Pakistan has recently re-entered into several hydropower project agreements with Chinese companies.
Differences between Pakistan and China have erupted earlier in the Bhasha Diamer Dam (DBD) and Kohala. Now they have been renegotiated. Because of the lack of transparency in the agreement, it is not entirely known what prompted the Pakistani leadership to re-enter into an agreement with the same Chinese company; although it has been maintained that the new agreement is subject to different terms and conditions.
On May 13, 2020, Pakistan signed an agreement worth 442 billion Pakistani Rupees (US $ 2.64 billion) with Chinese government-owned company China Power to build a DBD as high as 272 meters. Total DHF financial expenditure is PKR 1,406.5 billion (USD 8.3 billion). The project is located on the Indus river in Gilgit-Baltistan (GB) – which according to India is an illegal occupied territory – and Khyber Pakhtunkhwa. It will likely be completed in 2028.
Previously, it was part of the China Pakistan Economic Corridor project (CPEC) but conditions were difficult, especially regarding transfer of ownership, is not acceptable and is not “Can be done” for Pakistan. After that, the Pakistani government tried to raise money for DHF along with the Mohmand dam through crowdfunding. However, Pakistan later re-entered into an agreement with Chinese companies.
Under the new terms of the agreement, China Power will hold a 70% stake while the remaining 30% will be in the Frontier Works Organization – a commercial arm of the Armed Forces Pakistani troops. DHF construction is expected to create around 16,500 jobs. After operation, it will irrigate about 1.23 million hectares farmland and produce 18.1 billion electricity units every year.
The second project developed by China in Pakistan is in Kohala. It was registered under Pakistan’s Pakistan Economic Corridor since August 2014. The Kohala project is on the Jhelum river on the side of Pakistan-run Kashmir which according to India has been an illegal occupation since 1947-48. The 1,124-Megawatt project will be developed by Kohala Hydropower Company Private Limited. Disputes about the project occurred in 2019 between Pakistan and China, which they tried to resolve but Chinese companies refused to accept the dispute resolution plan approved by the Pakistani government.
One of Pakistan’s main problems with the Chinese developer of the Kohala project is the flow of water and release water to the environment. This was completed after the Economic Coordinating Committee approved an additional release in Jhelum under the Kohala dam. Other problems related to foreign exchange. For this reason, work constraints are created from the Kohala project.
On June 25, 2020, a “tripartite” agreement to implement the Kohala project was signed between the China Three Gorges Corporation, the government of Kashmir (PoK) which was occupied by Pakistan and the Private Workers and Infrastructure Board. This project is likely to cost 2.4 billion US dollars. International Finance Corporation and Silk Road Fund is also a sponsor of this project.
The third hydropower project was agreed between Pakistan and China in July 2020 and is in Azad Pattan. It is located on the Jhelum River near the village of Muslimabad in the Sudhnoti district, in Kashmir (PoK) which is occupied by Pakistan. This will be done by Power Universal Company Limited which is owned and controlled by the China Gezhouba group.
Gezhouba has entered into a special-purpose joint venture with Pakistan’s renewable energy developer, Laraib group. Their joint venture is referred to as Azad Pattan Power Private Ltd. Corporation, which will develop projects on the ‘build, own, operate, transfer’ (BOOT) model and transfer them to the Pakistani government after 30 years. It is expected to be completed in 2026. Its capacity is around 700.7 MW and the total investment is around USD 1.5 billion.
For the Pakistani government, both the Kohala and Azad Pattan projects are likely to generate around USD 4 billion in investment, generate around 1800 MW of hydro power and create 8,000 jobs.
However, projects such as DHF faced opposition from people in Sindh and Gilgit Baltistan. A number of people in Sindh have questioned you “worthiness, tenacity and dam profitability“In Gilgit Baltistan, it is believed that most of the infrastructure benefits have been reaped by Bhasha at Khyber Pakhtunkhwa, while water is flowing through Diamer. India also objected to DHF stating that it would be built in illegally occupied territories where Pakistan did not have rights for any construction.
One of the main reasons Pakistan made the agreement was to use available water efficiently, because the country is experiencing water shortages and its annual water supply is now less than 1000 cubic. meters per person. Through the dam, he tried to manage his water resources, especially for agricultural purposes which are the basis of the country’s economy.
Second, Pakistan faces a shortage of electricity. In 2019, Pakistan’s transmission and distribution capacity will stop at around 22,000 MW while the maximum demand from residential and industrial areas is around 25,000 MW. This implies a deficit of 3000 MW. Hydro power plants will increase the total electricity produced and will help reduce the demand and supply deficit.
When formalizing the construction of DHF, Pakistani Prime Minister Imran Khan vowed to build more dams which, he said, would reduce pressure on foreign exchange and allow Pakistan to produce fuel yourself. Khan also said that hydroelectric power has a double benefit because the country “does not need to import fuel and it will not affect our climate is negative” Third, as a debt-ridden country, Pakistan needs investment and assistance to stimulate its economy and create jobs. Previous allies, the US was unlikely to help him and assistance from West Asian countries had other limitations. Because of this, Pakistan has switched to China’s orbit and is now very dependent on it.
However, in the long run, such investment in the hydro sector will increase Pakistan’s debt. According to Pakistan’s 2019-2020 Economic Survey, Pakistan’s total public debt increased by 7.6% this fiscal year. The total public debt recorded at the end of March 2020 is 35, 207 billion (USD 21.03 billion) Pakistani Rupees. Different from public debt is the money Pakistan must pay with loans in the form of investment.
In 2017, China agreed to invest USD 50 billion in five Indus Cascade projects: Diamer-Bhasha; Thakot; Patan; Bunji; and Dasu. According to Hasan Abbas, the time needed for the five projects is likely to increase costs to around $ 98 billion which must be borrowed by Pakistan pay interest rates. Hasan, added that flowers tend to accumulate at almost levels USD 5 billion per year. This means, as Hasan predicted, that Pakistani taxpayers will pay around USD 200 billion after 20 years. DBD was issued among five projects, but the two countries have renegotiated the agreement. In addition, increasing hydro debt will give China an edge in Pakistan’s affairs.
Amit Ranjan is a Research Fellow at the Institute of South Asian Studies, National University of Singapore. Display is private.