ADB agrees to provide $6b for Diamer-Bhasha dam
July 4, 2011 Leave a comment
The Asian Development Bank (ADB) has agreed to provide a $6-billion loan to Pakistan to fund the construction of the Diamer-Bhasha dam, a project that is expected to add 4,500 megawatts of electricity to the national grid in addition to significantly enhancing the country’s water storage capacity.
“The ADB has indicated that they are willing to lend $6 billion for the dam and the finance ministry will now negotiate terms and conditions,” said sources familiar with the matter, adding that the Manila-based lender may seek a commitment from Islamabad to impose a tax on the water if it is used for irrigation, prior to release of funds for the dam.
In preliminary negotiations for the loan, the ADB had indicated that it felt that the current tax on irrigation water, known as the abiana, was too low and, in effect, an indirect subsidy to farmers since they were not paying for the full costs of the irrigation infrastructure.
“The demand by the ADB [for an irrigation tax] may come up again during final negotiations for the loan with Pakistani authorities,” said sources.
The ADB had also been very concerned about the possibility of the project becoming mired in political controversy and had sought firm commitments from the government in ensuring that they were able to seek consensus from across the political spectrum and across all federating units.
The ADB had feared that the Diamer-Bhasha dam might become another Kalabagh, a project that, despite all technical feasibility studies remains far too controversial to materialise.
The government was able to achieve these conditions by securing a resolution from the National Assembly that approved the project, in addition to seeking unanimous consent of the Council on Common Interests (CCI), the body that governs all matters between the federation and the provinces.
Another condition placed by the ADB was that Islamabad secure funding from other sources as well. Pakistan was able to get the US to agree to give $500 million in aid towards the project, though the government had initially requested $1 billion. Washington’s assent paved the way for the ADB to grant its approval.
Pakistan may also seek additional funding from the Islamic Development Bank (IDB) to finance the $12.5-billion project. “The ADB, the US government and the IDB may form a consortium to provide a loan to Pakistan for the Diamer-Bhasha dam,” said sources familiar with the matter.
When the dam was first proposed, it was projected to cost $4 billion. By 2005, the projected cost had risen to $8.5 billion before rising to $12.5 billion in 2011, owing mainly to inflation and depreciation in the value of the rupee. The cost may rise further, since the dam is projected to be completed by 2021, compared to an earlier target of 2018.
However, the economic benefit from the dam has been calculated at $113 billion over the life of the project, most of it through power generation but also through irrigation.
Published in The Express Tribune, July 4th, 2011.
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