The dam is a run-of-the-river project on the Indus River, and have an installed capacity of up to 5,400MW
ISLAMABAD: The World Bank has approved $1 billion additional financing for Pakistan’s Dasu hydropower project, which is a support measure for the country’s energy development. However, it also identified Pakistan’s $18 billion energy sector circular debt as a critical barrier to future investment and sustainable growth in the sector.
Strategic Loan to Boost Pakistan’s Energy Sector
This, it declared Monday, is its third major investment in the Dasu hydropower project. Fresh funding will help push progress without interruptions on this long-gestating project begun more than a decade ago – at least, with considerable periods of delays and challenges created by security issues including the terrorism attacks targeting the Chinese personnel working on it.
The latest round of financing brings World Bank contribution up to 45% of the cost of the project. The total package worth $1 billion contains:
435 million in short-maturity loans
365 million in the International Development Association (IDA) Scale-Up Window, and
200 million from the International Bank for Reconstruction and Development (IBRD).
The China Gezhouba Group Company (CGGC), the Dasu project contractor, is guaranteed funding from both the World Bank and a consortium of commercial banks.
Dasu Hydropower: Game Changer for Pakistan
The World Bank made sure to reiterate that additional funding would not only increase the supply of hydropower electricity in Pakistan but also improve socio-economic services in local communities as well as the capacity of WAPDA to manage future hydropower projects.
Najy Benhassine, the Country Director for Pakistan at the World Bank, described the Dasu hydropower site as one of the world’s premier hydropower locations, one that could transform Pakistan’s energy landscape.
The project on the Indus River will be executed in phases. When completed, it will have a capacity of 4,320 to 5,400 MW; the first phase alone is going to contribute 2,160 MW to the national grid.
Challenges in Pakistan’s Energy Sector
These are significant challenges despite these improvements. The circular debt in electricity and gas sectors now rose to $18 billion as of January 2024. The debt started increasing in 2018 and partly this increase was on account of taking big imported coal and gas-based power plants with take-or-pay contracts. It pushed up capacity payments by 50% and, for instance, in 2022 exposed the country to volatile international fuel prices.
The World Bank has pointed out some of the effects of circular debt continuing to exist for a long time, such as:
Inability to invest in the energy sector,
Reduced capacity to operate due to fuel shortage, and
Inability to attract investors for future energy requirements.
Socio-Economic Advantages to Local Population
Besides power generation, the Dasu project has brought significant socio-economic changes to Upper Kohistan. Since its initiation in 2012, the project has:
Raised adult literacy by 30%,
Increased boys’ enrollment by 16%, and
There is an impressive increase in 70% in girls’ education.
The supplemental financing will sustain these interventions, among other education, health, employment, and transport infrastructures development programs, for the benefit of the local communities.
Future Directions and Ongoing Reforms
The World Bank has pushed the closing date for the project to December 31, 2028 to have enough time to complete the first phase and use $250 million in guarantee to source commercial financing. However, the lender emphasized the need to adopt broader fiscal and economic reforms.
With a new program of the International Monetary Fund now under negotiation, Pakistan is all set to bring structural reforms, fresh inflows, and economic stability. But much remains to be done. An estimated 40.1% of the current fiscal year population suffers from poverty, while an additional seven million Pakistanis live below the poverty line.
A Milestone for Hydropower in Pakistan
Initially scheduled to be completed in December 2021, the Dasu hydropower project has suffered several setbacks. However, it is one of the key projects of Pakistan’s strategy to improve energy security. The PML-N government had prioritized the project in 2013, which was supposed to feed electricity into the national grid in its first phase by 2018.
While the delays have been quite substantial, renewed commitment from the World Bank reflects a very strong vote of confidence in the potential of the project to drive economic growth, reduce reliance on fossil fuels, and create a sustainable energy future for Pakistan.
