THE ECONOMICS OF DAM BUILDING

Commercially viable Bhasha and Munda dams attract international donors, including World Bank

By AMANULLAH BASHAR
Feb 06 - 12, 2006

Pakistan is at the threshold of hydel-based economy by initiating construction of high dams having the potential to amicably address the chronic issue of costly oil-based power production. The sufficient water resources are essentially required to capitalize rich agriculture potential to contribute to GDP growth at an optimum level.

The decision of President Musharraf to shift the focus from Kalabagh dam to Bhasha and Munda sounds a wise decision as it apparently defused the politically tensed situation in the provinces of Sindh and NWFP having their own reservations on the construction of Kalabagh dam.

It is believed that the trickling down economic benefits in the form of availability of cheaper electricity from one corner to another and flourishing of a healthy agriculture which dominates over 75 percent of the population, will pave the way for remaining water projects after Bhasha and Munda.

Availability of sufficient water supply to the tail enders and the hinterland in Sindh would do a magic to settle down the dust of hostile political opponents as presumably the benefits stemmed from the two major dams including Bhasha and Munda would be of great help to wash off a sense of mistrust against other provinces. As saying goes "seeing is the believing".

INTERNATIONAL DONORS WILLING TO PROVIDE FUNDING

Since all the proposed dams are economically and financially viable projects, the funding for the projects is not an issue for Pakistan. Besides all international donor agencies showing their interest to provide funding for the forthcoming projects having huge power generation and agriculture irrigation capacities, the World Bank has also indicated its interest to provide funding for Bhasha and other viable dams. The bank has, however, called for implementation of water accord and replacement of prevailing royalty payment patterns to the provinces.

John W. Wall, Country Representative of the World Bank feels that geological and technical studies of Bhasha Dam were not available and the bank had not yet analyzed its economic rate of return. However, he feels it was presumably a good investment.

The World Bank intends to conduct the appraisal of the project, examine its economic rate of return and ensure that environmental and displacement concerns were mitigated amicably.

The World Bank, however, estimates that Bhasha dam's cost of around $6.5 billion was very old and it was based on calculations made before the completion of its feasibility study. The cost estimate of Kalabagh dam at $6 billion was also outdated.

Pakistan will have to announce a national settlement policy for the resettlement and compensation for people to be displaced by the construction of new dams to qualify for the World Bank financing. There was a need to construct new water reservoirs so that the country should not face a famine in the future.

Currently, the government was in the process of completing all formalities to start construction of Bhasha dam and it will ensure completion of the project by 2016 as decided by the Cabinet.

Reviewing the status of Bhasha dam project and issues related to it, PM Aziz feels that the government will take care of the legitimate demands of all stakeholders and will address and solve all issues related to the dam in a judicious manner.

The PM observed that completion of Bhasha dam will usher in a new era of development and prosperity for Northern Areas as it will lead to opportunity creation, generation of economic activity and overall economic uplift of the area

The Bhasha dam will cost $6.5 billion and is expected to add about 3.4 per cent to the country's GDP as it will give a boost to agricultural and industrial sectors by increasing electricity generation capability and better irrigation facilities.

The Bhasha will have a water storage capacity of 6.3-6.4 million acre feet while its power generation capacity would be 4500MW. The total existing capacity of hydel power in the country is 6500MW.

Meanwhile, the feasibility report of Akhori dam project is ready and its engineering design is being completed. At least three years spade work is required to go into construction work of this project.

Feasibility study of the project has been completed whereas detailed engineering designs are in progress. The design of engineering work is being prepared by a consortium of consultants led by a German firm Messer Lamehyrs.

Preparations like soil testing and engineering designing for the construction of roads are under process and will be completed in 2006. The main construction of the dam will be initiated after completion of spadework which includes engineering designs and roads.

The technical drawings and feasibility for realignment and reconstruction of Karkoram Highway from Thakot bridge to the dam site has already been initiated by National Highway Authority.

Bhasha dam will provide electricity to all parts of Northern Areas as well as rest of the country.

Meanwhile, Fedral Minister for Water and Power Liaquat Jatoi has directed the concerned officials to complete feasibility study of Munda dam by May this year so that the project could be implemented at the earliest. Munda dam, it may be noted, will be one of the largest hydel power and water storage projects being implemented in the private sector.

The feasibility report of Munda dam will be available in May this year. Another dam Khurram Tangi is also ready to start construction which will hopefully be started during current year. Similarly, the Kalabagh dam is also ready for initial construction work while its tender documents have also been prepared.

FUNDS REQUIRED FOR WATER INFRASTRUCTURE

The World Bank has estimated that Pakistan would need $60-70 billion to replace old water and irrigation infrastructure and offered substantial financial assistance to help replace the bulk of country's vulnerable water infrastructure on a priority basis.

The bank believed Pakistan's existing poor irrigation and water infrastructure was one of the major hurdles impeding the achievement of 7.8 per cent annual growth rate. The World Bank's major water structures in Pakistan are operating well beyond their designed life.

Pakistan has not sought any major funding during last many years but the world looks agreed to make available $2-4 billion for the replacement of water infrastructure, besides financing major dams.

The four provinces in Pakistan did not have modern asset management plan because of which there were no authentic estimates of annualized costs of replacing and maintaining the irrigation and water infrastructure.

Meanwhile there is a view to form a world consortium for funding of dam projects in Pakistan. In this respect some donor agencies have been contacted by the government to establish the consortium to arrange funds for the five major dams to be built by 2016.

With a view to enhance financier's interest, the government was considering to give a corporate identity to the proposed projects. As soon as the feasibility study of Bhasha was completed, international donors would be formally approached to negotiate loaning arrangements for all the proposed dams. The agencies concerned had started working on designs and technical details of the five dams, after which the funding issue would be raised. The government on its part has firmed up its own funding arrangements for the proposed dams.