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Donors urge govt to build Dasu project first

July 22, 2013

WASHINGTON, July 21: Donor agencies are urging Pakistan to build the Dasu hydro-power plant before the Diamer Bhasha dam as they see the latter project as “unworkable”.

A document obtained by Dawn shows that donor agencies have accepted the government’s position that the major underlying reason for current power crises is the shift in use of fuel for generating electricity, from hydro-power to furnace oil.

This has increased the cost of generation, resulting in a major gap between revenue and expenditures.

Most experts in international donor agencies believe that Pakistan is now pursuing an appropriate energy strategy by changing the fuel mix, replacing thermal with coal, gas and hydel sources.

The donors, however, urge the government to implement a portfolio of hydro-power projects with a short-term, medium-term and long-term gestation period.

While discussing various projects, the donors have advised Islamabad that its plan to build the Diamer Bhasha dam first is unworkable. Instead, they want the government to focus on the Dasu hydro plant because “it’s much more feasible”.

The donors have also noted that Pakistan’s present electricity mix –– 30 per cent hydro and 70 per cent thermal — is “very pricy and unsustainable”.

The thermal power costs Rs20-21 per unit while the hydro is meagre Re1. The mix of both costs is around Rs15 which is quite expensive for domestic and industrial users.

The generation with coal will cost Rs9-12 per unit but since it involves importing coal, the donors feel that the country may run into foreign currency problems.

Therefore, they have advised the government to focus on a “sustainable source, which is also the cheapest”, hydro-electricity.

Pakistan also realises this and is pursuing two such projects, Dasu and Diamer Bhasha dams. Dasu will be built on run of the river while Diamer Bhasha will come along with water reservoir to fulfil irrigation needs of the country.

“Both, rather many dams on the Indus River, should be built and there is no question of either/or,” says an expert associated with a major donor agency. “The issue is as to what is the best course for building these dams: which one of the projects is easier to start with.”

The donors point out that Diamer Bhasha, with installed capacity of 4,500 MW and reservoir of about 7.9 Bcm will cost $12-15 billion and will be completed in 12-14 years.

They say that it’s almost impossible for Pakistan to raise such a huge capital at this point in time when Wapda is running a negative cash flow.

Even if the loan is arranged through private markets, there will be no loan payment grace period after the 10th year. It means that debt servicing of loans of $12-15 billion will start even before the power generation begins.

“This would worsen the economy as debt servicing would be very high. Bhasha would not be producing any electricity yet and the country can develop circular debt problem again,” warns an expert associated with a donor agency.Explaining their preferences for Dasu, the donors say: Dasu is already appraised and if Pakistan sends out the approval letter, the International Development Association, a World Bank funding agency, would give credit of $700 million for resettlement, and other preparatory works needed.

The grace period of this credit would be 10 years. Debt servicing would start 5 years after generation from Dasu. On Dasu, first unit would be produced in 5 years. The project will proceed as follows:

Phase I in 5 years, 1,080 MW and over 8,000 Gwhs of energy Phase-II in 6-7 years with another 1,080 MW and total of 12,000 Gwhs energy

Phase III and IV will add another 1,080 MW each and final energy generation would be over 18,000 Gwhs. The total cost at completion would be $6 billion.

The cost of Dasu’s first phase is about $3.6 billion. The local cost would be more than 65 per cent at least. So when they get IDA credit and spend in rupees, they would get support to foreign exchange reserves.

The donors also say that if the World Bank is involved in the project it would have to ensure financial closure and that the project is built on time.