The Exaggerated Cost of Diamer Bhasha Dam

As per many local and international experts, Pakistan is facing an existential security risk because Pakistan is on path of becoming one of the most water-stressed country in the world. This crisis will only worsen because glaciers are melting at a faster rate, threatening Pakistan’s agricultural land that is one of the lifelines of Pakistan. Over 10 million cusec water is wasted into the sea because there are not enough reservoirs to store water. According to IRSA, Pakistan annually wastes approx. US $21 billion worth of water into the sea.

The main reason behind the waste of water is lack of reservoirs and proper management of water. This crisis has resulted in another major issue – shortage of power. To generate power with little impact to climate, Pakistan needs environment friendly hydropower generation projects.

The Diamer Bhasha dam fulfills both requirements of storage and power generation.

The honourable Mr. Justice Mian Saqib Nisar, Chief Justice of Pakistan, has launched a campaign to raise money to build this dam. The Prime Minister in waiting, Mr. Imran Khan, has also stated that Bhasha dam project is a top priority.

The Edhi Ambulance service, Shaukat Khanam hospitals, Namal University and thousands of causes in Pakistan are evidence of generosity of citizens living in Pakistan and abroad, however, building a dam is not a social cause, it is a commercial endeavor and must be treated as such.

Let’s take a look at the concern that may delay this project:

The biggest concern is the cost of Diamer Bhasha dam Dams don’t come cheap but the estimated cost of Diamer Bhasha dam is grossly exaggerated at a range of US $12 – $14 billion. China has built a much larger dam, the Longtan dam, at a cost of US $4.2 billion dollars. The Longtan dam is a RCC dam (same as proposed Bhasha dam) with a capacity of almost 17 million acre ft and a power station with 6400 MW capacity.

Solution: Immediate validation of proposed cost and timelines

  • Step 1A – Form a cross-functional, qualified project team with team members from WAPDA, Parliament, bureaucracy, judiciary, civil society and overseas Pakistani community. The expertise offered by the overseas Pakistani community is unmatched therefore Pakistan need to utilize their expertise. In order to keep to avoid corrupt practices, this team must be compensated as per international standards.
    • The mandate of project team will be to validate:
      • construction timelines,
      • cost of construction,
      • fund raising for the project,
      • procurement and awarding of all tenders/ contracts.

The price breakdown will need to be reviewed by procurement experts to properly estimate the cost by means of checking the market. The project team will send their recommendations that will need review and approval of the GoP.

  • Step 1B – timeline and technical validation need to take place in parallel to cost validation. Such projects are often delayed and, in many cases, projects go over the budgeted amount. These delays and cost increases are due to lack of proper planning, corrupt practices and poor management. The purpose of timeline validation is to remove delays and find efficiencies in timelines.

Do we need a RCC (Roller Compacted Concrete) dam? Yes, because the project has gone through multiple reviews in the last 16 years and project has been approved by experts. A RCC dam is considered a cost effective design. China and US have built similar dams in mountainous/ high altitude regions. Below is pic of the Willow Creek RCC dam in the USA (9):

Funds for Diamer Bhasha dam project

As stated above, is a commercial endeavor and must be treated as such. At this point, no international investor, including China is wiling to fund the project.

This means Pakistan will need to find funding from local sources, however, the local banks and financial institutions will not be able to provide funding at this level. This is why the CJP launched a campaign for fundraising of the project, however, the campaign will have limited results because people prefer to invest in commercial projects instead of donating for commercial projects.

A funding method that will raise funds is Equity Crowdfunding. In an Equity Crowdfunding, a company’s securities/ shares are offered to people in exchange of investment in a commercial opportunity. Pakistan will need to customize the methodology to meet the funding requirements for this project. Here is a possible structure:

Category Cost per share US Number of shares Total investment Types of ROI
A $1,000 2 million $2 Billion US Dividends, Capital gains
B $2,000 2 million $4 Billion US Dividends, Capital gains, voting rights

Total investment is US $6 billion.

Some of the open items that need to be looked at

  1. Total cost of project.
  2. Actual time of completion.
  3. Percentage of total cost that need to be fulfilled by selling of shares. If total cost is US $6 billion and 49% is to be invested by shareholders then total investment required will be approx. US $2.9 billion.
  4. When does the dividend or investment start?
  5. Can GoP offer tax exemption on capital gains and dividends?
  6. What is the maximum number of shares that an individual can purchase?
  7. Large investors i.e. banks, individuals, etc.
    1. Does the project need large investors?
    2. What percentage of total cost can be provided by large investors?
    3. What is the cap for such investors?
    4. Do they only get interest? Can they get mix of low interests and dividends?
  8. When do the project offer buy back options? WAPDA, GoP or Gilgit-Baltistan (GB) may plan to buy back shares from shareholders after a certain number of years from project completion date.
  9. How much can be earned from renewable energy/ carbon credits?
  10. What percentage of revenue will go to the govt of Gilgit-Baltistan?

Possible revenue from the project

The net profit from power generation of the project can be paid back as dividends to shareholders. For clarity, the net profit will be achieved after expenses and payment of royalty (if any) to the govt of GB.

Here are some previous estimates

Let’s assume that estimates about revenue from electricity are valid and shareholders have invested $6 billion then dividend will be $300 per share. This is after subtracting 20% in OpEx cost and there is no royalty for GB for the first few years.

It will not be as simple as shown above and the estimates and proposed dividend plan will need to be validated by experts.

Conclusion

The Prime Minister in waiting, Mr. Imran Khan, has stated that Bhasha dam project is a top priority. This is a good omen for the Bhasha dam project, as the most popular political entity that is also the incoming govt, the opposition, the judiciary, the military and all relevant stakeholders are aligned on the need of building the Diamer Bhasha dam.

Nandipur, Quaid-e-Azam solar park, Orange Train etc. end up costing 2-3 times more than they should have cost, a safe expectation is that the incoming govt will make all efforts to start the project after validating the costs provided by the previous regime. Pakistan needs the Diamer Bhasha dam to be a success for its future generations and with all stakeholders aligned, success is entirely possible.

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