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Pakistan’s Dam Despair

Priyanka Singh is Associate Fellow at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • January 23, 2018

    The Diamer Bhasha Dam (DBD) project to be built in Gilgit Baltistan in Pakistan-occupied Kashmir is showing signs of distress yet again with Pakistan’s November 2017 decision not to let the project be subsumed under the China Pakistan Economic Corridor (CPEC). Over the years, the DBD project with a slated capacity of 4500 MW has been beset by several controversies due to an array of complications. Within Pakistan, the project is politically contentious and considered ecologically perilous, given its location in a high seismic zone. The most daunting challenge has been lack of funds to support the humungous construction cost conservatively estimated at $14 billion a few years ago. Since its genesis, this project on River Indus as part of Water and Power Development Authority’s (WAPDA) Water Vision 2025 has witnessed unprecedented delays owing to numerous logistical hurdles. Moreover, there are geopolitical implications considering that the site of the project is located in a region claimed by India.

    In the middle of November 2017, reports surfaced that talks between Pakistan and China on the DBD have hit a rough patch owing to China putting forth a pre-condition that it will “construct, operate and maintain” the dam.1 This came after China had in principle agreed to finance the project a few months earlier. It was noted that China demanded collateral security in the form of another operational dam, considering DBD’s high net cost and inherent risk element. At a briefing of the Public Accounts Committee, the chairman of WAPDA, Muzammil Hussain, informed that the Chinese conditionalities attached to its funding involved serious issues concerning transfer of ownership, which were “not doable and against our interests.”2

    Conflicting signals

    When the remarks of WAPDA Chairman were widely reported in the Pakistani media, the Chinese side initially pleaded ignorance of the claims. In reply to questions from the media, a spokesperson of China’s Foreign Ministry denied any knowledge in this regard.3 A few days later, a statement from China’s National Development and Reform Commission (NDRC), the steering agency for the Belt and Road Initiative (BRI), rejected the contentions, insisting that none of the “hyper strict conditions” have been put up by China.4 Significantly, the NDRC official denied that any decision was previously taken to absorb the DBD under CPEC as it is not included in CPEC’s list of energy projects.5 The status as per the proceedings of the 7th Joint Coordination Committee held in mid-December 2017 is that the China-proposed financing structure on DBD is not acceptable to Pakistan and that Pakistan will source funds for the mega dam project domestically.6

    The situation arising out of Pakistan’s refusal to accept Chinese pre-conditions on DBD is the latest in a series of deadlocks that the project has witnessed. Not long ago, it was indicated that the Chinese side is willing to fund the DBD project, first under CPEC and later under the aegis of the $50 billion North Indus Cascade project — a series of China-funded dams being built across Gilgit Baltistan and Pakistan. Since a separate $50 billion was announced to support crucial hydropower projects in Pakistan and PoK, it appeared that the DBD will finally reach fruition with Chinese support. Even as the proclamations on DBD by the government of Pakistan have been ambiguous, a critical thread of continuity relates to the dearth of funds for the mega dam project.

    Crisis rebound

    The present crisis is a mere replication of past situations. The decision by the Pakistan government to withdraw the project from the Chinese fold does not come as a surprise, given the project’s recent history. Even International Financial Institutions (IFIs) have refused to fund the project citing numerous complications. The World Bank backed off citing the dam’s location in a disputed region while the Asian Development Bank (ADB) put forth a list of stringent pre-conditions that have to be met by Pakistan before it could consider funding the project.

    The DBD has witnessed countless hurdles, the foremost being Pakistan’s inability to rope in funds for a project of this scale. Originally estimated at $8 billion, the project cost estimates have spiralled up tremendously over the years. A sense of hopelessness and anguish set in as the project witnessed multiple ground-breaking ceremonies. As hopes to procure funds from the World Bank and ADB were dashed, Pakistan approached the United States to rescue the project by urging it to divert funds from the non-military US development assistance. The US at a certain point did indicate signs of lending financial support for the project.7

    China’s risk control?

    China’s decision to pump billions into the violence-ridden investment landscape of Pakistan is a decision which is antithetical to what has often been described as its preference for risk-averse behaviour. It is frequently argued that China avoids putting money in projects that either absorb huge volumes of funds or are generally rated low on the count of feasibility. As a result, all this while, there was an inherent doubt as to why and how the Chinese have agreed to support the DBD, especially since they refused to do so in the past. The expansion of CPEC and the subsequent announcement of the North Indus Cascade in May 2017, however, had a sobering impact, particularly on those who were pessimistic about the Chinese plan. In the current phase, China insisting on conducting a fresh feasibility study for the project does indicate efforts at risk minimization and underpins long-held perceptions about China’s risk aversion. Incidentally, China’s proposal on repeating a feasibly assessment for DBD has been declined by Pakistan.8

    Even as the DBD has been touted as a project that would enhance Pakistan’s energy security, Pakistan’s dogged efforts to realise it at any cost have had to encounter India’s persistent objections. Despite the fact that the US and China have featured more prominently in the fray of potential funders (both countries separately organised donors’ conferences for DBD), it is conjectured that other important countries like Russia and Japan, too, have been approached at some point. It is, therefore, of some relevance to evaluate China’s reluctance on the DBD through the geopolitical lens apart from just economic considerations. DBD is a project that India has consistently been opposed to, based on its standing claims and rights to Gilgit Baltistan and withdrawing from it could be seen as China circumscribing a rather mounting list of strategic irritants vis-à-vis India.

    Whither DBD: roadblock or dead-end?

    The DBD is a mammoth project slated to absorb billions of dollars in order to materialise. Though the project promises to end Pakistan’s severe energy problem, the sheer size and budget make it infeasible for a struggling economy like Pakistan. Both the US and China have been reticent on DBD given the size of the project and the consequent need for a large amount of funds. For Pakistan, it has become a project that, if allowed to fail will cause a huge loss of face considering that the India factor is involved. Pakistan’s determination to build the project with indigenous funding may prove even more difficult than obtaining foreign funding. While it is true that the economy has shown signs of improvement, the crisis is far from over. The rupee stands devalued further and given Pakistan’s frosty ties with the US currently, funding from the International Monetary Fund (IMF) may not be as forthcoming.

    A few curious trends in the Sino-Pakistan economic alliance are further visible. DBD is not a standalone case in this regard. Funds have been suspended for at least three other projects under the CPEC, on account of issuance of fresh Chinese guidelines. Considering that CPEC lacks overall transparency, be it in terms of engagement or finer details of project instrumentalities, it is rather premature to draw reliable inferences from particular instances. Amidst voices that allege that the CPEC is being rather discreet regarding key details of the various projects under implementation, the Corridor is indeed gradually taking shape.

    The more essential point is this: the nature of the relationship between China and Pakistan is such that there is always more than what meets the eye. It is worthwhile to recall the clandestine nuclear cooperation between the two, the events leading up to the signing of the Sino-Pakistan border agreement of 1963, etc. The bilateral partnership has endured serious incongruities and crisis situations in past. Hence, for the two sides to eventually negotiate a desirable understanding on DBD at some point cannot be ruled out.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.