The World Bank has made a significant commitment to Pakistan’s energy future by approving an additional $1 billion loan for the Dasu Hydropower Project. This funding comes at a critical time, as the country grapples with an alarming $18 billion circular debt in its energy sector, which poses serious barriers to future investments.
The World Bank’s board of executive directors announced the approval of this second round of financing for the Dasu Hydropower Project, according to a statement from the lender’s local office. This additional capital is vital for maintaining uninterrupted progress on the project, which has been in development for nearly a decade. With this fresh injection of funds, the World Bank’s financial stake in the project now stands at 45% of its total cost.
This approval marks the third major financing round for the Dasu Hydropower Project, which has faced numerous challenges, including delays and at least two terrorist attacks targeting Chinese workers involved in its construction. The latest $1 billion financing package comprises various components: a $435 million short-maturity loan, a $365 million regular IDA Scale-Up Window loan, and a $200 million IBRD loan.
The Dasu Hydropower Project, being constructed by the China Gezhouba Group Company (CGGC), is a crucial part of Pakistan’s energy strategy. The World Bank emphasized that the new financing will not only enhance hydropower electricity supply but also improve socio-economic services for local communities and strengthen the Water and Power Development Authority’s (WAPDA) capacity to prepare future hydropower initiatives.
Najy Benhassine, the World Bank Country Director for Pakistan, stated that the Dasu Hydropower Project site is one of the world’s premier hydropower locations and could significantly transform the energy landscape in Pakistan. The dam, which is a run-of-the-river project on the Indus River, is expected to have an installed capacity ranging from 4,320 to 5,400 MW upon completion. The project is being developed in phases, with the first stage set to deliver 2,160 MW.
Additionally, the World Bank has extended the project’s closing date to December 31, 2028, allowing for the completion of ongoing activities and the potential use of the remaining $250 million guarantee to secure more commercial financing. In the current macroeconomic environment, WAPDA faces challenges in mobilizing foreign investment, making this additional financing crucial for the Dasu Hydropower Project’s successful completion.
The World Bank also highlighted that a new IMF program is under negotiation to bolster economic management and implement structural reforms. It noted that the lower-middle-income poverty rate in Pakistan is projected to hit 40.1% this fiscal year, with an additional 7 million people expected to fall below the poverty line.
Moreover, the circular debt in the electricity sector has surged, reaching $9.5 billion by January 2024, compounded by $8.6 billion in the gas sector. This accumulating debt has stifled investment in the energy sector, hampered operational capacity, and deterred potential investors. The World Bank’s report attributes the rising circular debt to the costly take-or-pay contracts associated with large imported coal and gas power plants initiated since 2018.
The additional financing will further support socio-economic initiatives in Upper Kohistan, particularly in education, health, employment, and transportation. Since 2012, adult literacy has risen by approximately 30%, with boys’ schooling increasing by 16% and girls’ schooling seeing a remarkable 70% growth.
Originally, Pakistan aimed to complete the Dasu Hydropower Project by December 2021, intending to add 2,160 MW of electricity to the national grid in its initial phase. The project was prioritized by the Pakistan Muslim League-Nawaz (PML-N) government in 2013, which favored it over the Diamer-Bhasha dam.
