WILL US PARTICIPATE IN $12 BILLION BHASHA DAM PROJECT?
Oct 1 - 7, 2012
United States has shown its willingness to participate in the construction of $12 billion Diamer-Bhasha dam, which can provide enough electricity to end crippling shortages in Pakistan. Prime Minister Raja Pervez Ashraf sought the US help to build the mega dam in the country's north during a meeting with the US Special Envoy for Afghanistan and Pakistan Marc Grossman, who wrapped up his two-day visit to Islamabad on September 15. Prime Ministe raised the issue of energy crisis during a meeting with Marc Grossman and requested to help Pakistan build multi-billion-dollar Bhasha dam. Grossman reportedly said that the US had committed to provide $200 million for the construction of the dam and was ready to participate in this project.
Islamabad wants the US participation in the mega dam project after the multilateral donors including World Bank has asked the country to seek a no-objection certificate (NOC) from India for the construction of dam in Gilgit Baltistan region. The analysts believe that though the US commitment to financing the Bhasha dam may help the country in persuading institutions like the World Bank to become financing partner in the mega dam project, yet the US participation would be linked to Islamabad's isolation from the Iran-Pakistan (IP) gas pipeline project. Financing is the Pakistan's main issue for both the projects. The Chinese bank backed off from financing the IP pipeline project in March amid pressure from the US. Some analysts see the US commitment to Bhasha dam as a carrot being dangled to Pakistan to abandon the IP pipeline project, which is inching near reality.
Pakistan's firm position on IP gas pipeline project has changed the US position on Bhasha dam after one year, as the US now seems committed to finance the Bhasha dam. Last year, during energy dialogue in Islamabad jointly chaired by US Special Envoy Carlos Pascual and Federal Minister for Water and Power Syed Naveed Qamar, the US hardened its opposition to IP pipeline project and warned Pakistan of the possible impact of US and UN sanctions against Iran without making any commitment to finance the dam project.
China and Russia have already offered to build the dam if Islamabad awards construction contract through a government-to government deal without international competitive bidding. Both countries want a similar arrangement with Pakistan for undertaking the IP gas pipeline project, which is strongly opposed by the US.
Designed to generate 4,500-megawatt of electricity and to store around 8.1 million acre-feet (MAF) of water, the Bhasha dam project is facing delays due to funding constraints. The country direly needs a mega power project such as Bhasha dam, as it continues to face extreme power shortage causing prolonged blackouts in rural and urban areas and a decline in industrial growth.
Some analysts see the implementation of a mega dam project as a populist move by the government ahead of elections at a time when the country's power woes have worsened forcing the people stage violent protests across the country. Critics say that the government is not serious about the project as if it would be so, it could have launched the project in its first year of its tenure when its cost was estimated at $6.4 billion, which has doubled now.
The country has already received an offer from Beijing to provide skilled workforce for the construction of the dam. China has 17,000 skilled workers, who worked on the Three Gorges Dam, with a production capacity of 30,000 megawatts of electricity. China Development Bank has shown willingness to pour money into the project after seeking guarantees from the Government of Pakistan.
Bhasha dam project is scheduled to be completed in 2016. The project is located on the Indus River, 165 km downstream of Gilgit and 40 km downstream of Chilas. China has already agreed to extend Rs10 billion supplier credit out of total cost of Rs12 billion for construction of Karakorum Highway road to establish linkages with the site of the Bhasha dam, which will help to transport heavy machinery to the site of the dam.
The Asian Development Bank (ADB) has clarified that it has not walked away from the project and warned Pakistan against awarding the contract to China without international competitive bidding.
"We have not changed our position. We have not walked away from the project," Dr Werner E. Liepach, the ADB's country director told the newsmen in Islamabad. He said, "We did not ask for an NOC (from India). Others (multilateral) asked for that...What we want to see before taking the project for approval before the ADB board of directors is that entire financing plan for the project is complete, it complies with safeguard policy guidelines, including those relating to environment, resettlement and procurement, and meets transparency standards."
The analysts believe that ADB's position and stand on Bhasha dam project has deepened controversy over a project, which is considered as lifeline for the country's economy. The country faces double-digit inflation and low growth, and its economy has virtually gone into stagflation due to worsening power crisis.
ADB's reservation against giving dam contract to China on single-bid basis is correct on legal grounds. The hydropower projects delayed in the country, as Chinese firms were not interested in following the Public Procurement Regulatory Agency (PPRA) rules or participating in international competitive bidding (ICB), instead they demanded award of projects on single-bid basis. Though the government has assured Chinese investors that it would expedite progress on removing the legal barriers that are hindering Chinese investment in the country's hydropower sector, yet any violation of rules could be challenged in the court causing further delay in the execution of mega dam project.
The US participation in the dam project may open several financing options for the project but it is likely to come at the cost of IP pipeline project for Pakistan. Under the IP pipeline deal, Iran will initially transfer 30 million cubic meters of gas per day to Pakistan, but will eventually increase the transfer to 60 million cubic meters per day. Islamabad may be convinced by the US to shelve the Iran pipeline for building Bhasha dam as an alternative.