The much needed and long awaited work on Dassu Hydropower Project (DHP) has started with the Chinese Gezhouba Group Co Limited (CGGC) selected as the contractor for the main works.  Recall that the Dassu Hydropower Project is now being built in in two stages with stage one being run-of-river and having a capacity of 2160 MW situated on the main River Indus. The project consists of 6 generating units of 360MW each coupled with a 765kV double circuit transmission line spanning 350 km.

Even though CPEC will be instrumental in contributing to a sizeable chunk of Pakistan’s energy and infrastructure, the country still needs to fund some mega-projects such as Dassu and Diamer-Bhasha from additional sources.  Whereas the latter has faced significant hurdles when it comes to financing, Dassu has been given the go-ahead by the World Bank which has already committed $588.40 million and a Partial Credit Guarantee (PCG) of $460 million.

The IDA credit funds will be mainly used for project supervision, implementation of social and environmental management plans, and preparatory works such as relocation of Karakoram Highway (KKH), access roads, offices and colonies according to the World Bank’s implementation status report.

The Water and Power Development Authority has also managed to secure $1.4 billion for local cost component of DHP in debt financing by a consortium of some top local banks with the syndicate led by Habib Bank Limited (HBL).

The total PC-I cost of the project is approximately $4.6 billion out of which WAPDA will contribute almost $600 million. The financing of major works which include the power house and diversion tunnels along with the mechanical and electrical equipment will be raised commercially on WAPDA’s balance sheet with the World Bank and sovereign guarantee providing credit enhancement.

The structuring discussion for $800-1000 million in a combination of loan and bonds which will be supported by the credit guarantee is also under way. In addition, the Public Sector Development Program (PSDP) allocation for the FY16-17 was Rs42 billion.

It is encouraging to see the government arrange financing for a mega-hydel project which has a long gestation period and is viewed as a high risk project. The private sector is rightfully wary of investing in such projects because of unpleasant experiences in the past. But the new policy for mega hydropower projects seems to be a right step in gaining investor confidence back and financing coming in for Dassu  is reflective of that positive sentiment.