Another option put forward by critics of the government - and the least likely to be pursued - is for Pakistan to pay for the dam through its own resources merely by checking the widespread corruption that costs billions of dollars to the national exchequer each year. The government could raise additional revenues equal to $10 billion every year by curbing corruption by government departments and pursuing honest collection of taxes, according to Transparency International Pakistan.

The US reportedly showed interest in providing more than $500 million toward constructing the dam as an alternative to the gas pipeline project during a two-day US-Pakistan strategic dialogue on energy held in Islamabad last month to encourage multilateral institutions like the World Bank and the Asian Development Bank (ADB) to become involved. The ADB halted its loan programs with the country after the country's exclusion from the IMF loans program on September 30.

Pakistan has provided documents on the dam to US authorities for consideration, but Islamabad's refusal to launch an offensive against the North Waziristan-based Haqqani network in the northwestern tribal area further jeopardizes US investment in the project.

Any eventual US assistance could be a combination of investment and grant financing it has committed to under The Enhanced Partnership with Pakistan Act of 2009, also known as the Kerry-Lugar-Berman Act. The act "authorizes appropriations for fiscal years 2010 through 2014 to 'promote an enhanced strategic partnership with Pakistan and its people, and for other purposes'," according to the USAid website.

When construction of the dam was approved by the executive committee of the National Economic Council in 2008, the country was expecting an investment of $1.5 billion per year from European, Arab and Chinese companies willing to form a consortium to construct it on a build-operate-transfer (BOT) basis.

China has agreed to extend 10 billion rupees (US$115 million) in credit out towards the 12 billion rupee cost of a road to the dam site.

The reservoir created by the dam would cover 110 square kilometers and extend 100 km upstream to Raikot Bridge on the Karakoram Highway. It would inundate 32 villages in the Diamer district of Gilgit Baltistan, rendering thousands of people homeless. About 100 km of the highway itself would have to be rebuilt to accommodate the reservoir.

Now that the first stone of the dam has been laid, experts "will once again point out the shortcomings of the project", said a Dawn editorial. " ... [T]here will be loss of a stretch of agricultural land; and nearly 3,000 people will be displaced - not to speak of the danger to the petroglyphs [rock engravings] in the area that connect us with the Silk Route of an age gone by."

The editorial also pointed to a dispute between the two local areas of Gilgit-Baltistan and Khyber-Pakhtunkhwa over which should receive royalties from the project, a row that may also deter investors if it remains unresolved.

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