In 2003, Pakistan’s Water and Power minister presented the country’s Vision of Water and Power Management at the Pakistan Development Forum. The vision statement spelled out lack of financial sustainability in the water sector services and inefficient use and inequitable distribution, especially in irrigation, as prime challenges in attaining ‘adequate water availability’ through an efficient and integrated management.

Specific objectives towards this vision cost 33 billion dollars of investment till 2025 and include new storage capacities. Diamer-Bhasha, an important component of that vision, fills the current irrigation gap of 12.61 million acre feet of water. But funding for the dam remains uncertain. The next year and a half is likely to see a renewed push to negotiations involving the Asian Development Bank (ADB), the Water and Power Development Authority (Wapda), the World Bank and the United States, whose role is shaping into a crucial intermediary.

The $12.6 billion project will store 5.70 million-acre feet of water and also produce 4,500 megawatts of hydropower, besides helping extend the life of Tarbela Dam. One benefit that could be added to the storage of water at Diamer-Bhasha is the control of flood damage downstream in the Indus during high floods. Pakistan’s flood experience of 2010 has resulted in an increased focus on preventing damage due to natural disasters.

All this, however, is not enough to convince the World Bank to provide assistance for the Diamer-Bhasha project. The technical report for the construction of the dam has been seen as ‘very strong’, despite the fears associated with the dam’s construction in a high tectonic activity zone. The challenges in environmental and social safeguards, however, are too minute in detail to be dealt with through one institutional mechanism. The dam displaces about 35,000 people and rehabilitation needs a stringent plan of community conservation.

Pre-historic heritage conservation in the area is another challenge in meeting donor standards. The World Bank standards for planning, design, appraisal, construction, operation and monitoring of large dams are too stringent to accept Pakistan’s current proposals. On the other hand, fears of financial feasibility on Pakistan’s side are a deterrent in conforming to these criteria.

The United States, which is committed to provide only two million dollars every year but is seen as a prospective donor of one billion dollars, may help in securing the multilateral and bilateral funding based on the projection of agriculture and irrigation reforms possible in the country. These reforms have to be focused mainly on two aspects of water management.

One is the enhancement of efficiency in water transport through canals and adaptation of efficient irrigation practices. Second is the revenue collected from irrigation provided to land owners. If the government is able to push through a revenue-generation mechanism, it can secure a sizable portion (an estimated two billion dollars) in funding for the project and later generate as much in revenue from landholders in an 8-9 year paying back period.

This may raise doubts about a taxation system with adverse effect on farmers’ livelihood. But most of Pakistan’s agricultural land is consolidated with big landowners making irrigation-dependent agriculture as a higher profit-making industry and not just sustenance-agriculture. So revenue generation through taxation should be more acceptable.

The possible institutional reform is what the United States is willing to support, while negotiating with the ADB, the World Bank and other potential donors. In coming months, all sides are likely to carry out what is seen by the United States as “necessary due diligence” to build support for Pakistan’s top development priority. The process is likely to be lengthy and cost millions of dollars, but Pakistan’s water management and energy needs will only be addressed through a positive outcome.