VZCZCXRO9940
RR RUEHLH RUEHPW
DE RUEHIL #3583/01 3181114
ZNR UUUUU ZZH
R 131114Z NOV 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 0078
INFO RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 4275
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC
RUEHKP/AMCONSUL KARACHI 0592
RUEHLH/AMCONSUL LAHORE 6324
RUEHPW/AMCONSUL PESHAWAR 5176
RUEHNE/AMEMBASSY NEW DELHI 4006
RUEHBUL/AMEMBASSY KABUL 9379
RUEHIL/ODRP ISLAMABAD PK

UNCLAS SECTION 01 OF 02 ISLAMABAD 003583 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON ETRD EAID EFIN ENGY PK
SUBJECT: APPROVAL BUT NO MONEY FOR PPP GOVERNMENT'S FIRST MEGA 
INFRASTRUCTURE PROJECT 
 
¶1. (SBU) Summary:  The Government of Pakistan (GOP) has finally 
approved the construction of the USD 12.6 billion Diamer-Basha Dam 
originally announced in 2006.  The dam will reportedly store 6.3 
million acre-feet of water and to generate 4,500 MW of electricity. 
Given the recent economic downturn, access to credit will be 
difficult and it remains to be seen if this dam will be constructed. 
The World Bank and Asian Development Bank have indicated that they 
will not fund this project since it is in disputed territory. 
Pakistan desperately needs more power and water to help stabilize 
its economy and improve power generation, but will have a hard time 
finding investors for mega-projects in a down economy.   End 
Summary. 
 
-------------------------------------- 
DAM APPROVED BUT FUNDING STILL LACKING 
-------------------------------------- 
 
¶2. (SBU) On November 11, the Executive Committee of National 
Economic Council (ECNEC) finally approved the construction of 
Diamer-Basha Dam, the world's highest roller-compacted concrete dam 
at a cost of USD 12.6 billion.  The idea for this dam was originally 
announced in January 2006 by former President Musharraf. 
 
¶3. (SBU) At a press briefing, Federal Minister for Water and Power 
Pervez Ashraf reportedly said that the government would open bids 
for pre-qualification by November 30.  He noted that the World Bank 
and Asian Development Bank would not finance this project as it 
would be located in what they consider disputed territory.  The 
media further reported that Ashraf said the project would benefit 
the country by providing electricity worth USD 1.5 billion per year, 
recouping the cost of the project its seventh year of operation. 
Ashraf reportedly also said that both the North West Frontier 
Province (NWFP) and the Northern Areas have agreed on the royalty 
formula and would get royalties per their land rights. 
 
¶4. (SBU) Water and Power Distribution Authority (WAPDA) Chairman 
Shakeel Durani told reporters he does not see any problem in 
obtaining financing for the project, as any firm capable of bidding 
on the USD 5 billion contract for construction work will also have 
access to credit financing agencies.  He added that WAPDA has 
received very encouraging responses from Chinese and Middle Eastern 
firms.  However, Ministry of Water and Power Joint Secretary Arshad 
Mahmood (Power) and Joint Secretary Arif Hussain (Water) told 
EconOff on November 12 that raising USD 5 billion through supplier's 
credit would be very challenging, and the GOP may consider a public 
private partnership for this project. 
 
---------------- 
PROJECT DETAILS 
---------------- 
 
¶5. (SBU) The project site is located on the Indus River, 
approximately 315 km upstream of the Tarbela Dam, 165 km downstream 
of the Northern Area capital Gilgit and 40 km downstream of Chilas. 
The proposed dam would have a maximum height of 270 meters, create a 
reservoir of about 6.3 million acre-feet, originally planned for 7.3 
million acre-feet, and generate 4,500 megawatts of electricity.  The 
dam reservoir will store 15 percent of the annual river flow and 
will cover an area of 110 square kilometers.  The GOP expects the 
project to be completed within seven years. 
 
¶6. (SBU) In April 2008, the GOP discovered Buddhist artifacts at the 
site of the Diamer-Basha Dam.  The GOP has now decided to move 
30,000 of the artifacts to a newly built museum near the dam site. 
Water and Power Development Authority (WAPDA) Chairman Shakeel 
Druani told reporters that acquisition of the land and the 
resettlement of residents near the proposed Diamer-Basha dam would 
cost USD 745 million, while the relocation of the relics to a museum 
would cost USD 1 million.  A total of 28,000 people will be 
displaced by the dam; however, the GOP will reportedly compensate 
them through a comprehensive resettlement plan. 
 
¶7. (SBU) Tarbela, Mangla and Chashma reservoirs have already lost 
approximately 5 million acre-feet due to sedimentation.  It is 
estimated that by 2012, this loss will increase to 6 million 
acre-feet, almost equal to the original combined capacity of Mangla 
 
ISLAMABAD 00003583  002 OF 002 
 
 
and Chashma reservoirs.  The GOP has not constructed any sizeable 
multi-purpose water storage facilities since the commissioning of 
the Tarbela Dam in 1976. 
 
¶8. (SBU) Comment:  The proposed dam would greatly benefit Pakistan 
both in terms of power generation and water storage.  However, it 
remains to be seen if the dam can be constructed largely through 
supplier's credit and domestic resources at a time when the domestic 
economy is slowing down and the global economy is facing a severe 
financial crisis.  If the GOP plans to build the dam through a 
public private partnership it will have to change present laws that 
prevent private hydroelectric projects on the Indus River and find a 
private company that is willing to invest USD 5 billion in equity. 
End Comment. 
 
PATTERSON