The Diamer-Bhasha dam has already been delayed by more than five years and its cost has more than doubled. — File Photo

ISLAMABAD: The United States has agreed to provide more than $500 million for the construction of Diamer-Bhasha dam to encourage multilateral institutions like the World Bank to become part of the lenders’ consortium taking up the multi-billion-dollar project.

A senior Wapda official said the discussions between the US and Pakistani authorities had already begun to finalise the size of the financing and the mode of US participation in project development.

He said the US assistance for the project would be a combination of investment and grant financing it had committed to under the Kerry-Lugar-Berman Act.

The Diamer-Bhasha dam has already been delayed by more than five years and its cost has more than doubled.

The project was taken in hand as part of the five mega dams proposed by former president Pervez Musharraf and it was to be completed in 2016. The dam’s cost was put at $6.4 billion (Rs400 billion) at the time.

The cost has now been revised to $11.2 billion (Rs953 billion) and its completion date extended to 2021, which may be extended further as economic indicators change during the course of project implementation.

An official of the USAID confirmed to Dawn that the US authorities were currently studying the Diamer-Bhasha dam documents provided by Wapda chairman Shakil Durrani and an exchange of additional information was taking place with the economic affairs division.

“We have been told that the US would support the Bhasha dam project in a big way,” the USAID official said.

The official did not agree with the contention that Wapda had sought about $1 billion for the project, saying Wapda chairman had been reasonable in expecting US funding which could be anywhere between $400 million and $750 million. Normally, a US contractor has to become part of any project in Pakistan to provide funding, he said.

But more than the size of the funding, the US participation and support for the project would be crucial because it would send a positive signal to other multilaterals, most importantly the World Bank, to open a financing line to a project critical for Pakistan’s energy and water needs.

The World Bank had earlier declined to fund the project because of its location and some unresolved constitutional interpretations.

“When the US is funding a development project, the World Bank can hardly stay away,” an official said, adding the US energy department and other relevant quarters had given a go-ahead.

Pakistan has been seeking US support and investment for the $11.2 billion dam in order to encourage international lenders to finance the mega project.

A part of the financing could be channelled through energy development fund (EDF) that the US has been trying to create with the cooperation of bilateral and multilateral lenders as part of the Friends of Democratic Pakistan initiative.

The Diamer-Bhasha dam will have a designed live water storage capacity of about 5.8 million acre feet (MAF) and power generation capacity of 4,500MW. The government wants an investment of about $3.7 billion in foreign exchange for the project.With Pakistan reaching the threshold of water-scarce countries, the government has already finalised a Rs40 billion out-of-court agreement with 30,000 families to be affected by the proposed dam.

Pakistan’s per capita water availability, which was more than 5,000 cusecs in 1950, has come down to 1,000 cusecs per day because the nation has not been able to build a dam in almost four decades, according to a senior Wapda official.

In January this year, the Economic Coordination Committee of the cabinet allowed Wapda to raise Rs20 billion through term-finance certificates (TFCs) and Islamic Sukuk bonds for the dam to establish housing colonies and access roads to the project site and related infrastructure.

The Asian Development Bank had already agreed to provide long-term loan to help the government meet the foreign exchange component of the project but exact size of the funding is yet to be finalised.

The project seems to be viable and could offer up to 18 per cent return on investment, which means that all the investors and lenders could recover their investments within five years after completion.