ISLAMABAD, Aug 28: The government plans to borrow $16 billion from international banks to build Bhasha and Kalabagh dams and the Neelum-Jhelum hydroelectric power project.

Informed sources told Dawn on Monday that the decision to go to the international capital market had been taken after the World Bank and the Asian Development Bank linked the financing of the protects to consensus among the provinces. The lenders also asked the government to clarify whether there existed the fiscal space for undertaking projects of this magnitude.

The sources said the World Bank and the ADB wanted the government to first finalise feasibility studies on five mega hydropower projects — Munda, Kurrum Tangi, Akhori, Kalabagh and Bhasha dams. So far, the feasibility study on Kalabagh dam has been prepared.

A senior official at the ministry of finance told Dawn that the government had changed its strategy to arrange funding for bigger dams. “Now for each dam, a separate company will be set up to raise finance. Initially, the government has decided to arrange funds worth $16 billion for the Neelum-Jhelum project and Kalabagh and Diamir-Bhasha dams,” he said.

The official said the government needed $2 billion, $8 billion and $6 billion for the Neelum-Jhelum hydro project, Kalabagh and Bhasha dams, respectively.

The official said that public-private partnership would be encouraged in the proposed companies for raising funds from international banks. “The government will make its equity investment in these companies, but most of the finances will be arranged by them.”

Local banks and financial institutions will also be approached by the proposed companies to provide funds for building bigger dams.

The sources said that international banks would charge higher interest on the loans to be offered to the proposed companies. Moreover, the government will have to provide sovereign guarantee to the foreign banks against the loans.

“The government should try to remove differences among the provinces for building mega dams and seek direct foreign loans on low mark-up from the World Bank and the ADB,” analysts said.

“The government could maximum think of initiating Diamir-Bhasha dam in near future because its feasibility report is likely to be completed in 2008,” they added.

Diamer-Bhasha dam has been planned in the Northern Areas on the Indus river. It is located about 314km upstream of Tarbela dam and about 165km downstream of Gilgit. The dam is expected to generate 3,360MW of power.